Yet Another Hysterical Burst Of Investment Greed
A report from China Daily. “The much anticipated policy meeting of the Communist Party of China - the Third Plenary Session of the 18th CPC Central Committee - is scheduled to open on Saturday. The meeting is expected to steer the country to an historic turning point. China Daily invited four experts in economics as well as social and political studies to share their insights and expectations. What would be your most expected reform in China? A: Opening the capital account would be one of the most expected reforms.”
“What would be the biggest challenges and risks in carrying out reforms? A: Opening the capital account would probably cost capital flight from China and a fall in property prices. The issue of a property price crash is definitely the biggest risk as it connects to the banks’ loan sector.”
The Epoch Times on China. “A tidal wave of migrations has surged out of China over the last month. Shaken so violently by the recent execution of fellow tycoon, Zeng Chengjie, president of the Sanguan Real Estate Development Group in Hunan Province on July 12, followed by the arrest of a business investor, successful businessmen are taking their capital and leaving China.”
“So what will the consequence of this mass migration and capital loss be? Chinese economic writer Niu Dao wrote an article on his blog titled, ‘The Capital Flight is More Terrifying Than the 383′ on Oct. 30 stating that the ‘383 strategic plans’ the CCP is discussing to solve the housing bubble problem are now insignificant. This major capital leak from China will deliver a critical blow to the housing bubble.”
The South China Morning Post on Hong Kong. “Sun Hung Kai Properties surprised the market when it released 181 flats for sale at The Cullinan at Kowloon Station last month at an average price of HK$29,097 per square foot of saleable area. Once rebates on stamp duties and discounts were factored in, the net effective price amounted to HK$25,024 per sq ft, which analysts said was some 21 per cent below prices in the secondary market of about HK$31,763 per sq ft.”
“New World Development and Wheelock Properties offered an initial 116 flats for sale at their joint venture The Austin, above the Austin MTR station in Kowloon, at a headline price of HK$ 22,875 per sq ft. Barclay’s expects discounts and rebates of stamp duties to come to 20 per cent, making the effective selling price less than HK$19,000 per sq ft.”
“Despite prices being cut at The Cullinan, sellers in the nearby mass housing market surrounding Kowloon Station had cut their asking prices by just 5 per cent, said Patrick Chow Moon-kit, head of research at Ricacorp Properties. ‘Most of the flat owners would rather keep their flats for leasing than cut prices to lure buyers,’ he said.”
Channel NewsAsia on Singapore. “Estimates from SRX showed that prices dipped just 0.1 per cent, with mass market homes in the Outer Central Region leading the decline with a drop of 1.4 per cent. Eugene Lim, ERA’s key executive officer said: ‘For OCR, which is the suburban areas, we are seeing more TOP (temporary occupation permit) projects coming on-stream. So if I am selling my home… (I) may have to be more (flexible as) the price will be lower. The days when it (was) a sellers’ market… is over for the suburban region. It is a buyers’ market now; buyers basically have a lot of choice.’”
World Property Channel on India. “Property prices have come under pressure in India. ‘This year, the residential real estate markets are slow in many cities, and are reaching a stage where only hard discounts will achieve any significant extra momentum,’ said Anuj Puri, the chairman of Jones Lang LaSalle India. ‘Freebies and schemes are the last line of approach for many developers - if these don’t work, they will have to mark down their prices to catalyze more sales.’”
The Indian Express. “While there has been a significant increase in inventory levels across India in the same quarter for the 2013-14 financial year, the inventory pile-up in the Mumbai Metropolitan Region (MMR) was the highest at 58 months, according to a report. ‘These levels have not been seen during the past five to 10 years, reflecting a very poor market for residential units,’ said Pankaj Kapoor, managing director of Liases Foras, adding that a typical middle-class and above middle-class citizen, who earns about Rs 80,000 to Rs 1.5 lakh a month, has been unable to afford a home in the city.”
“‘There is demand for housing and people want to buy at the right price, but the current rates are exceptionally high and developers are unable to cut down prices beyond a certain level,’ said Kapoor.”
The New Zealand Herald. “Homes in first-time buyers’ price range - which were being snapped up a few months ago - are now struggling to attract interest, auctions at Auckland’s biggest real estate agency this week suggest. Of 19 properties under the Herald’s eye, only 13 sold at auction. Several were below $600,000. Agents say there is an absence of young Kiwis inquiring about properties and attending auctions for lower-priced homes in the city and mortgage brokers report a big fall in clients trying to secure funding.”
“Squirrel Mortgage Brokers’ boss John Bolton said his company had seen a 40 to 50 per cent drop in clients trying to buy their first homes. ‘That home ownership dream in the Auckland market is looking further and further away,’ he said. ‘The new people coming in have just given up … they come in and talk to us. We can’t get them preapproved.’”
