July 7, 2018

The Folly Of Endless Speculation

A Saturday desk clearing post on nations outside the US. “Vancouver’s housing market showed continued signs of weakness in June, as affordability worries curb demand from buyers. Sales were down 14 per cent compared with May, the first monthly decline since January when tougher federal mortgage rules took effect, according to a report Wednesday by the Real Estate Board of Greater Vancouver. The number of transactions was 29 per cent below the 10-year average for the month of June. The number of properties for sale is the highest in three years, and is up 40 per cent from a year ago, the board said.”

“Phil Moore, REBGV president, said. ‘With reduced demand, detached homes are entering a buyers’ market. This is allowing the supply of homes for sale to accumulate to levels we haven’t seen in the last few years. Rising interest rates, high prices and more restrictive mortgage requirements are among the factors dampening home buyer activity today.’”

“Homeowners in the U.K who leave their properties empty should pay 500% in local council taxes, the leader of the British Liberal Democrats proposed. Party leader Sir Vince Cable called for a combination of government-led schemes to boost construction to around 300,000 new homes per year and punitive measures on speculative home ownership. In February, the party released the findings of a housing market study, which found that there are more than 11,000 houses and flats in the U.K that have been empty for more than 10 years. Many of these empty homes, high-end apartments or luxury mansions in and around London belong to foreigners and wealthy Brits as second homes, pied-a-terres or capital gains investments.”

“‘When we have people homeless and even more people struggling with the high cost of housing, it is a scandal that so many homes are sitting empty,’ said Will Forster, mayor of Woking, a town on the southwestern edge of London, where there are about 700 empty homes.”

“Savills, the real estate consulting company, has conducted a study, examining a hundred of the most expensive apartments in the Russian capital city, and has found out that their prices are falling. the average price for a square meter in such apartments has dropped by 7% in the second quarter, down to $32,300. At the beginning of July, one square meter in the most expensive apartment in Moscow was estimated at $51,000, and that in the least expensive apartments of the segment in question cost $22,000, which is five thousand less than the March figure.”

“Greentown China, which nearly became a casualty of the mainland’s previous housing slowdown in 2014, has raised concern among investors this week after the Hangzhou-based developer issued a notice urging staff to urgently improve the company’s cashflow. The memo’s appearance amidst tightening credit conditions and a slowing property market is bringing back recollections of the developer’s 2014 crisis. For his part, Greentown Chairman Song Weiping blamed Greentown’s troubles on ’stupid’ government policy makers.”

“A think tank today advised the government against relaxing housing loan requirements, saying this is not the best way to ensure that low- and middle-income earners are able to own houses. The Institute for Democracy and Economic Affairs (IDEAS) said such a move might even backfire on the economy. Senior fellow Carmelo Ferlito said while it was good that the housing ministry and BNM were working together to tackle housing problems due to a higher number of unsold properties in the property market, ‘relaxed’ housing loans ‘may not be a move in the right direction.’”

“‘Tackling this problem from the demand side by promoting credit policy is not viable and may worsen the problem. Every sector in the economy will experience business cycles and the property market in Malaysia right now is at the stage of contraction. While the market is contracting, encouraging households to borrow more will not solve the problem in the property market; rather it will prolong the property bubble.’”

“The housing market is cooling with average asking prices and the number of new listings on Realestate.co.nz taking a tumble in June. The average asking price of all properties from throughout the country that were newly listed on the property website last month was $645,133, compared to $658,170 in May and $661,129 in April. The national average asking price is now down 4.2% compared to its February peak of $673,659. Average asking prices in June were down compared to May in most parts of the country. In Auckland the average asking price declined for the fourth consecutive month to $912,071 and has now lost more than $82,000 (-8.3%) since it peaked at $994,873 in February.”

“Home hunters have a window of opportunity to nab a bargain in some of Brisbane’s best suburbs before an influx of interstate migrants swallow up stock and push prices up, experts say. New figures reveal the number of properties listed for sale in some parts of the city have climbed by more than 40 per cent in the past year — putting pressure on sellers to set more realistic price expectations. Vendors in some parts of the city have dropped their asking prices for units by five to 15 per cent and 10 to 20 per cent for houses in the past 12 months, according to SQM Research.”

