October 24, 2017

A Herd Mentality Has Resulted In Absence Of Value

A report from Baystreet in Canada. “Federal officials in Ottawa have announced new regulations that would make it more difficult for Canadians to qualify for uninsured mortgages – a move that will impact consumers with down payments of 20% or more. In a report to clients, Rob Sedran, an analyst at CIBC Capital Markets, said the banks are generally supportive of an ‘engineered slowdown’ of the housing market, as opposed to a downturn triggered by an unforeseen event. ‘OSFI hasn’t just tapped the brakes, it’s jumped on the brakes with both feet,’ said Rob McLister, founder of RateSpy.”

From Business Insider Nordic. “In the past two months, the sales of new apartments in Norway have declined by 33 percent compared to the same time last year, shows statistics from Economics Norway, an independent analytical group that tracks the country’s construction sector. In the capital Oslo – which has seen a heated housing market in the past years – the decline is nothing short of astonishing: 71 percent. ‘The number of unsold apartments in the capital are piling up,’ says Andreas Benedictow, chief economist at Economics Norway, to Norwegian daily E24.”

“The news follows a period of declining apartment prices in the Norwegian capital, which has been among the fastest-growing cities in Europe in recent years. No other Norwegian cities come close to Oslo’s decline, which is now dragging down the whole of Norway’s figures. A trend of declining house sales seems to be making its way to neighboring Stockholm, where, Veckans Affärer reported, dozens of apartments in attractive districts are now going unsold – a situation that was all but unthinkable until recently.”

From Muscat Daily on Oman. “Public opinion on the streets of Muscat. Do you think rents have really gone down? Are tenants calling the shots when it comes to rent negotiations? Dr Thashli, Physician and diabetologist: Yes, rents have come down but the reductions vary from place to place. While areas like Qurm and Madinat as Sultan Qaboos have witnessed substantial reductions other popular areas like Ruwi and Al Khuwayr have seen marginal drop. Tenants can bargain in areas where the drop is more.”

“With so many ‘For rent’ signs across the city, do you think the real estate market is likely to improve in the near future? Aiman al Musallami, Bank employee: No, I don’t think so. Though, things will stabilise but one can’t expect anything big unless the population increases. The reason is there are more houses and flats than people themselves.”

From The National. “Residential rents and sales prices in Abu Dhabi declined in the third quarter of 2017 on the back of economic tightening and the release of new housing stock, according to real estate consultancy JLL. Craig Plumb, head of MENA research at JLL, said the downwards trend would continue into the fourth quarter of 2017. ‘Rents are low across the board, which is good news for tenants,’ he said. ‘We expect this trend to continue, probably at the same rates, as we see no reason to suggest price stabilisation.’”

“He added: ‘Oversupply is not the problem in Abu Dhabi – it’s lack of demand, due to job cuts, corporate restructuring and reductions to housing allowance. So affordability for tenants is crucial and they are looking at cheaper options, of which good quality ones are not widely available. There are no signs of the market bottoming out yet.’”

From The Sun Star in the Philippines. “While a bubble remains uncertain, Professor Enrique Soriano, executive director at W+B Advisory warned that the country’s property sector is already on an overextended run for almost three years now, from the usual 10-year cycle. ‘Whatever gains we are making in the extended two-year-period is already a bonus for the property sector. But, any extension will always have some dangers…at some point, it will slide,’ said Soriano, who has witnessed the ups and downs of the property sector since 1987.”

“Soriano cited a herd mentality even among inexperienced real estate players, which has resulted in tougher competition, lousy project concepts or absence of value proposition, among other factors that make condo-selling difficult these days. An oversupply is happening when sales velocity is no longer as robust as before, he explained. Second, if buyers are already coming from outside Cebu or as far as Mindanao and third, if overseas Filipino workers (OFWs), who are mostly the main target buyers, are no longer buying. ‘We now have a tougher market,’ he said.”

From AFP on New Zealand. “Overseas buyers will no longer be allowed to purchase existing homes in New Zealand, Prime Minister-elect Jacinda Ardern said Tuesday, as she unveiled a raft of policy deals made with her coalition partners. The move to tackle soaring property prices was agreed during lengthy negotiations between the Labour Party leader and populist powerbroker Winston Peters to form a new government that also includes the Green Party.”

“Ardern announced plans to slash immigration and focus on regional development and job creation. ‘We have agreed on banning the purchase of existing homes by foreign buyers,’ she said, specifying that the new rules only applied to non-residents. Anti-immigration campaigner Peters, whose support was crucial for Ardern to form a ruling coalition in the 120-seat parliament, said a message has been sent that New Zealand was ‘no longer for sale’. ‘There is going to be a change and a clear signal sent internationally that New Zealand is no longer for sale in the way it has been. We’re happy with that,’ Peters said.”

The Australian Financial Review. “Big banks are set to announce tougher measures to crack down on high rise apartment purchases including blacklisting more than 100 Brisbane suburbs, doubling the minimum apartment to qualify for funding, evidence of rental cash flows and tough new valuation criteria. Lenders such as Adelaide Bank are introducing ‘minimum funding requirements’ requiring apartments to have their own bathrooms, kitchens, laundries and windows in key rooms, such as bedrooms and lounge rooms.”

“Others, such as Suncorp Bank, the nation’s fifth largest mortgage lender, are circulating a confidential list of 39 Brisbane postcodes covering more than 100 city and metropolitan suburbs where the new lending restrictions will apply. ‘Our settings have been adjusted for postcodes based on recent weakness in the investment unit market in Brisbane, with evidence of a reduction in prices,’ a Suncorp Bank spokesman said.”

“Nervous lenders are turning the screws on apartment buyers amid growing concerns about over-supply, falling prices, restrictions on foreign buyers and potential risk from combustible cladding widely used on high rise apartment exteriors. For example, new apartment sales in the Queensland capital have reportedly collapsed by more than 70 per cent in a year, prompting desperate developers to offer lucrative incentives to attract buyers.”

The Economic Times on India. “Talking to ET Now, Shubham Jain , VP & Sector Head - Real Estate, ICRA , says while cumulative sales volumes have really grown by around 40 odd per cent, out of a sample of 11 companies, only four companies have shown positive growth in volumes whereas other seven have still shown a declining trend. ‘Every year there is all this talk of how we are going to see a recovery. We do not see that. There is so much unsold inventory and at the same time, the government is talking about affordable housing. We all know what is happening with the bank and real estate developers. Are you seeing any signs of a recovery?’”

“Q: ‘Earlier, we have seen that companies, different investors were very aggressive when it came to buying land. They were taking huge loans and buying land. They were bidding quite aggressively. Do you think that the way these companies, these investors were thinking has changed?’”

“A: ‘Definitely. The trend of various companies investing into land bank has significantly declined over the last two-three years and there are multiple reasons for that because already there is so much of inventory in the system that they are focussing on completing the inventory and clearing off that inventory first before buying your new land and launching further new projects. Also investors are not there in the market at all. Earlier real estate used to be a very strong option for investors. Even for salaried class, who were buying second or third homes. But now with falling rental yields and very low appreciation in the real estate prices, I do not think that any one is looking at real estate as an investment option anymore.’”