The Housing Bubble

A report from the Daily Mail on Australia. “The notorious Sydney housing bubble appears to have well and truly burst, with property prices taking the biggest dive since the global financial crisis nine years ago. Houses in Sydney have suffered price slumps of tens of thousands of dollars as their value drops by more than 6 per cent on average - a bad time to sell and a good time to buy, according to experts. The suburb of Ryde, in the city’s northwest, suffered the biggest price fall, dropping a staggering 7.4 per cent in one year. Property value in the Inner West, meanwhile, is down 7.2 per cent; in the Baulkham Hills and Hawkesbury area, 7.1 per cent; on the Northern Beaches, 5.8 per cent; and 4.5 per cent in the western Sydney suburb of Parramatta.”

“‘We’re finding that a lot of owners are having to adjust their expectations,’ Leighton Avery, of Award Group Real Estate, told 7 News.”

From the Herald Sun in Australia. “It’s ‘an opportune time to be a buyer,’ with less competition at auctions and Melbourne’s median dwelling value at about the same level as 12 months ago. Advantage Property Consulting’s Rob German said buyers were more hesitant amid tightened lending conditions and vendors needed to adjust to where the market was at. Sellers of the three-bedroom house at 40 Esmond St, Deer Park, declined two pre-auction offers subject to finance within the quoted range and it passed in at $485,000, he said.”

“‘People are making those pre-auction offers subject to finance and if they’re not getting it they’re not even turning up to the auction … the auction system is being challenged by the onerous requirements of funding. That stock six months ago was selling like blind Freddy could sell it.’”

“Mr German said a development site with permits for eight townhouses that currently comprises two houses at 10 and 12 Erskine Ave, Reservoir, also failed to sell. The property at 10 & 12 Erskine Ave, Reservoir, remains on the market. He said the vendors bought it for $860,250 in October 2016 and had tried to sell it for $2.5-$2.6 million after obtaining the permits, knocking back an offer of $2.4 last year. The same potential buyer was the only bidder on Saturday, offering $2.3 million. ‘The vendors recognised him so set the reserve at $2.4 million and stubbornly stuck to that and the potential buyer walked away,’ Mr German said. ‘Vendors need to adjust to the market quickly at the moment. It’s already cost them $100,000 in 12 months and he’s the only buyer that they’ve got on it today.’”

From Domain News in Australia. “The Reserve Bank of Australia has dodged concerns surrounding rising mortgage rates, falling property prices and a lending crackdown to extend its record-breaking streak without moving the cash rate. ‘Ongoing home price falls in Sydney and Melbourne will depress consumer spending as the wealth effect goes in reverse,’ said AMP chief economist Shane Oliver.”

“A sustained attack on risky lending practices through tighter legislation and a royal commission has seen mortgage borrowing – particularly interest-only and for investors – slump, with Capital Economics chief economist Paul Dales arguing policymakers ‘have successfully engineered a soft landing in the housing market.’ ‘The clear danger is that this soft landing turns into something more like a hard landing,’ he said.”

The Australian Financial Review. “Chinese mainland investors Lielin Zheng and Tang Zheng have just had a taste of Australia’s bitter sweet residential property market. The Shanghai residents bought a brand new 79 square metre residence off-the-plan in Lendlease’s The Green high rise development in Brisbane for $535,000 in 2013. The development was sold out. Then Lendlease Australia chief executive Mark Menhinnitt said people were ‘embracing the opportunity to be part of Lendlease’s first inner Brisbane mixed-use development.’”

“Dozens of cranes littered the skyline in Brisbane back then. Interest rates were coming down, money was flowing out of China and foreigners were not getting hit with big upfront taxes as they are now. But fast forward less than three years and the two Chinese investors have just sold their apartment for a loss. A big loss. One of the biggest the market has seen.”

“The apartment has been purchased by a local for just $387,000. That is a 27.6 per cent loss for Lielin Zheng and Tang Zheng before stamp duty and other costs, not to mention time and effort. While the motive of those Chinese investors’ decision to sell at such a huge loss is not known, the transaction is likely to have consequences for the market. It is also why Lendlease – easily one of the top three apartment developers in Brisbane – is bracing itself. In February last year Lendlease said its buyers could be broken down into 56 per cent local, 21 per cent from China and 23 per cent from other offshore locations.”

“‘Brisbane is the most challenging inner-city apartment market in the country,’ said Kylie Rampa, the company’s Property Australia division head. ‘Inevitably there will be a rise in defaults in this market over the short term.’ And where there are defaults there are discounts. And while many might see this as an opportunity to jump into the market – there are now bus tours where you can shop for cheap apartments – remember there is always a risk you can cut yourself catching a falling knife.”