“Some suburbs have seen significant drops in asking prices in the past 12 months though, with prices for units in Virginia and Keperra falling 19 and 18 per cent respectively, while asking prices for houses in Chandler, 14km southwest of the CBD, are down 14 per cent.”

“Good news for Sydney-home buyers as a new study reveals housing prices have dropped by 7.4 per cent. The median house price in Sydney is now $815,000 thanks to a 22 per cent slump in housing demand, according to new findings by realestate.com. Housing experts are also predicting that prices will only continue to plummet in the coming months, 9 News reports.”

“Meanwhile in the inner city suburb of Newtown, housing prices have dropped in recent months by more than seven per cent. It comes after a derelict terrace in Newtown with caution signs, cracked walls and broken floorboards recently sold for $1.05 million on Saturday. Yet the real estate agent told 9 News that the same property would’ve easily gone under the hammer for $1.11 million just one month ago.”

“Properties are languishing on the market for an average of more than 500 days in some suburbs of Sydney amid an increasingly sluggish housing market. ‘I think just mainly lending conditions,’ said Blacktown real estate agent Andrew Chrysanthou. ‘People just can’t seem to get the funds to put offers in.’”

“Sydney property prices are forecast to keep falling for the rest of the year thanks to a steep drop in demand. Buyer’s agent Peter Kelaher said the discrepancy between east and west was due to overbuilding in western areas such as The Hills and Parramatta, which gave home seekers more housing options. Buyers could seize on the changed market by making ‘ridiculous offers,’ he added.”

“‘There has never been a better time to make a low ball offer. We’re finding many will boomerang right back and get accepted,’ Mr Kelaher said. ‘If you’re buying a $1.1 million house in The Hills, for example, expect to get it for about $100,000 less than a year ago … even $180,000 less.’”

“We all know somebody who has made a mini fortune by investing in a flat or residential plot at the right time. Despite the usual ups and downs, there exists a deep-rooted sense among Indian investors that residential property is a sure-fire investment which delivers excellent returns. Yet, unless you’ve been living under a rock, it’s evident that residential real estate has been down in the dumps. We hear numerous stories of investors in distress with their money stuck in delayed projects. There are also stories of many brokers, in fact the entire realty ecosystem, struggling to cope with this slowdown.”

“The reason low returns are expected from real estate is that there has been an irrational increase in property prices in the past. Moreover, even after prices have remained largely stagnant for few years now, in many locations property is overpriced. Many investors who bought property 3-4 years ago are finding it difficult to get a buyer even after reducing the price lower than the purchase value. Clearly, greed, over-ambition and financial indiscipline of developers are the main reasons investors are shying away from realty.”

“According to 360realtors.com, a real estate portal, there are about 340,000 residential units running behind schedule of construction in Mumbai. The situation is similar in many other cities. There are many homeowners and investors who are stuck in real estate projects, with their finances in a mess. They are paying rents and paying off their loans, but possession is a distant dream.”

“Despite having paid Rs70 lakh for his three-bedroom apartment in 2010, there is no assurance that 32-year Itender Singh and around 500 other homebuyers in the project would get their houses any time soon. It is estimated that across Gurugram, flats of over 1 lakh buyers are delayed, by three to five years. ‘I have lost hope of getting the apartment despite pursuing the matter with authorities, police and in the court. There is no solution as the developer admittedly has no money,’ said Singh.”

“‘I paid Rs 35 lakh in 2013-14 to buy an apartment in a project launched by Adel in Sector 103 but no work has taken place. The company forced us to pay money and several people paid with their retirement benefits and savings, money for their daughter’s wedding and to educate their kids. I don’t think I will be alive to see the delivery of my flat,’ said 70-year-old Vedpal Bakshi.”

“‘What about the units that were to be delivered in 2018? The entire industry has been caught in a web of its own making. Buyers have been duped, investors stuck and there is no escape route,’ said Sanjay Sharma, a real estate consultant.”

“Another major folly during boom years was that real estate projects were marketed as financial products with the promise of endless speculation and quarter on quarter growth, say experts. ‘There is no liquidity in the market; new projects are not selling and there is no exit option for buyers and investors,’ said Pankaj Tomar, a property dealer.”