ABC News in Australia. “A report by a property think tank argues houses prices in Melbourne are being kept high by tens of thousands of homes that appear to be unoccupied. Prosper Australia says its findings challenge the common belief that a shortage of homes is helping to drive the surge in rents and property prices. ‘For residential properties we found that about 12,500 properties did not use any water whatsoever over 2012,’ said Prosper researcher Philip Soos. ‘And about 64,000 use less than 50 litres of water a day.’”
“Given that average daily water use per person is 161 litres, Prosper says those properties using less than 50 litres a day were probably vacant. Mr Soos says many owners are holding onto empty properties because the net return from rent is so low as to make it not worth the time and effort, while the real profit is to be made from rising property values.”
From Daily Life in Australia. “Reading the newspaper lately has felt like being trapped in an infernal Sydney dinner party: ‘There’s never been a better time to sell!’ ‘Do you think that it’s better to buy in the east or inner-west?’ ‘Did you hear about the property lawyer who bought his unborn grandchildren their own gated community?’”
“Now, in the midst of yet another hysterical burst of investment greed, we’ve started to count the costs: an entire generation locked out of the property market, first-home buyers pushed out of the inner city by baby-boomer investors, and carnivorous foreign investors consuming our land. Call me treasonous, but to me the great Australian dream has always seemed like more of a nightmare: mortgaged up to your eyeballs in a house you never get to enjoy because you’re too busy working to pay off the mortgage.”
“Civilisation has arrived at a very dark point when people in the richest country in the world cannot afford to put a roof over their heads. We constantly complain that our rent is too high or that the property is over-valued and yet we do nothing about it. We need collective pressure placed on our government to behave like most other governments in Europe: restrain greed, protect low-income families from housing insecurity and in so doing, liberate us from the conversational tyranny of the housing market.”
‘I was in Beijing last week and visited a luxury villa compound. It was a large site with tens of dozens of completed but mostly empty villas. A worker in the sales office told me the average home was priced at CNY 23 million (US$3.8 million) and most were sold. He said half were owner-occupied (though I saw very little sign of residents) and the other half purchased as investments.’
‘Message: The bubble is alive and growing. These villas are a pretty — and by most appearances, empty — place to park money. Mrs. Cui shakes her head at the dilemma facing the government. She doesn’t believe recent curbs will work like a ban on third home loans in Shanghai.’
“I don’t think home prices will drop sharply because our economy is still doing okay,” she says. “Our child bought a home in the U.S. recently. The price was about the same as a flat in Beijing, but the area is a lot bigger and the quality is much better!”
‘Sun Hung Kai last month offered to pay as much as 70 percent of the stamp duty and other charges for buyers at The Cullinan, a project in the area with average prices of about HK$25,000 a square foot, according to the project’s website. At nearby The Austin, a luxury project co-developed by Wheelock & Co., New World and MTR Corp. with prices of over HK$23,000 a square foot, buyers can get rebates of as much as 100 percent of the extra stamp duties, the developers said on The Austin’s website.’
“These offers are practically price cuts,” said Midland’s Lau, who estimates such discounts can amount to as high as 15 percent of the price. “When developers do that for their new projects, it creates pressure on existing homeowners in the area to lower their asking prices if they want to sell.”
‘The Real Estate Institute of Western Australia released its property results from the September quarter last week and there were three clear trends to be found among the data. The most noticeable trends are the drop in sales turnover, strong but declining first home buyer activity and the narrowing of most sales into a particular price range.’
‘More notable in the goldfields is the rapidly cooling rental market. The number of available leases jumped 19% in the quarter and 170% over the year while the median rent dropped 5% in the quarter to $390 per week.’
In Malaysia: ‘The doubling of the real property gains tax (RPGT) announced in the 2014 budget and impending surge in supply of newly completed properties has changed the game for property investors who will likely have to wave good-bye to the days of property flipping that were rampant in the last two to three years.’
‘Zong Qinghou, chairman of China’s largest beverage producer Wahaha Group, has called for a halt in housing construction, reports the Chinese-language Beijing Times.’
‘Zong, attending the second World Zhejiang Entrepreneurs Convention held in Hangzhou in eastern China’s Zhejiang province on Sunday, interrupted a speaker to say that “no construction of new property should be allowed.”
‘The Wahaha chairman — the country’s second richest man — objected to the massive construction taking place across the country under the pretext of urbanization. He said that vacant housing is now evident not only in major cities but also in rural areas, noting: “housing bubbles have formed and it would be terrible to build more houses.”
‘Meanwhile, Wang Jianlin, chairman of property developer Dalian Wanda Group and currently the richest man in China, said the property market is running out of control and it is mainly attributed to the authorities. He said that regulation and control had been unsuccessful and its direction had been erratic, adding that government regulation was focused on controlling housing price hikes instead of protecting home ownership.’
Sounds as though the global Housing Bubble is simultaneously cresting in China, India and Australia. We will enjoy a brave new world once this wave breaks.
It seems to go on forever. Ghost cities for years, and years, and years, yet no meltdown.
