The Price Is Too High, Will Keep Going Up
A report from China Daily. “China will abolish all home purchase restrictions in the next 12 months and cut at least one policy rate in the first half of 2015 or before, said Shen Minggao, head of China research with Citigroup Inc. ‘Look around the world. No country keeps monetary policy unchanged when a correction starts in the property sector,’ Shen said in an interview. Most people agree that China’s property market is cooling, but they are divided about how the government should react. Some said more easing would further inflate the property bubble and lead to a systemic financial crisis. ‘Sure, there is a bubble, but the bubble does not have to burst now,’ Shen said.”
The Australian. “Sydney couple Daniel Yuen and Hua Ping Xu recently purchased a two-bedroom apartment in inner-city Sydney, and Mrs Xu said while prices were ‘ridiculous’ she had confidence in the market. ‘Honestly, my husband and I still believe the market will keep going up, we definitely think the price is too high, which means a lot of first-home buyers will struggle to afford to buy, but it is what it is,’ she said.”
“The couple paid $885,000 for the apartment in the Mezzo development in Glebe, but haven’t decided whether they will move into the unit once it’s completed.”
Today Online on Singapore. “With more than 20,000 non-landed private homes expected to be completed in each of the next two years, yields are expected to be further compressed. Vacancy rates of non-landed private homes have already been rising for five straight quarters to 8.3 per cent in the second quarter of this year. ‘We have noticed that many people are choosing to rent first and hoping that prices will come down later on. They sell off their properties and rent before getting their next home. We are also seeing people signing shorter leases because they are hoping for rents to come down,’ said Mr Chris Koh, director of property firm Chris International. ‘What we are facing now is oversupply that’s going to put a toll on the market because tenants will be spoilt for choice.’”
The Malaysian Reserve. “Iskandar Malaysia, the main southern development corridor in Johor, is seeing the formation of a housing bubble as a result of Chinese developers that have been flooding the property market with masses of projects. RHB property analyst Loong Kok Wen said the formation of a bubble could be seen in Iskandar Malaysia.”
“‘We could see a formation of a bubble as property agents are offered 5% to 8% of commission from the usual 2% to sell the property. The ones that are not doing so well are the high-rise properties in which there is oversupply by the Chinese developers, which has led to a supply glut,’ said Loong. Loong, however, cautioned that it is not necessary property prices will fall as the ability of the Chinese developers to hold on to the property will be dependent on their financial strength.”
And from AFP. “Ireland is mounting a spirited fightback from economic collapse but as recovery takes hold, a housing shortage has sparked talk of another dangerous property bubble. Despite almost two years of trying to find a family home with her husband and their young baby, Karen Creed has been unable to find an affordable and suitable property. ‘I’ve witnessed panic bids taking place on a first viewing and I got so caught up in the panic at one point that I was going to put a deposit on a house before I had even seen plans or stepped inside a show house,’ she told AFP.”
The Telegraph. “On a global level, growth is being steadily drowned under a rising tide of debt. The conclusion of the latest ‘Geneva Report,’ an annual assessment informed by a top drawer conference of leading decision makers and economic thinkers of the big challenges facing the global economy, aptly titled ‘Deleveraging? What Deleveraging?,’ points out that far from paying down debt since the financial crisis of 2008/9, the world economy as a whole has in fact geared up even further.”
“Reduced mortgage finance during the banking crisis temporarily succeeded in capping and partially reversing the growth in UK household debt. Yet with a reviving housing market, these reductions may have come to an end. In the meantime, the government has been piling on borrowings like topsy. The UK remains the fourth most highly indebted major economy in the world after Japan, Sweden and Canada, with total non financial debt of 276pc of GDP. The US is not far behind with debt of 264pc of GDP.”
“The real stand-out is China, which since the crisis began has seen debt spiral from a very manageable 140pc of GDP to 220pc and rising. The speed of the increase, combined with the fact that it is largely private sector debt, makes a hard landing virtually inevitable. The only way the world can keep growing, it would appear, is by piling on debt.”
‘Sure, there is a bubble, but the bubble does not have to burst now,’
PROGRESS! Ten years ago, bubbles were figments of HBB posters’ imaginations…
“The real stand-out is China, which since the crisis began has seen debt spiral from a very manageable 140pc of GDP to 220pc and rising. The speed of the increase, combined with the fact that it is largely private sector debt, makes a hard landing virtually inevitable. The only way the world can keep growing, it would appear, is by piling on debt.”
