May 31, 2016

The Money Started Leaving

A report from Fairfax New Zealand. “The Government may be denying the hot-property interest of Chinese investors but real estate agents are opting for the reverse tactic in a wave of new marketing material being sent out to homeowners. Ray White’s Mt Albert branch in Auckland recently posted a flyer to local residents about a ‘new generation of Chinese investors’ looking to make their ‘presence felt’ in the property market. The company claims it can connect vendors with ‘Chinese clients looking to buy in New Zealand.’”

“It comes after a Barfoots market newsletter in March, headlined ‘Chinese buyers coming back to Auckland property market.’ It quoted property coach Ron Hoy Fong predicting a huge increase in house values. ‘The market is going bananas after May. I anticipate we’ll jump back up to the 50 per cent over capital values this year,’ the newsletter said. Ray White agent Susan Woods-Marwick said the flyer was solely aimed at those who might be interested in selling their house. ‘My flyers aren’t for the Chinese buyers. My flyers aren’t directed at buyers at all. My flyers are directed at the vendors.’”

The Business News Network in Canada. “More homeowners in the oil patch are falling behind on their mortgage payments as Canada’s housing agency warns crude prices remain the most significant threat to the market. The number of Alberta and Saskatchewan homeowners falling 90 days behind or more on their CMHC-insured mortgages continued to move higher in the first quarter, according to the Canada Mortgage and Housing Corporation. In Alberta, the arrears rate hit 0.35 per cent as of March 31 from 0.25 per cent a year earlier. While the rate is still low, it has increased 40 per cent in one year. In Saskatchewan, the arrears rate was 0.70 per cent at the end of the first quarter – up from 0.48 per cent a year earlier. That’s an increase of 45 per cent.”

“Meanwhile, fresh concerns were raised Monday about foreign money and the potential to derail the Vancouver and Toronto markets. Sherry Cooper, chief economist at Dominion Lending Centres, notes Vancouver home prices have ’surged exponentially with the rising outflow of Chinese capital looking for a home.’ To a lesser degree, the same is true in Toronto, Cooper wrote in a note to clients. That said, ‘A slowdown in the volume of Chinese capital moving into Canadian housing is a meaningful risk factor for the hottest markets in Canada,’ according to Cooper.”

Channel News Asia on China. “China’s US$50 billion replica of Manhattan in the northern port city of Tianjin still lies mostly unfinished and empty nearly a decade after construction began. Several reports have labelled the development in Yujiapu a ghost town. It is being billed as China’s version of the Big Apple. But 8 years after construction began, many of the buildings appear unfinished. Some construction sites have been abandoned, while the streets are deserted.”

“A newly-built shopping mall lies just a short walk away from a brand new train station connecting Yujiapu to Beijing. But there are hardly any shoppers. Restaurants in the mall are struggling to stay afloat. The Hexiangan hotpot restaurant started operations in January. On most days, it is raking in only about US$300 a day. Its manager Mr Lin said: ‘We had high hopes for the future of this place when we selected this site, but we didn’t think it could be as bad as this.’”

The South China Morning Post on Hong Kong. “Homes in Hong Kong are among the world’s most expensive, but getting a foot on the property ladder has become surprisingly easy recently, thanks to aggressive mortgage tactics by developers desperate to push sales in a falling market. Offering home loans of up to 80 to 95 per cent of a flat’s value, without the need for proof of income, has become the sales tool of choice for many developers, allowing buyers to bypass strict guidelines on mortgages offered by banks but sparking concern that buyers may be setting themselves up for defaults and the loss of their homes should the economy remain sluggish.”

“‘Developers provide a solution for those who cannot pass the banks’ mortgage stress tests. Recently, about half of the new flats sold have gone to buyers without regular incomes,’ said Louis Chan Wing-kit, Centaline Property Agency’s managing director for residential.”

