Speculators Who Bit Off More Than They Could Chew
A report from the Globe and Mail in Canada. “In the midtown Toronto areas of Leaside and Davisville, the real estate market has been bouncing between optimism and despair like a yo-yo. Patrick Rocca, a real estate agent with Bosley Real Estate Ltd., has concentrated much of his business on the tree-lined streets radiating out from Bayview and Eglinton Avenues. But even in those stalwart family neighbourhoods, real estate deals can be hard to put together these days, says Mr. Rocca, who has been shocked by the market’s swings. ‘You knew something was going to happen. It was mind-boggling. It was scary,’ he says of the market’s unfettered rise in the spring and the Ontario government’s moves to tame it. ‘I knew something was going to happen – I just didn’t know how quickly it was going to stop.’”
“A house that might have sold for $1.5-million in the fall of 2016 could have fetched $1.8-million in February. Now, it’s back to $1.5-million. ‘The sellers are still thinking March prices; the buyers are still thinking there’s downside.’”
“John Pasalis, president of Realosophy Realty Inc., says sales in the first half of August in the Greater Toronto Area fell 42 per cent from the same period last year. Again, the drop in freehold properties was more severe, with a 46-per-cent fall compared with a 34-per-cent decline for condos. Mr. Rocca is coaching sellers to be more clear-eyed by showing them the figures from recent sales. ‘They missed the boat. It’s been difficult. They should have sold in March, but they didn’t.’”
“Prices were escalating at an annual pace above 30 per cent before the Ontario government introduced policies designed to cool the market. One of those moves, a non-resident speculation tax, adds a 15-per-cent levy on real estate purchases by foreign buyers. ‘I think the foreign tax really hit our area,’ Mr. Rocca says. Mr. Rocca sold one house in February that had 11 competing buyers show up at the table. ‘Everyone was foreign,’ he says.”
The Daily Telegraph in Australia. “There are nascent signs Chinese foreign buyers have toned down their enthusiastic buying of Sydney property. Beijing has narrowed the window for capital outflows to Australia. At the same time, Australian banks have tightened lending criteria to mainland China investors due to APRA regulatory requirements, and in some cases won’t lend to foreign investors at all. This week Chinese local and international estate agents reported a sharp drop-off in sales over the last six weeks as new property taxes took effect after the NSW state budget.”
“Dr Nellie Liang, who was in Sydney recently to share her views on financial stability with the Reserve Bank of Australia, said a ‘trigger’ could be a reversal in international capital flows. ‘When you have the outsiders buying properties, if the outside money pulls out and prices fall, there’s innocent bystanders who took on debt and end up under water, which could lead to defaults,’ Dr Laing, a senior fellow at the Brookings Institution in Washington, said.”
“Twenty per cent moves in house prices isn’t crazy any more, Dr Laing even suggested. ‘China is such a big economy now, and they have links to other countries, including to Australia and Canada through the housing markets, that people need to be thinking about.’”
“Sydney has enjoyed a stellar run with Chinese purchases, but a 50 per cent sales outcome at last weekend’s major Sydney CBD off the plan offering was the lowest take-up in many years. And there are still record numbers of new apartments approved and likely to come onto the market. Hopefully the cooling trend in Chinese buying interest is more a pause rather than a conclusion.”
The Guardian in the UK. “China’s largest commercial property company has pulled out of a £470m purchase of Nine Elms Square in south-west London after pressure from regulators in Beijing over its overseas investments. A joint venture between St Modwen Properties and construction firm Vinci had exchanged contracts to sell the 4-hectare (10-acre) site, previously home to the New Covent Garden flower market, to Dalian Wanda’s Hong Kong division in June.”
“Beijing issued rules last Friday to limit overseas investment in property, hotels, entertainment, sports clubs and the film industry, and threatened to blacklist firms that violated those rules. This could put an end to Chinese firms’ recent spending spree in the UK. Chinese investors have spent a record £4bn on commercial property in the City of London and the West End so far this year, according to data from real estate firm CBRE.”
“The downturn in the London luxury housing market amid a glut of new properties coming on to the market made Nine Elms Square a risky investment for Wanda. It is still building the £700m One Nine Elms twin-tower complex nearby. The Malaysian developers of the nearby Battersea power station redevelopment have also been hit by the slump in sales at the top end of the market, and are scaling back plans for luxury homes.”
From Free Malaysia Today. “It is better for homeowners struggling to repay their housing loans to sell off their properties and avoid bankruptcy, says a property expert. Ernest Cheong said in doing so, a property owner avoids ending up with the bank foreclosing property if he defaults on payments and worse, declaring him bankrupt if outstanding loan amounts remain unpaid.”
“Commenting on recent remarks by a think tank that Malaysia’s property bubble was set to burst, Cheong said the situation was bleak for property speculators and genuine house buyers who overestimated their ability to afford properties worth more than RM800,000 between 2010 and 2015.”
“‘I believe those who purchased properties under RM500,000 will be okay. But for those who bought properties closer to the RM1 million mark, it might be a bit too late for them to get themselves out of a sticky situation. Say, for instance, you bought a RM800,000 condominium in 2014/2015, when the property market was at its peak. If you took a RM700,000 loan for 30 years, the monthly repayment is RM3,500 a month,’ he said.”
“To repay a RM3,500 loan a month, a person’s household income would need to surpass the RM10,000 mark at least. ‘But as we know, salaries haven’t increased at the same rate as the rising cost of living.’”
“He said speculators or home buyers who bit off more than they could chew a few years ago, should now look for an exit strategy, especially given that property prices are plummeting while the cost of living is increasing. ‘My advice is that if you feel you are unable to sustain your monthly housing loan repayments, try to sell it even if you end up making a loss, which is highly likely.’
“Cheong said since 2016, property prices have been dropping and on average, in the Klang Valley, property prices have dropped by around 30%. If you took a RM700,000 loan for a RM800,000 property, for the first three years, you’re only paying the interest. You still owe the bank the RM700,000 principal amount. So, if you can get an offer for RM800,000, you should consider yourself lucky given the drop in property prices.’”
“Cheong added that if a homeowner fell behind their loan repayments for three months, they’ll get a foreclosure notice from the bank. From that point on, if they try to sell their house themselves or if the bank forecloses it, it could take up to 18 months before the property is actually disposed of by auction.”
“‘You could even end up losing large amounts of money as you would have to pay various fees such as auctioneer’s fees and legal costs from the auction price which may be significantly lower than the market price. If you bit off more than you can chew, take this experience as a lesson. It’s okay to cut your losses and start again. There’s nothing wrong with selling your home and renting a house. It’s better than being declared bankrupt.’”
