The Housing Bubble

A report from the Star News. “A survey of Australian non-retail, small and medium enterprises last week showed a sharp decline in business confidence over the past six months. Eighty-three per cent of the businesses surveyed were experiencing cashflow problems, with 77 per cent worried their customers could go broke. But the biggest worry is the downturn in Australia’s much vaunted mining sector. That boom appears over, with demand and prices for iron ore and coal slumping, along with the share prices of the companies that dig them out of the ground. ‘You are now starting to have a definite downturn in Australia. There is no way they can avoid it. They’ve had their two-tier economy and now even their best sector - mining - is starting to crash,’ said Gary Warner, general manager of IRG Equity Investment Advisers.”

“There has been a general perception in Australia that the mining boom allowed the country to dodge the post GFC bullet but Warner believes all it did was delay that bullet, which has now arrived. When the GFC hit, China launched a $630 billion stimulus package for its domestic economy, which spurred a building boom. That led to the mining boom, as Chinese companies chased iron ore and coal to make steel.”

“Now China’s economy is starting to have its own troubles. ‘A lot of [property] buyers in China have started to default on purchase agreements, but that’s all being kept quiet. You are not hearing a lot about that. And there are a lot of bad loans coming through the Chinese banking system, which is putting it under pressure,’ Warner said.”

From Reuters. “China is ramping up its global exports of below-cost steel, sometimes at a loss, as bulging stocks of the alloy give way to a worsening domestic demand picture for the commodity consuming giant. ‘The Chinese have been offering everywhere in the last three to four weeks, in whatever market they can reach and they can reach almost everywhere because their steel price has dropped dramatically,’ said a Russian steel trader. ‘They are offering to Latin America, they are offering to Africa, they are offering to the Middle East, they are offering to Iran, even to a part of Russia. Everywhere.’”

From CNBC. “Chinese billionaires lost almost a third of their combined wealth in the past year as Asia’s mega rich experienced the biggest drop in their total net worth compared to anywhere else in the world, a new study shows. The group saw their fortunes shrink by a whopping $160 billion from August 1, 2011 to July 31st this year. Mykolas Rambus, CEO of Wealth-X, says individuals holding assets in real estate and manufacturing in China’s coastal provinces were the hardest hit as factory production moved inland.”

“‘If you pick a region like Guangdong, there’re still a number of individuals who held substantial assets-factories, properties, raw goods, you name it-who are all staring at diminished demand; empty factories in some cases,’ he said.”

The Star Online. “Exorbitantly high selling prices, stringent banking rules and a generally cautious sentiment that has been having an impact on the Malaysian property market this year could continue into 2013. Malaysian Institute of Estate Agents (MIEA) deputy president Siva Shanker said property transactions in the first half of 2012 had slowed down, adding that this trend showed no signs of abating any time soon. ‘Asking prices are too high. The buying frenzy is over. In 2010 and 2011, some residential sectors saw an increase of about 30%, which is way too high and moving towards a bubble. What’s happening now is there is no meeting of minds between the asking and the accepting price. The gap is just too wide and there are fewer transactions taking place,’ he told StarBiz.”

The China Post. “Total land sales in Taiwan this year may hit NT$140 billion, the highest ever, said real estate advisor DTZ yesterday. ‘Prices haven’t gone down a bit, even after the imposition of the luxury tax that took effect on June 1 of last year, because of the overabundant capital in the market,’ said DTZ General Manager Yen Ping-li.”

“Hong Kong’s Monetary Authority (HKMA) warned Friday that the loosening of monetary policy in the United States could lead to overheating in the territory’s already hot property sector. The Asian financial center has some of the highest property prices in the world, driven by limited supply and speculation from wealthy mainland Chinese investors. Hundreds of thousands of working people are forced to live in tiny, windowless ‘cubicle’ apartments because they can’t afford to rent decent accommodation or buy their own homes.”

“HKMA Chief Executive Norman Chan said the latest U.S. stimulus plan announced Thursday could increase the risk of a property market bubble forming in the southern Chinese city. ‘We expect that the period of exceptionally low interest rates and abundant global liquidity will stay with us longer and the risk of overheating in the property market in Hong Kong will increase,’ Chan told reporters. ‘HKMA is concerned that borrowers with multiple mortgages loans will pose high risk to the banks.’”

The Associated Press. “Once seen as an emerging Asian dynamo racing to catch up with its neighbors, Vietnam’s economy is mired in malaise, dragged down by debt-hobbled banks, inefficient and corrupt state-owned enterprises and bouts of inflation. Vietnam’s one-party Communist government has promised reforms, but it appears unwilling to give up the reins of an economy that has delivered fortunes to top officials and their business partners.”

“House prices have crashed by up to 50 percent in some places from the boom years and jobs are reportedly drying up for school leavers. Foreign investment has dropped 34 percent this year over the same period last year, according to government figures. Many analysts remain skeptical the government has the will to fully clean up. ‘Can you separate political influence from economics? Until you can, you are not going to get reforms,’ said Carlyle Thayer, an expert on Vietnam from the University of New South Wales. ‘It’s a pessimistic view, but if the bankers are friends with the higher-ups, then implementation will be difficult.’”

The Daily Telegraph on Australia. “Almost half the first-time buyers lured by hefty home loan grants towards the end of June 2008 will be faced with the prospect of losing their homes by mid next year, according to a new report, Digital Finance Analytics. ‘Most people don’t realise that the average loan size is twice as big as it was in 2005 so many people are still mortgaged to the hilt,’ DFA director Martin North said.”

“The findings come after Australia’s largest financial comparison website, rate city.com.au, has seen an increase in high loan-to-value ratio loans which appeal to those with smaller deposits. The number of home loans offering higher LVRs rose to three per cent of all home loans in the past two months — the highest level since August 2011. There are also fewer loans requiring buyers to have amassed 20 per cent of the value of the property. The proportion of 80 per cent loans fell from 8 per cent last month to 6 per cent of all mortgages - the lowest proportion since January.”

“First-home buyers had to be particularly cautious not to get carried away with the attractiveness of such loans this spring season, said ratecity spokesperson Michelle Hutchinson. The move comes as banks are under pressure to find more home loan customers. ‘Many lenders are doing everything they can to attract home buyers including easing lending criteria,’ she said.”

“Worryingly, half the 26,000 households canvassed in the nationwide survey had no proper budget formulated to cope with expenses. ‘If people are getting into difficulty they should talk to their bank early as the banks are obligated to provide assistance to clients in financial difficulty,’ Mr North said. ‘Don’t hope the Reserve Bank will cut rates and that it will all go away because it won’t.’ The only good news was that house prices should continue to ‘drift downward’ as consumers remain cautious with spending, he said.”

Adelaide Now on Australia. “A crisis meeting is being held between the housing construction industry and State Government in a desperate bid to save thousands of jobs at risk from falling sales. The Housing Industry Association is calling for cuts to stamp duty on new houses costing up to $380,000, fast-tracking approvals and rezoning ’shovel-ready’ land to give the industry a desperately-needed boost. ‘Almost every builder in SA is trading at a loss and more than a dozen companies have closed their doors,’ said state HIA executive director Robert Harding.”

“Mr Harding said ‘most companies are laying off staff and subcontractors’ including a major builder who let go four staff last week. ‘The industry employs up to 40,000 at the moment and these jobs are in jeopardy if we continue going this way … a lot of the workforce are subcontractors who have thrown their hands up and left the industry - we are talking about several thousand jobs being lost,’ he said.”

“The HIA estimated the value of housing approvals and starts had fallen by 40 per cent - or $800 million - since the global financial crisis in 2009.”