September 23, 2014

A Scare Of Price Correction

Global News reports on Canada. “It’s no secret that renting or buying a home in Vancouver is extremely unaffordable. The reality is that a lot of homes and condos in Vancouver are purchased, and then sit empty for years. Romy Lindner, owner of rental agency ‘Happily Ever Homes,’ says despite Vancouver’s incredibly low vacancy rates, several downtown neighbourhoods are ‘condo ghost towns.’ ‘Coal Harbour is at about 25 per cent vacancy right now,’ says Lindner. ‘Even when you are driving over the Lions Gate Bridge, you can see lights out all over the place.’”

“Lindner says 48 per cent of investors are foreign, and many owners want to leave the units as-is, not wanting to deal with the hassles of being a landlord. ‘They’re here for about three months out of the year, so it’s just easier to keep them as new,’ she says.”

From Perth Now. “Australians are under more financial stress as the cost of living goes up, and wages don’t rise as much. The level of Dun & Bradstreet’s consumer financial stress index is expected to reach 25.3 points by the end of September. That level is up from 18.4 points in the June quarter and is the second highest level in four-and-a-half years. Personal debt agreements, a precursor to bankruptcy, in Queensland had jumped 33 per cent in the second quarter of the year compared to one year earlier. Personal insolvency activity in Queensland was also the nation’s second highest.”

“Dun & Bradstreet’s director of consumer risk solutions, Steve Brown, said it was well known that Australians carried a large level of personal debt, but most of that was related to investment in housing, which was generally viewed as positive. ‘What’s particularly worrying is that this rising stress is coming at a time when we have very low interest rates and a relatively steady jobs market,’ he said.”

The Straits Times on Singapore. “The property market’s woes have spread from the luxury sector to more modestly priced homes on the city fringe as new loan curbs keep buyers in check. Unsold units are piling up in areas such as Bukit Merah, Kallang and Marine Parade, with developers forced to dangle big discounts to move homes. ‘Developers of suburban condos have not needed to slash prices as most HDB upgraders find launch prices of about SG$1,000 per sq ft (psf) affordable. But developers of RCR non-landed homes have had to cut prices to fit the total debt servicing ratio (TDSR) limits of buyers,’ said R’ST Research director Ong Kah Seng.”

“Alex Residences in Alexandra and Sky Vue in Bishan, which were both launched in the second half of last year, have sold at average prices of SG$1,640 psf and SG$1,576 psf respectively, ‘way below (the prices of units in) the nearby projects launched before them, before TDSR,’ he said. As at the end of last month, Alex Residences had sold 214 of 429 units and Sky Vue 504 of 694.”

The Economic Times on India. “The rapid rise in the stock market since the new government was formed has taken the sheen off real estate, where investments have not only dropped but investors are trying to monetise their existing assets, creating a scare of price correction. Prices of new residential projects in the National Capital Region, for instance, was down 10% in June this year compared to a year ago. In Pune, it was down 25%, while in Bangalore it remained stagnant. Unsold inventory levels at the end of June 2014 stood at 765 million sq ft or about 7.6 lakh apartments, which would take about 35 months to be sold at the current pace of sales.”

“Pankaj Kapoor, managing director of Liases Foras, said the downward pressure on property prices today is pushing investors away from real estate. ‘They see very little hope of a turnaround any time soon.’”

Mingtiandi on China. “94 people were detained in a growing funding scandal involving real estate developers and private lenders in the northern Chinese city of Handan recently as a slowdown in housing sales exposed risky funding practices. A report in the official Xinhua news agency today said that government work teams had been sent in to investigate thirteen local real estate developers in the city in southern Hebei province after a total of thirty-two property firms illegally raised RMB 9.3 billion ($1.5 billion) in funding for new projects in Handan.”

“The fall off in housing demand meant big trouble for Handan Golden Century, which was also the guarantor for a trust product launched during July by Sino Australian ­International Trust Company (SATC), a shadow banking entity which is nearly 20 percent owned by Australia’s Macquarie. Since Handan Golden Century defaulted, there has been a widespread run on private trusts in the city as individual lenders attempted to collect their funds out of the loosely-regulated shadow lenders.”

“A staffer from a trust company who spoke to Xinhua attempted to explain the breakdown in the company’s financing. ‘Starting last year, bank would no longer give us loans. If we could still get bank loans we would not need to turn to personal financing,’ said the employee on condition of anonymity.”

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Comment by Ben Jones
2014-09-23 07:22:59

The photos on the China article are interesting.

One has this caption:

‘Unhappy lenders take their complaints to the street’

Comment by snake charmer
2014-09-23 11:40:47

I liked “Cops drag away a citizen who hadn’t learned to protest properly.”

Comment by Jingle Male
2014-09-23 12:49:29

…by the arresting officer Uu Fooqed Nau.

Comment by Whac-A-Bubble™
Comment by Whac-A-Bubble™
2014-09-23 22:37:43

This is cool…the Doobie Brothers pianist for Takin’ it to the Streets grew up ten miles from where I did (in Ferguson, MO!).

