May 29, 2017

Too Much Money Gets In And You End Up In Tears

A report from the Toronto Star in Canada. “A stomach churning drop of up to 61 per cent in the number of home sales in some municipalities around Toronto could translate to a single-digit decline in regional prices by the end of the month, says a realtor who has crunched the numbers. John Pasalis of Realosophy, found that Toronto region ground-level home sales — detached, semi-detached and town houses — dropped 26 per cent overall between April 20 and May 20 — the period directly following the provincial Fair Housing plan announcement designed to cool real estate speculation in the area.”

“‘Of all the sellers out there, half of them aren’t motivated, the other half are desperate because usually they’ve already bought a house. They weren’t planning for this slowdown and it’s very difficult because they need to sell and they have no options,’ said Pasalis.”

From Mmegi Online on Botswana. “The state of the economy has also affected the residential market where demand for high-end properties has severally diminished while low to medium housing is in low supply. Gaborone has a diminishing supply of low-to-middle income housing, with most people on average incomes finding it difficult to locate affordable housing or finance their own self-build homes.”

“‘Many residential buy-to- let investors are struggling to find tenants, particularly as expatriate workers have found it difficult to renew work permits. Sales at the high end of the market are far less frequent and likely to stay muted for some time,’ states the Knight Frank Africa 2017 report.”

The Daily Trust in Nigeria. “An Estate Valuer, Joe Nelson, has explained that landlords are cutting down on house rents in Benue State due to adverse effect of recession on tenants. Tenants in the state who are majorly civil servants are being owed salaries between five and 10 months. Nelson told our correspondent in an interview that house rents were seriously on the decline. ‘House rents have reduced drastically because in any recess economy, the first victim is property,’ Nelson said.”

“He, however, expressed optimism that the value of property would rise after the recession. ‘But, right now, landlords are reducing rents for tenants. Some of them have taken away 30 percent off their rents to enable tenants pay and even at that only few occupants could renew their rents,’ he added.”

From The Island on Sri Lanka. “Sri Lanka’s high-end luxury apartment developments may already be in trouble, according to at least two developers responding the Central Bank’s concern over a property bubble that could potentially undermine the entire economy. The private Iconic Developments, an apartment builder, said it was aware of at least two projects that failed to take off resulting in cautious lending to the sector while another condo developer, Fairway Holdings, acknowledged a ‘bubble’ in the high-end segment.”

“Central Bank of Sri Lanka Governor Indrajith Coomaraswamy announced earlier this month that they were closely monitoring the real estate sector after fears that excessive credit may have fuelled a property bubble that could cause distress to all. He said a low interest regime about three to four years ago encouraged money into real estate which at the time appeared to give the highest rate of return on investment. ‘What has been happening is that this sector has given a much higher rate of return than anything else,’ he said. ‘When that happens, in whatever sector, usually too much money gets in and then you end up in tears.’”

From The Edge Malaysia. “The residential property market in Johor will remain under pressure with the completion of several high-rise residential projects in the next few years, according to industry observers. About 9,500 ‘five-star living’ condominiums in Country Garden Danga Bay will be ready by September, putting more pressure on the rental market in Johor Baru.”

“However, Bursa Malaysia-listed Johor-based developer BCB Bhd is unfazed by the oversupply in Johor as most of the projects launched by Chinese developers were started in the past few years and most of them had been taken up by investors between 2014 and 2015. ‘As most of the buyers are from China, I don’t think they will resell their properties. They will likely rent them out, so the concern should be the impact on the sub-sector; the pressure will be on the rents,’ BCB executive director Tan Vin Sern tells The Edge.”

From AFP on China. “Quick and easy access to credit has encouraged many young Chinese to go into the red to buy cars and apartments they could not otherwise afford. When Wu Qi and her husband traded in their Mazda 3 for a more expensive Mercedes Benz sedan, they applied for a 200,000 yuan (US$29,000) bank loan to help pay for it. They got the money within minutes. ‘It is very easy - the car company encourages you to borrow the money and enjoy the car,’ said Wu, 39, adding the couple is also paying off a one million yuan mortgage for a three-bedroom flat in Beijing.”

“Since Chinese leaders turned on the credit taps in late 2008 to shield the country from the global recession, household borrowing has soared and pushed China’s overall debt liabilities above 260 per cent of gross domestic product - compared with about 140 per cent before the crisis hit. But slowing growth in the world’s second-largest economy has raised concerns that years of risky lending could lead to a disaster worse than the US sub-prime collapse.”

“Mortgages make up the bulk of household debt. ‘Other countries have usually taken decades to complete such an increase,’ said Chen Long, an economist at Gavekal Dragonomics. ‘For bank lending to households to rise very rapidly usually means lending standards are loosened so credit is extended to both more and less creditworthy consumers.’”

From ABC News on Australia. “Sign a lease, and get a free TV or an iPad. How about a $500 gift voucher, two weeks’ free rent? Or, a free gym membership? These are just some of the out-of-the-box incentives agents are offering renters in south-east Queensland to get them to sign a lease. The rental vacancy rate within five kilometres of Brisbane’s CBD has reached a record 4.4 per cent, driven by a glut of apartments. It is pushing rents down, some slashed by an estimated 10 to 15 per cent.”

“Real estate agent Gabrielle Trickey has taken over managing a three-bedroom Queenslander at Paddington that has been empty for three months at $600 a week. It had been going for $650. Tenants only swooped after Ms Trickey advised the landlord to drop the rent to $580. She said the owners are competing with flashy units, where the rent is the same, but they get pools, spas and saunas. ‘A lot of tenants are actually offering a considerable amount less … up to $50,’ she said. ‘That is a real shock.’”

“Beyond property management’s Heather Jopson offered a $500 gift voucher to entice renters to a townhouse in Jubilee Terrace, Bardon. It was a hard hit, but dropping the rent from $580 a week to $495 a week also stung. Vacancy rates outside the 5km CBD radius sit at 3.7 per cent, which is considered healthy by the REIQ. Nevertheless, outer suburbs are not immune to the price drops. Another of Ms Jopson’s properties, this time in Inala has gone from $350 to $320, after a tenant broke the lease.”

“‘It is tough time at the moment but I don’t think it is dire straits, it is just the new norm,’ she said. ‘I don’t think we are going to crash and burn from here.’ In the meantime some prospective tenants continue to name their own price. Ms Jospon said most owners were very realistic about the market being soft at the moment. ‘There are some cheeky ones out there,’ laughs Ms Jopson.”