The Housing Bubble

A report from Reuters on China. “Property speculators in China are looking for the next big thing beyond the country’s major cities. And they may have found it in the inland city of Changsha. ‘Prices have risen 2,000 yuan ($299.84) per square meter on average in the past two months. That’s almost a 30 percent rise from July,’ said Hu Yi, marketing manager at Central Courtyard, a residential project in Changsha targeting mid- to high-end buyers.”

“The sharp price rises in many cities are raising some uncomfortable memories of the last big run up in home values, which resulted in a property bust earlier this decade. China’s southern boomtown of Shenzhen, with tight land supply and a fast-growing tech industry, has led the rally for most of the year. But it lost its top slot in August to the second-tier city of Xiamen where prices were up more than 40 percent from a year earlier. Prices rose in 64 of 70 major cities from the previous month, the highest in two years, government data shows.”

“Despite claims by some property agents that the inventory of empty homes is dropping to record lows in Changsha, empty-looking apartment buildings are still a common sight. China Index Academy data shows there are 126,945 homes, or 13.46 million square meters, sitting empty in Changsha. For Zhang Liyang, a sales manager at Greenland Group’s HK.600606 Zhengzhou office, the price surge in the past few months came as a surprise, which meant missed opportunities as she was entitled to employee discount rates. ‘Even we didn’t expect the prices to go up this much,’ she said.”

The Telegraph on the UK. “Nine Elms has become the poster child of everything that is perceived to be wrong with the luxury central London property market, with the conversion of Battersea Power Station bearing the brunt of the crescendoing discontent. The main criticisms being fired from inside the industry are an oversupply of luxury homes flooding Zone One at a time of slowing demand. The project, which was approved in 2010, has cost its Malaysian backers £9bn.”

“Efforts are now being concentrated on selling the first half of phase three. Of the 500 units on offer, two-thirds have been sold. However, one industry expert is sceptical: ‘The sales figures could include buyers who put down a deposit [at the point of exchange] then abandoned the process after prices and yields in Zone One started to fall.’”

The Daily Telegraph in Australia. “Rents have been slashed by up to half in parts of Sydney as landlords fight for tenants who now have more homes to choose from. While property purchase prices continue to rise, rents have fallen — with the biggest drops in waterfront suburbs Tamarama, McMahons Point, Castlecrag and Haberfield. In those suburbs median weekly rents dropped by more than $200 over the past year, CoreLogic data shows. In Tamarama, median rents fell by 52 per cent — resulting in a stream of homes hitting the market at reduced prices.”

“The weaker conditions in these areas mirrored a wider slump in the Sydney rental market as a whole. Rents in most suburbs have failed to grow despite massive increases in property prices. CoreLogic research analyst Cameron Kusher said this was largely due to an increase in the supply of new housing, which gave tenants more choice. ‘Renters are now in a much better position to negotiate,’ he said. ‘As long as wages growth continues to stagnate, coupled with historically high levels of new dwelling construction and slowing population growth, landlords won’t have much scope to increase rents.’”

The Japan Times. “In Japan’s housing market, there has always been one verity: Certain parts of Tokyo will always be popular and, therefore, profitable for developers. However, according to various media reports, that verity may have collapsed, at least when it comes to new condominiums.”

“In its Sept. 17 issue, the weekly magazine Shukan Gendai ran a long report on real estate in Setagaya, which is probably the most desirable of all the city’s 23 wards. According to the article, the common wisdom is that ‘whatever is built in Setagaya can be easily sold,’ and that in the past, new condominium complexes would sell out as soon as they went on sale, well before construction even started. Developers, in fact, count on selling out since it gives them a financial guarantee to proceed with construction.”

“But in the last year there have been a number of new condominium buildings that have not sold out immediately. Even worse, there are unsold units even after people had started moving in. Of the 35 condominium complexes in Setagaya that opened to owners in July, 23 still have unsold units.”

“One real estate journalist told the magazine that in his 30 years of covering the housing market, it is the first time this has ever happened. He estimated that about 10 percent of all the new units in these buildings remain vacant. Consequently, the developer is desperately trying to sell these units while keeping a low profile, since other homeowners in the building could become angry if they discover the apartments are being sold at prices lower than what they paid.”

“It isn’t just Setagaya. Apparently, the tower condominium boom on the Tokyo waterfront is also on the wane. At the end of August the land ministry released its trimonthly Report on Market Trends of Land Use in Key Cities, which revealed that sales of new condominiums in the Tsukuda-Tsukishima area has dropped significantly since last year. The ministry theorizes that ‘higher income families have stopped buying condominiums for the purpose of asset investment.’”

“But prices should be dropping in Tokyo, since they’ve been abnormally high for years, at least as far as middle-class families are concerned. The rule of thumb when buying a home is to spend no more than four times your annual household income, but in the area within the Yamanote Line the average price for housing is 15 times the average Japanese salary. In eastern Tokyo it’s 10 times the average salary.”

“An employee for Mizuho Securities Research told Gendai that the number of unsold new units in Tokyo is close to the number in 2009, when a real estate mini-bubble burst. Similarly, the rash of unsold units means the Tokyo condo bubble has probably ended. So while it was surprising, given the price-to-salary ratio, that the bubble occurred in the first place, it shouldn’t be surprising that it is over.”