Leaving the Land
New China Cities: Shoddy Homes, Broken Hope
Sim Chi Yin for The New York Times
Dissatisfaction and Dysfunction in a Model for China’s Urbanization: As China pushes ahead with government-led urbanization, Huaming might be an example of another transformation: the ghettoization of China’s new towns.
By IAN JOHNSON
Published: November 9, 2013
点击查看本文中文版 | Read in Chinese »
HUAMING, China — Three years ago, the Shanghai World Expo featured this newly built town as a model for how China would move from being a land of farms to a land of cities. In a dazzling pavilion visited by more than a million people, visitors learned how farmers were being given a new life through a fair-and-square deal that did not cost them anything.
Leaving the Land
Articles in this series are looking at how China’s government-driven effort to push the population to towns and cities is reshaping a nation that for millenniums has been defined by its rural life.
Today, Huaming may be an example of another transformation: the ghettoization of China’s new towns.
Signs of social dysfunction abound. Young people, who while away their days in Internet cafes or pool halls, say that only a small fraction of them have jobs. The elderly are forced to take menial work to make ends meet. Neighborhood and family structures have been damaged.
Most worrying are the suicides, which local residents say have become an all-too-familiar sign of despair.
As China pushes ahead with government-led urbanization, a program expected to be endorsed at a Communist Party Central Committee meeting that began Saturday, many worry that the scores of new housing developments here may face the same plight as postwar housing projects in Western countries. Meant to solve one problem, they may be creating a new set of troubles that could plague Chinese cities for generations.
“We’re talking hundreds of millions of people who are moving into these places, but the standard of living for these relocatees has actually dropped,” said Lynette Ong, a University of Toronto political scientist who has studied the resettlement areas. “On top of that is the quality of the buildings — there was a lot of corruption, and they skimped on materials.”
Huaming is far from being a dangerous slum. It has no gangs, drug use or street violence. Nearly half the town is given over to green space. Trees line the streets that lead to elementary, middle and high schools.
But the new homes have cracked walls, leaking windows and elevators with rusted out floors. For farmers who were asked to surrender their ancestral lands for an apartment, the deterioration adds to a sense of having been cheated.
“That was their land,” said Wei Ying, a 35-year-old unemployed woman whose parents live in a poorly built unit. “You have to understand how they feel in their heart.”
The sense of despair and alienation surfaces in the suicides, a late-night leap from a balcony, drinking of pesticide or lying down on railroad tracks.
“I have anxiety attacks because we have no income, no job, nothing,” said Feng Aiju, 40, a former farmer who moved to Huaming in 2008 against her will. She said she had spent a small fortune by local standards, $1,500, on antidepressants. “We never had a chance to speak; we were never asked anything. I want to go home.”
The situation in these new towns contrasts with the makeshift housing where other migrants live. Many of those are created by farmers who chose to leave their land for jobs in the city. Although cramped and messy, they are full of vitality and upward mobility, said Biao Xiang, a social anthropologist at Oxford University who has studied migrant communities.
“These migrant neighborhoods in big cities are often called slums, but it’s the new resettlement communities that will be harder to revive, partly because they are not related to any productive economic activity,” Professor Xiang said. “And the population tend to be homogeneous, disadvantaged communities.”
…
For the record, I don’t advocate violence as a solution. That said, I can’t imagine a faster path to a property bubble collapse than chasing real estate developers out of a country through a credible threat of mayhem:
“Shaken so violently by the recent execution of fellow tycoon, Zeng Chengjie, president of the Sanguan Real Estate Development Group in Hunan Province on July 12, followed by the arrest of a business investor, successful businessmen are taking their capital and leaving China.”
Like I said the other day, people who actually live in Totalitarian societies see the west and the US in particular as a safe haven, despite our many problems.
Problem is, they’ll come here where they’re safe.
Some Chinese people just bought a large RV Resort that I know of. The Chinese wealth showing up on our shores is a real thing.
The Chinese wealth showing up on our shores is a real thing.
I am seeing faces which might be Chinese & definitely hearing Mandarin spoken in the least likely places. Last month I heard a mother & daughter speaking Mandarin in the aisle of a hardware store in Amish country.
“the recent execution of fellow tycoon, Zeng Chengjie…”
Running a little Ponzi apparently. They say government officials were allowed to get their money out and many thousands of common people lost everything. Then he is executed in secret. Sounds less like anti-corruption and more like anti-discovery. He won’t be writing any memoirs from prison.
And the government takes gets all the proceeds.
Nice eh?
the gov stole everyones $ in hungary-argentina and portugal
That’s what they’re best at. Set everyone up for what they know is questionable, intentionally crash the the thing and then scoop up the cash.
It’s an old game that still goes right over all the GovLoving empty skulls.
“[S]uccessful businessmen are taking their capital and leaving China.”
_______________________________/
That is laugh-out-loud funny. Houses in Vancouver and Sydney are the new Cayman Islands offshore account.
