May 24, 2017

Genuine Sellers And Speculators Alike High And Dry

A report from Bloomberg on Canada. “Home Capital’s troubles started with ‘unlucky’ brokers. That’s what Canadian banks and insurers call the mortgage merchants who get caught submitting fraudulent loan documents. Yet the brokers, whose names are now on databases maintained by lenders and mortgage insurers, can still win business since they haven’t been prosecuted for fraud. The failure to stop such practices is exposing cracks in Canada’s vaunted regulatory structure, drawing parallels to the U.S. a decade ago. ‘The early days of growth in the subprime market in the U.S. were like this — then it got out of hand,’ said Jim MacGee, an associate professor of economics at Western University in London, Ontario. ‘At some point, you’re going to have people who take short cuts. When people are facing pressure to get into a house, you have brokers who are facing pressure to get them in there. They just hear, ‘How can you get me in there?’”

From AOL Money on the UK. “A house price crash is notoriously difficult to predict. At the time, we all merrily carry on buying and selling, oblivious to the fact that disaster is lurking just around the corner. It’s only after the fact that we can see the glaring signs that change was coming. The signs are there, however, if you look closely, and should be ringing alarm bells for us all. House prices have reached a record of 7.6 times earnings, which has pushed them out of reach of a huge number of buyers. In some parts of the country, they have hit more than ten times average earnings.”

“A third of properties on the market at the moment are discounted by an average of £25,000. Prices have fallen over the past month, and the past three months. In the pricier parts of London, the falls are even more marked. Prices here peaked some time ago, and in many cases have dropped significantly since. The number of buyers registering with estate agents is falling too. In March, the number of buyers per branch dropped to 397 - down from 425 in February. It means that despite the fact that there are very few homes for sale - sellers are still struggling.”

The National on Dubai. “‘Why do you still recommend Dubai property as an investment?’ asked an old friend worn out by an onerous refurbishment project and annoyed at the recent fall of rents in the city. Landlords have seen the capital value of their units fall in value by 25-30 per cent in the past three years since the government acted to prick what looked like another housing bubble in formation back at the end of 2013.”

“You have to look at the downside risk in stocks and note that hey, it looks an awful lot bigger than the upside. Dubai property by contrast looks to be at the bottom of a classic three-year real estate down cycle. As I have remarked in this column before, this summer is likely the bottom. Note that my picks are completed and not off-plan property. I am weary of anything that smacks of flipping property after watching the implosion of the last Dubai bubble in 2009. The rental yield of a villa or apartment yet to be delivered is zero, and negative really if you have to keep your money tied up in it for much longer than originally promised.”

“One final reason to pick real estate over stocks and bonds is so obvious people often forget it – the leverage of a mortgage.”

The Japan Times. “Apartment construction is booming as the wealthy rush to invest in rental housing as a way to reduce inheritance tax and banks hand out easy mortgages, but concerns are mounting that excessive supply paired with a shrinking population could soon lead to the bursting of the bubble. Many are investing in apartments to take advantage of a discount that applies to land with rental housing on it. Banks have been only too happy to accommodate them with mortgages.”

“The rapid expansion of housing supply has left landlords in areas other than Tokyo and Osaka struggling to fill units. A realtor at a major company warned that the market is ‘in dangerous territory where landlords are struggling to pay the bills.’”

The Vietnam Bridge. “Tien Phong has quoted analysts warning about a ‘bubble’ in the high-end apartment market segment, with more and more apartment projects put up for sale recently. From central business to new districts, investors and brokers are struggling to boost sales. High-end apartments are in a two-year slump. ‘Hanoi doesn’t have more low-cost apartment projects, while there are very few new house and villa projects,’ explained Nguyen Van Dinh, deputy chair of the Vietnam Real Estate Brokers Association.”

From The Australian. “Rents for Brisbane apartments have fallen by as much as 17 per cent over the past six months amid an unprecedented flood of unit ­developments on to the city’s market, according to one of Queensland’s biggest property managers. Prominent agency owner Andrew Coronis, managing director of Coronis, which operates 23 offices across southeast Queensland, said tenants were moving more readily to get better deals, forcing existing unit stock and ‘investor-style’ apartment owners to cut prices.”

“Brisbane’s market has suffered a sharp turnaround with a collapse in off-the-plan apartments to one-third of the level compared to last year and strain in the construction industry resulting in builder CMF Projects going into admin­istration. ‘We’re seeing a 17 per cent drop in rents and it is happening right now,’ Mr Coronis said. ‘It is between 10 (per cent) and 17 (per cent). Everybody is scrambling to lock tenants down.’”

The China Economic Review. “Struggling to control a housing bubble, the city government announced measures on March 26 that effectively closed loopholes that had allowed new commercial buildings to be turned into homes and sold to individual buyers. The new measures have purchasers of such homes scrambling for a way out, Caixin reports. In desperation, dozens of buyers trapped in other commercial housing developments appealed to the city government for help The restrictions have also sent the commercial real-estate market in China’s biggest cities into a tailspin, leaving genuine sellers and speculators alike high and dry, and forcing developers to change their business models.”

From Shanghai Daily in China. “About one month ago, Janet Li moved into a two-bedroom apartment with her husband in the Huangpu District. In what was a bit of a surprise, the couple was able to find a rental in just over a week. The landlord, whose flat has been vacant for three months, was so happy when the property agent brought Li and her husband to view the apartment, that she reduced the rent by 1,000 yuan (US$144) a month, about a 7 percent discount.”

“Many factors play into the decline. Migrant workers are going home as metropolitan life becomes too expensive and job prospects in the hinterland hometowns improve. People investing in rental properties have increased, causing a glut of homes to let. And people who can’t sell homes in an increasingly regulated market are sometimes forced to rent them out instead.”

“‘I’ve heard so many times from work colleagues and friends that rents have been soaring in Shanghai in the past few years,’ Li said. ‘I hardly expected a landlord to give us discount and even without any haggling. This will give us time to look around for an apartment to purchase and will help cut commute time for me and my husband.’”