March 20, 2017

The Housing Market Is Bubbly

A report from The Age in Australia. “A senior Chinese policeman has been jailed for 17 years for embezzling money to buy two Australian homes for his two daughters. The Australian real estate purchases were among a huge property portfolio, with no obvious legitimate source of funding, Chinese prosecutors said. Wang Jun Ren, 59, was the police chief of Guta District of Jinzhou City in Liaoning province, when he began asking a local property developer for millions of Chinese yuan to pay for the Australian real estate purchases for his family.”

“Wang was convicted of corruptly taking 174million yuan by himself, and another 24,800 yuan with his wife, taking bribes of 680million yuan, and having a huge amount of property of unknown source. That trial was held in December. The jail sentence comprised of four years for corruption, 12 years for bribe taking, and four years for the unknown funding source of a huge number of properties.”

The Domain News. “Rob and Ruth Peters don’t see themselves as criminals. She is the mother of two home-schooled children and Rob is best known in his Canadian home town as the high-profile oil and gas entrepreneur. But it seemed fitting to depict the family of four as criminals wearing striped prison garb in a caricature on their recent farewell party invitation given the way they feel the government has portrayed them and other foreigners caught up in the crackdown on foreign property buyers.”

“Despite appeals by their local MP, Tony Abbott to Treasurer Scott Morrison on their behalf, the Peters family are being forced to sell their Manly home of the past 14 years because they unknowingly bought it in contravention of the rules on foreign investment.”

“‘We appreciate what the government is trying to do but they’ve missed the boat on this issue,’ Mrs Peters said. ‘They’ve made it very easy for foreigners to buy as much real estate as they want as long as they have paid for a $5 million [Significant Investment] Visa, even if the buyers are never living here and leave the house empty, but we are living here and contributing to the community we live in, and yet we are being forced out.’”

From Bloomberg. “Australia is facing a period of ‘heightened risk’ in the housing market, the nation’s top banking regulator said, amid rising speculation further lending curbs may be imposed to cool runaway housing prices. Australian Prudential Regulation Authority Chairman Wayne Byres said that while he refused to ever use the ‘B-word’ — referring to a bubble — ‘if everyone isn’t careful, the risk in the system is going to rise.’”

“APRA’s role is to ‘dampen’ lenders’ enthusiasm and ensure finance providers are exercising a ‘higher degree of caution than unusual,’ he said. Earlier, Australian Securities & Investments Commission Chairman Greg Medcraft told the conference the housing market is ‘bubbly’ and he is ‘really concerned consumers don’t put themselves in above their head.’”

The Sydney Morning Herald. “Hundreds of new home owners have been left in limbo after the collapse of a land developer in Melbourne’s outer north-west. Developer Land Source Australia was placed in administration last year leaving residents of Waterford Estate unsure if key features of the estate – parks, ovals and shopping centres promised by the developers – will be delivered.”

“Waterford is the second developer in as many months to go into administration. Home builder Watersun, a company founded by high-profile developer Benni Aroni, was placed in voluntary administration leaving a cloud over 200 home owners.”

“Adrian Swinge, who has lived on the estate with his wife and three children for four years, said he had been led to believe a school would be built by the time his four-year-old son turned five. ‘We’ve invested in this estate and we’re left with no course of action. It’s blown up in our face. This was our future, this house,’ he said.”

From ABC News. “Debts run up by collapsed Victorian construction firm Watersun Homes are likely to hit $20 million, double the original estimates, the administrators say. The hundreds of homebuyers affected by the collapse were told they should find out within a matter of weeks if other building firms are willing to complete about 300 unfinished homes. In all there are 800 creditors — including 90 employees who have lost their jobs.”

“One employee, who did not want to be named, said she knew there were problems and warned of a ‘ripple effect’ across the industry. ‘They were good at sales, but bad at management,’ she said.”

From Reuters. “Australia’s quarter-century run of uninterrupted economic growth has made its property market one of the world’s most expensive, but mortgage pain in towns hit by a commodities downturn is beginning to be felt in parts of the financial system. While most Australians are able to pay their debts, alarm bells have sounded around pockets of distress in the mining-heavy states, raising warnings from policymakers, ratings agencies and the Organisation for Economic Co-operation and Development.”

“In the remote mining town of Karratha in Western Australia, 61-year-old Peter Lynch received a letter advising him that his bank was going to repossess his house at the end of the March. Two decades ago, Lynch borrowed money to buy a five-bedroom house in the town, thinking his job as a railway maintenance worker at Rio Tinto would last until he retired. But the end of a one-in-a-century mining boom changed all that. He now owes A$222,000 ($168,764) and earns A$42,000 a year as a cleaner, or roughly half his pay at the mine.”

“‘My property in 2010 was worth A$905,000, today it’s worth A$260,000,’ Lynch said, estimating that seven out of 20 homes on his suburban street were for sale.”