The Housing Bubble

A report from the Toronto Star in Canada. “New construction home sales hit the lowest number for April in over 20 years, says the association that represents home builders. Newly built single-family home prices dropped 5 per cent year over year to $1.15 million, down from about $1.2 million in March. There were 65 per cent fewer houses and condos sold last month compared to April 2017. That put the sales of single-family homes — detached, semi-detached and townhouses — 70 per cent below the 10-year average. Condos were 38 per cent below that average, according to the Building and Land Development Association.”

“Although new home data by Altus Group goes back only as far as 2000, BILD said previous data shows 1995-1996 was the last time April sales were as low as the 1,727 last month. The new construction home industry is being affected by many of the same factors that have led to a sluggish 2018 in re-sale real estate in the Toronto area, said BILD CEO David Wilkes. Part of the slowdown is seasonal, he said. There is a lull in the housing market compounded by interventions from government and new mortgage stress test rules introduced by Canada’s banking regulator. ‘We’re in a bit of a pause right now,’ said Wilkes. ‘People are reassessing and part of that reassessment, no doubt, stems from the affordability issue we need to address within the GTA.’”

From Bloomberg on the UK. “Lance Paul put his home in West London on the market last May with a 1.5 million-pound (US$2 million) price tag. A year on, the retired animator is asking 1.1 million pounds and still hasn’t found a buyer. Now, after dozens of viewings that came to nothing and a few low-ball bids, the 71-year-old has an offer that’s agonizingly close to the floor he promised himself he would never go below. He just might accept it. ‘The fear from my point of view is because things are volatile, it could go down even further,’ Paul said.”

“Similar deliberations are playing out across London as sellers weigh whether to take what they can get in a falling market or sit tight in the hope the slump will be short-lived. ‘The party is over for the London housing market and the hangover is just beginning,’ said Neal Hudson, founder of research firm Residential Analysts.”

From the Sofia News Agency on Bulgaria. “The luxury property market in Bulgaria is moderately high during the first quarter of 2018, according to an analysis by Unique Estates. Activity during the first three months was mainly in the lower price segment - up to 300-350,000 euros. Buyers are mainly people with free capital who are interested in homes which they can renovate, and resell them at a later price. ‘In recent years, this type of purchase has gained popularity among people looking for a lucrative investment. Recently, however, this kind of offers are rarer and this limits the potential for deals,’ commented Galina Grodova, senior partner at Unique Estates.”

“In the middle price segment of the luxury market - 500-800,000 euros, transactions in the first quarter were significantly less. The increased supply of rental properties has led to a drop in prices over the last year. Then there was a growing interest, especially in apartments in the center of Sofia, because of the EU Presidency. Many homes have been rented in advance, and this has led to high activity in the market, which continued until the autumn of 2017. In recent months, however, the demand has fallen to its usual levels. At the same time, the peak of investment purchases led to a further oversupply of the rental market, so prices in many areas went down.”

From the Daily Star on India. “Kaniz Fatima Binte Alam, a doctor, took Tk 48.50 lakh home loan at 8.5 percent interest in October last year from a lender with expertise in financing homes. Within six months, Fatima was astonished to get the lender’s notification that the interest rate has been revised to 12.5 percent, nearly 50 percent hike, effective from March this year. ‘Now it has become very difficult for me to repay the loan,’ she said.”

“It is not only home loans, interest rates have been increased for all loan products, be it industrial, SMEs or trade financing, jacking up their cost of doing business. The increase is by two to four percentage points, according to data of a number of banks. Interest rate for industrial loans has gone up as high as 16 percent, which was 12 percent a year ago. No bank is offering SME loans under 15 percent interest. Even at that high rates, many banks cannot lend because of liquidity crisis.”

“‘We are collecting term deposits at 10.5 percent now from seven percent last year,’ said Arif Khan, managing director of IDLC. Even though authorities concerned are pressing lenders to bring down the interest rate to single digits, it is not possible for them because of high cost of deposits, he said, blaming high-interest saving instruments. Like bankers, he does not see any possibility of lending interest rates going down in the near future. ‘Bad loans are another factor that makes new loans expensive,’ Arif said.”

From the Vietnam Bridge. “Investors continue pouring money into the high-end apartment market segment, even though there is a sufficient supply. With the selling price of VND45 million per square meter at minimum, the number of target customers is not high. By the end of the first quarter of 2017, nearly 30,000 apartments of this kind had been marketed in the eastern part of HCM City alone. Buyers from Hanoi could partially ease the oversupply, but it is still not enough.”

“There is no official report about the number of apartments sold to those who have real demand for apartments. However, the figure is estimated at roughly 30 percent. The government in early 2018 showed its determination to obtain a GDP growth rate of 6.5-6.7 percent this year. Analysts warn that the high GDP growth rate may lead to a ‘real estate bubble’ like the one in 2007 and 2010. The bubble was created by a high GDP growth rate and loose credit policy.”

“GDP in 2007 grew sharply by 8.48 percent, while HCM City gained an impressive 12.6 percent growth rate, the highest level in 10 years. Currently, real estate credit accounts for 10.8 percent of total outstanding loans in HCM City. Nguyen Van Duc, deputy director of Dat Lanh Real Estate, said the real estate market is ‘fragile’. Negative signs in the market appeared after the fire at Carina apartment block. After the accident, speculators rushed to sell products. However, despite the price decreases, there have been few transactions.”

From Stuff New Zealand. “A bankrupt businessman’s Auckland housing development is up for mortgagee sale as creditors chase millions of dollars in unpaid bills. The housing development in the North Shore suburb of Birkenhead sits near the site of a major landslide that swallowed an Auckland Council-owned carpark in October last year. Chelsea View Estate Trust sole director Stephen Robert Kelly was made bankrupt in October 2017 - his second time being bankrupt since 2011. Kelly said: ‘It’s got nothing to do with me, mate,’ before hanging up on Stuff.”

“Kelly was first made bankrupt in 2008 with personal debts of more than $28 million. His ‘hopeless financial position’ arose from his interest in a number of significant property developments that stalled or faced considerable problems, Justice Raynor Asher said at the time.”

From Domain News on Australia. “There is no doubt that Brisbane’s apartment market has suffered over the past few years. Amid the alarming headlines of plummeting approvals and collapsed developments, the impact on sales and prices is very real. Data from the Domain Group shows Brisbane’s median unit price has fallen every quarter since June 2016 and is now sitting at a four-year low. The latest figures show prices dropped by nearly 3 per cent in the 12 months leading up to March this year and, looking further afield to include Greater Brisbane, the figures are even more glum: units fell by 4.3 per cent in the three months to March 2018 alone.”

“Across town, prices are (often reluctantly) being reduced to meet the market. Recently it was reported a Brisbane unit development had resorted to huge price cuts to move the last of its units – prices for Belise apartments in Fortitude Valley were slashed nearly 25 per cent. In Kelvin Grove, units in the Urban Village that were valued at $450,000 two years ago are now going for $399,000.”

“LJ Hooker New Farm agent Pauline Karatau says she is contacted every week by unit owners desperate for her to sell their property. ‘There are a lot of people hurting. I get emails from them every week,’ she says. ‘You know they paid well over the odds and it’s hard.’”