July 29, 2013

Buying A Home Is Always A Winning Proposition

Some housing bubble news from around the globe. Brent & Kilburn Times in the UK: “Flats in the controversial proposed development on the site of the scrapped Willesden Green library have gone on sale – in Singapore. Even though the first brick has yet to be laid, the ‘high quality London apartments’ are being sold by Hong Kong based Grosvenor International, who are asking the equivalent of £340,000 for a one-bed flat. As well as listing transport links as a key benefit, the agent has angered local campaigners by listing the lack of ‘affordable and key worker’ housing as a benefit.”

“On a blog run by campaigners, a resident said: ‘Like a slap in the face for those on the Council’s housing list, the estate agent advertising in Singapore has made the lack of affordable homes/key worker homes a selling point! ‘Presumably this ensures prospective buyers have the right sort of neighbours.’”

The Jakarta Globe in Indonesia. “Property developers have responded negatively to the central bank’s stricter mortgage rules saying they could stifle future demand. According to the regulation effective on Sept. 1 consumers who take out a mortgage on a second property larger than 70 square meters must make a downpayment of 40 percent with banks only able to provide finance of up to 60 percent of the price. For a third property, the down payment is higher at 50 percent. Bank Indonesia governor Agus Martowardoj said that the regulation was intended to prevent a housing market bubble.”

“I don’t know where Bank Indonesia wants to go with this,’ said Setyo Maharso the chairman at the Indonesian Real Estate Association. He rejected the idea that people buying second or third properties were speculating. ‘That’s not speculation, that’s investment. It [buying property] is not like buying stocks,’ he said.”

The New Straits Times on Malaysia. “At a recent condominium launch in Sentul, it took a mere two days for the 900 odd units to be sold out. This despite each unit, slightly more than 1,000 sq feet, costing about RM800,000. There were so many people at the property launch. Some waited from the night before and placed shoes and pieces of paper and arranged chairs to indicate their place in line. When they reached the showroom, it was like a game show — each participant was given exactly one minute to choose his or her unit. Those who failed to do so would lose their turn.”

“Of course, a great number of the people who attend these kind of sales are speculators. With the prices of property on an upward spiral, buying a home is always a winning proposition. But while some people are still able to afford the sky-high prices, most Malaysians can’t. ‘I think it has come to the point where maybe up to 60 per cent of Malaysians cannot afford to purchase properties,’ said real estate valuer Dr Ernest Cheong.”

The South China Morning Post on Hong Kong. “A luxury residential project in Causeway Bay received a tepid response despite a cash rebate of 3.75 per cent offered by the developer to make up for the extra stamp duty. Yoo Residence, developed by Couture Homes and ITC Properties, sold a 539 square foot unit for HK$16.41 million, or HK$30,460 per square foot of saleable area, in the first three hours after sales began at noon yesterday, the company said.”

“The firm released for pre-sale 50 units at yoo Residence, due for completion in June 2015. Lily Cheng, a senior district manager at Centaline Property Agency’s Wan Chai and Causeway Bay branch, said yoo Residence was the most expensive project to hit the market by per square foot value since the rules on marketing of new flats took effect on April 29. ‘Given that these units each cost more than HK$10 million, buyers will take more time to make up their minds. The response to these flats should not be compared with that in the case of mass housing projects that involve small lump sum payments,’ Cheng said.”

Bloomberg on China. “China’s eastern city of Yancheng has halted limits on home prices because an increase in supply was putting pressure on prices, the official People’s Daily newspaper reported. ‘Smaller cities like Yancheng probably face bigger risks of prices falling as demand couldn’t keep up with the construction boom,’ Dai Fang, a Shanghai-based property analyst at Zheshang Securities Co., said.”

