The Housing Bubble

A report from the Courier Mail in Australia. “Approvals for foreign investment in Australia’s housing market have collapsed, amid waning investor appetite, higher charges and tighter lending standards. The Foreign Investment Review Board’s annual report reveals a 67 per cent fall in residential real estate approvals last financial year — down from 40,149 approvals to 13,198. The value of FIRB approvals also plunged, from $72.4 billion to $25.2 billion in fiscal 2017. Investment in new apartments from mainland Chinese investors dropped significantly in 2016-17. AllenWargent Property Buyers chief executive Pete Wargent said the figures would have some significant impacts on the new apartment sector, construction trends, and the broader economy — especially in Sydney.”

“Mr Wargent said he expected Sydney to experience the greatest number of failed apartment projects, with increasing signs of discounting on new apartments. ‘Perhaps this was an inevitable end-game for this cycle, where development has been too much skewed towards apartments for investors, and too little towards the types of medium-density dwellings that people want to reside in,’ he wrote.”

“But Chinese international real estate website Juwai.com chief executive Carrie Law played down the reported decline in Chinese demand. Ms Law said that in the second half of 2016, Chinese buyers were investing in Australian real estate at an almost irrational pace. ‘It was like money falling from heaven for vendors and developers,’ Ms Law said.”

From News.com.au in Australia. “Average wages grew at a faster rate than home prices for the first time in nearly six years over the past 12 months, new research shows. Other driving factors behind the improved affordability included low interest rates and falling property prices — particularly in the apartment market. The biggest improvements in housing affordability occurred in the Parramatta area, the northwest and Sutherland Shire. Median apartment prices in Parramatta enclaves Rydalmere, Telopea and Dundas were all above $700,000 at the start of 2017.”

“Since then, average prices in these areas have dropped significantly which, coupled with lower interest rates, made the suburbs affordable for middle-income buyers again. A similar trend occurred in Sutherland Shire suburb Jannali, where the median price of units dropped by 17 per cent to hit $615,000. Median unit price falls of up to 16 per cent in Pennant Hills, West Ryde and Asquith also meant these suburbs were affordable for average households again, after being inaccessible last year.”

“SQM Research director Louis Christopher said home buyers were getting better deals because more properties were available for sale. There was also less competition for properties from cashed-up investors, who until recently had accounted for nearly 60 per cent of Sydney property purchases. ‘Sellers have to be more realistic with their prices in this market,’ Mr Christopher said. ‘Buyers can negotiate more.’”

From Your Mortgage in Australia. “Land prices in Brisbane have fallen by roughly a quarter in just a year, the biggest decline seen in South East Queensland council regions. Citing a recent research from Oliver Hume, News.com.au reported that while Brisbane’s land price per square metre has fallen to $821, it is still the second most expensive of the six SEQ council regions.”

From the Rocky View Weekly in Canada. “I woke up earlier this week to a report on CBC describing how a landlord in Calgary had refused to renew the lease of a main-floor suite to a family with a toddler, due to complaints from the basement renter about the child’s crying. According to the minister of Service Alberta, ‘discrimination’ affects people in many areas, ‘and tenancy is no different.’ Last November, the provincial government introduced amendments to the Human Rights Act that essentially bans adult-only rental housing in Alberta, effective Jan. 1, 2018. Seniors-only buildings are still permitted, though – I guess discrimination against people is fine if they’re between the ages of 18 to 55?”

“‘It’s going to have a negative impact on tens of thousands of people who are looking for a lifestyle choice of peace and quiet,’ said Gerry Baxter, executive director of the Calgary Residential Rental Association, in an interview with the Calgary Herald. ‘A lot of people have had their rights taken away from them to accommodate the few.’”

“And that’s exactly what it feels like. There’s no shortage of housing in this area – according to the Calgary Herald, data released last summer showed ‘the city is dealing with a glut of housing that hasn’t been so big in three decades, perhaps longer.’ That census indicated there were 10,600 vacant apartments, along with 5,000 vacant single-family homes, at that time.”

From Better Dwelling on Canada. “A routine audit is leading a Canadian bank to repurchase their ‘ineligible’ mortgages. Montreal-based Laurentian Bank is agreeing to buy back over $125 million in mortgages. The agreement is the result of a routine audit from the Canada Mortgage & Housing Corporation (CMHC). This comes while the bank is trying to improve borrowing standards, after a different third-party audit revealed similar issues.”

