July 28, 2018

Investors Don’t Want To Catch A Falling Knife

A Saturday desk clearing post on international markets. “A proposal for a downtown Vancouver luxury condo tower that was scheduled to go to a public hearing next week has been abruptly cancelled by the owner. It’s a sign of what some see as a shift in Vancouver’s hot real estate market, as the demand for high-end property has weakened. Realtors and real-estate analysts say it is not surprising to see a luxury project stalled, given the current conditions. ‘Everything’s corrected and the luxury market is gone,’ said Ian Watt, a realtor who specializes in higher-end housing. ‘Anything under $2-million will sell, but in the last two months, there’s been only one sale over $3.5-million.’”

“Realtor Karel Palla echoed those numbers, saying that ‘at this point, there’s a very small percentage of people that can afford that type of product.’ And Michael Ferreira, whose company closely tracks pre-sales, said a year ago, ‘you would see 85 per cent sold within the first three months. Now it’s 50 to 60 per cent. You’re now seeing more incentives to attract buyers.’”

“Located in Calgary’s exclusive Southwest side, Aspen Woods is one of the newer, hipper neighborhoods in this section of Alberta, Canada. Its affluence matches that of Calgary, which, according to a report by Calgary Economic Development, in 2015 had the distinction of being home to the most millionaires per capita of any major city in the country. ‘We are seeing a huge decline in the prices of luxury homes over C$2 million in Calgary and surrounding areas and feel we are at the bottom of the valley,’ said Rachelle Starnes, CEO of The Starnes Group. ‘We are seeing some of the luxury homes listed over C$2 million selling for 15%-25% less since the peak of 2008.’”

“The British housing market is oversaturated by new homes offered for sale this month. However, indicating that previous sellers have given their properties too high, a third of the advertised offers have gone through at least one price drop – the highest share for that period of the year since 2011. The slowdown is mostly seen in London and neighboring regions where demand has been hit by higher taxes on expensive properties and shrinking demand from foreign investors. According to Rightmove, vendors in oversupply areas will have to compete more actively with prices, presentation and advertising of their property to attract buyers.”

“‘Although the growth in the number of vendors is a desirable signal for more liquidity on a generally devoid of market deals, unfortunately, this is happening in a quieter time of year,’ said Rightmove director, Miles Shipside.”

“As safe as investing in gold, real estate was the next go-to choice for Keralites. Things have changed in recent times, according to industry sources, the return on investment (ROI) seems fastly diminishing with a mismatch of demand vs supply being reported across the city. As strange as that sounds in a metropolitan city like Kochi, industry experts say 80 per cent of the investments in apartments were done for speculative reasons, the price slump and tougher laws have resulted in many of them being left unoccupied as renting it out was never owners motive to begin with.”

“Geojit Investment Strategist V K Vijayakumar says the occupancy rate of relatively newer apartments is just over 20 per cent, owing to an average yield rate of just 2 per cent for apartment rentals in Kerala. He says real estate goes through veritable boom cycle for about eight years, with that period ending in 2012, resulting in an inevitable price slump. ‘Add to it, demonetization and the Benami Transaction Amendment Act of 2016, transactions have come down by 80 per cent,’ says Vijayakumar.”

“When the northern city of Tianjin relaxed residency requirements earlier this year, such was the demand that applicants slept outside police stations and officials fielded 300,000 applications in 24 hours. But the biggest attraction is getting a slice of real estate. ‘The direct reason for getting a hukou [residency permit] is to buy a house,’ said graduate Wang Zhuohang, 24.”

“Liberal Chinese economists argue that Beijing should abolish the system of residency permits, allowing talent and investment to flow according to market forces. They say, for example, that if unsold housing stock is offloaded in second-tier cities it will simply leave a glut of housing in smaller cities. ‘The measures competing for talent in second- and third-tier cities are not sustainable and are causing resource mismatches. It will lead to inefficient investments,’ said Zhang Jun, an economics professor at Fudan University in Shanghai. ‘Original inventories [of housing stock] are large, and now there will be a new round of investment.’”

“Yang Xiaodao, a 26-year-old civil servant in the Chinese city of Xiamen, says taking out a 30-year-mortgage on a two-bedroom apartment with her husband was the most regrettable decision of her life. Although their parents covered the 1.5 million yuan (£172,285) down payment on the 2.9 million yuan flat, mortgage payments eat up more than 70 percent of the couple’s combined income of about 10,000 yuan a month - average for the city.”