The Australian Broadcasting Corporation. “Earlier this month, Australian Property Monitors released figures showing Perth was just shy of topping Sydney as the most expensive place to rent in the country. The data revealed that Sydney’s median price tipped $500 a week, while Perth’s was just $10 behind. But has Perth’s rental bubble burst? Tim Nickoll, property manager for Harcourts Realty, says activity in his rental portfolio has dropped about 20 per cent. ‘I am finding the vacancy rates for properties are sitting longer,’ Mr Nickoll said.”

“The head of the Real Estate Institute of WA, David Airey, said tenants who had signed leases at the height of the boom were even worse off. ‘They are facing huge bills because properties can only be re-let they what they were previous paying,’ he said. ‘For example, if you’re renting a property at $600 a week and now it can only be rent at $500 a week, that’s $100 a week difference for the term of your lease. Laws offer a lot of protection for tenants but you cannot be protected from the contract.’”

From Business Day in South Africa. “It was a tough auction for the Aucor multiple commercial property sale in Rosebank and a number of lots were passed over for lack of demand, but good properties in well-established and sought-after areas did well. Properties in the leisure market are feeling the pinch of economic conditions and are not fetching high prices, said Aucor’s Mark Kleynhans. ‘Demand is weak as financially things are beginning to bite and one can pick up phenomenal value in the leisure market as many owners are trying to offload their assets to meet current financial obligations.’”

“A 39m² one-bedroom unit in Dogon failed to attract a bidder at the auction. A modern 141m² duplex in The Newtown complex was knocked down for a hammer price of R450,000, which auctioneer Darren Winterstein said ‘was for nothing.’”

CNBC on the Netherlands. “‘Going Dutch,’ a term used to indicate that each person pays for himself, may be associated with frugality. But recent data shows that households in the Netherlands have been anything but frugal. The country has the highest total household debt-to-income for the seventeen countries that share the euro, according to Eurostat. At more than 250 percent, it far surpasses the same figure for Ireland, Spain and Portugal.”

“Surging house prices in the country have now given way to a ‘painful post-bubble adjustment.’ according to Michael Taylor, an economist at Lombard Street Research, similar to the adjustments in Spain and Ireland. ‘The Dutch housing bubble was not caused in the main by inappropriately low interest rates following euro membership as occurred in Spain and Ireland. Instead generous tax relief on mortgages fueled a prolonged period of strong demand that pushed house prices to extreme levels,’ Taylor said. ‘Any revival in external demand will almost certainly not be strong enough to lift the economy out of recession.’”

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Comment by Whac-A-Bubble™
2013-07-29 06:17:12

‘The Dutch housing bubble was not caused in the main by inappropriately low interest rates following euro membership as occurred in Spain and Ireland. Instead generous tax relief on mortgages fueled a prolonged period of strong demand that pushed house prices to extreme levels,’ Taylor said. ‘Any revival in external demand will almost certainly not be strong enough to lift the economy out of recession.’

You’d think leaders of the country that gave the world Tulipmania would know how to spot a developing bubble and take precautionary measures to nip it in the bud before it caused an economic crisis.

P.S. Doesn’t the U.S. provide generous tax relief on mortgages?

Comment by Combotechie
2013-07-29 06:33:51

“… a prolonged period of strong demand that pushed house prices to extreme levels.”

The “prolonged period of strong demand” is what “pushed house prices to extreme levels”. In other words strong demand created strong demand.

To the Price equals Value crowd the higher the price the higher the value.

Which works until it doesn’t. After it stops working the concept of Price equal Value remains even as the rising price trend goes into reverse, which begins the fun part.

Comment by Whac-A-Bubble™
2013-07-29 20:29:14

“To the Price equals Value crowd the higher the price the higher the value.”

Also the higher the price, the more the real estate market improves.

Comment by Ben Jones
2013-07-29 07:18:53

‘The housing boom in Canberra started unwinding towards the end of 2011 and this has resulted in construction companies being placed under pressure, with many collapsing. Of the 87 businesses placed in external administration in the 2011/2012 financial year, 20 of them were construction companies, according to Australian Securities and Investment Commission figures.