Michael McDonald (singer)

Michael McDonald (born February 12, 1952) is an American singer and songwriter. McDonald is known for a soulful baritone[1] singing style. He began his career singing back-up vocals with Steely Dan. He became a member of The Doobie Brothers from 1976 to 1982, a period which resulted in several hit songs for the band. He has won five Grammy Awards.

Born into an Irish American Catholic family[2] in St. Louis, Missouri, McDonald played in several local bands while attending McCluer High School in his hometown of Ferguson, Missouri. He was discovered while playing with a group called Blue and consequently moved to Los Angeles in 1970. He also recorded some promo songs in the early 1970s which are now available on an album collectively called That Was Then.

Comment by Ben Jones
2014-09-23 07:25:37

‘China’s National Bureau of Statistics on Sept. 19 for the first time showcased a new tool under development that can predict housing prices in major cities such as Beijing based on search data from Baidu, the country’s leading internet search provider.’

‘Finding a way to predict housing prices more precisely has been a problem for the Chinese government with regards to privacy issues and the use of “fake” contracts, which includes fake transaction prices instead of real ones in an attempt to evade taxes, according to Shanghai’s China Business News.’

Comment by rj chicago
2014-09-23 13:54:19

Ben - I have not read this - pulled from Ritholz’s site - might be worth a read.

Comment by Ben Jones
2014-09-23 07:36:33

‘Chinese insurance buyers have become an important source of revenue for Hong Kong’s insurance industry with increasing numbers of mainlanders diverting their assets out of the country in order to avoid taxes and lower the risk of being swept up in anti-corruption activities, reports our Chinese-language sister newspaper China Times.’

‘New policies proposed by Hong Kong insurance companies have spurred as much as 50% annual growth. A spokesman for a Hong Kong insurance company, whose name was not cited, said that the average Hong Kong family pays HK$20-30,000 (US$2,600-3,900) in insurance fees each year, while a Chinese client pays anywhere from several hundred thousand to HK$10 million (US$1.2 million) a year.’

Comment by Ben Jones
2014-09-23 07:40:23

‘As a brand, Hap Seng is known more for its Mercedes Benz dealership in Peninsular Malaysia and plantations in Sabah although it has other core businesses. Hap Seng Land chief operating officer David Khor says although the company has been in property development business in Sabah for quite a while, the growth in prices over in the Klang Valley has been far more attractive.’

‘The company paid a premium for some of its land because it “wanted to be associated as a niche market developer,” Khor says. “We will focus on niche developments in the Klang Valley,” he says. He adds that the condominium glut is not a deterrent by virtue of the location of their projects.’

Comment by Ben Jones
2014-09-23 07:44:46

‘The carnage across markets yesterday may have been eye-opening for some people, but it was an inevitable result when Chinese consolidation met unwise and excessive investment. The iron ore spot price tumbled below $US80 a tonne overnight to be 40 per cent lower since the beginning of the year and at its lowest level since September 2009.’

‘The situation is not lost on the RBA, which in August offered a damning assessment of conditions within the resource sector. “At current prices, there is a sizable amount of coal and iron ore production that is unprofitable”. Furthermore, it said, “the outlook for prices will depend on what proportion of these mines is shut down” (Prepare for more Australian miners to crumble, August 11).’

‘Unfortunately for Australian miners, the Chinese property market is facing serious headwinds. It is too soon to declare a housing bust since modest downturns are not uncommon within China, but the writing is on the wall.’

‘Floor space per capita in China has surpassed 30 square metres, rocketing past the level in Japan in 1988 prior to its market collapse. Housing construction has been rapid, largely due to urbanisation, but annual population growth has slowed to just 0.5 per cent and China’s population should peak in the next 10 to 15 years.’

‘First-home buyers in Sydney baulk at the house price-to-income ratios they face, yet some cities in China have housing multiples of between 15 and 40 times. It’s the kind of exuberance that exists only in an economy that has been doubling in size every handful of years for decades on end.’

Comment by Blue Skye
2014-09-23 14:31:20

” between 15 and 40 times. It’s the kind of exuberance that exists only in an economy that has been…”

borrowing at a gargantuan rate.

Comment by Ben Jones
2014-09-23 07:48:02

‘Hidili Industry International Development Ltd., the Chinese coal miner at risk of defaulting on its debt, will buy back only 60 percent of its dollar bonds because banks won’t lend money to purchase any more.’

‘Hidili earlier this week offered bondholders 68 cents on the dollar to buy back its $380 million of 8.625 percent notes due November 2015, as well as a two cent fee for consenting to amend the notes’ terms. According to a stock exchange filing yesterday, it will accept as much as $228 million if that amount is tendered by the offer’s close date of Sept. 29.’

“We decided on $228 million because that’s the financing we could get from the banks,” Cathy Huang, a Chengdu, Sichuan-based spokeswoman, said by phone yesterday. “The majority is from bank borrowings.”

“We’ve fully considered the market price in setting the tender offer price,” Huang said. “We believe it’s a good price for bondholders to accept and we hope it will work. It depends on market conditions.” Hidili hasn’t made a decision yet about what to do with the other 40 percent of the notes, Huang said.’

