January 16, 2017

The Correction We Had To Have

A report from The Middle Ground in Singapore. “As of last December, rental yields in Singapore are down 19.9 per cent from their peak in 2016. This is a huge deal, for reasons explained below. As for condomniums, last December was the sixth consecutive month of declining rental yields. It’s not a coincidence that, in 2016, we also saw several high end condominiums selling for a loss. Three units at Orange Grove Road, for example, sold for losses close to a million dollars. Despite how negative all of this sounds, it’s actually quite good for the average Singaporean.”

“Again most Singaporeans are home buyers, rather than property investors (how many people do you know who own multiple houses?) It means diddly-squat to the average Singaporean if rental yields falls, because they have nothing to rent out anyway. What does matter to the average Singaporean is that landlords will rush to offload their properties, and hence send prices down.”

The Daily Mirror on Sri Lanka. “The Sri Lankan government will be legislating new laws to allow foreign investors to obtain residency in Sri Lanka easily, Finance Minister Ravi Karunanayake told a media briefing yesterday. ‘Anyone who brings in US$ 300,000 will get a special temporary residency visa, and someone who brings in US$ 1.5 million will get permanent residency,’ Karunanayake said.”

“Karunanayake said permanent residency (PR) will also be given in order to address the glut in the Sri Lankan luxury apartment market. ‘They (PR holders) will be able to lease properties. This will help our innocent people who go to the Middle East. They can instead stay here and work (for the PR holders),’ Karunanayake said.”

The Courier Mail in Australia. “Developers who have failed to do their homework on the Brisbane highrise apartment market face tough times in 2017 as the sector adjusts to new realities. Resolution Research director Diana Howes said the market was slowing as development applications fall and tighter lending guidelines and construction costs have ensured an increase in project deferments. ‘It’s the correction we had to have,’ Ms Howes said.”

“According to the latest figures for inner city highrise apartments there were 71 projects in the market in the 12 months to September 2012, 10 more than the same period in 2015. ‘Projects by unsophisticated developers who haven’t done their homework, or have entered the Brisbane market from interstate for the first time and have priced above market expectations are at risk of failing to proceed,’ she said. ‘Similarly, suburbs including Chermside and Mt Gravatt, where there is an uncharacteristically high volume of off-the-plan projects in the market at prices aligned with inner city values are likely to suffer or fall over this year. It’s going to be a challenge for these developers to secure pre-sales.’”

The New Indian Express. “About 1.21 lakh ready to occupy houses are unsold in Bengaluru. It would require at least two years to sell these houses, a report by real estate consultant firm Knight Frank has found. This comes even as there is no visible let-up in the inflated pricing in the housing sector. The city’s real estate sector has come under considerable pressure in the last two years, realtors told Express. ‘While the buyers are anticipating fall in prices, builders have already reduced their profit margins in the last two years,’ said Farooq M, Director, BangaloreCityhome.

“An analysis of the residential and office market performance of Bengaluru for July-December 2016, Satish BN, Executive Director (South), Knight Frank said here on Tuesday that there were no takers for these ready to occupy buildings. A majority of these unsold properties are in South Bengaluru. ‘The margin of profit has already been reduced by 10-15 per cent. People who wanted to sell a two-bedroom house for Rs 45 lakh earlier are now selling it at Rs 40 lakh,’ Farooq M added.”

The Vanguard on Nigeria. “Following the present economic recessing facing the country, some house-owners in the Federal Capital Territory (FCT) have reduced their house rents so that people can afford the houses. Many houses in the FCT have remained unoccupied as many people can no longer afford to pay rents due to the harsh economic situation. Mr Friday Shamaki, a house owner at Kpaduma Village in Asokoro area, said he had to reduce his house rent to enable his tenants pay other bills, as well as to reduce unnecessary argument that may arise from the inability to pay the usual rent. ‘It is obvious that the nation is facing recession which had forced the prices of commodities and services to increase drastically.’”

“‘This has affected everyone, and has made me to reduce house rent from N250,000 to N200,000, which will go a long way to prevent any unnecessary argument or fight with my tenants due to their inability to meet up with the rent charges,’ he said.”

“Mr Folunsho Adegoke, a house owner in Karu area said he reduced his house rent to attract and encourage tenants to remain in his house, rather than leaving it unoccupied. ‘I just finished building this four blocks of two- bedroom flats, which initially I wanted to give out at N300,000 each, but I had to reduce it to N250,000 so that the house doesn’t remain empty and starts deteriorating,’ he said.”

From Globes in Israel. “Avi Tiomkin: When the change occurs, its speed and force will surprise everyone. ‘It is completely clear that a fall in housing prices in Israel, accompanied by a drop in land prices that has already begun, is about to pick up speed in the near future,’ Avi Tiomkin, a global economic consultant to international hedging funds, told Globes. Globes: ‘How did you reach that conclusion?’Tiomkin: ‘The leading indicator, namely a significant fall in housing sales, has already become a fact.’”

“Tiomkin, who has scored previous successes in predicting substantial changes in direction in the Israeli and global economies, asserts, ‘There is no doubt that the concentrated effort to increase the supply of housing on the one hand and the halt in demand by both long-term investors and speculative buyers on the other are having an effect. The substantial drop in luxury housing sales in Israel in 2016 (over 50%) and the nominal 8% decrease in mortgages (a 13% fall in real terms taking into account the increase in housing prices) are the best proofs of this.’”

“‘Massive construction of new housing began one or two years ago at the peak of the euphoria among contractors and the banking system, in the absolute belief that price rises would never end. This housing is now reaching the market and contributing to the surplus,’ he said. ‘Keep in mind,’ Tiomkin adds, ‘the boost, tantamount to fostering panic among potential housing buyers, given by the media with various headlines. This generated substantial pressure among buyers, and certainly contributed substantially to higher prices and the lengthening of the process we previously saw.’”

“‘It is evident around the world,’ Tiomkin continues, ‘that there is a 25% slide in prices in the leading luxury housing markets, such as New York, London, Miami, and San Francisco. We’re also seeing these price falls and stagnating sales today in Tel Aviv and the luxury neighborhoods around it. Cases of housing buyers overseas letting go the advances they paid in order to get out of a deal are already not so rare. This process is now spreading to a lower price level. Note that luxury residences led the price rise, and they are also leading the market turnaround.’”