A spokesperson for ACT Economic Development Minister Andrew Barr told SmartCompany the ACT economy is “heavily influenced by the Commonwealth” and its contraction in spending and employment has impacted upon the retail and construction sectors, but says in not a territory-specific problem. “The slowdown in retail is apparent right across Australia. As such, there are several factors at work that are beyond the scope of the ACT government to control.”

‘Independent economic forecaster Infometrics says rents in Auckland went up 3% in the past year, compared to a 6% rise nationwide. Managing director Gareth Kiernan says the rise in rental costs is surprisingly low given that other figures point to a housing shortage. Mr Kiernan says a weak labour market could mean landlords are not putting up rents for fear of losing tenants. He says rental inflation in Auckland is the lowest it has been in three years.’

‘Auckland property investor and analyst Olly Newland says the lack of rental inflation is partly due to the hundreds of small apartments built in the central city in recent years which have flooded the rental market.’

‘Singapore’s central bank yesterday expressed concern at the growing mountain of household debt and surging property prices in the city-state, saying they posed “significant risks” to the Singaporean financial system. Monetary Authority of Singapore Managing Director Ravi Menon said an estimated 5 percent to 10 percent of borrowers in Singapore “have probably overleveraged on their property purchases — that is, they have total debt service payments at more than 60 percent of their income.” “When interest rates rise, long before any bank gets into trouble, some households will,” he said.’

‘Mortgage criteria in Thailand is becoming tighter in a bid to reduce debt levels in the country. Loan-to-value ratios will be cut to prevent speculation amid an economic slowdown and high household debt, the Bangkok Post reported. This follows warnings from the central bank over the risk arising from household debt. Property bubbles were also developing in some areas of the country. In 1988 there were just 10,000 condominium units in Bangkok but today there are over 350,000. “With continuous supply coming onto the market, the condominium market will become even more complicated and competitive,” the CBRE wrote.’

‘Urbi Desarrollos Urbanos SAB, Mexico’s third-biggest homebuilder, said it won’t meet this week’s second-quarter earnings report deadline and will ask regulators for more time to avoid a suspension of stock trading.’

‘Mexican homebuilder Homex , which has struggled with a heavy debt load and flagging sales, reported a second quarter loss of 10.156 billion pesos ($782 million) on Thursday. Revenue fell 84.4 percent to 1.114 billion pesos from the year-earlier quarter. Homex, like its rivals Urbi and Geo, is trying to restructure its debt, after taking on loans to buy large tracts of suburban land where Mexicans no longer want to live.’

Comment by snake charmer
2013-07-29 07:57:33

“When they reached the showroom, it was like a game show — each participant was given exactly one minute to choose his or her unit. Those who failed to do so would lose their turn.”

This is wrong on so many levels. The looting of China is having ripple effects throughout southeast Asia. And just in general, economic matters throughout the world have taken on a grotesque aspect, like some of Goya’s more disturbing paintings.

We’ve had poetry slams here; maybe we can compare the housing bubble to a work of art. For example, this:


Comment by Dale
2013-07-29 12:13:21

From one sitting on the sidelines for many years:


Comment by snake charmer
2013-07-29 13:38:01

Excellent. Interestingly, it’s been stolen twice in the last twenty years.

Comment by Eggman
2013-07-31 12:42:50

just as interesting, there are 3 or 4 of them.

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Comment by perkonkrusts
2013-07-29 08:10:39

From the U.K. article:
“As well as listing transport links as a key benefit, the agent has angered local campaigners by listing the lack of ‘affordable and key worker’ housing as a benefit.”