There is no death penalty in China or Oz, right?
From my interactions with Chinese people, they don’t seem very warm and engaging.
If you came from where they came from and are frantically trying to move capital to a place where you’ll still probably lose a significant chunk of it, wouldn’t you be the same?
No. I would try to be friendly with the locals. But that’s just me.
“Opening the capital account would probably cost capital flight from China and a fall in property prices.”
The solution to this problem is challenging, though blatantly obvious: End the repressive Red Chinese communist regime, and the people will once again want to live in China.
Coincidentally, just last evening my wife and I were discussing the shockingly peaceful end of the Soviet regime in the U.S.S.R. back in 1989. Here’s to hoping the end of Chinese Communist Party rule will be as benign as the end of the Soviet Era was.
Seems like apples and oranges, though. What did the USSR produce besides oil and nukes that anyone wanted? China on the other hand produces almost everything. I would expect a collapse in China to be a much different event.
“What did the USSR produce besides oil and nukes that anyone wanted?”
Musicians and ballet dancers.
Caviar.
Stoli?
It’s hard to avoid wondering whether the collapse of the Chinese property bubble will herald the end of Communist rule.
It is hard to imagine that our own comfy house of cards would stand unfazed by the implosion of the credit bubble in China.
No doubt a 9.5 magnitude earthquake in the Chinese political system would send tsunamis to many other coasts.
Precisely why there will be no change in course. Or if there is one, why it will be temporary.
It’s also hard to avoid wondering whether the end of QE will herald the end of democracy in the United States.
Only one conclusion can be reached after reading through these articles… There is no precedence.
-The misallocation of capital is unprecedented in terms of $$$ volume
-The capital misallocation is a result of unprecedented distorted public policy
-The scope is global and unprecedented
And what are we certain of?
The correction will be unprecedented.
China’s crazy property bubble
By Pauline Chiou, CNN
updated 9:17 PM EST, Thu November 7, 2013
Beijing (CNN) — Cui Shufeng is a retired government worker in Beijing. She is one of the lucky homeowners who bought her place long before the housing sector galloped out of reach for the average Chinese salary worker.
“It is ridiculously high,” she says pointing to apartments in her neighborhood. “These homes near the school here are CNY 70,000 (USD$11,400) per square meter. It’s not even worth 7000 yuan (USD$ 1140) per square meter because it’s not even good quality.”
Her concern is on the radar of the central leadership that is expected to discuss economic reforms at the plenary session starting Saturday. For Chinese leaders, the property sector is an emotional and political hot potato. The dream to own a home is a far out of reach for tens of millions of Chinese citizens.
In the latest housing data, new home prices for September rose at the fastest pace in almost three years. In Beijing, new home prices were up 16%, Shanghai 17% and Shenzhen 20% from a year ago.
“The problem is Chinese people have very few investment vehicles. They’ve lost trust in the stock market so they turn to real estate,” says Xu Si Tao, China Director of the Economist Intelligence Unit.
Xu says the central leadership needs to make bold steps in financial reforms to give citizens more options to invest their money.
One measure China is considering is to allow banks to set their own interest rates, creating more competition.
I was in Beijing two weeks ago and visited a luxury villa compound. It was a large site with tens of dozens of completed but mostly empty villas. A worker in the sales office told me the average home was priced at CNY 23 million (USD$3.8 million) and most were sold. He said half were owner-occupied (though I saw very little sign of residents) and the other half purchased as investments.
I was told the supermarket in the center of the compound was open and often used by residents. It was clearly still under construction. When I pointed this out, I was then told the grand opening would be next year. Message: The bubble is alive and growing. These villas are a pretty — and by most appearances, empty — place to park money.
Cui shakes her head at the dilemma facing the government. She doesn’t believe recent curbs will work like a ban on third home loans in Shanghai.
“I don’t think home prices will drop sharply because our economy is still doing okay,” she says. “Our child bought a home in the U.S. recently. The price was about the same as a flat in Beijing, but the area is a lot bigger and the quality is much better.”
…
Check this out:
‘In this episode of China Money Podcast, guest Patrick Chovanec, chief strategist at New York-based Silvercrest Asset Management, talks with our host Nina Xiang about why he thinks the Chinese economy is slowly strangling itself, how to read beyond China’s headline economic data and what he expects from the Chinese Communist Party’s third plenum meeting.’
‘Q: China’s imports and exports in October reached $339.7 billion, up 6.5% year-on-year. Last week, the Oct official PMI number reached 51.4, hitting the highest level for 18 months. Is China’s economy really improving, or is this the same old window dressing before an important political meeting?’
A: …We seem to be in a cycle where GDP was higher and (economic data appears to be better) as you mentioned. But I don’t think things are back on track at all.’
‘For example, it’s getting harder to interpret Chinese export numbers. There is a disconnect between the reported Chinese export numbers and the freight shipments out from Hong Kong. It’s masking capital inflows to China as Chinese companies are borrowing cheap U.S. dollars and bringing them into the country dressed as export. Then they speculate in real estate and in re-lending.’