“These buyers, whatever their jobs, either had insufficient savings to make the down payment of 40 per cent of a flat’s value under banks’ standard mortgage lending requirements or were those able to pay upfront but whose monthly salaries failed to meet banks’ requirements, he said. He expected some developers could even offer 100 per cent mortgages if the market deteriorated further.”

Bloomberg on Taiwan. “Taiwan’s home prices, which have fallen in the past year ending a decade-long bull run, are poised to extend declines as the economy contracts and a new presidential administration focuses on equitable wealth distribution.”

“Home values in Taiwan dropped 1.2 percent and transactions declined 15.5 percent since the first quarter of 2015, according to data from the Interior Ministry, while capital Taipei was the world’s worst property market in the year ended March among major cities tracked by Knight Frank LLP. Taiwan unveiled measures targeted at speculators after home prices as much as tripled since 2004 amid low mortgage rates. The central bank in 2010 started limiting the amount of funding property buyers can borrow, while a transaction tax of as much as 45 percent, which takes into account both land and home values, took effect this year.”

“Sentiment started slowing in late 2014 and in 2015 ‘the money started leaving,’ Billy Yen, Taipei-based managing director at DTZ Cushman Wakefield, said, referring to wealthy Taiwanese who started to invest outside of Taiwan. In the wake of the new policies geared toward more affordable housing, would-be buyers found ‘the government is no longer friendly to the market,’ Yen said.”

The Media Max Network on Kenya. “Is the property market as lucrative as we are being made to believe? Of course developers and those selling plots want to make everyone believe so. But the bitter reality is that the property market is cooling off. Recent real estate market development indices by Kenya Bankers Association and Hass Consult have been pointing to a slow down. This is manifested in a drop in demand for houses and reduction in rents due to an oversupply in certain segments of the market.”

“While these indices often give a short-term view of things, if looked at in the long term by studying trends, you can see the warning signs. The verdict from anyone, including lay investors, is that ‘you can’t go wrong with land.’ But these people are not telling first-time investors that most of the prime land that delivered the quick riches has shrunk and the remaining small swatches will cost you an arm and a leg. Now investors have moved into agricultural land far off Nairobi and other towns, buying farm land then parceling them into smaller plots. These are the people who are making a killing.”

“The smaller plots are sold at prices that give them over 500 per cent returns. Sellers will use any infrastructure nearby – be it a school, college, road or even factory – to squeeze premium price. But looking at most of the land on sale, some very many kilometres from the nearest town (in Nairobi the distance is reaches even 70km), you can easily see land is over-valued.”

“People who are buying as short-term speculators to double or triple their investments in a year or so are getting so disappointed. At times they can’t even get interested buyers if they wanted to get their money back.”

It Is Quite Obvious There Is Going To Be A Problem

A report from the Australian Financial Review. “Apartments in Melbourne’s Docklands, CBD and Southbank are being resold up to 24 per cent below their previous off-the-plan purchase price, catching out vendors, many of whom bought them from investment companies or spruikers. AFR Weekend has found numerous examples of such apartments, most of which are small studio or one-bedders, acquired after the global financial crisis. The revelations come as concerns build about an oversupply of apartments, as a record number of completions loom, and following Macquarie Bank tightening its lending to high-rise apartment postcodes, including in Docklands, the CBD and Southbank.”

“In one example, a one-bedroom apartment measuring 56 square metres in the Site One Complex at 757 Bourke Street has an asking price of $290,000 to $319,000, having been bought off-the-plan for $380,000 in 2009.”

“Evidence of falling apartment values was identified broadly by valuation firm WBP Property Group last year. The study found that half of all off-the-plan properties were valued at a minimum of $1000 less than the purchase price with the average loss being $40,000 or 9.4 per cent. In Central Melbourne, the fall was greater at 11.5 per cent. In one extreme example, a two-bedroom apartment in Abbotsford suffered a loss of $623,000, a decline of 46 per cent. ‘In real terms, this loss equates to the cost of a typical deposit, which most people take several years to save,’ said WBP Property Group chairman Greville Pabst.”

