February 2, 2016

Fears About Growth Driven By Illegal Money

All Africa reports from Kenya. “The shocking admission last week by the real estate industry that the housing sector has finally been hit by a glut has raised fears about whether one of the country’s four key drivers of economic growth is driven by demand as previously thought, or through illegal money. In just seven years, according to Stanlib, prices of land have risen by 535 per cent in Nairobi, making its sale the most profitable business in the capital. This is despite the harsh business environment that has slowed down economic growth amidst losses and job cuts by companies listed at the Nairobi Securities Exchange.”

“But for the first time in 11 years, the industry this week admitted in two separate reports that there was an oversupply and a fall in demand for housing. ‘I think there is every sign that something terrible is just about to happen,’ says Mr Waweru Kariuki, a property analyst. According to him, the housing bubble usually starts with an increase in demand which attracts speculators to enter the market, believing that profits can be made further pushing demand up. ‘At some point, demand decreases or stagnates as supply increases, resulting in a sharp drop in prices and the bubble bursts,’ he says.”

“But with lack of a regulatory body in Kenya’s real estate industry, it is difficult to ascertain whether the sector’s rapid growth is fuelled by illegal money. Financial Reporting Centre says the institute has found it hard to enforce compliance to the proceeds of Crime and Anti-Money Laundering Act in the industry due to the fragmented nature. A number of high-profile personalities being investigated for graft are also heavy investors in the sector. ‘It is a challenge to monitor suspicious transactions in the real estate sector due to lack of a uniform and recognised regulatory body,’ it says.”

The Telegraph. “China is rapidly losing the confidence of global lenders and capital outflows risk turning virulent if the current policy paralysis continues, the world’s top banking body has warned. ‘There is a perception that the renminbi could weaken drastically,’ said Charles Collyns, the managing-director of the Institute of International Finance in Washington. Mr Collyns said the authorities have so far failed to articulate a coherent strategy, and there are serious worries that outflows of capital could accelerate, broadening into a flood beyond Beijing’s control. ‘The Chinese have not been rigorous and they have not been very convincing,’ he told The Telegraph.”

“‘What is worrying is that there could be a broadening of the outflows. There has been a surge in ‘errors and emissions’ and this is ominous. A lot of this is a capital outflow below board through inflated trade invoices and other forms of subterfuge, and some of it is ending up in the London property market,’ said Collyns, a former assistant US Treasury Secretary.”

The Independent in the UK. “There’s a mansion in the back streets of Belgravia that has been shuttered up for years. The lights are off, nobody’s home. ‘Haven’t seen anybody in there, ever,’ says a builder in a hard hat working on the house next door. He won’t say who for. The empty property next door is allegedly owned by a Russian who is being investigated for money laundering, but there is no way to know if that’s true.”

“Criminals are using British laws – with their high regard for privacy – to hide behind anonymous companies and buy luxury properties in the capital, laundering the dirty money they’ve made from drug deals or stole from schools and hospitals back home. ‘Today the City of London (together with Wall Street) is the world’s largest laundry for dirty money from the drug trade,’ says Roberto Saviano, author of the highly acclaimed book Gomorrah, about Naples’s equivalent of the Mafia.”

“It’s not just London. ‘Aberdeen is a Camorra stronghold in the restaurant business, wholesale food and real estate,’ he says, referring to the mafia in Naples. ‘Cosa Nostra [from Sicily] controls gambling in London; the ’Ndrangheta [from Calabria] has its hands on the real estate in London. The current housing bubble in London is fuelled by criminal money from mafia organisations: properties in the centre of London are being bought with laundered cash.’”

“And it’s certainly not only the Italians. Ninety per cent of luxury properties built in the capital in 2013 were bought by overseas investors, according to a report by Savills estate agents. Russians and eastern Europeans were the most keen, with Middle Eastern, north African and Chinese buyers close behind.”

The New Zealand Herald. “Auckland landlord Ron Hoy Fong, who has 30 properties and runs coaching business Ronovationz from Mt Roskill, said although people based in China now found it harder to buy since the October 1 changes in New Zealand, he thinks that will soon turn around, particularly about May when he expects far more investors to seek to buy. ‘I’m telling my students to just buy as much as you can, to get in before the Chinese,’ Hoy Fong said of his 450-student client base.”

“Hoy Fong’s statements follow one of Sydney’s top real estate agents saying his Chinese clients were finding it increasingly difficult to get money out of the country. ‘It is getting harder for them to send money out … I’ve been told since the start of the year it has tightened up,’ Lu Lu Pallier, from Sotheby’s International Realty, told the Australian Financial Review.”

“‘I’m told the buyers are still there. They want to buy. They just can’t right now but they will - US$72 billion could leave China. That will go all around the world but some of it will come to New Zealand. Even if it was only US$10 billion to US$20 billion, that’s a lot,’ Hoy Fong said.”

The Herald Sun in Australia. “After years of struggling to get a toehold in Sydney’s sky-high property market, home buyers are taking advantage of recent price falls in some of the city’s most affluent suburbs. New figures show prices in a handful of up-market areas are now up to $150,000 less than they were a year ago. Buyers capitalised by pushing for better deals. The average apartment buyer in Birchgrove and Forest Lodge knocked more than 6 per cent off the original asking price of the home they purchased, while the average Hunters Hill buyer ­negotiated a 13 per cent discount.”

“Vendors were willing to dish out such high discounts after realising their pricing was wrong, SQM Research director Louis Christopher said. ‘December sellers looked at the kind of prices homes were selling for over June, when the market went nuts, and expected the same result. Most were heavily disappointed. They then dropped their prices,’ Mr Christopher said.”

Bits Bucket for February 2, 2016

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