September 17, 2013

Caught In A Trap Of Ambitious Expansion

Bloomberg reports on China. “Matthew Zhou and his wife spent 1.6 million yuan ($261,000) to buy a two-bedroom apartment last month in eastern Shanghai after seeing no potential for long-term returns in China’s financial markets. ‘Home prices keep rising, so I’d rather buy a place now than put the money in the stock market,’ said Zhou, a 30-year-old information technology engineer at a state-controlled bank in Shanghai, who plans to leave the home empty while the couple live with her parents. Gains in equities ‘could never outpace the growth of home prices,’ he said.”

“Michael Chang, a 33-year-old investment manager in Shanghai, spent 1 million yuan on a 20-square-meter, one-bedroom place in Beijing in August last year and 5 million yuan on a 130-square-meter unit in Shanghai this year without borrowing any money from banks, to expand his personal real estate portfolio. He wouldn’t say how many properties he owns. ‘Let’s talk about bubbles when home prices in Beijing and Shanghai rank as the world’s top five most expensive cities,’ said Chang, who believes home prices in Shanghai will rise 50 percent in the next five years.”

“Home prices in Sydney are being pushed up in part by unprecedented levels of Chinese demand, according to McGrath Estate Agents. As much as 80 per cent of homes in parts of Sydney are being sold to Chinese buyers, said chief executive John McGrath. At a recent property auction in Eastwood, all 38 of the registered bidders were of Asian ethnic origin, Mr McGrath said. The three-bedroom house sold for $2.39 million, more than $1 million over the reserve price, after 62 bids by eight hopeful buyers, according to the agent.”

“‘I haven’t seen a trend like this in 30 years, in terms of a brand new demographic group entering the Australian market with so much impact as I’ve seen in the last 12 months,’ Mr McGrath said in a separate interview with Bloomberg Television. ‘There are long-term growth prospects but the current growth rates probably need to slow at some point soon.’”

The Press in New Zealand. “Big pressure is building on Canterbury’s housing market as buyers try to beat a lending clampdown and real estate stocks reach record lows. Christchurch mortgage broker Rob Parsons has seen a ‘groundswell’ of first-home buyers seeking pre-approved loans to beat higher deposit requirements. ‘Prices keep getting out of their reach. There are so few homes on the market and, when they go to auctions, there are 10 others bidding and it goes for $100,000 over what they thought. I think there will be panic buying.’”

“Principal agent Gavin Topp said there was so little stock that homes were attracting offers on the first day. ‘We’re advising owners to put their houses on the market now. We’re advising buyers not to wait for 10 out of 10 - just get your name on a title even if you have to compromise with seven out of 10,’ he said. ‘They are never going to save as quickly as the market alters.’”

FirstPost on India. “India’s housing market is losing steam as housing supply is increasing but sales are plummeting. According to the latest report by property research firm Liases Foras, 146.10 million square feet of inventory lay unsold in the Mumbai Metropolitan Region (MMR). Piling up of unsold inventories has put pressure on returns, and this will continue through the year, said industry experts. ‘The real estate developers have been caught in a trap of ambitious expansion, decelerating sale, hardening interest rate, and weakening cash flow. Unlike the earlier occasions, the sector now has no bailout package and alternate funding options have also dried-up,’ said Samanthak Das, head-research, at Knight Frank.”

“Experts believe that Lodha Developers and Indiabulls are too slugging it out at Lower Parel and Worli. In January, Lodha upped the ante by launching a project – Blue Moon – 40 percent lower than the market rates.”

From India Today. “The much-awaited price correction seems to be finally happening. Builders, meanwhile, continue to launch new projects and use innovative marketing to improve sales. ‘Despite the poor economic sentiment, residential supply spiked during the January-June period. More than 65,000 units were launched in the leading cities compared to about 48,000 during the second half of 2012,’ says the CBRE South Asia report.”

The Hindu Business Line on India. “The year was 2007. The real estate market, like the Indian economy, was on a roll. And Manish Khanna was busy house-hunting in Mumbai. But every weekend, when Khanna sought to finalise a deal, the prices would have risen by Rs 200 to Rs 300 a square foot over the previous week. When he finally bought a flat in Navi Mumbai’s Nerul locality, Khanna paid Rs 5,200 a sq. ft. for a property that had cost Rs 4,200 a sq. ft. when he first checked it a month earlier.”

“Those were the heydays of real estate. Incomes were growing and so was the demand for real estate, while property supplies were limited. Cut to 2013: builders are sitting on piles of unsold inventory and debt, demand has slowed down in metros and big cities, projects are stalled, private equity firms are exiting the sector and new projects are selling at discounted rates. The long real estate party finally seems to have come to an end.”

