The Housing Bubble

The Global News BC reports from Canada. “There is no denying that the real estate market in Vancouver is red hot – prices have been rising with no end in sight. But one market analyst thinks we will see the bubble burst. Marc Cohodes used to run one of the largest hedge funds on Wall Street. Speaking on Global BC News Morning, Cohodes made it clear that he has no personal stake in the Vancouver real estate market. Cohodes said he wants to speak out about the housing market in Vancouver because he feels strongly ‘people are being taken advantage of.’ ‘I think it’s a money laundering-induced market,’ said Cohodes. ‘Where the local politicians, or the BC Liberals, are kept or in cahoots with the real estate brokers, developers, lawyers, that angle. And they have sought Chinese money to keep the market propped up and it won’t last. China has capital controls on and Vancouver has become the money laundering mecca of either the world or North America and something is going to change and change drastically.’”

“Finance Minister Mike de Jong has said he does not believe Vancouver is in a real estate bubble, to which Cohodes said ‘he’s full of more crap than a Christmas turkey.’ ‘The market is ridiculously high and Christy Clark goes and takes real estate people over to China. They have the records,’ said Cohodes, ‘they just don’t want people to really know or they don’t want people to know the truth.’”

From Estate Agent Today in the UK. “Housebuilder St Modwen has been forced to write down the value of the landmark Nine Elms regeneration scheme because ‘recent transactional evidence’ suggests it is worth less than before the capital’s housing market slowdown. Last week the buying agency Black Brick named Nine Elms when it was reviewing London’s market following the referendum. ‘Areas such as Nine Elms in Vauxhall and Earls Court in west London are particularly vulnerable due to oversupply of expensive properties aimed at the overseas investor’ said Black Brick chief executive Camilla Dell.”

The Australian Financial Review. “Three out of five Melbourne developers are struggling to access bank funding to complete new housing projects, according to a survey by the Urban Development Institute of Australia. ‘The institute’s survey findings have measured and confirmed the groundswell of concern about volatility, market conditions and funding constraints in Victoria,’ its Victorian chief executive Danni Addison said. Ms Addison said a ‘broad expectation’ that there was a wealth of capital available in global markets was ’simply not the case’ given the global uncertainty and local concerns stemming from the federal election.”

“Developer and BRW Rich Lister Tim Gurner told the Australian Financial Review the results of the survey were not surprising. He said there had been a huge amount of change in the past seven to eight weeks and banks were now demanding that developers throw in an additional 15-20 per cent equity and knocking back applications for funding above $50 million. ‘The fundamentals of the market are really, really strong, but the banks are becoming increasingly nervous. If you are not a developer with a proven track record, you won’t get any funding,’ Mr Gurner said.”

From Forbes on China. “Although real estate sales have picked up in recent months, property developers continue to suffer from high levels of inventory with no clear end in sight. ANZ China’s economics research team recently estimated that it will take about four years for developers to sell their existing property stocks at the current rate of investment. The stock of property is large, and sales are not growing rapidly enough to provide sufficient demand for the excess supply.”

“The average price of land in 100 cities is rising, having reached 3,100 RMB per square meter in May. This could mean, in an economy with a fully marketized real estate sector, that prices are starting to reflect land scarcity, which could slow property development going forward. However, high land prices have not presented a large deterrent to property development in some cities, as land can be used as collateral for loans, and now there is even worry that home prices may be sold for less than the price of land, leaving developers with further losses.”

The Economic Times in India. “Lenders to the real estate sector fear that price correction and shrinking liquidity in the segment are increasing the risk of loan defaults. About a fifth of the Indian banking system’s assets are exposed to the real estate sector, according to analysts. The exposure, in the backdrop of a rise in unsold inventory and slump in sales, has bankers worried.”

“‘If property prices go down further, bank mortgages will be much more than the security banks are holding. If that happens, the probability of a default increases,’ a senior executive of a public sector bank said on condition of anonymity. He cited the poor response to the auction of Kingfisher house as example. After failing to find a buyer at a reserve price of Rs 150 crore, bankers have now put the property on the block again for a base price of Rs 135 crore.”

“Experts say that with an increase in the number of unsold homes and drying up of sales, a real estate sector meltdown may very well be on its way. ‘The situation is so precarious that if one company goes down, it will take the rest of the system down with itself,’ said Pankaj Kapoor, managing director of Liases Foras, a real estate research firm. ‘In several cases, the loan origination value is so exorbitant that any price correction reduces banks to further risk.’”

From Nigerian Today. “It is no longer secret that many people in Nigerian cities, especially of Abuja, Lagos, and Port Harcourt, live in shanties in the slum areas of the cities amid many completed private and government housing schemes that are unoccupied. Many factors are said to account for this situation including unaffordability, money laundering, insensitivity of government authorities, among others.”

“Nigeria has about 17 million housing deficit, according to the United Nations, and it is estimated that Abuja, the federal capital territory with a population of 1,406,239 based on National Population Commission figures, carries 10 percent of this deficit. Business Day survey shows that many houses in housing estates in high-brow areas such as Asokoro, Gwarinpa, Maitama, Wuse II, Utako, Katampe districts, have remained unoccupied for many years after they were completed. The situation is virtually the same in hitherto middle-class areas like Apo, Dei-Dei, Gwarimpa, Lugbe, Kubwa, Gwarimpa, Gudu, Life Camp, and Gaduwa. Completed housing estates litter these areas unoccupied several years after they had been completed.”

The Standard on Zimbabwe. “Most landlords in plush residential areas who used to demand that a single family take up the whole house are now renting out rooms to several tenants because very few people can still afford to pay huge rentals. A survey by Standardbusiness showed that rentals for properties in the low-density suburbs for middle-income families were now ranging between $400 and $450 for the whole house. Before the economic meltdown, the properties attracted rental fees of $800 and above.

“Zinahco president Mike Duru said tenants had become kings as landlords could no longer charge as they used to. ‘Now you find that if someone has a house, the landlord is actually persuading these tenants to stay. The paradigm has shifted and instead of the tenant kneeling down begging for accommodation, it is now the landlords going down on their knees. Some of these landlords are multi property owners. One might have five or 10 houses in Harare and they occupy just one house and expect to raise money from the other properties. So there is no way they can charge high prices because there will be no takers,’ Duru said.”

“Property analyst Washington Musiiwa said the high-end houses had seen huge rental declines as they were the most affected. ‘Just like the worker who used to eat lunch at a hotel is now eating from take-aways, most tenants can no longer afford the executive ambassadorial houses they used to pay monthly rentals of $4 000 for. These have gone down to an average $1 500,’ Musiiwa said. ‘The very high-end type of residential dwellings have been the most affected by the current environment.’ In some cases, if a tenant is faithful and consistent in monthly payments, landlords have found it wise to even initiate a rental reduction to maintain good relations and therefore longer occupancy. ‘The logic is quite clear, ‘half a loaf is better than nothing’, Musiiwa said.”