The Housing Bubble

A report from Better Dwelling in Canada. “Toronto has a whole lot of real estate development going on. Rider Levett Bucknall (RLB), a large real estate consulting firm, released their quarterly crane index. The index puts Toronto at the top of the high-rise construction pile in North America. Actually, Toronto is beats the next closest city by a huge margin… that’s not always a good thing. Topping the list on the RLB crane index is Toronto, Seattle, and Los Angeles – in that order. Toronto had 97 construction cranes at the end of Q2 2018, up 9 cranes from the previous quarter. Seattle had 65 cranes in Q2, up 20 from the previous quarter. Los Angeles had 36 cranes at the end of Q2, the same number from the previous quarter. Yes, Toronto has almost over 40% more cranes than the next city on the list.”

“The high crane count could continue to rise as well, since another 400 projects are proposed. Not a huge surprise for everyone that knows Toronto is at record levels of construction. The count confirms a lot of supply will hit the market relatively soon, with even more supply to come. The massive influx of supply is likely to place downward pressure on prices, wiping out significant home equity. No surprise one of the world’s largest banks calls Toronto the ‘world’s largest real estate bubble.’”

The Ottawa Business Journal in Canada. “Never afraid to express his opinions, Brad Lamb is characteristically blunt in his assessment of his latest condo-building exercise in Ottawa. ‘The last five years here were not fun,’ said the well-known Toronto real estate agent and developer. “It wasn’t fun for my office, it wasn’t fun for me.’”

“The firm has just one finished project, the 240-suite Gotham highrise on Lyon Street in Centretown. Another planned 350-unit condo on Bronson Avenue south of Lyon never came to fruition. Developers didn’t help themselves, he added, by going on a building spree that flooded the market with new inventory just as potential buyers started tightening their purse-strings.”

“‘We overbuilt, and everyone got burned, from Claridge to Lamb to Urban Capital to all the other guys,’ he said. ‘It’s a small enough real estate condo economy, 500 units is tons of money. Developers … are very faddy. Everyone rushes to a city and builds condos and then we f*** ourselves by overbuilding. You couldn’t sell anything for years.’”

The South China Morning Post. “China Energy Finance Corporation (CEFC), the biggest Chinese investor in the Czech Republic, will be bailed out from its debt-fuelled shopping spree in Europe with a haircut, the first of a trio of mainland asset buyers that are being forced into holding fire sales for their acquisitions. CEFC is negotiating to sell its Czech portfolio of luxury hotels, a football club, a brewery and a broadcaster to Chinese state conglomerate Citic Group for a combined 6.7 billion yuan (US$980 million), a 44 per cent discount to the €1.5 billion (US$1.75 billion) valuation on CEFC Europe’s books as of May, according to two people familiar with the offer.”

“CEFC, established in 2002 by Chinese oligarch Ye Jianming, ‘had spent wildly,’ buying assets ‘without any obvious strategic rationale,’ said Kaiyuan Capital’s managing director Brock Silvers, in Shanghai. ‘That is why Beijing had to forcefully intervene, not purely for economic reasons, but for political ones as well.’”

“Shanghai-based CEFC is not alone. Anbang Group and HNA Group, two of China’s most aggressive asset buyers of the past three years, are also being put through the wringer by regulators over concerns about the mountain of debt that has been used to fund their shopping.”

The Courier Mail on Australia. “Brisbane will lead unit supply growth across the major capitals — with a massive 18.4 per cent surge in apartment numbers, new research has found. The figures from the latest settlement risk analysis by CoreLogic cover a two-year period, during which Brisbane was expected to see a potential 36,057 more units off a base of 196,414 current apartments. In contrast, Greater Sydney was expected to see supply grow by 9.3 per cent with Greater Melbourne to push 11.5 per cent.”

“The sheer volume of supply yet to be completed has troubled some experts given a lot of stock was yet to settle. ‘We’re already seeing stories of people finding it difficult to settle, with valuations not coming in at contract price,’ Mr Kusher said, ‘and a lot of properties are owned by investors so trying to rent them out would be quite difficult as well.’”

“Riskwise chief executive Doron Peleg expects tough times ahead for developers. His concern was that the number was too big for the market to absorb in just two years. ‘Currently what we see is prices of off-the-plan property going down by 10 to 20 per cent, a reduction in dwelling commencements, and it will take two to three years until the properties will be absorbed into the market.’”

From Domain News in Australia. “More residential properties are selling for prices at or below their agent-quoted guide price. Jake Rowe, of Rowe Partners Real Estate, said most properties were selling for about their price quote or not a lot more. ‘If you go back even just six months ago, we were getting prices 20 per cent above our price guides,’ he said.”

“Mr Rowe said it was better for those who traded up to upgrade their housing in a softer market because the savings were larger in the dearer price brackets they wanted to buy in to. ‘If you are looking at a $4 million house, it might now be worth $3.5 million,’ he said. ‘Even if you cop a $100,000 loss on your place at $2 million, then it is worth the trade up to make the gain on the next property.’”

From ABC News in Australia. “If you drive out to Sydney’s Olympic Park you’ll find a whole lot of scaffolding and cranes putting together another Meriton high-density apartment block. ‘The Retreat’ will eventually house more than 1,000 apartments across four different building phases. The first residents started moving into the twin towers of the Aura building this month. But it’s likely they’ll be without many neighbours for a while.”

“Meriton has only committed to half of the development so far, while it waits to see whether demand recovers. Australia is in the midst of an apartment development slowdown. Real estate firm CBRE is selling apartments off the plan for more than 300 developments around Australia. Those presales are key to securing the funding developers need to kickstart their projects.”

“‘Developers, due to the banking regulations, rely on presales to be able to finance their projects,’ said CBRE chairman of residential, Justin Brown. ‘Unless you have exceptional attributes it is very difficult to get those presales of hundreds of apartments that are required.’ Mr Brown says developers are having to change the mould. ‘There’s been a lot of adjustments. Developers are stalling projects, their next stages aren’t coming on. You see all sorts of offerings, whether it’s a reduced price, a rebate on stamp duty or a rental guarantee.’”