“‘A correction phase has started. The market has shifted from investors to end users. Investors cannot hold on to properties forever and this supply is coming back to the market at discounted rates,’ says Pankaj Kapoor, founder and MD at real estate consultancy Liases Foras.”

CBC News on Canada. “New rules designed to cool hot housing markets in Toronto and Vancouver could send a chill through Ottawa’s real estate sector, according to an Ottawa real estate expert. Last week the Canada Mortgage and Housing Corp. put a cap on the amount of mortgage-backed securities sold by banks that it is willing to guarantee. ‘It’s unfair that stable markets like Ottawa and some of the smaller communities are being impacted by events that are going on in Toronto and Vancouver. It’s too bad they can’t just target those two markets and leave the rest of the markets alone,’ said Ansel Clarke, the former president of the Ottawa Real Estate Board.”

“Matthew Sarabura and Chan Nguyen have been trying to sell their Sandy Hill condo since March, but they say no matter how much they renovate and drop down the price, but haven’t had any luck. They’ve since taken the home off the market and are renting it out. ‘It’s very disheartening. It’s overall disappointing,’ said Nguyen. ‘There are all of these people coming looking to buy apparently, but nobody seems to be putting down any money,’ said Sarabura.”




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37 Comments »

Comment by jose canusi
2013-09-17 05:03:09

“Matthew Sarabura and Chan Nguyen have been trying to sell their Sandy Hill condo since March, but they say no matter how much they renovate and drop down the price, but haven’t had any luck”

Renovate AND drop the price? Sheesh. I’ll never understand this “renovate to sell the house”. It just doesn’t make sense to me. I know one guy who did exactly that. Didn’t sell on the first go-round, the excuse the realtor gave was that it needed renovation. So the guy takes it off the market, puts all this work into it and now wants like $100,000 more for it.

I can understand a new roof, plumbing, maybe a tankless water heater or something like that. But to renovate a kitchen and dining area, fahgeddaboudit. Chances are, a buyer may wish to renovate to their own tastes, instead of paying for the owner’s taste.

Comment by Housing Analyst
2013-09-17 06:56:41

Exactly.

You’re magnifying your losses with these renovations. They’re a loss every single time.

Comment by jose canusi
2013-09-17 08:06:08

That’s what I’ve always thought. I can understand someone renovating a house to live in, especially older retired people who may need modifications. A lot of the people who retire to this area and buy a home, will do some modest renovations, especially if the house needs updating or something. And then when they kick the bucket or go into assisted living, the buyers of their home will do their own renos and so on. The local Home Despot makes a fortune on the turnover of retireds in the area. But those buyers are not renovating to sell, they’re renovating for their own comfort or tastes.

I always thought renovating to sell would be a money loser, and also a time waster. Just drop the price, already. I think most people would rather get a bargain and put the money “saved” into their own renos.

Comment by polly
2013-09-17 08:48:04

You are forgetting the financing aspect of it. If the people buying have no cash beyond a bare 3.5% downpayment and maybe some closing costs, then they can’t afford to renovate when they move in. They are going to have to live with what is there, especially if they can’t afford to keep paying rent and it would be hell to live in the space while the kitchen/bathroom/whatever aren’t functional.

Stop thinking like a person who can actually afford the place and you will understand the mentality.

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Comment by Housing Analyst
2013-09-17 09:49:34

^LOLZ

And not only are “renovations” a complete loss, paying an inflated price for a rapidly depreciating house that isn’t suitable to live in is a greater loss.

*THINK*

 
 
 
 
Comment by United States of Moral Hazard
2013-09-17 10:58:01

Is there a bigger anchor around one’s neck than a condo? Just wondering aloud here..

 
Comment by Doom
2013-09-17 11:20:43

Totally agree, paint, roof etc. is fine, all the other major upgrades are a waste to the buyer. This granite and stainless appliances is getting very old. Folks think that is the key to overpricing and a quick offer, curb appeal, clean home, proper pricing for your zip code, professional agent, is much more important.

Comment by Housing Analyst
2013-09-17 11:25:45

“Professional agent”?

BWHAHAHAHAHAHA

“Realtor Charged With Theft By Deception, Altering Deeds, Conspiracy”

http://foreclosuregate.prosepoint.com/story/realtor-charged-theft-deception-altering-deeds-conspiracy

 
Comment by Beer and Cigar Guy
2013-09-17 11:43:41

But what if they are locked in the throes of “pent up demand”?!? What if they realize that they will only go around once in life and they just HAVE to “go for the gold” before someone else does!?! What about the children- shouldn’t they renovate FOR THE CHILDREN?!? For king and country, for God, motherhood and apple pie, for the sake of everything wholesome and good in this world, you’ve GOT to get a “professional agent” and pay them 3%!! In the name of The American Dream, just sign on the line which is dotted and go horribly, irretrievably into debt so that Larry Yun can keep his job and your used-house-salesperson can make that next Lexus payment!! Aaaaaaaand CUE the NAR theme song: http://www.sadtrombone.com/?play=true

 
 
 
Comment by 2banana
2013-09-17 06:13:43

Really? No matter how much they drop the price?