“‘Our spending power has plummeted,’ Yang said. ‘We do not dare to have a kid. We do not dare to buy a car. We do not dare to travel.’”

“Throughout China, home prices that are among the highest in the world relative to incomes have pushed millions of households to debt levels similar to those seen in the United States just before its housing crisis.”

“The number of unsold private residential units reached a three-year high in the second quarter, based on data released by the Urban Redevelopment Authority. This is despite the URA noting that a ’significant number’ of new housing units are set to come onto the market due to the large number of properties sold en-bloc and the redevelopment of these plots over the past two years.”

“As at the end of June, there was a total supply of 45,003 uncompleted private residential units with planning approvals, compared with 40,330 in the first three months of the year. Of these, 26,943 units remained unsold as at the end of June — up from 23,514 units in the previous quarter, and the highest since the first quarter of 2015 when there were 27,061 homes unsold.”

“Tricia Song, head of research for Singapore at real estate services firm Colliers International, said: ‘We believe developers will likely pace out the launches of new projects and thereby reduce the risk of an oversupply of units in the market. Even if those units with no planning approvals were included to bring the number to 37,263, that will take at most 4.4 years to absorb, which ‘is not excessive in our opinion,’ she added.”

“It is now cheaper to rent a three-bedroom house than a two-bedroom unit in Brisbane, new research reveals. More than 9800 residential properties remain vacant in the city. SQM Research managing director Louis Christopher said he was confident the worst was over for Brisbane landlords and the city was set to benefit from Sydney’s housing downturn.”

“Median Sydney house prices fell 4.5 per cent last financial year, the biggest 12-month fall since 2008, according to Domain. The pain seems to have been worse in higher-income areas including the east, the upper north shore and the inner west where prices fell as much as 12 per cent. Anyone who banked that prices would keep rising like a skyrocket and bought expecting to sell quickly probably will now be learning a harsh lesson. On the other hand, some people are being forced to sell now because of divorce or sickness or change of job. They are the ones doing it tough especially if they bought in the last 12 to 18 months.”

“Albany property owners are being forced to drop weekly rents to attract tenants, according to Real Estate Institute of WA figures. Wellington and Reeves rentals manager Tam Emin confirmed rental prices were beginning to drop over town, which was good for tenants but bad for investors. ‘We’ve got a lot of rental properties on the market — it’s probably been more than what I’ve seen for a long time,’ she said. ‘Vacancy rates are starting to go up, so we’re catching up with Perth now. We’re still getting a lot of inquiries, but the market is quite flooded.’”

“Tens of thousands of Australian home owners are opting to sell their property as the national housing market trends downwards. Melbourne led the nation with 6,821 new properties for sale over the past 28 days, with total listings riding at a high of 10.5 percent. In second place was Sydney, which despite dropping 4.5 percent in value over the past year had 5,601 new properties listed in the past 28 days. Total listings in Sydney – which include properties that have previously been advertised – were up 21.7 percent on this time last year, with the most properties for sale on record since 2012.”

“Brisbane had 3,789 new properties listed in the past 28 days, and an increase of 1.2 percent in total listings compared to this time last year. There are more properties listed for sale in Brisbane at this time of year than at any time since 2012. Adelaide had 1,646 new listings over the past 28 days, while Perth had a whopping 3,007 newly listed properties in the last month. Despite rapidly dropping property prices, Perth’s total property listings are up 1.7 percent on last year and are higher than every other year since 2012.”

“Sydney’s falling apartment prices look set to continue into the next decade. An estimated 20,000 apartments are lying vacant in NSW, with the empty homes labelled ‘zombie blocks’ in the industry. The falls are being driven in-part by continued apartment construction in NSW, with Australian Bureau of Statistics figures released earlier this month showing more than 66,000 apartments are under construction across the state.”

“SQM Research director Louis Christopher said the city’s apartment prices were ‘nowhere near the bottom. To what magnitude, we don’t know yet,’ he said. ‘But they’ll continue to fall.’”

“The Domain figures show Sydney’s median house now sitting at $1.144 million, down from its peak of $1.198 million in June 2017. Mr Christopher said two likely scenarios would play out in the Sydney market — either a ’sharp fall’ or a longer ’stagnant period’ similar to what was seen in the Sydney market from 2004 to 2012. ‘This downturn is more than a restriction of credit,’ he said. ‘It’s more becoming demand-related. Investors don’t want to catch a falling knife.’”