‘We have seen an explosion of credit lately, which in absolute terms makes 2009 stimulus pale in comparison. So credit has been driving more investment and growth. This is a model that Premier Li Keqiang said himself that it’s not sustainable.’
‘This dependence on run-away credit growth to both drive investment and also paper over past investments that have gone bad, means that the Chinese economy is slowly strangling itself. It may not be obvious looking at the headline numbers.’
‘I’ll give you an example. Chinese companies reported increase in earnings during the first half of this year. But well over half of that came from banks. Of the non-financial companies, all of the increase in earnings, plus more, came from non-core activities. That means speculation in properties, re-lending to shadow banking, etc. Actually core earnings were down.’
‘That says to me that the Chinese economy is unsustainable and needs to be fixed. The greatest sign is the freeze up in the interbank lending market. A lot of people dismiss that as a blip on the radar screen and is easily fixed by the People’s Bank of China. In fact, it showed the dependence on credit expansion.’
‘Q: You have said many times that the Chinese property sector is a huge bubble. But last week, Blackstone paid around $400 million for a 40% stake of Shenzhen-based Chinese shopping mall developer SCP. Brookfield is planning to invest $750M in China Xintiandi. These investors are obviously still bullish and making huge bets on the Chinese commercial property sector?’
‘A: I could be cynical and say that people are bullish during a bubble. That’s the definition of a bubble. But these are private deals and I don’t know the details to comment.’
‘If you look at what drives the Chinese property market, it is almost one-to-one correlation with credit expansion generally. This is why we see a credit boom and also a rapid rise in property prices this year in China. But it’s important to realize there is a huge overhang of vacant homes used as investment on the presumption that someone will buy it at a higher price.’
‘On the commercial property sector, there are nine years worth of sales currently under construction in commercial and office properties, according to my calculations done earlier this year.’
But last week, Blackstone paid around $400 million for a 40% stake of Shenzhen-based Chinese shopping mall developer SCP. Brookfield is planning to invest $750M in China Xintiandi. These
Reading this, I couldn’t help but wonder whether these will be the Golden West and Countrywide acquisition equivalents of the Chinese bubble…
This also implies that US houses to rent are no longer a bargain, if they are investing in China.
‘For example, it’s getting harder to interpret Chinese export numbers. There is a disconnect between the reported Chinese export numbers and the freight shipments out from Hong Kong. It’s masking capital inflows to China as Chinese companies are borrowing cheap U.S. dollars and bringing them into the country dressed as export. Then they speculate in real estate and in re-lending.’
Here in the U.S. we remember well how fudged numbers turned out for the likes of Enron and Fannie Mae. Maybe it’s different there in China?
‘Chinese companies are borrowing cheap U.S. dollars and bringing them into the country dressed as export. Then they speculate in real estate and in re-lending.’
I wonder if a QE3 taper would have any effect on this dynamic. For instance, suppose Chinese speculators are borrowing in the U.S. at QE3-supported low rates, then using the proceeds to fund ‘all cash’ California real estate investments?
Can’t wait to see how this turns out…
It’s masking capital inflows to China as Chinese companies are borrowing cheap U.S. dollars and bringing them into the country dressed as export.
That phrase caught my eye as well, PB, but I had trouble figuring out what they meant by it.
How do you bring in dollars “dressed as export”?
Does anyone have a guess what this means?
It could be that they borrow money from the US and count it as payment for an export.
And this:
‘Chinese companies reported increase in earnings during the first half of this year. But well over half of that came from banks. Of the non-financial companies, all of the increase in earnings, plus more, came from non-core activities. That means speculation in properties, re-lending to shadow banking, etc. Actually core earnings were down’
“It could be that they borrow money from the US and count it as payment for an export.”
That’s what I read the article to say.
Wouldn’t it be refreshingly shocking if the rampage of all-cash Chinese real estate investments across the developed world turned out to be funded by fraudulent borrowing in U.S. dollars?
refreshingly shocking
Refreshingly shocking, indeed—but it would also make a whole lot of sense.
IMO, bubbles are always fundamentally lending/credit-binge driven. The thought that this investor money was cash never really made sense to me.
The idea that the bubble in both China (via this faked-export dollar-imports channel), and in the US (why wouldn’t they sprinkle some of that borrowed money here as well?) might be funded by cheap US$ borrowing/leverage make this echo-bubble seem a lot more rational and much less incomprehensible. Frankly, I’ve been struggling to get my head around it, much more so than in the 2005/2006 era when it made sense.
So much for the boogeyman of Chinese Dollar reserves.
Then is it not fair to say that borrowing is a more (or less?) costly proxy in lieu of printing?
But they aren’t using all cash. Posted below:
‘High down payments of up to 50% on domestic properties, the legacy of a near four-year campaign to curb house prices, are also putting buyers off, according to Jones Lang LaSalle. By contrast, down payments on offshore residences can be as low as 25%.’