But, hey - there are limits! We are just not going to give it away!

—————

“Matthew Sarabura and Chan Nguyen have been trying to sell their Sandy Hill condo since March, but they say no matter how much they renovate and drop down the price, but haven’t had any luck.

Comment by Strawberrypicker
2013-09-17 06:59:54

They know there is an unlimited supply of all cash foreign buyers.

Comment by Beer and Cigar Guy
2013-09-17 07:28:53

I’ll just bet that HORDES of filthy-rich, Chinese investors will swoop in any minute to snap these Chinese properties up with 50% over asking-price, all cash offers and… Wait a minute… Its OK- I’ve got this:

I’ll just bet that HORDES of filthy-rich, BRAZILIAN investors will swoop in any minute to snap these Chinese properties up with 50% over asking-price, all cash offers and flip them for a bazillion $$ one week later.

 
 
 
Comment by Ben Jones
2013-09-17 06:59:41

I came across this:

‘Prized as a magical imperial stone, jade is a status symbol of the super rich in Asia, but rocketing prices in the top-end of the market have left traders in Hong Kong struggling to find buyers. With the cost of high-quality raw jade and jade products surging repeatedly in the past eight years, prices tags are now becoming prohibitive and experts predict the bubble must soon burst as buyers are stepping back.’

‘Driven up by the appetite of wealthy Chinese, the rising cost of jade is also being fueled by fears of a shortage in supply from Myanmar, the key source. One bidder told AFP the auction had been less busy in the past two years than previously, with high prices putting dealers off. “I set aside more than two million euros for the auction, only to find that I am too poor to win a bid for one single piece of top-end jade,” said Liang.’

“If a piece of raw jade sold for 100,000 euros in the past, people would make an offer of 500,000 euros for the same one this year.” One dealer said Chinese buyers had backed out of collecting their jade after having second thoughts about the high prices, while another said Chinese bidders had gone in high purposely to put the raw jade out of reach of their rivals.’

http://www.arabnews.com/news/464770

Comment by WT Economist
2013-09-17 07:14:45

By lifting entire nations out of poverty, globalizations has created a whole new group of suckers.

Eventually, those suckers are going to be pissed. Let’s just hope we don’t end up with another Hitler and Stalin in China and India.

Comment by Blue Skye
2013-09-17 08:34:03

Eventually they will be jaded.

 
 
Comment by 2banana
2013-09-17 07:25:17

??

but rocketing prices in the top-end of the market have left traders in Hong Kong struggling to find buyers.

Yet the article states that there are plenty of buyers with lots of cash…

 
Comment by jose canusi
2013-09-17 07:25:26

Thanks for the info. I’ll have to study what constitutes high quality jade as opposed to lower quality. There’s a ton of the cheap stuff on line. It’s supposed to be a very hard stone and quite difficult to carve.

Comment by inchbyinch
2013-09-17 12:20:30

Here I was thinking, the jade elephant I bought in Los Angeles Downtown Chinatown, and put on a gold chain (necklace) would pay for a new laptop. Silly me. lol

I priced it locally (crooks) and on one of my subway excursions to Chinatown, I paid $10.

Comment by AznGuy
2013-09-17 19:06:02

Congratulation! You paid $10 for a piece of green plastic from the crooks.

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Comment by AmazingRuss
2013-09-17 16:31:58

“Chinese bidders had gone in high purposely to put the raw jade out of reach of their rivals.”

Nutballs.

 
 
Comment by Whac-A-Bubble™
2013-09-17 08:05:21

Gains in equities ‘could never outpace the growth of home prices,’ he said.”

It is beyond remarkable how similar this logic sounds to that used to justify residential real estate investing in the U.S. circa 2005.

China’s home-grown housing bubble is playing out in synchronization with the U.S. bubble, only with a lag of half a decade, give or take a few years.

 
Comment by Whac-A-Bubble™
2013-09-17 08:07:16

Once the globally distributed Chinese investor horde buys up all the houses on the planet, THEN WHAT?

Comment by Blue Skye
2013-09-17 08:35:44

Hurry, build more houses!

 
Comment by inchbyinch
2013-09-17 12:43:57

I dropped off a Dodgers event flyer to our Buyers Broker last week, and low and behold, Chinese clients were in his reception area. Four men and one lady. They spoke limited English.
Weird.

 
 
Comment by Whac-A-Bubble™
2013-09-17 08:24:26

“‘A correction phase has started. The market has shifted from investors to end users. Investors cannot hold on to properties forever and this supply is coming back to the market at discounted rates,’ says Pankaj Kapoor, founder and MD at real estate consultancy Liases Foras.”

