September 16, 2016

People Lose Because There Is No One Left To Pay

It’s Friday desk clearing time for this blogger. “Housing in major cities in China has seen price hikes over the last year that resemble the famous Dutch ‘Tulip Fever’ bubble of 1637, according to economic consultancy firm Longview Economics. ‘I think what’s going on in China is troubling … some of the valuations there are really quite extraordinary,’ Chris Watling, the CEO of Longview Economics, told CNBC. ‘We’ve double checked these numbers about seven times, because I found them quite hard to believe.’”

“The firm’s research found that only San Jose in the Silicon Valley is more expensive than Shenzhen. The Chinese city has seen prices rise 76 percent since the start of 2015, with the acceleration beginning in April 2015 as the country’s stock market was nearing its peak. The situation in Beijing and Shanghai is similar, albeit less extreme, the company states.”

“‘Housing in some of the tier 1 cities is more expensive than it is in London, which I think itself is on a bubble,’ Watling added. ‘The (stock) market exploded to the upside and then crashed dramatically. That money had to go somewhere, so it washed around the system … so a lot of it has gone into housing.’”

“An Arrowtown real estate agent has described the housing market as ‘extreme’ and unlike anything he has experienced in more than 20 years. Figures showed Arrowtown had, as of July, hit the $1million milestone of house values, up 20.8% on 12 months ago. The median for the village has now almost doubled in the five years. ‘Because there are so many flights … now, it’s a breeze. They’re getting bolt-holes … It’s driven by Auckland people, friends of friends [who say] `we bought a house, come and live in Arrowtown, come and buy one, too,’ said Richard Newman, of Ray White Real Estate.”

“Foreign buyers are leaving Vancouver en masse, instead heading to cities like Seattle and Toronto to invest in real estate, according to numbers provided to Global News from Chinese realty website Juwai. West Vancouver realtor Brent Eilers says he has witnessed a ‘dramatic drop.’ According to Eilers, he has a waterfront property currently listed that has seen a little interest from offshore buyers. Had it been listed in May, he said, buyers would be bidding at over the asking price. Now, they’re asking how much under the asking price they could get it for. ‘Foreign buyers are pissed off right now.’”

“Some real estate developers have dismissed assertions that the real estate industry may be experiencing a down turn over low purchases due to the high cost of properties. Though the General Manager for Devtraco Plus, Cyril Tay admits that there has been a decline in purchases, he rather attributes it to the impact from the global economic performance. ‘I don’t think there is a recession, I think there is a slowdown in the real estate market and there was a slowdown in the global economy; commodities like cocoa, gold and oil all took a hit and that translated into a slowdown everywhere including the emerging markets like Ghana,’ he explained.”

“The city with highest number of Mercedes, Audis, BMWs, Land Rovers and Jaguars has the biggest number of bank loan defaulters in the state as well. It is for the first time, the administration has gone ahead and made the names of banks defaulters public and directed the banks to take action against defaulters. The move has spread panic among industrialists as the list of defaulters includes some of the most reputed names of the city.”

“Due to recession and slump in the property market some of the big business houses have suffered major losses and defaulted with banks. ‘Instead of putting the loan amount into business, these bank defaulters are diversifying funds, buying new cars, planning tours abroad, spending the money on big fat weddings and building palatial houses. We forget that the default loan amount is the hard-earned money of common man,’ said Naresh Gaur, General Secretary of the All-India State Bank of Patiala Employees’ Federation.”

“Residential developers are offering discounts of up to Bt2.2 million per unit for homes located close to the Purple Line mass-transit rail route from Bang Sue to Bang Yai, in an attempt to reduce an estimated market oversupply of some 30,000 homes worth around Bt100 billion. AP (Thailand), for example, is offering free booking fee, free down payment, free furniture and free transfer fee - worth about Bt150,000 combined per unit - to buyers at the Aspire Rattanathibeth 2 condominium, where prices start at Bt1.7 million per unit.”

“‘The mortgage rejection rate was more than 50 per cent in the first nine months of the year for homes priced below Bt3 million per unit,’ a commercial-bank source said, adding that the banks had had to tighten their lending criteria due to the repayment-default risk posed by the rising number of individuals with a higher debt level than their earnings.”

“Are you on the property ladder? You might want to look again. That comforting metaphor of an aspirational route to economic security has come to dominate our thinking, but what if it wrongly describes the phenomenon? There has been a steady decrease in the number of first-time house buyers since 1980, with the biggest drop of 47% occurring from 2007 to 2008. It may be that the British housing market now resembles the classic pyramid scheme scam that rewards those at the top and punishes the fools who dive in too late or can’t dive in at all.”

“I’m certainly not the first to think of the housing market in this way. As journalist Gabby Hinsliff observed: ‘Rather like pyramid-selling scams, housing markets need a constant stream of fresh-faced hopefuls coming in at the bottom in order to keep delivering big returns at the top.’”

“So is this really true, and if it is, should we continue to tolerate such a mainstream social practice which seems to be so ethically dubious? The pyramid is driven by a top-down dynamic. Those at the lowest level try to recoup what they paid to become members by making a profit off those wishing to gain access to the scheme. Chronologically, those who come later have a greater risk of losing.”

“There is a second essential feature of pyramids: most people lose because there is no one left to pay the higher fee. In effect the market reaches saturation point. In housing, this happens because non-owners, who usually constitute the majority of the population, cannot find the means to make the high fee payments – in other words, a mortgage deposit and monthly payments. And this is where the ethically dubious nature of the scheme emerges.”

“In classic pyramids, the good or service being sold is not really important. With the housing market, the good in question is essential.”

“So why hasn’t the housing market caused the economy to break once and for all? Well it certainly came close in 2008, but our economic system seems flexible enough to make adjustments that keep us afloat. However, these adjustments are makeshift reactions to a system’s fundamental problems rather than a remedy. Why not fix the problems? Why not raze the pyramid that is the housing market? To do that would require a philosophical change: an appeal to understanding how land (and thus housing) constitutes a unique kind of primary good that cannot be subject to the same kinds of conventions as capital.”