And this posted above:
‘Mainland Chinese buyers accounted for an estimated 8 percent of private home sales in the city, a former British colony returned to Chinese rule in 1997, in the third quarter of this year, down from a record 25 percent in the fourth quarter of 2011, according to Centaline Property Agency Ltd. Since October 2010, the Hong Kong Monetary Authority, the city’s de-facto central bank, has raised the minimum down payment required for home purchases over HK$10 million to as much as 60 percent from 30 percent, and to 50 percent for those from HK$7 million to HK$10 million. The most recent round took place in February.’
‘That month, the government doubled stamp-duty taxes for all properties over HK$2 million, with new tax rates ranging from 1.5 percent for properties valued below HK$2 million, to 8.5 percent for those priced above HK$21.7 million.’
“The extra stamp duties and mortgage rules are like progressive taxes,” said Vincent Cheung, Hong Kong-based national director of valuation at Cushman & Wakefield. “The higher the property value, the higher the tax rates and the tighter the mortgage rules. Of course this would impact luxury properties the most.”
‘Prices in the established luxury areas, such as The Peak and Mid-Levels, are facing less pressure compared with “the newer luxury districts,” said Antonio Wu, head of investment at brokers Colliers International, referring to areas in Kowloon and further north of the city. “The old money is there and they usually have stronger holding power. If you cross the harbor, you’ll see more drastic price cuts because you have more supply and more speculators.”
“But they aren’t using all cash.”
Some reportedly are. The really interesting question to me is how many of these folks leveraged themselves to the hilt before entering the U.S. residential market with enough cash in hand to outbid everyone in sight.
I have an anecdote from my own circle to back up this conjecture. A friend of our family bought a foreclosure home in 4Closure Ranch after the 2007-2009 housing crash. To my recollection, the purchase cost him about $600K. He funded half out of his own savings, and borrowed the rest from a business partner. On the courthouse steps, it looked like a cash purchase, even though there was 50% leverage behind the scenes.
Similarly, I have to guess many of the ‘all cash’ Chinese investor purchases in California are funded by massive leverage behind the scenes.
Why Chinese People Buy So Many Homes in Palo Alto
It’s not just because it’s nice: Foreign home purchases by China’s wealthy tell us a lot about the country’s economy.
Matt Sheehan Nov 7 2013, 11:17 AM ET
Palo Alto’s proximity to Stanford University, pictured above, is among the reasons it has become a very attractive destination for Chinese home buyers. (nappa/Flickr)
The rise of the Chinese consumer on the global stage has had a tremendous effect on world markets, shaking up everything from the price of milk powder to impressionist paintings. Now, the impact is being felt all the way in Palo Alto, the Silicon Valley town next to Stanford University.
Over the past two years, Chinese buyers have been snapping up property in the city, driving up prices and possibly contributing to an emerging bubble. Chinese nationals have tripled their share of home purchases in Palo Alto since 2011, now accounting for around 15 percent of transactions in the city according to Ken Deleon, founder of Deleon Realty, a local firm that has invested heavily in catering to Chinese buyers.
“If we have seven offers for a home here, three of them will be Mainland Chinese buyers with all cash,” Kim Heng, the Chinese-born head of Asian outreach at Deleon Realty, guessed. “We’ve never seen so much money in all the years we’ve been in the real estate business.”
…
“The idea that the bubble in both China (via this faked-export dollar-imports channel), and in the US (why wouldn’t they sprinkle some of that borrowed money here as well?) might be funded by cheap US$ borrowing/leverage make this echo-bubble seem a lot more rational and much less incomprehensible.”
Here’s to hoping that it turns out an unholy alliance of Wall Street investment banks and ‘wealthy’ Chinese investors who borrowed from them fueled the echo bubble. If so, I doubt there will be much political support for a bailout in the U.S. Congress after the next round of collapse.
In payment of an invoice for goods or services. Probably A phony transaction
It sounds like money laundering in reverse.
It sounded to me like a carry trade, with a little book-cooking thrown in.
I almost forgot this one:
‘China’s central ministries on Monday sent a stern message about the implementation of a key State Council document aimed at tackling excess industrial capacity. The ministries underscored the increasing urgency of containing the risks of the longstanding issue.’
“Local governments will be held accountable on this issue. Those who still violate discipline will be heavily punished. Officials should not bet on infringement without exposure,” Hu Zucai, deputy director of th’e NDRC, said during the meeting.
‘On Oct 15, the State Council issued “guiding opinions” on solving the capacity issue. The document ordered a halt to the construction of new capacity in sectors burdened by excess production facilities.’
‘The council also said that projects on which construction hadn’t yet started should be canceled. Projects that were under construction at that point are to be halted unless they receive central government approval.’
‘The document singled out five sectors — steel, flat glass, cement, electrolytic aluminum and shipbuilding — as having severe excess capacity, and it listed specific measures for each industry.’