“Laurentian Bank announced an audit of mortgages sold to a TPP revealed ‘documentation issues and client misrepresentations’ in December. Most of it is due to failure to obtain or properly store documents on the borrower. The bank also found ‘client misrepresentation’ to a ‘lesser extent.’ The audit resulted in Laurentian announcing they would need to buy back a few … hundred million in mortgages. In December they had announced it would be up to $304 million. The company noted in their 2017 annual report that, ‘no employees were implicated in any misrepresentations and the documentation issues appear to have been unintentional.’ Not sure if screwing up $304 million in loan documentation by accident makes this better or worse.”

“Nope, that wasn’t all. Yesterday the bank announced a routine audit from another party found ’similar issues.’ CMHC, the government Crown corp in charge of mortgage liquidity, found mortgages that were ‘inadvertently portfolio insured.’ The problem is a significant number of people contributed to the Canadian real estate market, by slipping through the cracks. They drove prices higher, while many technically should not have been able to do so.”

“As mortgage lending standards improve, the market weeds these buyers out. When this segment is removed, dollar volume drops significantly. Banks have already been forced to remove people buying ‘too much home’ through B-20 Guidelines. Now they’re tackling those that may have needed to fudge documentation to get those loans. The buyer pool is shrinking, and with it goes liquidity at higher prices.”

From Toronto Life in Canada. “Peizheng Qiu thought he could make his fortune flipping houses in Toronto. Instead he ended up strangling his business partner in the basement of a Markham mansion. Xiao Xuan Long Yu, who went by the English name Bertram, was also seeking his fortune. A year younger than Qiu, Bertram was the son of a wealthy and prominent lawyer in Shenzhen. His parents had financed his immigration to Canada, putting him up in a luxury unit at the C Condos tower at Yonge and Finch. He liked to splurge on fancy cars: he drove a Ferrari 458, which sells for around $250,000, and previously owned a Maserati and BMW. Like Qiu, he was hoping to free himself from his parents’ support and make it on his own in Canada.”

“Qiu and Bertram believed that flipping houses would be a low-risk way to make serious money. More than six per cent of Toronto properties for sale in 2017 had been purchased less than 18 months earlier; that’s almost twice the percentage of properties that were bought by foreign investors. Flipping is particularly popular in the Chinese-Canadian community.”

“They were eager to make money as quickly as possible, and relied solely on mutual trust and friendship to make it happen. ‘The Chinese like to do things different,’ Qiu later told police. ‘Millions can be loaned or borrowed based on a slip of paper.’”

“By early 2014, Elson and Bertram were scouting Toronto’s real estate listings, and over the next few months, they went on an investing spree, impulsively buying several large homes in North York for a some $3 million. Cracks in the partnership began to show as soon as the properties were purchased. Qiu was still juggling his flooring business and the flipping enterprise, and he seemed overwhelmed. Progress on the houses was excruciatingly slow. By the beginning of 2015, he’d barely done any work on the Laureleaf property.”

“Qiu was desperate for money. In March 2015, he went behind his partners’ backs and sold the property at 262 Senlac for $666,000, almost $100,000 less than Elson and Bertram had originally paid for it. The tension was mounting between Qiu and his partners. In total, Qiu owed $1.6 million. Qiu missed his first payment to Bertram for the amount of $100,000. Desperation had set in. At around 8 a.m. on Sunday, March 20, he bought gloves, masks, coveralls, a DeWalt reciprocating saw and metal saw blades. He packed the items into his girlfriend’s BMW and drove to 2 Laureleaf.”

“About half an hour later, he called Bertram and asked him to come to the property for a meeting. He said he wanted to discuss borrowing money to pay for more renovations. As soon as Bertram arrived, the two started arguing about money. Qiu claims Bertram threatened to use his connections in China to hurt Qiu’s family back home, to kill them or have their limbs hacked off. In Qiu’s version of events, he was a victim forced to defend himself and his family against a rich bully.”

“Qiu snapped. He noticed a hammer, grabbed it and began swinging (he later claimed that he’d seen Bertram reach for the weapon first). He says he wrestled Bertram to the floor and whacked him on the back of his head when he tried to get up. Then he began strangling him. ‘I just wanted to shut him up and let him die,’ he later said. He kept his hands gripped tightly around Bertram’s neck for two minutes, Qiu said, until he stopped breathing. His former friend was dead.”

“At his sentencing hearing last October, Qiu presented his own statement in Mandarin, which was translated for the court. ‘The bad things have been tormenting my mind like a movie looping and repeating itself,’ he said. He listed off the things he’d lost: his job, his fiancée, his family, his dignity, and his opportunity to make a life in Canada. That one seemed to sting the most.”