June 13, 2017

The Infatuation Had A Short Shelf Life

A report from the Bangkok Post in Thailand. “Over the past several years, concerns have been periodically raised about the possible re-emergence of a bubble in the Thai housing market, particularly on the back of condominium oversupply in Bangkok. The latest warning by Supachai Panitchpakdi, a former director-general of the World Trade Organization and secretary-general of the UN Conference on Trade and Development, about a possible property bubble, has further driven home those prospects. But is Thailand heading for a 1997-style property crash?”

“Prasert Taedullayasatit, president of the Thai Condominium Association, says developers have been more cautious in launching new supply after they learned a significant lesson from the 1997 financial crisis. ‘High household debt, which had an impact on homebuyers in the middle- to lower-end segment, has driven developers to launch new supply in higher-priced segments,’ Mr Prasert says. ‘Everyone learned a lesson.’”

The Daily Mirror in Sri Lanka. “While dismissing fears of a property bubble, Fitch Ratings Lanka said Colombo’s luxury apartment buildings may end up becoming incomplete ‘ghost projects’ if developers continue without strong pre-sales in a market that is currently in oversupply. ‘The question is whether the developer has a cushion? Does he have a fall back? Now in that scenario you could have ghost projects; meaning someone who has a skeletal structure up, cannot complete it, and banks aren’t likely to give you funding when there’s a glut,’ Fitch Ratings Lanka Managing Director Maninda Wickramasinghe said.”

The Irish Times. “On the way down, we convinced ourselves it wasn’t happening, or at least most of us did. Warnings about the unsustainable nature of the Irish housing market went unheeded or were countered with guff about soft landings and demographic imperatives. The naysayers, that minority of bankers, investors and economists who raised a red flag, were painted as cranks; contrarians; those who got in the way of business.”

“Regardless of where the Irish market is headed, John McCartney, director of research at estate agency Savills, believes the two biggest problems of the last decade will be avoided. ‘Because the credit has been rationed [courtesy of the Central Bank’s lending rules] you’re not going to get banks with heavy losses arising from bad loans; and we’re not going to get people with impossible debt burdens.’”

“He also doesn’t believe that this period of very rapid house price growth will be followed by a crash either. ‘I think it’s just going to be a glide path to slower, more sustainable growth. The fact that so many investors are piling into the market is indicative that there are very good returns and the reason that there are such good returns is that rents are growing so strongly and the reason that that’s happening is because there is not enough housing units to go around.’”

The South China Morning Post. “The developer has been forced to stop the sale of the remaining converted apartments at its luxury serviced apartment project, Arch Residence, on the Huangpu River in Pudong. More than 100 buyers who bought the converted apartments last year for prices ranging from 9 million yuan (US$1.3 million) to 18 million yuan now face potential huge losses, according to sources.’

“‘The value of this kind of apartment will certainly drop significantly as most buyers are unwilling to pour money in these properties. People don’t know what the government will do next with these apartments,’ said Clement Luk, chief executive for east China at Centaline Property.”

From The Tyee in Canada. “Steve Saretsky began his career as a realtor in Vancouver just as home prices climbed to crazy highs. He realized most of the things the public hears about the market are either false or over-simplified. So he decided to expose the truth. In Saretsky’s words: ‘I would boil it down to low interest rates creating an easy credit environment, slash foreign capital coming in and distorting the market, and ultimately, as prices went up, it fuelled a fear-of-missing-out speculation.’”

“In the meantime, developers are adamant that our housing crisis could be solved simply by building more condos. Saretsky isn’t buying it. ‘When you’re pushing supply as the solution, and then you’re ultimately selling it overseas to foreign speculators, it’s really not helping locals,’ he explained to Global News.”

“Saretsky knows he isn’t the only person in real estate who desires serious change. Some industry people worry about the type of city their children will grow up in. Or the economic fallout from a housing crash. ‘A lot of realtors I’ve spoken with want some sanity to the market,’ Saretsky explained. ‘They know it isn’t sustainable.’”

The Vietnam Express. “When the bubble inflated in 2007, My didn’t see it coming. Like many others, the Vietnamese car dealer quit his job to become a real estate investor, after seeing robust growth in a market that appeared to have an army of homebuyers willing to line up for villas and apartments from midnight — an image perpetuated by the local media at the time. The infatuation had a short shelf life.”

“The market in Ho Chi Minh City crashed that same year, triggering a long phase of freezing that followed. Some refused to admit that the bubble had burst, or even rejected the idea of a bubble in the first place. For My, the damage of the burst has always been real. As home prices plunged and the costs of bank loans soared, he turned from a hopeful investor to a debt-ridden man. Even though all of his company’s assets have been seized, creditors are still following him every day, hoping to recover more for their own losses.”

“Khai, another investor hit by the 2007 crisis, has counted himself among the lucky ones. Betting on several properties in Binh Duong, he always hoped he could reap a 15-20 percent return as promised by his brokers. He even mortgaged his house in Ho Chi Minh City to secure the deals. What came after that was a nightmare for him: land prices dropped, interest rates surged and buyers disappeared. He rushed to sell his properties despite huge losses. Then he borrowed from his relatives to pay the banks.”

“‘Had I not acted quick enough, I would be a homeless man now,’ Khai said, asking to be identified by his first name only.”

“Watching the so-called land fever in Ho Chi Minh City unfold in recent months, a businesswoman couldn’t stop thinking about the bubble a decade ago. Speaking on condition of anonimity, she said she has been warning everyone around her about a possible bubble. Her advice: investors should stay out if they have to rely on bank loans. She turned to leveraging when she entered the market in 2007. Bank loans accounted for half of her investment and, after three years, ‘I had nothing left but debts to pay,’ she said.”

“Land prices in suburbs skyrocketed in the first five months, increasing by 30 to 40 percent between January and May in many outlying districts. Figures from leading real estate advisers CBRE and Savills showed that the land market is cooling down. Sales in the residential sector in the first quarter fell 13 percent from late last year with a 47 percent drop in the apartment sector, according to Savills. Duong Thuy Dung, director of CBRE Vietnam, said that the market in the megacity has shown signs of a slowdown and the question is how long it will be able to maintain a safe distance from crashing.”