‘On the same day, Shang Fulin, chairman of the China Banking Regulatory Commission, said during a meeting with bank executives in the eastern province of Fujian that banks should try to head off a rise in bad loans from industries with excess capacity.’
‘He said banks should also step up efforts to write off some of the nonperforming loans on their books.’
‘Shang said that any form of new credit is prohibited for new projects in industries with overcapacity, and banks shouldn’t extend loans or provide funds by issuing wealth management products to back projects that don’t have the relevant government approvals.’
Real Estate
China’s Overheated Property Market: Clampdown Ahead?
By Dexter Roberts October 22, 2013
A man walking past an advertisement for a real estate company in Dalian, China
Photograph by Tomohiro Ohsumi/Bloomberg
China’s property market is on fire. Prices for new homes soared by as much as 20 percent in the country’s four biggest cities in September, over the same month a year earlier—the most since January 2011. In Beijing, they were up 16 percent, in Shanghai, 17 percent, and they were up 20 percent in both Guangzhou and Shenzhen. Of 70 major cities, only one, Wenzhou, saw a drop.
Overheated real estate may be good news for China’s aim of reaching a gross domestic product growth target of 7.5 percent for the year. After all, one-third of the economy comes from real estate and related industries, estimates Everbright Securities economist Xu Gao. “Property is just such an important sector for China. If home prices fall, the economy will certainly slump. The government is trying to find a balance,” Xu told Bloomberg News.
…
‘For those tracking the trends of rich Chinese, few areas are more engrossing than overseas investments. Particularly, observers have been following the flight of yuan into homes in some of the world’s leading cities. A new report by British property agency Knight Frank indicates that this is accelerating: The Chinese are now the world’s biggest buyers of expensive new properties.’
‘High down payments of up to 50% on domestic properties, the legacy of a near four-year campaign to curb house prices, are also putting buyers off, according to Jones Lang LaSalle. By contrast, down payments on offshore residences can be as low as 25%.’
‘After another strong weekend for Melbourne’s housing market, survey figures show new entrants to the property market and investors are taking on growing levels of debt. While banks maintain they are not cutting lending standards, the consultancy’s founder, Martin North, said the trend suggested big banks were easing their underwriting criteria slightly, and becoming more aggressive in trying to win customers.’
‘Some first home buyers were also borrowing ”well above” 90 per cent of the property’s value, he said. The same trend last week prompted ME Bank to raise its maximum LVR to 97 per cent.’
‘Bankers say a likely reason for the rise is the growing popularity of interest-only loans, which do not require the borrower to pay back the loan’s principal. A spokesman from National Australia Bank said the bank had seen a ‘’slight” increase in the number of interest-only loans, but argued they were no more risky than regular loans.’
“At NAB we have not seen a discrepancy in the default rate of interest-only loans as compared to the more standard form of principal and interest,” he said.’
“At NAB we have not seen a discrepancy in the default rate of interest-only loans as compared to the more standard form of principal and interest,” he said.’
Give it a couple of years, genius breath!
I was pleased to see the article from Australia, a week after I commented that there seemed to be no strong rebuttal to the housing bubble propaganda there.
“Now, in the midst of yet another hysterical burst of investment greed, we’ve started to count the costs: an entire generation locked out of the property market, first-home buyers pushed out of the inner city by baby-boomer investors, and carnivorous foreign investors consuming our land. Call me treasonous, but to me the great Australian dream has always seemed like more of a nightmare: mortgaged up to your eyeballs in a house you never get to enjoy because you’re too busy working to pay off the mortgage.”
You’re not treasonous. You’re a patriot.
Well, well.
‘A seventh defendant in the Crisp & Cole mortgage fraud case has agreed to plead guilty next week to charges that she provided false information on loan applications for three Bakersfield homes in 2006.’
‘Sneha Ramesh Mohammadi, a former Realtor and office manager who became chief financial officer at the disgraced Bakersfield real estate firm of Crisp, Cole & Associates, is scheduled to enter her plea before U.S. District Judge Lawrence J. O’Neill in Fresno.’
‘Charges remain against the firm’s principals, David Crisp and Carl Cole, both of whom have been freed on bail pending the trial’s scheduled start date Jan. 28.’
‘Court papers allege a conspiracy among people connected with the once high-flying firm, now defunct, to buy homes using straw buyers and others to skim equity from the properties based on artificially inflated home valuations.’
‘The conspirators allegedly used close to 100 percent financing to buy the homes, many of which later went into foreclosure. Prosecutors have estimated the crimes cost the mortgage industry at least $20 million, although industry professionals have said that figure is low.’
And there’s nothing at all wrong with prices going back to peak levels, right?
‘Prosecutors have estimated the crimes cost the mortgage industry at least $20 million, although industry professionals have said that figure is low.’
‘Tis a mere flesh wound, and a ridiculous drop in the bucket compared to the kinds of housing bubble proceeds racked up by Megabank, Inc cartel members.
