November 10, 2015

If The Money Leaves You Have Chaos

The National Mirror reports from Nigeria. “It is no longer news that the FCT stands head and shoulders above other Nigerian cities in massive building construction. Investing in real estate business and massive building construction has held a certain fancy for most investors in the city. That fancy however, is suddenly being translated into a nightmare due to the cash crunch. Emmanuel Onoja, a building materials dealer in Wuse, noted that there had been a significant reduction in construction activity in the FCT for several months. He maintained that all the parties involved in house construction projects were currently battling with uncertainties surrounding their businesses, adding that ‘many of them are still owing commercial banks and that such banks are breathing down their necks to have them repay the loans they had procured.’”

CNBC TV 18 in India. “In two years, local Chennai builder VGN Developers claims its 10-acre land bank in Chennai will boast of some of the most inexpensive apartments within city limits. A week ago, it rattled the local real estate market by announcing 1,300 apartments at just Rs 7,000 per square foot, when the prevailing rate in the area is closer to Rs 9,500 a square foot. But, VGN says this discount is not just about the festival season. ‘As an organization, we needed cash-flows. So, we decided let us bring the prices down, increase the affordability and get cash flows into the company,’ the company’s MD Pratish Devadoss told CNBC-TV18.”

“Most of these developers have begun slashing launch prices with a view to enhance cash flows in a difficult property market. That’s why a discount anywhere between 25 and 33 percent on the prevailing market rate is the new normal. ‘At least 8-10 percent will correct. Because if they don’t, they’re just going to be unsold inventory you have just too much unsold inventory at the end of the day,’ said Sarita Hunt Managing Director - Chennai, Jones Lang La Salle India.”

From News In English on Norway. “Norway’s national real estate brokers’ association, Eiendom Norge, reported on Wednesday that the prices of homes sold in October were an average 1.2 percent lower than they were the month before. ‘It’s one of the weakest Octobers we’ve had in 10 years,’ the association’s director told state broadcaster NRK. Stavanger and Kristiansand have been hit especially hard by the slowdown in the oil industry caused by lower oil prices.”

“‘Stavanger has had a considerable inventory of homes on offer this year,’ said Christian Vammervold Dreyer. ‘The listings are very, very long.’ He also noted that the slowdown in Stavanger’s real estate market has clearly extended throughout Rogaland County and into other areas of Vestlandet and Sørlandet (western and southern Norway).”

The Vancouver Courier in Canada. “Andy Yan’s study of 172 multi-million dollar homes in Vancouver’s Dunbar neighbourhood touched a nerve earlier this week. For the study, Yan specifically isolated ‘non-anglicized Chinese’ names listed on land titles. Among his findings were that 66% of the buyers of the 172 homes in the study had non-anglicized Chinese names, indicating they were likely recent arrivals from mainland China, according to the study. There is a public perception that mainland Chinese homebuyers are buying Vancouver houses with cash, but in the properties Yan studied this was not the case: 82 per cent of the properties in the Nov. 2 study had a mortgage, while 69 per cent of mortgaged properties held mortgages from three banks: HSBC, CIBC and RBC.”

“What Yan reads into his own work is a story not of race but of wealth, the flow of money across international borders and the role banks play in facilitating transfers. ‘This isn’t a story of China, it’s a story of money,’ he said. ‘It’s this weird sense that money is no longer connected to what you do and where you live, it’s just this constant flow.’”

The International Business Times on China. “Two decades ago, when he first set up his business in China, the European businessman with an interest in design was captivated by seemingly boundless opportunities. But, on a recent fall morning, the businessman sat in the living room of his house in a suburban residential compound, waiting anxiously for the real estate agent to arrive. He was putting his home on the market, as he prepared to shut down what remained of his company and shift his base back to Europe.”

“‘We had some great times here,’ he said. ‘But now it’s time to leave.’ The businessman, who spoke on condition he not be named because of sensitivities over de-investing from China, said life had changed: ‘When I arrived people were kind, life felt straightforward. Now it’s all about money, people are under a lot of pressure. Rents are high, schools are expensive. And the pollution … So I’m tired, I really don’t want to stay anymore. Frustration at the slowing economy, and unpredictable shifts in business regulations were factors too, he added – and not just for him. ‘The real estate company said a lot of people are selling houses.’”

“Official government data bear out the trend of capital flowing out of the country, with growing numbers of investors –foreign and Chinese –shifting assets out of China at an intensifying pace. Andy Xie, the former chief economist for Asia at Morgan Stanley, warned of parallels with the Asian financial crisis of the late 1990s, when speculative bubbles in real estate and stock markets in Southeast Asia, Hong Kong and South Korea eventually led to a crisis of confidence – causing dramatic falls in the value of currencies.”

“‘China’s story is the East Asian story in 1998,’ says Xie, who has long held more bearish views on the nation’s economic trajectory. ‘They’d over-invested, there was huge overcapacity due to speculation, and there were no real profitable opportunities – but the money supply kept growing. Then one day the speculation stopped, and there was too much money in the economy – but the government didn’t want to raise interest rates. And then people wanted to leave all at once and then the currency collapsed – and if the money leaves you have chaos.’” on Australia. “Chinese buyers have flooded billions into the Australian property market, but a new report suggests that demand could finally be falling. Analysts from investment bank Credit Suisse said in a report this week ‘anecdotal evidence’ suggested demand could slow by as much as 30 per cent in the year to December. The report blamed the slowdown on struggling Chinese consumer sentiment and poor conditions for Chinese middle-to-upper class. Credit Suisse analysts Damien Boey and Hasan Tevfik said based on limited data, the “weight of evidence suggests that at the very least, there has been some cooling of Chinese interest in recent times, off an historically high level.’”

“‘Even we have been surprised by the recent increase in Chinese demand for Australian housing,’ they wrote. ‘After such a strong pull-forward of demand, we could now be seeing some consolidation. In our view, it is the cyclical weakness in Chinese income and wealth that is driving cyclical weakness in Chinese property buying abroad.’”

The Australian Financial Review. “Sydney’s falling auction market hit a three-year low at the weekend as buyers reacted to higher interest rates and record listing numbers. The city’s auction clearance rate dropped below 60 per cent for the first time. Domain Group’s preliminary results put the clearance rate 59.2 per cent across 1011 auctions. Sydney could fall even further by Christmas, Domain Group senior economist Dr Andrew Wilson warned.”

“‘It’s not just that the market is tracking at its lowest levels in three years in Sydney but that we are also yet to find a floor,’ Dr Wilson said. ‘This has been a very sharp decline, we are not seeing an orderly correction phase. But we still have around 6000 auctions to come in Sydney before the end of the year.’”

Bits Bucket for November 10, 2015

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