July 21, 2015

The Feeling It Was Never Going To Stop

A report from The Southern Times. “Uncertainty continues to cloud the peace and stability that Namibia enjoys as the 31 July 2015 deadline draws near when the landless youths under the leadership of the Affirmative Repositioning (AR) movement are threatening to forcefully occupy land if government does not satisfactorily address their plight. Namibia’s leading social commentator Herbert Jauch said that the housing crisis is not something new and was allowed to develop over the last 20 years. According to Jauch, housing became a speculative target, a playground for the rich who bought housing not for their own needs but to make money, where speculative investment became the order of the day. ‘Now there are people owning 10 to 20 houses in Windhoek alone,’ he said.”

“Jauch said he remembers calculations done by the First National Bank which declared that housing was unaffordable to over 90 percent of the Namibian population. Jauch is of the opinion that at times developers build houses that cost N$200 000 to N$300 000 and sell them for N$3 million, which is absurd profitability with no regulation whatsoever. ‘The bubble needs to burst. Housing must reduce in cost relative to average income. Property developers benefitted from it because they only targeted the top echelons,’ he articulated.”

From Business Day on Dubai. “Once again, the hitherto sizzling Dubai property market has slumped. For close watchers of the global housing development, this development has significant impact on the world economy as Dubai has, in the last decade, had individual and institutional investors from different regions of the world come to invest in its expansive real estate market. ‘Demand is now plunging. During the year to April 2015, property transactions, both in number and value, plunged by 51.8 percent and 37.1 percent, respectively,’ the report notes, quoting real estate consultant, Jones Lang LaSalle, and the ratings agency, Standard & Poor’s, as expecting that average house prices in the emirate could fall by between 10 percent and 20 percent this year.”

Money Life on India. “With banks pulling back lending to developers and fear of Black Money Bill looming large among speculators the real estate market across India is witnessing sharp drop in transactions and new launch volumes, says a research report. ‘We are seeing a broad-based real estate pullback, with prices correcting in most tier -1 and tier-2 cities alongside sharp drops in transaction and new launch volumes. The result is not just a drop in demand for building materials and challenges for lenders with big mortgage, LAP and housing finance books, but also a generalised slowdown in GDP growth, as the sector which drives 50% of India’s capex and 30% of its jobs conks off,’ Ambit Capital, in a note says.”

“Real estate inventory has also started piling up in major cities across India. Data from property research houses suggest that regions like Mumbai and Delhi would take as much as 11-14 quarters to clear the existing inventory. ‘In Delhi, our meetings with businessmen who live in south Delhi suggest that prices in this prime part of Delhi are down 20-25% over the past year and transaction volumes have fallen sharply. In the smaller cities, the situation seems to be worse, with our contacts in Jaipur, Rajkot and Lucknow also pointing to a 15-20% YoY correction and sellers saying that it is hard to receive bids for properties that they have put up for sale,’ the report said.”

Radio New Zealand. “Farm mortgagee sales are climbing, and some in the sector are calling for mandatory debt negotiation, which would force banks to talk with farmers before they become insolvent. Rural debt negotiator Janette Walker said about 40 percent of dairy farmers would not making any money this year. A professor of Agri Business at Massey University, Hamish Gow, said the dairy bubble had burst and times were likely to get tougher. ‘That’s the million dollar question, how low will dairy prices go? I think they will stay low, some people think they will go higher. Will they go back up to $8? Absolutely not.’”

The Australian Financial Review. “West Australian mining equipment traders are selling machinery at less than half boom time prices, while lunch bars once frequented by engineers and other resources company staff are nearly empty. Steven Sakich, sales manager of Smith Broughton Industrial Auctioneers, said demand for earthmoving, mining and construction equipment had been hit hard. Prices are at least 50 per cent below levels in 2011 and 2012, he said.”

“Mining investment in Western Australia has decreased in line with the falling iron ore price. The iron ore spot price has dropped to below $US50 a tonne from $US187 in February 2011.”

“Highways Traffic Management owner Jim Capelli said he was fortunate not to invest too much during the mining boom. ‘During the course of doing business in the Pilbara I actually thought of moving north to open a sub-branch because you got the feeling it was never going to stop, but all of a sudden without really knowing, everything did stop,’ Mr Capelli said.”

From Mineweb. “There’s fear and panic in the market and the commodity super-cycle is over, according to Bloomberg Intelligence’s Global Head of Metal and Mining, Ken Hoffman. Hoffman: ‘What China did that I think changed is in 2008 the financial crisis hit and the Chinese government at the time…went to their localities and said spend, spend, spend. So China started this unprecedented building out of infrastructure. Obviously that was a huge boon to iron ore and all base metals, and they probably spent close to $2 trillion on infrastructure. The issue now is the new government comes in and sees that China uses an entire North American metal supply every 11 days. But they’ve really gone far, far out of control. By some measures they are building apartments for 3.2 billion people. They only have 1.2 billion.’”

“‘So they’ve massively overbuilt, they have ridiculous amounts of debt, trillions of dollars of debt – and they need to slow down. And until the mining industry realises just what the long-term plan of China is, they are really going to be in a bad state.”

“It’s been amazing how slow the industry has been to react and I guess it’s sort of the end of the super-cycle. Everyone just continues to wait for the cavalry to come running down, and that cavalry was China. And the cavalry just doesn’t seem to come. So they are sitting there waiting and waiting and finally the pain is becoming so great that they are starting to capitulate, but at a very slow rate.”

“And I think it’s because China is not very transparent on their policies and it’s very difficult to understand what they are doing. That’s why I go there as much as possible to really talk to people on the ground. You can see a lot of fear and panic in their faces, particularly earlier this year. When we came back and just said look, there are really, really bad things happening over there. You could see construction pretty much grind to a halt all over the country and we said this third plenum is for real. They are really cutting back. They are not going to come to the rescue – and they haven’t. They seem like they are coming to the rescue of their stock market, but they are definitely not coming to the rescue of the real-estate market, and that’s really causing a lot of pain for the metals industry and continues to cause that.”

“Why do we focus on China? Since 2000 China has represented between 90% and 140% of all the growth in the world – and so where it’s above 100% that means the rest of the world since 2000 has shrunk in its demand.”

Bits Bucket for July 21, 2015

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