March 12, 2017

Buyers Can’t Settle And Wish They Could Walk Away

A report from Better Dwelling in Canada. “The world’s greatest overseas real estate binge might finally be over. According to the People’s Bank of China (PBoC), China saw its foreign exchange reserves rise to over US$3 trillion. The unexpected rise is the first in 8 months, and may indicate that the new regulatory crackdown on capital outflows is actually working. This is bad for real estate markets that have seen a sudden surge of buying activity from Mainland Chinese buyers. Companies now require government approval to purchase property abroad, and they can’t easily obtain it unless buying property has always been their primary business. Break the rules, you get a three year ban on exporting capital, and are investigated for money laundering.”

“Mainland Chinese investors are now the world’s largest buyers of overseas real estate. These buyers added fuel to the fire created by over enthusiastic domestic buyers with massive mortgages, sending property rates soaring in Canada, Australia, England, France, Hong Kong…actually, pretty much everywhere. Many markets saw locals taking out record amounts of debt to compete with well funded foreign investors. It’ll be interesting to see if the narrative continues to be told that Chinese buyers are driving markets, or if locals will realize they’re now providing liquidity for those same well-funded investors that need to get out.”

From The Australian. “Almost 80 per cent of Chinese buyers can’t settle on the Australian apartments they have bought off the plan and wish they could walk away from the contracts, ­according to an expert on investment in Australian property. Li Ming, the co-director of real estate company Aussiehome, told The Australian that ‘the off-the-plan apartments market is now the worst I have seen in the last 10 years.’”

“Dr Li said: ‘One Chinese client recently sold an apartment at Melbourne’s Docklands for $1.4 million which he had bought for $1.8m two years ago.’ A major trigger, he said, was the tightening by Chinese financial institutions of property lending for overseas purchases.”

From Reuters on Malaysia. “Chinese property developer Country Garden Holdings Co Ltd has shut some mainland sales centers promoting its $40 billion Forest City project in Malaysia, in response to Beijing’s moves to stop capital flight into offshore investments. China’s tighter grip on funds moving out of the country after the yuan plummeted to more than eight-year lows has hurt the overseas sales of Chinese developers, and created extra challenges for firms or deals reliant on mainland investment.”

“Other developers have flagged similar problems with overseas sales. ‘(Chinese) customers can’t take their money out now, of course there’s an impact on our overseas sales,’ said an executive of state-backed Greenland Holdings, which has developments in Malaysia, the U.S. and U.K.”

From The Star Online on China. “In 2016, Hefei, a manufacturing hub of about 8 million people in China’s east, was one of the world’s hottest property markets and a prime target for price curbs designed to knock speculative heat out the sector. Analysts say restrictions introduced last year and subsequent rhetoric from policymakers should have sent a very clear signal to investors that authorities would tighten further in Hefei and elsewhere.”

“Instead, speculators in Anhui’s provincial capital are betting just the opposite - that the government will ease curbs to support growth. Investors like Zhou Xiansheng say they are in no rush to sell their holdings. ‘Prices have only gone up in the past… The government will not let the market correct as long as property is still the pillar of economic growth,’ said Zhou, a businessman who owns multiple homes in Hefei.”

“Analysts say such views, based on observations of past cycles, are a major miscalculation of government intent and that future curbs will be harsher than previous measures, bad news for highly-leveraged investors. Nowhere else in China are speculative forces more apparent than they are in Hefei. Last year, new home prices rose 48.4 percent, the fastest rise in the world, according to a report by China’s Hurun Research Institute and real estate agency Global House Buyer.”

“China’s ’seesaw’ approach over past three major cycles of property tightening - capping price growth when a boom becomes too concerning and releasing the brake quickly to prevent a market collapse - has cemented the bullish mentality of investors seeking to reap big profits over a short period of time. ‘I’d buy another one if I could,’ said Duan, a Hefei local who just bought a house in the city and who only gave his family name.”

“Elly Chen, a Hong-Kong based property analyst at Nomura, notes in past cycles, the government only began to relax curbs once prices started falling. ‘The government is definitely willing to let prices fall,’ said Chen.”