The Canberra Times. “Real Estate Institute of the ACT board member Michael Kumm, speaking personally, said Canberrans were conservative borrowers who posed no risks to banks, but there was a clear oversupply of units in the city and the government should be told it was releasing too many. ‘On Allhomes now 70 per cent of properties [for sale] are units, and some of those might represent a development so we could be getting up to 80 per cent units,’ he said. ‘We don’t have to hit the panic button, but the warning signs are there that they want to give it some consideration. The units are selling, the sellers just have to meet the market.’”

The Daily Mail. “Developers are reportedly getting cold feet on Australia’s once booming property industry as the value of projects taken off the table nears $5billion. Property construction is slowing across the country as the cost of labour rises and an oversupply of apartments means there is less money to be made in new building projects. In Sydney, the Brookfield Multiplex construction company has reportedly withdrawn from its contract to build the Greenland City Centre, billed as the tallest apartment block in the city. Almost all the apartments in the $700m tower have already been sold off the blueprints, but Brookfield reportedly could not see a way to make money from the project.”

“In Brisbane, the construction of a $1bn apartment tower at 545 Queen Street has reportedly slowed as developers keep an eye on property forecasts which predict a glut of apartments in the city. On Tuesday developer Mirvac reportedly ceased an agreement to build the $3bn Perth City Link, which would have seen 1,200 apartments built in the city centre. And in Melbourne cost comparisons show drastic falls in the asking price of luxury city apartments as the supply of property outstrips demand.”

“On Friday property lender Firstmac reportedly announced it was cutting the amount it was prepared to lend to city apartment builders. The same day Westpac Bank announced it was stopping all lending to foreign property buyers looking to build apartments. Firstmac chief executive Kim Cannon said: ‘It is quite obvious there is going to be a problem in the future.’”

The Australian. “Up to 30 per cent of foreign-owned city apartments are likely to be left empty after a splurge by mainly Chinese investors, says National Australia Bank chief economist Alan Oster. Mr Oster estimates more than 60 per cent of off-the-plan apartment purchases in the Melbourne CBD and half in Sydney are being financed outside the big four banks, likely through offshore institutions and cash.”

“The offshore buying spree — which is compromising the banking regulator’s tough standards on risky investor lending — has led to the Melbourne CBD apartment market being three times oversupplied, while Sydney is two times overbuilt. Offshore investors are increasingly using alternative funding because the major banks are limiting lending in inner-city apartment markets due to fears of overheating.”

“‘With up to 60 or 70 per cent of the apartments in Melbourne (CBD) we do not know who is ­financing them,’ Mr Oster told The Weekend Australian. ‘We just don’t know if they are going to use cash, whether they have got a foreign bank ­account somewhere within China, if they have an account somewhere in Hong Kong or somewhere else.’”

“Melbourne-based Jerry Pan co-owns a Chinese-backed development and apartment sales company, Monolith International, which sells units locally and to Chinese investors. Mr Pan said many Chinese investors were forced to delay settlement of their apartments as they could not get funding from stringent Australian banks.”

The Daily Telegraph. “Let’s not beat around the bush. Broken Hill has the cheapest real estate in NSW with houses going for the price of a car. The mining boom turned house prices to gold but its end has seen them turn to dust. Investors who snapped up properties at the start of the mining boom more than a decade ago are now offloading houses for rock-bottom prices. For the price of a standard car, homebuyers can purchase a two-bedroom house. Just $35,000 will get the house and, for an extra $6000, you get the land next door.”

“Broken Hill Real Estate director Cliff Wren, who has been in business for 20 years and has the cheapest properties in NSW, said investors flocked to the outback town in 2003 because they could get a great rental return of $180 every week. But now, with mining in a slump, he said investors running for the hills were flooding the market. ‘We are used to that cycle every seven years and what goes down must come up again,’ Mr Wren said.”