December 2, 2015

Prices Have Already Soared Enough

The Medicine Hat News reports from Canada. “A federal housing report predicts minimal growth in Medicine Hat’s new-home construction sector, but a large developer disagrees with the assessment for 2016 as being too rosy. ‘I think 2016 will be one of the most difficult years ever in Alberta,’ said Don Sandford, vice president of Lansdowne Equity Ventures, developer of the Hamptons community in the city’s south. Sandford called the prediction much too optimistic considering lot sales to this point in 2015 as well as the fact there are about 55 recently-built homes being marketing in the area right now. ‘Typically there would be about 30 in a normally functioning economy,’ said Sandford. ‘There are indications that the economic conditions are getting worse.’”

“The situation is much worse in the rest of the province, with CMHC stating home construction in Calgary could fall by as much as 38 per cent this year. Drastic slowdowns were reported in Fort McMurray (67 per cent), Grande Prairie (72), and less so in Red Deer (17).”

From Tribune India. “While the winds of slowdown have been sweeping the tricity region on the whole with plummeting sales and slow progress of the ongoing projects, Panchkula seems to have been hit the most as far as real estate fortunes are concerned. Prices have dropped by almost 35-40 per cent and it has an inventory overhang of 20 months according to market watchers. There has been a correction of over 40 per cent in some pockets in the city. ‘A 10 marla built up house which was available for over Rs 2 cr three years back has no buyers even at Rs 1.7 crore,’ says Amit Gera, Proprietor of Gera Engineers. Even in the apartment segment the prices have seen a similar drop.”

The Korea JoongAng Daily. “Some investors fear an oversupply of apartments could drive the Korean real estate market into another recession in 2017. According to data by the Ministry of Land, Infrastructure and Transport, the total number of residences of all types being built stood at 604,340 as of October, up 52.3 percent from the same period last year. That total is expected to exceed 700,000 by the end of year for the first time since 1990.”

“‘This autumn alone, there is already a growing number of unsold or empty apartments in some districts in Yongin, Gyeonggi,’ a property agency official said. ‘New apartments in Sanghyeon-dong, Dongcheon-dong and Seongbok-dong, known as Suji District, have been completed, showing quite a huge popularity, but we can’t say the trend is going to continue next year. Construction companies are hastily selling their apartments in order to build new ones.’”

“A 40-year-old salaryman surnamed Park, who lives in Bundang, lately visited a bank to get mortgages several months ahead of expiration of his jeonse rented house. Park was mulling whether he would extend the current jeonse contract or buy a property on his own. He finally made a decision to purchase a 500 million won ($430,000) apartment with the help of a 140 million won mortgage with a fixed rate of nearly 3 percent for five years. ‘I heard that getting mortgages will be more difficult next year, and interest rates are expected to rise,’ Park said. ‘This would be the last chance to buy a house.’”

“‘The shortage in available jeonse houses and an imbalance of supply and demand will keep housing prices rising further for the time being,’ said Park Hab-soo, a Kookmin Bank private banking center executive. ‘But the hikes will not be as high as this year because prices have already soared enough.’”

Bloomberg on Australia. “Chris Carr, a real estate agent in Sydney’s northwestern suburbs, has had to convince sellers to drop prices on at least six homes in the past two months to complete transactions. ‘Sellers have had to accept up to 10 percent price reductions,’ said Carr, who sells homes in Sydney’s Hills district about 30 kilometers (18.6 miles) from the central business district. ‘There is a lack of international buyers, particularly those with a Chinese background now, who were behind the price rise.’”

“The drop in prices is taking some steam out of three years of price gains that have made Sydney one of the least affordable places in the world to buy a home. Housing prices in Australia’s most populous city have climbed 44 percent in the past three years, driven by mortgage rates that are close to five-decade lows and buying by foreigners including those from China.”

“Chinese buyers, who underpinned a rally in global property markets from San Francisco to Sydney since 2011, are treading more carefully after the devaluation of the yuan and an economic slowdown at home. Chinese demand for Australian property is waning, Credit Suisse Group AG said Nov. 3, estimating that their appetite for global property could drop by 30 percent. In California, international buyers are accounting for the smallest share of home sales in at least eight years as prices climb and investors from China rein in purchases, the state’s realtors group said in October.”

The Epoch Times on China. “Mr. Sun never imagined he would end up protesting outside local government offices in Wuhan, the capital city of Hubei Province, after he put his money in the largest financial management company in central China. But after the firm, Wuhan Wealth Cornerstone Investment Management (Wuhan Caifu Jishi), announced a default on Nov. 24, thousands took to the streets in protest.”

“The firm was defaulting on a ‘wealth management product’ (WMP), a high-yield financial instrument, after a project the capital was invested in ran short of funds. The product had collected about 5 billion yuan ($782 million) from over 70,000 investors, according to one of the investors speaking to China Business Journal. Mr. Sun, who describes himself as prudent, was convinced by a friend who worked at the company that the product, which offered 8.8 percent annual interest, was a risk-free investment.”

“He invested 600,000 yuan ($94,000) three months ago, he said in an interview with the Epoch Times, and has yet to receive a payment. An earlier investor put in the 250,000 yuan he had set aside for his son’s wedding, but stopped receiving payments on Nov. 20, according to China Business Journal, a state-funded publication. ‘My son is getting married soon, what should I do?’ the investor said.”

“WMPs sound too good to be true precisely because they are, according to Xiao Gang, the chairman of the Chinese regime’s securities regulatory commission. In an October 2012 op-ed published in the state-run China Daily, Xiao explained that banks and investment companies rely on ’some empty real estate property or long-term infrastructure,’ or even high-risk projects to generate cash flows for their WMP investors. If those projects face liquidity problems, banks and companies then sell more WMPs to pay their long-time investors first. Xiao Gang called the process ‘fundamentally a Ponzi scheme.’”

Bits Bucket for December 2, 2015

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