November 10, 2017

The Heady Days Are Over

It’s Friday desk clearing time for this blogger. “We’ve recently begun seeing more and more of that rarest of rarities in San Francisco: the price reduction. For homes that come to market in October and fail to find an immediate buyer, the reductions can come within weeks. At Baker and Sutter, for example, a top-floor condo with three bedrooms and two baths came to market October 19 asking $1,495,000. By November 2, it had already dropped its asking price by $100,000. At 540 Fillmore Street, the updated Victorian single-family came to market asking $3,595,00 on October 16. Weeks later it dropped $200,000 off the asking price.”

“In a fact-filled presentation Randy Thibaut compared Southwest Florida’s real estate market to that ‘nasty sea hag Irma.’ As with the hurricane, he said, ‘There are things we need to watch for or we get slammed.’ Thibaut, president and CEO of Land Solutions Inc, offered several examples of developers struggling to get high-rises off the ground in Fort Myers. He cautioned there are always ups and downs in any real estate cycle, Thibaut said. ‘We are right now statistically on some borrowed time,’ he said.”

“While the vast majority of condo projects proceed as planned in Toronto, CBC News has learned that more than a handful of proposed projects have failed this year alone, leaving hundreds if not thousands of buyers in limbo. Earlier this year, a project adjacent to the Mimico GO station in Etobicoke was placed into receivership after the developer, Stanton Renaissance, failed to meet its financial obligations. The company owed millions to suppliers and contractors. Hundreds of people who bought proposed condos and townhomes from Urbancorp are still fighting the bankrupt developer in court to recoup some of their losses.”

“Real estate lawyer Bob Aaron says it doesn’t take much for a proposed condo to fail. A developer can simply decide they don’t want the hassle of building if profits appear to be diminishing. ‘It’s always a case of buyer beware,’ he said. ‘Sometimes purchasers think, ‘I’m going to make so much money, I don’t care about buyer beware, I’ll take the risks.’ Sometimes when the market gets a little tighter, people are a little more cautious.’”

“Britain’s housing market is vanishing before our eyes. It’s not that prices are in free-fall — so far — but the number of transactions actually completing is dwindling. Houses of all prices have been hit, the data from the Land Registry show. By September, the drought had hit hardest those homes priced at about 500,000 pounds close to the median price for the city.”

“With Windhoek houses for sale spending an average 24 weeks on the market (and 27 weeks in the upper income segment alone), the country’s residential property market has shifted from a sellers’ market to a buyers’ market and this has caused a notable drop in price growth. Leading FNB analyst Josephat Nambashu says, ‘housing demand is faltering’ and when the properties on the market eventually do sell, ‘98 percent sell below the original asking price.’”

“BIDV’s Exchange No 2 has announced the auction of debt of Vina Medin JSC and 584 Group, worth VND1.1 trillion, including the principal and interest as of July 31, 2017. The starting price is VND810.3 billion. The collateral for the loan is a 174.5 square meter land plot and the 584 Tan Kien residential quarter project in Binh Chanh district, which includes two 15-storey apartment buildings with 700 apartments. Some days ago, VAMC announced that it had seized Saigon One Tower building developed by Sai Gon One Tower JSC because the debtor failed to pay off its debts (principal and interest) of VND7 trillion.”

“The future of the projects seized for foreclosure is uncertain. Tens of people who paid 80-90 percent of value of apartments showed protests against the plan to turn the apartment project into a hospital. According to the HCMC Real Estate Association, in HCMC alone, 470 projects are frozen, most of which are collateral for loans.”

“An avalanche effect is working through the Sydney housing market with slower buyer demand feeding into lower vendor expectations and back again, resulting in flattened house prices two months in a row for Australia’s most expensive market. Asking prices have decreased about 3 to 9 per cent for the lower north shore, including Neutral Bay and North Sydney. Numbers at open home inspections have shrunk by up to 80 per cent, with one agent, who didn’t want to be named saying he had 5 people turn up at an inspection in North Sydney. A year ago, when he sold the same property, he hosted 45 buyers.”

“Twenty-eight-year-old Auckland property investor Tim owns one property that is negatively geared. At present, the sting of some of that pain is removed each year when he is able to claim a $2000 or $3000 tax refund. But that is set to change. ‘As part of a comprehensive response to the housing crisis, the Labour-led Government will remove the ability of speculators to offset losses from their property portfolio against their other sources of income in this term of office,’ Revenue Minister Stuart Nash said.”

“Tim, who does not want to be identified, said he would notice the difference. ‘But whose fault is it really, for buying overly-expensive property with low yields? I only have myself to blame.’”

“This Government seems intent on cementing the slowdown in house price inflation. Policies such as bans on foreign buyers, Kiwibuild and reduced immigration are just some of the factors that will adversely affect the housing market. It is worth considering the likely implications of a stagnant or declining housing market. It is becoming obvious that the heady days are over. The end of the housing boom is likely to expose an unpleasant truth. We are a relatively low-income developed economy with a high cost of living. Housing inflation has helped disguise this truth in recent years.”

“People have been willing to overlook the lack of growth in their pay packets as their houses have increased in value. This is the likely reason why the previous government was unwilling to collect meaningful data on the effects of overseas buyers on the market. An early sign of a slackening in the property market is a dramatic fall in sales volume. This is already occurring. A further sign is a fall in the number of real estate agents. Another sign is a proliferation of ‘for sale’ signs on properties and a decline in auction clearance rates. This is also starting to occur. The final sign is the welcome end of ‘renovation and resell’ programmes being screened on television.”

“There is an interesting irony in all of this. These ultra-low interest rates are due to expansionary monetary policy which is a legacy of the global financial crisis. The GFC was largely the result of unwise lending practices. So people have been encouraged to borrow more to get us out of the mess created by unwise borrowing. That makes sense?”

“A moribund or stagnating housing market is likely to weigh heavily on the wider economy in terms of output and employment. It exposes the reality that no country in history has become wealthy off housing inflation. As this reality sinks in this Government is likely to cop the blame. But we have been living in fantasy land for a long time and many of us knew it. We just choose to ignore it.”