November 9, 2017

A Question In The Mind Of Every Householder

A report from CTV News in Canada. “The City of Vancouver has begun rolling out empty homes declarations, asking homeowners to divulge whether their property in Vancouver is their primary residence, in preparation to start collecting the new empty homes tax. The city estimates there may be as many as 25,000 empty or under-occupied homes in Vancouver. The new tax is one per cent of the property’s assessed value. That’s $10,000 on a million dollar home. The city says the declarations will be audited to ensure owners are telling the truth. Bruce Kaufman, a California resident, is part of a group called Unfair Vancouver Tax that’s pursuing legal action with the city. Kaufman has been coming to Vancouver for the past 17 years—he usually stays from April-October.”

“Kaufman says he’ll declare his home vacant on the form, but it may soon be for sale. ‘After 17 years… we have given serious consideration to leaving Vancouver,’ he said.”

The Australian Financial Review. “Chinese buyers purchasing overseas residential property to keep vacant nearly halved over the past six months as the need for rental yield prompted more owners to lease out their homes, the latest UBS Evidence Lab survey shows. The investment bank’s latest half-yearly survey of more than 3,000 mainland Chinese consumers shows people purchasing property overseas to keep vacant fell to 14 per cent in August from 25 per cent in March even as the proportion saying they purchased an overseas home only for temporary use ticked higher.”

“‘This may reflect the yield component of return becoming more important to investors,’ said Kim Wright, UBS’s global head of real estate and a co-author of the report. Over the past six months, the proportion of buyers financing their purchases fully in cash - either through their own savings or with the help of family or friends - increased to nearly two-thirds, while the proportion borrowing from Chinese banks in China dropped. Of the third who did borrow, nearly all of them used Chinese banks for mortgages. ‘We expect those who borrow from Chinese banks from within China, they use local mainland properties as collateral,’ Ms Wright said.”

From Hawkes Bay Today in New Zealand. ” The Government’s amendment to the Overseas Investment Act, which will classify housing as ’sensitive’ will create over-supply and negatively impact prices, according to one real estate expert. Regional director of Property Brokers, Paul Whitaker said New Zealand as a whole would be affected. ‘It will be a merry-go-round; more cost to the landlords which means rent will increase, causing it to have an impact on the rental market - nobody wins. As far as prices go, we will see a flattening in the market due to their overseas policy.’”

“He said the change would ‘heavily affect Auckland’. ‘Houses will sell slowly and it will in turn mean that there will be an oversupply situation. It is a shame for people who have bought recently, as they will be most affected with losing equity.’”

From Bloomberg on the UK. “London’s housing market is being battered from all sides. A survey by the Royal Institution of Chartered Surveyors showed a price gauge at its lowest level for seven years, and far below the national average. Real-estate agents are more pessimistic about the market in the capital than any other region, with contributors flagging a potent mix of concerns. There’s also evidence that the weakness in the capital is spreading — most U.K. regions showed a drop in sales in October, while a national gauge of prices turned dropped to near zero, indicating stagnant prices.”

“‘We usually have buyers registering, keen to move before Christmas’, said Alan Fuller of Allan Fuller Estate Agents in Putney. ‘So far we are registering 80 percent less than normal during October. Vendors more receptive to price drops and some are agreeing to 10 percent reductions, which are then attracting interest.’”

“‘The sales market has dramatically changed and technically crashed across the board,’ said valuer Josh Homans. ‘In E2, the difference between asking and sale price is a staggering 20 percent.’”

From “According to Hong Kong-based Bernstein analyst and ex-pat Kiwi Michael Parker, China’s real estate is the most important asset class in the world. In a paper co-written with fellow analyst Katrina Fu and titled: BTW Asia: A Bit of A Fixer Upper… Why Chinese real estate is the world’s most important asset class Parker and Fu say the ‘most compelling bear thesis on the Chinese economy – and the global economy’ – starts with the Chinese property market.”

“The say a mis-managed monetary tightening in China might result in a sudden decline in both Chinese property prices and construction activity. Commodity prices and demand for capital goods globally would collapse. Chinese consumer confidence would fall. Confidence in the economy overall would be undermined, triggering a re-emergence of foreign currency reserve outflows and the same fears about capital flight that we saw in 2015.”

“‘We estimate that today over half of the private wealth in China is tied up in real estate,’ the two analysts say.”

“They say a loss in the value of Chinese real estate creates a simple question in the mind of every Chinese householder about the perils of being the last individual globally holding RMB-denominated assets: ‘what am I waiting for?’”

“The analysts say Chinese property prices also drive wealth effects and with it demand for premium autos, gaming activity, luxury goods, premium spirits, air travel, leisure, hospitality, aircraft… and demand for general retail of every description. China is either the largest consumer of each of these categories globally or holds the largest growth share in each of these categories globally.”

“‘In short, every aspect of the Chinese economy – consumption, imports, capital outflows, industrial activity, commodity prices, and even social justice metrics like inequality – come back to the Chinese property market. The interdependencies may not be as strong as English noblemen buying and selling each other gilts in 17th century London. But regardless, Chinese property has become the world’s most important asset class,’ they wrote.”