Comment by Puggs
2014-09-23 08:39:40

“Since Handan Golden Century defaulted, there has been a widespread run on private trusts in the city as individual lenders attempted to collect their funds out of the loosely-regulated shadow lenders.”

The old adage…”fool me twice shame on me” is so fitting here.

Comment by taxpayers
2014-09-23 08:41:10

why not have a collection of 2 month time shares?
$1 each on ebay

Comment by GooglerInSF
2014-09-23 10:41:09

Wang Xianzheng, the chairman of the China National Coal Association, told an annual meeting of the Coal Industry Committee of Technology at the weekend that more than 70 per cent of the country’s coal miners were losing money and had cut salaries.

About 30 per cent of the industry’s miners had not been able to pay their employees on time and a further 20 per cent had cut salaries by more than 10 per cent, the Economic Information Daily, a Xinhua-affiliated newspaper, reported on Monday.

Due to weak economic conditions, coal output fell 1.44 per cent year on year in the first eight months of this year to 2.52 billion tonnes, while sales dropped 1.62 per cent to 2.4 billion tonnes, the association’s figures show.

Comment by Housing Analyst
2014-09-23 13:40:01

realtors are liars

Comment by azdude
2014-09-23 16:41:22

I wonder what kind of drywall they use over there?

Comment by Housing Analyst
2014-09-23 17:14:35

Don’t you agree @z_fraud?

Comment by Avocado
2014-09-23 14:37:36

I bought a short China mutual fund, 2 yrs ago and I am down 40%, maybe now is my time to shine?

Comment by Whac-A-Bubble™
2014-09-23 22:52:30

How is the outlook for China’s economy going forward?

Comment by Whac-A-Bubble™
2014-09-23 22:54:30

China’s hand-me-down jobs stoke fights as unemployment rises
Published: Sept 24, 2014 1:27 a.m. ET
By Laura He
Asia markets reporter

HONG KONG (MarketWatch) — China’s leaders say the nation’s labor market is healthy, while independent economists aren’t so sure. But one subject of wide agreement is that the tradition of “hand me down” jobs needs to change.

Inheriting a job at one of China’s mammoth state-owned enterprises from one’s parents or even grandparents is a long-standing practice in China, especially in those sectors that tend to offer generous benefits, such as energy, finance and the railroads (China has a huge rail network). And these aren’t necessarily executive positions, but more likely a simple wage job.

In a report Monday, the state-run Xinhua News Agency said that China’s deepening economic reform has yet to stop the practice, an act of “social unfairness” that it said was upsetting the nation’s public.

The Xinhua report also pointed an increasingly tense employment situation, as the pace of China’s massive urbanization quickens.

That said, however, the top Chinese leadership has repeatedly stated that the labor market is healthy. Finance Minister Lou Jiwei reiterated earlier this week that China’s employment situation remains “good.” And just a few weeks earlier, his boss — Premier Li Keqiang — announced that China had added nearly 10 million news jobs in urban areas this year through August.

But some evidence points to the contrary, such as the preliminary version of HSBC’s Purchasing Managers’ Index for September, as its employment sub-index fell to 46.9, the lowest since January 2009 at the height of the global financial crisis.

“The sub-index captures the change in employment level in the manufacturing sector from August to September, suggesting higher employment pressures,” said Nomura’s China economists in a note out Wednesday.

Comment by Whac-A-Bubble™
2014-09-23 22:56:09

Goldman Sachs cuts China growth forecast sharply
September 23, 2014, 10:49 PM ET

Goldman Sachs on Wednesday slashed it outlook for China’s economic growth next year, down to 7.1% from a previous 7.6% projection.

The Goldman Sachs team cited “recently completed research on potential growth and the output gap across Asia,” adding that they saw “a likely reduction in the government’s growth target next year reducing the pressure for aggressive policy easing.”

However, they also kept their 2014 forecast at 7.3%.

China’s gross domestic product rose 7.5% in the second quarter compared to a year earlier, meeting the government’s current growth target.

Longer term, Goldman Sachs said that “in a best-reasonable-case scenario, China’s potential growth would gradually slow to just over 7% over the next five years,” with the bank predicting a slide to 6.7% GDP growth by 2017.

They also trimmed their inflation outlook, calling for “just over 2%” gains in consumer prices over the near term.

Comment by Whac-A-Bubble™
2014-09-23 22:57:09

7.5% GDP growth forever is forever over.

Comment by Whac-A-Bubble™
2014-09-23 23:18:38

The chart that helps explain the languishing housing recovery
September 23, 2014, 4:57 PM ET

If there’s one chart that helps explain the languishing housing recovery, it’s this one.

Household formation is key to housing, as each household, quite naturally, seeks a place to live. A household can be defined in many ways, from a traditional family, to adult children moving back in with mom and dad, to young workers sharing an apartment.

In 2013, 492,000 households were formed, and as the chart shows, overwhelmingly on the elderly end. That’s in part a reflection of demographics, as the baby boomers age, as well as the difficult economic conditions facing millennials.

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