October 30, 2015

The Market Also Depends On Ability To Pay

It’s Friday desk clearing time for this blogger. “There were 4,603 new housing permits issued in Connecticut last year, the highest level since 2008. Donald Klepper-Smith, chief economist for DataCore Partners in New Haven said one of the factors holding back the new housing market in the state from posting more robust gains is a surplus of existing homes for sale. ‘There still is a lot of inventory to be worked off,’ he said. More than half of the housing permit activity last month came from development of five units or more, according to the DECD data. ‘People are looking for more flexible housing options in this economy, like apartments,’ Klepper-Smith said.”

“The U.S. home rental market cooled in September. The slowdown hit major hubs of the energy industry such as Dallas, Houston and Tulsa, while moderating the boom coming in tech centers such as San Francisco, San Jose and Denver. Real estate data firm Zillow said Tuesday that median rents rose a seasonally adjusted 3.7 percent from a year ago, down from the annual pace of 4.1 percent in August. The slowdown likely reflects the 14.8 percent surge in apartment construction during the first nine months of 2015, as increasing supplies have tempered price appreciation.”

“Research by the CoStar Group, a real estate marketer, found that 158,000 apartment units are being built this year, the highest level in more than three decades.”

“Sonoma County’s future could involve fewer surges in new home construction. California Association of Realtors chief economist Leslie Appleton-Young called it a seller’s market in housing today. But she noted that prices flattened this summer, homes are staying on the market longer and, looking ahead, ‘there’s going to be a little more power on the buyers’ side.’ Real estate experts historically have said Californians typically own a home for seven years before selling. But the association’s annual survey this year found agents reporting that sellers had owned the average home for 10 years. ‘That’s the highest we’ve recorded in 35 years,’ Appleton-Young said.”

“Nothing says retired and in debt as much as when 60-year-old Jerry Newbery and Lesley Bates, 51, moved in with her 87-year-old father for three months to save cash until they can downscale into a new townhouse. After working all their lives – Mr. Newbery has already retired once – they are in the midst of a severe financial overhaul to cut their debt load of $240,000. Mr. Newbery and Ms. Bates have had to sell their $300,000 home in Courtney, B.C., on Vancouver Island for cheaper digs and solvency.”

“Part of the problem was that they came out of previous marriages with half of the assets they should have had at this point in life. Mr. Newbery walked away with only $30,000 when the sale of his previous family home netted slightly less than $300,000, as a series of expensive vehicles were paid for from the home equity. Postdivorce, he bought a condo but it was later sold at a $54,000 loss. His $20,000 in RRSPs have diminished to $5,000 as funds were withdrawn to service his $18,000 line of credit and used to purchase his new home.”

“Stories like this are now woven through our retirement dreams and our bank accounts. A recent HSBC survey said 41 per cent of working Canadians believe they can’t adequately prepare for retirement because of debt. ‘I’d like to be debt free,’ said Mr. Newbery. ‘I don’t know if that’s a reality.’”

“Swiss apartment prices will decline for the first time in 15 years in 2016 as purchases by investors fail to offset a broader weakening of demand and rising supply, according to Wueest & Partner AG. The average house price in the Lake Geneva region was 1.4 million francs ($1.41 million) in the second quarter, while in Zurich it was 1.18 million francs, Wueest data show. ‘Demand is coming from people investing, but it’s not compensating for a widening gap with supply,’ Wueest partner Herve Froidevaux said in an interview. ‘Price corrections in the Lake Geneva region are linked to people having less money to spend.’”

“Ray White City Apartments sold six out of eight under the hammer at this week’s apartment auction, with two units passed in. The properties that sold ranged from a two bedroom apartment in the Metropolis tower that sold for $680,000 to a leasehold apartment in the Hudson Brown building near Vector Arena, which sold for $225,000. That would have been an ‘ouch’ moment for the vendor of the Hudson Brown apartment, who according to QV.co.nz had paid $469,000 for the property in 2005 before the bottom dropped out of the leasehold market.”

“To boost sluggish sales, realty firm Raheja Developers today said it has launched a housing project in Sohna, Gurgaon, at a price of Rs 2,500 per sq ft, about 30-35 per cent lower than the existing rate in the location. ‘Actual market depends on demand-supply and also customers’ ability to pay. Lately, the prices have gone up so much that it has affected the customers’ affordability. So, we have decided to bring down the prices to move the market,’ Raheja Developers Chairman Navin Raheja told PTI. He said the prices would be around Rs 2,900 per sq ft under the construction-linked payment plan. ‘At present, the prices in this location is about Rs 4,000 per sq ft,’ Raheja said.”

“While many people flock to make a fortune from the local property market, Oknha Yum Sui Sang, chairman of Union Commercial Bank PLC (UCB), chooses not to invest in this sector until Cambodia’s mortgage law system is better developed. ‘Whether the property market is blooming or not depends on how you see it,’ said Yum, a Hong Kong native. ‘Both investors and buyers in the local property market are mainly from overseas. Local people have a weak consuming power in terms of buying property, and many of them can only afford apartments priced at the range of several tens of thousands.’”

“However, the good news is that no matter how unpredictable the overseas business environment is, Chinese investors are still eager to ‘go out’. ‘China’s economy is very bad now. There is a Chinese saying that it is doomed if staying in China, but it could delay the doom if going out,’ said Yum.”

“Even the Chinese government encourages enterprises to ‘go out’ with the ‘one belt, one road’ initiative. In reality, as many Chinese investors told Yum, it is not that easy for them to liquefy their assets in China for overseas investment. ‘The problem of China’s economy is that the government only helps state-owned enterprises,’ said Yum. ‘Other small enterprises cannot get loans and are left on their own.’”

“Corporate investigator Violet Ho never put a lot of faith in the bad loan numbers reported by China’s banks. Crisscrossing provinces from Shandong to Xinjiang, she’s seen too much — from the shell game of moving assets between affiliated companies to disguise the true state of their finances to cover-ups by bankers loath to admit that loans they made won’t be recovered. ‘If I have one piece of advice for people worrying about the financial status of Chinese companies, it’s this: it’s right to be worried,’ said Ho, senior managing director in Hong Kong for Kroll Inc., a U.S. risk consultancy. ‘Often a credit report for a Chinese company is not worth the paper it’s written on.’”

“While corporate investigator Ho relies on her observations from hitting the road, Charlene Chu and her colleagues at Autonomous Research in Hong Kong take a top-down approach. They estimate how much money is being wasted after the nation began getting smaller and smaller economic returns on its credit from 2008. Their assessment is informed by data from economies such as Japan that have gone though similar debt explosions. While traditional bank loans are not Chu’s prime focus — she looks at the wider picture, including shadow banking — she says her work suggests that nonperforming loans may be at 20 percent to 21 percent, or even higher.”

“The amount of bad debt piling up in China is at the center of a debate about whether the country will continue as a locomotive of global growth or sink into decades of stagnation like Japan after its credit bubble burst. ‘A financial crisis is by no means preordained, but if losses don’t manifest in financial sector losses, they will do so via slowing growth and deflation, as they did in Japan,’ said Chu. ‘China is confronting a massive debt problem, the scale of which the world has never seen.’”

Bits Bucket for October 30, 2015

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