India seems to be ahead of the rest of the developed world in the race to affordability.

Comment by Ben Jones
2013-09-17 14:10:06

How come the media is paying so little attention to what’s happening in India? Compare this to Greece.

‘The warnings, from former Reserve Bank of Australia (RBA) board member Bob Gregory and Melbourne University professor Ross Garnault came as the latest RBA meeting minutes revealed concerns within the central bank’s board over the property sector. Mr Gregory said the current property landscape was reminiscent of the late 1980s when rising asset prices forced the RBA to raise interest rates to fresh record highs. He added that a housing bubble “just seems to be inevitable”. “The only question is when,” he told the AFR.’

http://www.businessspectator.com.au/news/2013/9/18/australian-news/experts-warn-housing-bubble

Comment by Blue Skye
2013-09-17 18:41:40

“How come the media is paying so little attention…”

I can’t imagine how what is happening in India plays into any of the current political agendas here. I is not a shooting (bad), it is not something we will bomb (good), it doesn’t involve a Holllywood celebrity…& etc.

Comment by Whac-A-Bubble™
2013-09-17 22:54:06

Only a complete moron would believe the BRICs are decoupled from the rest of the global economy. For instance, with the collapse in the rupee goes the demand for gold. Look for more gold price declines ahead (as Goldman Sachs predicts).

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Comment by In Colorado
2013-09-17 08:27:23

said Chang, who believes home prices in Shanghai will rise 50 percent in the next five years.

Everyone around the world has been brainwashed into believing that housing is supposed to be ridiculously unaffordable.

Comment by Beer and Cigar Guy
2013-09-17 11:45:52

No, not everyone. Just the simpleminded and delusional.

Comment by In Colorado
2013-09-17 12:20:21

Just the simpleminded and delusional.

In other words, the overwhelming majority, including lots of people with “STEM” jobs who firmly believe that prices can only go up.

 
 
 
Comment by Taxpayers
2013-09-17 09:45:38

on FOX they had an end of recent boom discussion- the real hore was still hangin in.

“normalized”

Comment by inchbyinch
2013-09-17 12:50:50

“normalized”
Yeah, right. We paid almost the same for this fixer, as we did in 1998 for our drop dead gorgeous, 2X’s the size view lot McMansion. Give me a break. Prices have been ridiculous for a decade now.

And before HA attacks me, I have a life long injury. We needed a one-story.

 
 
Comment by (Neo-) Jetfixr
2013-09-17 14:48:47

It’s all good, nothing to worry.

If the ratio of 1%er/Producers to Serfs is the same in China as it is here, that means there are 1.3 million 1%ers in China available to buy up all of our overpriced “luxury homes”.

Or 130 million top ten percenters.

Can’t wait until they move here, and start snapping up/outbidding our 1%ers/10%ers for primo properties.

Hell, pass a “Buy a house, become a citizen” plan, let them all become citizens, and create a seller’s market for politicians.

Comment by inchbyinch
2013-09-17 18:08:31

Jetfixr
That’s the weird thing, this is a basic blue collar community, where the average tract home is 1,800-2,600 sq ft circa late 1960’s. Our library reflects the demographics. It stinks. Nobody reads in central Simi. We use to live opposite the Reagan Library, the Beverly Hills of this town, and we all had another town’s library cards.

The Chinese buying around here blew my mind.
H*ll, if I were a Chinese investor, I’d buy in South Pasadena, San Marino, Santa Barbara or Montecito . Simi is basically a sh*t hole.

Comment by Ben Jones
2013-09-17 18:15:49

‘The first Chinese investors started showing their faces in Britain’s real estate market only about five years ago. “In the beginning Chinese buyers bought houses to live in themselves, or for their children who were studying in England. But since 2012, we have seen lots of buyers saying that it’s “for investment purposes”, said Qi Xiawei (祁小玮), the China branch manager for the Assetz (安赛思) real estate agency.’

http://www.eeo.com.cn/ens/2013/0904/249374.shtml

‘A Chinese family has paid $1.4 million for a Sunnybank home for their student son - but will have to demolish it. In an increasing market trend, Asian buyers are parting with millions of dollars to buy properties for their children studying in Australia.’

‘A Sunnybank home on a 1620sq m double block sold under the hammer for $1.4 million on August 31, with the Chinese bidders buying the property sight unseen for their 23-year-old son’

http://www.couriermail.com.au/questnews/south/chinese-family-buy-14-million-sunnybank-home-for-student-son-but-will-have-to-demolish-it/story-fni9r1nj-1226717073071

 
 
Comment by Whac-A-Bubble™
2013-09-17 20:19:34

I suppose it would be better if they came here as real estate investors than as military troops…

 
 
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