March 9, 2016

Invest For Growth Has Been Exposed As Gambling

Reuters reports on Canada. “Demand for condominiums is soaring in big cities like Toronto and Vancouver, prompting some analysts to worry about a potential bubble. At the same time, crude-producing provinces like Alberta are in a slump. Canadian housing starts jumped in February from January as hot Ontario and British Columbia markets outpaced the energy-producing West, where a crude slump has hit confidence, the national housing agency said. BMO Capital Markets economist Robert Kavcic noted that housing starts in British Columbia hit their highest level since 1990 while Vancouver recorded the most condominium starts on record.”

“‘We’ve long been defenders of the Canadian housing market against the rabid bears, but activity in Vancouver at least is making that case a lot tougher to make,’ he said.”

Perth Now in Australia. “Soaring property supply across Perth is putting pressure on sellers to be realistic in their pricing, agents and industry figures report. New statistics from CoreLogic RP Data released this week reveal there are now 21,726 properties on the market, an increase of 12.3 per cent in the past 12 months. Perth now has the third-highest number of listings of any capital in the country, narrowly behind Sydney, which has 24,000 properties on the market.”

“Harcorts chief executive Paul Blakeley said buyers were ’spoiled for choice,’ which meant sellers needed to be price sensitive if they wanted to achieve a quick sale. ‘The thing everyone is looking to come down is the number of listings,’ Mr Blakeley said. ‘Sellers can’t really afford to hold out for their dream prices.’”

Bloomberg on Hong Kong. “Hong Kong residential home sales plunged 70 percent in February from a year earlier to a 25-year low, as falling prices and economic uncertainty deterred buyers. Property prices have declined 10 percent from their September highs amid uncertainty over the economy at home and in China. ‘The newspapers keep on saying the market is going down and buyers think they can get a cheaper house half-a-year later or one year later, and so are waiting,’ said Thomas Fok, a property agent at Centaline Property Agency in Hong Kong’s upscale Mid-levels West district where he hasn’t made one sale this year.”

Fortune on China. “China has more than 50 million, maybe 60 million, vacant homes, the founder of a Chinese home sharing startup told Fortune’s Most Powerful Women’s conference. Melissa Yang runs Tujia, which has been called the Airbnb of China, but the comparison is misleading for several reasons, not least because Tujia manages 10,000 of its properties. A credible estimate from a real estate insider like Yang, whose site hosts 400,000 properties, is jarring. ‘But this number will only come from me,’ Yang said. You won’t find it publicly from any Chinese government figures.”

The Bangkok Post on Myanmar. “Myanmar has experienced dramatic changes economically and politically over the past few years. As foreign investors rush to set up shop in the newly open market, office space in the country’s commercial capital is among the most expensive in the world. In a country where most people earn about two dollars a day, annual rents in Yangon climbed to as much as US$100 per square metre per month in 2013 — more expensive than downtown Manhattan and about four times the going rate for the best business addresses in Bangkok.”

“But last year the property boom came to a halt, office rents slid and residential sales paused. Andrew Tan, managing director of Yangon-based Consult-Myanmar Co Ltd, said some sectors were approaching equilibrium after a lot of speculative investments over the past three years. ‘The real estate market will see a consolidation this year, especially in the condominium sector and high-quality retail space rents,’ he said, adding that some properties would be sold at a loss in the short term. Many of these are apartments priced above $500,000 each — way above the ability of the local market to absorb.”

“In addition, there is now an oversupply in the market, especially in the residential sector given that high-end buyers represent only 1-2% of the total population. A top-end condominium in Yangon currently costs around US$4,000 or 140,000 baht per square metre (sq m), comparable to Bangkok prices. A recent Colliers International report found that take-up rates during the first half of 2015 were at an all-time low of 49%. Total unsold inventory at the end of last year stood at 6,654 units — double the figure for all of 2014.”

The Guardian on the UK. “Prices for luxury flats in some parts of London are likely to fall as an oversupply of properties erodes the premium being paid for new-builds, an investment firm said. The latest warning of a bubble at the top of the property market has been sounded by LCP, which advises investors on the residential market and runs property funds. It said new-build properties had been selling at a premium of as much as 25%, but oversupply in some parts of the market was likely to start eroding this.”

“On Friday it was reported that buyers of asking prices for some off-plan flats in the Battersea power station development were being slashed, with one reduced from £6m to £4m in the past year. Henry Pryor, a buying agent for wealthy clients, said developers had exhausted the market for overseas buyers. The transaction friction is too high thanks to changes wrought by Conservative chancellor George Osborne and the overdue death of the ‘invest for capital growth’ strategy which has been exposed as just gambling, as I have said all along,’ he said.”

“‘You can’t accept a 3% gross yield in property. It needs to be over 6%, even in this age of artificially low interest rates, because the carry cost is too high. Take out voids, dilapidations, letting and management costs and you are soon looking at negative net yields. This may be OK in the fantasy world of central banks but in property this results in capital values falling, he said.”

Bits Bucket for March 9, 2016

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