The Housing Bubble

A report from the Toronto Star in Canada. “During a preliminary budget presentation at Toronto City Hall on Thursday, city manager Peter Wallace tried again to warn us about the threat posed by betting everything on the health of the real estate market. If anything, the costs for the city could go up if the market collapsed. A real crash in housing would likely mean a deep recession, with people losing their jobs and businesses failing. Imagine a scenario where land transfer tax revenue dropped by 40 per cent. A crash could actually be worse, because the volume of sales would almost certainly go way down, meaning not just lower payments but fewer of them.”

“A sudden need to find tens or hundreds of millions of dollars is going to be a world of hurt. ‘We’re gambling on the real estate market,’ Councillor Gord Perks told the Star this week, repeating a warning he has issued in the past. It’s a gamble on which his colleagues keep doubling down.”

From Reuters on Canada. “Toronto home sales were down in November from a year earlier. The average selling price for all homes types was down 2 percent at C$761,757 compared to C$777,091 in November of last year. Prices were also down 17 percent from the April peak. New listings rose 37.2 percent from a year earlier, when supply was below historic averages, while active listings more than doubled to 18,197 from 8,639 as properties sat on the market longer.”

From Malta Today. “During the conference organised by the newly set up ‘Property Malta’ last Thursday, the most important issue is whether Malta is experiencing a bubble in the property industry and the resounding reply was simply ‘no’. Those present at the conference were regaled with some staggering statistics. The declared gross value of property sales in contracts made during 2016 was over €2.50 billion. The industry creates 15% of added GDP in Malta. One out of every 9 employees in Malta works in the industry and related services: 37,275 jobs, equivalent to 11% of the working population of Malta.”

“Attributing all this economic activity to ‘greed’ - in contrast with other sectors of the economy where, apparently, people are not greedy (!), is nonsense.”

From Buy Association on the UK. “Homes are selling for an average 3.86% less than the asking price, with sellers in Wales having the least realistic expectations. Last month, it was revealed by Rightmove that more than a third of sellers had been forced to drop their asking prices in October – equivalent to £2,392. But buying agent and market commentator Henry Pryor said he was not worried by the state of the housing market, and believes the fluctuations are an overdue correction that will be welcomed by some. He also said than his clients had actually paid as much as 11% less than asking price.”

“‘The housing market is a double-sided coin,’ he said. ‘On the one hand, there are rising house prices; but on the other side of the coin there is the buyer, for whom lower prices are a good thing. This national obsession with ever-rising house prices is not something I subscribe to.’”

From Punch Nigeria. “Property developers as well as estate surveyors and valuers have said the real estate industry is still in recession despite the rebound in the economy. Some of them, who spoke with our correspondent, said many houses were still vacant and there was still high rate of default on rent payment by tenants. ‘No one wants to start a project that won’t be taken up. Prices have also nosedived and because of the challenges of having to spend more time and resources selling one property, our income has been affected and it has been challenging for estate surveyors and valuers and others too,’ said Victor Alonge, CEO Nelson Thorpe Alonge, a firm of chartered surveyors and estate surveyors and valuers.”

From Bloomberg on Hong Kong. “Hong Kong’s red-hot housing market shows no signs of cooling anytime soon. Prices in the city have climbed 11 per cent this year, defying skeptics waiting for the bubble to burst and government attempts to rein in the world’s most expensive housing market through a raft of taxes and mortgage curbs. An average 20,000 new private residential units come to market each year, barely enough to cover the 20,000 mainland Chinese who become permanent residents each year - allowing them to avoid the punitive stamp duties slapped on foreign buyers - let alone anyone else.”

“Cash-rich developers are pulling out all stops to entice buyers. At its Cullinan West project, Sun Hung Kai Properties is offering buyers finance of as much as 120 per cent of the purchase price: 90 per cent toward buying the new property, and 30 per cent to pay down their existing mortgage. Aggressive bids by mainland developers keen to build up land banks have pushed Hong Kong prices to records. Non-local developers account for 68 per cent of all government land purchases this year, according to Colliers.”

“In February, two mainland companies paid a record HK$22,118 (US$2,834) per square foot for a waterfront site. Those costs will ultimately result in higher apartment prices once developments are completed, causing neighbouring property owners to raise their own expectations. ‘People translate a land sale into the final built price, and when it is way above the market everyone will raise their own prices,’ says Denis Ma, head of Hong Kong research at consultancy Jones Lang LaSalle.”

From Reuters on China. “Gravity-defying property prices in China have spawned widespread home-loan fraud as buyers fear missing out on what seems like a sure bet. Real estate agents, valuation companies and banks themselves are party to the scam. When Zhu Chenxia bought a flat early last year from Lei Yarong in the up-market Nanshan district of China’s southern metropolis of Shenzhen, the two women drew up three purchase agreements to cover the deal. Only one was genuine.”

“Details of the deception are contained in a court judgment from a subsequent dispute between Zhu and Lei over the transaction. Remarkably, Zhu herself disclosed the fraud to the court when she gave evidence that showed the pair had conspired to cheat the bank and the government. Hu Weigang, a senior partner at Guangdong Shen Dadi Law Firm, would like to see the law enforced on the mainland as it is in Hong Kong, where creating a bogus document can lead to jail. But, he acknowledges, the scale of this cheating makes it virtually impossible. ”

“‘When everyone is doing it, you can’t put everyone in jail,’ says Hu, who specializes in real estate litigation.”

From the Australian. “‘The Boxing Day sale of real ­estate’ is how David Beard opens his Australian Property Tour of Brisbane apartments going cheap, largely as a result of defaults by foreign buyers. Inspired by the oversupply of apartments in the Brisbane market, Mr Beard saw an opportunity to bring local buyers to developers desperate to sell completed units.”

“The first port of call was a ­masterplanned community at Hamilton on Brisbane’s northside. On offer were one, two and three-bedroom apartments with access to a fully equipped gymnasium and 20m swimming pool, for a 10 per cent discount on the retail price. In the case of a two-bed two-bath unit, buyers were looking at $513,000, down from $569,000.”

“‘Every industry has its Boxing Day and today is ours,’ Beard said, as 58 people boarded the bus for the five-hour mystery tour. ‘We don’t work for any of the developers, but I can assure you we’ve spent a lot of time putting these deals in place. The prices available today won’t be available tomorrow.’”

“It was on to Bowen Hills, but as Mr Beard pointed out, nothing was for sale. Hours after he negotiated a 19 per cent discount on several new apartments, an investor jumped in and snapped them up, leaving Australian Property Tours with a hole in its itinerary. ‘Brisbane just can’t get it right in the apartment market,’ said Mr Beard. ‘There’s either an oversupply or an undersupply, and once the current stock goes, probably by the end of next year, there’s not going to be much coming on to the market at all.’”