Key Worker in Wikipedia:
“A key worker is a public sector employee who is considered to provide an essential service. The term is often used in the United Kingdom in the context of those essential workers who may find it difficult to buy property in the area where they work
Those defined as key workers generally include:
Clinical National Health Service staff
Teachers and nursery nurses
Police officers, Community Support Officers and some civilian police staff
Prison officers and some other Prison staff
Probation Service staff
Social workers, educational psychologists, and therapists
Local Authority Planners
Connexions Personal Advisers
Some Ministry of Defence personnel
Environmental Health Officer
Highway Agency Traffic Officers”

I like living close to the people that work in these jobs, I don’t get why a builder would advertise that none of them will be there. Maybe if I was paying £340,000 ($520,000 U.S. Dollars) for a 1-br I would feel different?

Comment by Ben Jones
2013-07-29 08:45:49

An interesting thing to me is how some countries have monetary officials who will say, we’ve got a bubble or one could form, so we are taking action. Others, like the US and Canada, act like the every idea of a housing bubble is a conspiracy theory (except in hindsight).

Anyway, I was reading a piece by Andy Xie this weekend and he pointed out that global central policy had diverged for the first time since 2008. China and others are tightening (he included the US in this camp), others are loosening (EU).

Comment by kmo722
2013-07-29 18:32:44

In the end, given the level of public and private debt, all the central banks can do is loosen.. whatever “tightening” occurs either here or in China, is temporary.. the model only works with loosening, because its all a relative game being played out between each competing central banks… the losers, in all cases, will be the savors..

Comment by Ben Jones
2013-07-29 19:40:00

It only takes a little. Just a month or so ago, China had a taste of the leash, and intra-bank rates soared.

All governments and all central banks react too late. Whatever crash we are in for is baked in the cake, IMO. The only question is how it will begin. My bet is China spreading to junk bonds and beyond. But this thing is creaking now, waiting for that gust of wind. That’s why I am fascinated with these global bubble. The enormity of it.

Comment by Whac-A-Bubble™
2013-07-29 20:39:52

“The enormity of it.”

Also fascinating: The inevitability of the eventual collapse.

You see, the more successful are the various bubble sustenance measures, including asset price plunge protection, hair-of-the-dog stimulus and myriad real estate subsidies and tax incentives, the more certain the greater fools become convinced that real estate always goes up.

Eventually enough fools rush in so the bubble collapses of its own weight, even though it mainly consists of air.

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Comment by Whac-A-Bubble™
2013-07-29 20:33:02

“China and others are tightening (he included the US in this camp)…”

For the Fed to drop hints that some day far off in the indefinite future, QE3 may eventually start to get scaled back provided the economy has sufficiently improved, is extremely tight policy compared to what has recently occurred.

Comment by Whac-A-Bubble™
2013-07-29 20:42:35

I’d even suggest that if the Fed dropped such hints only to immediately do an about face and insist the media misinterpreted its statements, that would constitute a significant tightening compared to recent history.

Comment by Bubbabear
2013-07-29 21:09:44

Well from what Tyler Durden is explaining is that the Fed is already started to applying the brakes…

Fed Tapering Assured As Treasury Projects 30% Slide In Annual Funding (And Monetization) Needs

If there was any doubt that the Fed would proceed with tapering its monthly deficit monetization (i.e., $85 billion in POMO/S&P500 flow injection) over the next few months, those were just laid to rest courtesy of the Treasury’s quarterly refunding statement which was filed moments ago, and specifically its Marketable Borrowing Estimates.


Comment by oxide
2013-07-30 04:00:20

so we are taking action.

But I thought that “everything was fine until the government got involved.”

Comment by Housing Analyst
2013-07-30 06:16:42

Run Donkey Run!

Comment by Ben Jones
2013-07-30 07:12:11

‘everything was fine until the government got involved’

If a central bank sets a policy, who can change that but the central bank? That’s outside of the question of should there be a central bank. In the US, a Federal Reserve bank can collect $1 in deposits and loan out something like $10. The FR sets loan to value ratios, like those discussed above in other countries. How can anyone outside that system dictate how this newly created $9 gets loaned? There is a perfectly legal private lending system outside of this. It’s called hard money lending and the qualifying, LTV and deposit requirements are set by the lender, and are typically much more strict, unsurprisingly.

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