Holy moley, that case is still dragging on?
Hmmmm…. A realtor involve in housing fraud….. Really?
We used to have a commenter “Crispy & Cole”. Wonder whatever happened to him/her.
Yes, this has been brewing for many years.
Why does an empty house use 50 liters of water a day?
The guy in the article thinks it might be leaks.
Because any site and mech contractor always does does an AWWA pressure test…….. right?
Why does an empty house use 50 liters of water a day?
We all know that water meter readings are absolutely trustworthy. One of the biggest water bills I ever got at my house was after a month’s absence when the main valve to the house was shut off and the digital readout on my meter didn’t change a bit.
Sounds like a billing error. Not the meter.
‘One of the quieter, yet most emphatic, successes of the Federal Reserve’s long-running easy-money campaign has been the way it has bailed out subprime corporate borrowers. It’s almost as if the Fed has made it “too hard to fail” for mid-sized to large companies with lower credit ratings. Junk benchmarks now yield around 5.7%, levels that high-grade companies used to be pleased to borrow at. Through most of the 30-year history of the modern junk-debt market, yields were in the double-digits, and in the panic of late-2008 they exceeded 20%.’
‘As a result, the amount of new lower-rated bonds and loans raised by less financially flush companies has been running at record levels. Through October, high-yield bond issuance exceeded $290 billion, according to RBS credit strategists, ahead of last year’s unprecedented pace. “Leveraged loans,” or credit lines extended to lower-rated companies by groups of banks, are likewise being written in amounts previously unseen.’
‘Still, there is that “maturity cliff” up ahead when creditors will start to knock on the door. David Tawil, co-founder of hedge fund Maglan Capital and a former bankruptcy lawyer, focuses on the bonds and stocks of distressed companies.’
‘He says of the default outlook: “Nothing will really happen until 2016-2017, but when something happens, it will really happen. Companies will continue to skate with rates at zero and then when they come to refinance with a doubling of the interest-rate environment, we’ll start to see things fall out of the sky.’
“As the Fed tightens, lenders will be able to be much more choosy, and will leave a lot of companies out in the cold,” he adds. “It should be pretty spectacular.”
‘In a few years, then, it will likely become — suddenly — quite easy to fail.’
‘Nothing will really happen until 2016-2017…’ unless we have a recession, or China blows up, or something unexpected, like a rate shock. Talk about swimming naked.
“Nothing will really happen until 2016-2017, but when something happens, it will really happen. Companies will continue to skate with rates at zero and then when they come to refinance with a doubling of the interest-rate environment, we’ll start to see things fall out of the sky.”
At that point we should reasonably expect the Yellen Fed to offer bailouts in yet another attempt to kick the can even further down the road.
Experts Predict Housing Bubble Will Burst Soon With Increase In Housing Costs And Foreclosures
L.J Melville November 10, 2013 in Investment
With the rapid increase since September in housing costs and foreclosures in the US and China, foreign experts predict that the housing market may burst soon. In China, prices in housing reached around 11 percent in comparison to last year, and in a year, prices increased almost 13 percent for the US. This echoes 2007, when experts predicted the same thing, leading to the economic recession. So, why has there been little action to curtail another crisis? Will there be another housing bubble burst?
Valery Garbuzov, Deputy Director of the Institute for the USA and Canada, shares his thoughts about the issue. “Generally speaking, home sales have always been an indicator whether the economy grows, or remains in stagnation after the crisis.
A rise in housing prices, activation of the housing market, increased demand for housing, was always seen as a positive phenomenon. But on the other hand, all this is very much linked to mortgage and the development of mortgage. Again, there will be a crisis, caused by this disorganized, unregulated mortgage lending. At the same time, the situation in 2008 cannot copy itself. Most experts agree that the amount of positive news in terms of the real estate market outweighs the risks.”
He continues, “It should also be remembered that the state does not have many ways to affect the market and economy. Basically, it is the Federal Reserve System, which, by increasing or lowering interest rates, can affect economy and either lower or raise the purchasing power of the population, enhancing economic activity The state, of course, should stimulate demand, although it is difficult to do.
This is evidenced by the growing federal budget deficit of the United States. But there is hope that the market will work a normal way, and then this situation will recover over time.”
“Every success has its price, and in this case, the success of the revitalization of market demand, as well as the price of success implies the risk of the mortgage crisis to strike again. It may or may not be. Optimists hope that it will pass them by,” he concludes.
This does not bode well for our blog Debt Donkeys….. or anyone else who bought a house since 1998.
Fact is folks are not defaulting on their payments it is down from last year I believe the number is 4% now default .
With 96% making payments and many still underwater, they will not list their homes or probably will refinance and stay put, thus you have inventory shrinking again and no bubble will occur?
Fact is there are 25 million excess empty houses.
And don’t forget the sub-prime debacle has yet to be dealt with.
‘Shadow banks reap Fed rate reward’