From The Star Vancouver in Canada. “Luxury property developer Westbank is denying accusations that its Chinese website was shut down, a platform that drew sharp criticism for drawing foreign money that some argue has contributed to Vancouver’s inflated real estate market. Under the ‘activity’ section of the website in simplified Chinese, the company promotes a 10 per cent first deposit on purchases, and an unlimited number of homes one can buy.”

“It lists several so-called ‘hot topics,’ selling points including banks lowering mortgage rates especially compared to England, the U.S. and Australia; Vancouver as a home for the global rich; and a 26 per cent increase in condo prices last year. But according to Vancouver housing advocate Rohana Rezel, the company’s Chinese site became inaccessible shortly after he published a post Thursday morning on his website. Rezel wrote he was ‘distressed’ and ‘dismayed’ that the Canadian government was considering a proposal from Ian Gillespie, CEO of Westbank, to potentially build 50,000 units of affordable housing in Vancouver and Toronto run by Creative Housing Society, a non-profit created by Gillespie in 2017.”

“Rezel said Gillespie’s proposed housing project is a conflict of interest with Westbank operations. ‘If you look at what Westbank has done — they have targeted exclusively the Chinese market because his director of marketing, Michael Braun, said that in an interview, posted on his website, that if the Chinese market isn’t interested, he’s not building it.’”

“Those in the real estate industry have a different take. Eddie Yan, a Vancouver and Burnaby real estate agent, doesn’t see a problem with developers advertising overseas as long as locals are prioritized and offered first. A real estate agent for 28 years, he believes a decline in foreign investments could potentially slow the whole economy. ‘When they’re not investing in here, the economy slows down a bit. They don’t buy cars, they don’t come, they don’t bring the money over. On the other side of the coin is, the next generation, like my kids, they really can’t afford to buy.’”

From Global News on Canada. “Seize assets. Prosecute. Pay whistleblowers. Those are just a few recommendations Marc Cohodes has to save Vancouver’s economy. Cohodes is a high profile short-seller and fraud-hunter who earned his reputation finding hidden problems and inflated profits on Wall Street. Lately, though, he’s turned his attention to B.C. Cohodes admits he’s friends with B.C. Attorney General David Eby, who last September hired former deputy commissioner of the RCMP Peter German to conduct an investigation into the province’s money laundering problem.”

“Reports of criminal activity started surfacing a decade ago. While this week’s report by the B.C. government – bluntly titled Dirty Money — links money laundering to B.C.’s opioid overdose and real estate crises, it doesn’t explain why the previous government, under BC Liberal leader Christy Clark, wasn’t able to stop it. ‘The BC Liberals and Christy Clark hid under the guise that it was good for the economy, when in fact unless something happens — and happens soon – it’s going to destroy the economy and may destroy the city.’”

“‘I think [Eby] should prosecute and investigative people who fueled this, people who profited from it on the backs of hardworking B.C.-ers,’ he said. ‘I think the B.C. government needs to seize assets, sell the assets at an auction, split half the money with the Chinese government, split half the money with B.C. and give the whistleblower or finder, say, 10 per cent.’”

“It’s a dramatic proposal for a dramatic problem in British Columbia: the blend of organized crime, drug trafficking and a housing affordability crisis. In his report, German recommended the establishment of an independent regulator for the casino industry to rein in money laundering. Cohodes takes issue with the finding in Dirty Money that only $100 million has been illegally funneled through B.C. casinos. ‘The numbers in my mind are in the tens of billions of dollars and I think the reasons those numbers don’t come out is because the government doesn’t want to scare the hell out of people,’ he said.”

“He’s recommended to Eby that authorities reward whistleblowers who tip off the government to drug trades or luxury home and car ownership. German’s report lists China, Mexico and Colombia as key players in a ‘complex network of criminal alliances’ coalescing with underground banks at its centre. ‘In addition, ‘high rollers’ from China facilitate the flight of capital from China using Canadian casinos, junket operations and investment in real estate,’ it says, which is why Cohodes focuses his arguments squarely on money launderers from there.”

“While he says the problem can be fixed, it won’t stop Vancouver’s real estate bubble from bursting. In his view, the market is already essentially frozen. ‘The sooner it resets and resets severely, where hard working B.C.-ers who are born here and want to live here, want to own a place, the better everyone is,’ Cohodes says. ‘Real estate collapsing is a long term plus, but short term it’s gonna be a b****.’”