A Money-Making Machine For The Government
A weekend topic on regulation starting with the Telegraph on New Zealand. “Foreigners are to be banned from buying homes in New Zealand after a spate of millionaires seeking luxury doomsday boltholes has apparently crowded out local buyers and pushed up property prices. Prime Minister Jacinda Arder’s Labour party is adamant that a law change banning foreigners from buying most types of homes in the country - due to pass in parliament next week - will help damp down property prices. David Parker, Minister for Trade and Economic Development, who is responsible for the bill, said it wasn’t just about house prices. ‘In this world of concentrating wealth, we don’t want this coterie of ultra-wealthy people overseas being able to outbid successful New Zealanders for what is our birthright, not theirs,’ he said.”
The Korea Times. “Despite a series of anti-speculation measures, the government seems to have failed to curb apartment prices in key areas of Seoul. Analysts expect further increases in the latter half of the year as new apartments in Seoul have become ‘rare items.’ The rosy outlook, however, is limited to Seoul. ‘During the past three years, a record high number of homes have been built. There is increasing concern of the supply surpassing the demand, especially in the provinces,’ said Kim Soo-hyung, a researcher at Hyundai Research Institute.”
From Macau Business. “There are calls for the government to keep rolling out property curbs despite failed attempts, as home prices are set to rise another 15 per cent this year. The property measures introduced by the government in February, as many critics predicted, have failed to curtail the gathering momentum of home prices. Although the so-called ‘spicy’ measures have turned into sweeteners for the market, the public keeps calling for more government intervention as home prices are set to pull even further away from the affordability of many residents.”
“There have been discussions earlier this year about a vacancy tax on second-hand properties in a bid to boost the number of available units for sale and rent but the government has so far been hesitant to do so, given the technical difficulties such as how to define a vacant home. Official data shows that the number of vacant units totalled 15,252 units as at the end of last year, accounting for 6.82 per cent of total residential units, up from 5.7 per cent in 2016.”
‘Legislator Ho Ion Sang stressed that the government has to look at the problem, regardless of the challenges. ‘It should not simply ignore this issue due to technical problems or divided opinions,’ he noted. ‘It should quickly start studying how vacancy tax could be implemented here, looking into the examples of regions and countries that have similar taxes in how to define vacant units.’”
From Today Online. “Property developers in Singapore are not surprisingly upset with the government’s unexpected announcement in July of new property cooling measures, with the Real Estate Developers’ Association of Singapore (Redas) president Augustine Tan saying that the move has halted the ‘long awaited’ recovery of the property market and could worsen a supply glut.”
“The frenzy in the property market is most evident in en bloc activities in the past year. Developers snapped up some 4,725,658 sq ft in gross internal area in such collective sales, about 2.5 times the area in 2011 and the third largest area since 1995. These en bloc deals bring future housing demand forward and postpone the current housing supply to the future, effectively distorting the market.”
“Besides, compared to 2015, the number of uncompleted condos and apartments purchased by the Singapore citizens, permanent residents and foreigners in 2017 increased by 25 per cent, 7.2 per cent and 27.9 per cent respectively, indicating that more foreign individual investors have jumped into the market. There is no doubt that the prices would continue to rise if the government took no action.”
“But we should not expect major housing price sliding. Home sellers are loss averse and would be reluctant to slash price to sell at a loss unless they are in urgent need of money.”
The Epoch Times on China. “The Chinese government went all out during the first half of 2018 to cool an overheated real estate market. Major cities in China have issued regulations for their local real estate markets more than 260 times through July of this year, according to data from Centaline Property Agency, one of the largest property agencies in Hong Kong. That’s an all-time high and marks an 80 percent increase in frequency compared to the same period in 2017. In July alone, more than 60 cities announced more than 70 revised sets of real estate regulatory policies.”
“Ever since it was officially declared as the ‘pillar industry that pulls the growth of China’s economy’ by the State Council in 2003, the real-estate industry has been the lifeblood of the entire Chinese economy. City governments also heavily rely on land-grant premiums and land-tax revenue as their primary source of local fiscal income.”
“This fiscal strategy of operating real estate as a money-making machine for the government, commonly referred to as ‘land finance’ in China, has inextricably linked the survival of the real estate market to the Chinese regime’s. In recent years, however, the Chinese real estate market has become overheated and is increasingly spinning out of control, as evidenced by soaring housing prices and people’s frenzy in buying properties.”
“So the Chinese regime has sought to artificially keep the market afloat, with local governments supplying land to the market, banks issuing large amount of loans, and central authorities placing specific purchasing, sales, and pricing limits. But this has only further compounded the crisis.”
From ABC News in Australia. “Banking royal commissioner Kenneth Hayne, it seems, has a great deal to answer for. If you can believe the recent steady drip of reports, Australia is in the grip of a credit squeeze that can all be sheeted home to the man presiding over one of the most keenly watched inquiries in years. As public hearings for the next round of public hearings for the royal commission into banking misconduct get underway in Melbourne this morning, a concerted campaign is quietly underway to ensure the inquiry is stopped in its tracks.”
“Not that it ever went away. Primarily, the argument put forth last year to ward off the inquiry — that the continued airing of dirty linen will harm the reputation of our banks and consumers ultimately will foot the bill — has been resurrected. It’s a perverse logic. It was the behaviour of our banks that caused the reputational damage, not its exposure.”
“It also overlooks a fundamental truism; that if the goal of the royal commission was to root out bad behaviour, including irresponsible lending practices, it stands to reason that money should be more difficult to obtain. It is no coincidence that we have world-record levels of household debt and some of the world’s most expensive real estate.”
“Last week, one of the richest men in the land made an unusual and shocking admission: he’d repeatedly been denied a bank loan. Tech entrepreneur Christian Beck, reputedly worth $775 million, claimed he was knocked back on a $6 million loan from an unnamed bank or banks, despite offering one of his multi-million dollar properties as collateral. The knockback was baffling, aside from the obvious question as to why someone worth $775 million would need to borrow $6 million. But the mystery was soon solved by Mr Beck himself with this extraordinary admission: ‘I did not have a very high level of income in terms of salary. The bank won’t give it to me because the APRA requirements around serviceability I don’t meet.’”
“There you have it. Annoying it might be, but income generally is regarded as a crucial element when it comes to servicing a loan, especially one that goes to high seven digits.”
“A few days later, Mr Hayne again was in the firing line, this time responsible for a hapless property owner who had taken a $30,000 loss on the sale of a unit in Sydney’s inner west. Having bought at the top of the market, he had been forced to sell because he ‘couldn’t afford his mortgage’ with a newborn on the way. ‘The royal commission has done the west no favours as banks tighten their lending criteria to focus now more than they ever did on serviceability,’ a real estate agent lamented.”
“If anything, these examples only serve to underscore the importance and effectiveness of the royal commission. Our banks suddenly have concerns about lending money to people who may have trouble servicing a loan. The Hayne royal commission has shone a torch into the dark recesses of the finance sector and, despite such a constrained time-frame, has unearthed enough material in a few months than our regulators have in years.”