Where is ABQDan when you need him to assure us that a massive pile of debt is no problem for the Chinese economy?
“The only way the world can keep growing, it would appear, is by piling on debt.”
Gotcha!
Bhahahaahahahahahahahahahahahahahahahaha
Where is ABQDan? Really? Did he leave, was he asked to leave?
The China economic situation got too boring for him to bother posting any more.
Banned, or asked to leave. Same with the poster from brazil, rio ….
No he wasn’t. You don’t know what you’re talking about.
Glad you cleared this up Ben. I thought I had missed something.
Not that it matters much, however it was several weeks ago, during the summer doldrums, when Dan was making several posts a day regarding China. You told him something along the lines of if he posted again using the terms China and GDP, you would delete his post, or make him sit in the corner with a dunce hat, something along those lines, aka asked to leave.
As for rio, I read something over the past week or so that said they were also uninvited to post.
The blog owner is right. You don’t know what you’re talking about.
Dan is sitting in the corner with a dunce hat all on his own. You like to make stuff up.
Threatened yes but I don’t believe Ben has ever banned anyone…
It has to be depressing to see one’s sure fire “investments” head for the toilet.
Probably both jetting about, snapping-up RE bargains, making all-cash offers of 100x asking price, resplendent in their diamond-encrusted codpieces… You get the picture…
The left/right ruse is so 2004.
‘A major Chinese development company has added Canada to its aggressive international acquisitions binge, buying up the proposed King Blue condo project in the entertainment district. The deal between Shanghai-based Greenland Holding Group. Co. and Toronto’s Easton’s Group of Hotels, for an undisclosed amount of money, isn’t expected to change plans for the one-acre site, which is being renamed King Blue by Greenland.’
‘Greenland is best known for buildings far more ambitious in scale. It currently has 23 mega high-rise buildings completed or under construction around the world, four of which are among the world’s tallest buildings. “Greenland came shopping for a site,” says Gupta, who first got a phone call back in January from Greenland, which is partially owned by the Chinese government. “As first I said, ‘No.’ And then I said, ‘At the right price, we’ll look at it.’ Somehow things just clicked.”
‘The sale of a condo development site, especially so close to actual construction, usually sets off alarm bells in the condo industry. And rumours have been rampant that sales have been very sluggish for King Blue.’
‘Gupta acknowledged that “it was a little bit slow” when sales launched in October of 2012, as the condo market was heading into what many feared was a crash after 2011’s record year of sales. “People were anxious at that time. The units were a little bit larger (700 to 850 square feet on average) and the price goes up that way.”
‘But now, 85 per cent of the units in south tower are sold, he said. Easton’s Group was about to launch sales of the north tower units when the deal happened, says Gupta.’
‘Things today are much different, stressed Gupta: Last February, Easton’s Group launched a second condo project, Dundas Square Gardens at the corner of Dundas and Jarvis Sts. and sold 90 per cent of the units in six months.’
“The condo market hasn’t peaked. There is no bubble to be burst,” says Gupta, in explaining why Greenland was keen to expand into Canada.’Toronto is a very different market.’”
Sure, it’s “different”, just like everywhere else. The crash will be the same.
Chinese corporate names are always entertaining. I have visions of a tranquil, well-tended garden; pagodas and feng shui. Then you get the reality of China, which is a country in the process of destroying itself as thoroughly and completely as ever has been done. Nothing green or harmonious about that.
‘Tough times for China’s developers are creating a showcase for marketing experts, whose creative and sometimes downright bizarre ideas are desperately wanted by property companies grappling with continuous downturn. September, a traditional high season for home sales in China, was largely a bust.’
‘The latest example of creative marketing came from Country Garden Holdings Co Ltd. People who buy apartments at the company’s projects in Guangzhou, Guangdong province, can go to its sales centers and spend 1 yuan (16 cents) to buy a coupon with a face value of 10,000 yuan. Owners of units in the company’s ordinary villa projects can buy up to 10 coupons and get 100,000 yuan in discounts. Owners of luxury villas can get a maximum of 500,000 yuan in discounts.’
‘Poly Real Estate Group Co Ltd came up with a more offbeat approach. Within a short fixed period, dieters can get a 10,000 yuan discount for every kilogram they lose.’
‘And in a marketing campaign in Nanjing, Jiangsu province, RiseSun Co Ltd is encouraging potential buyers to join a jumping contest. The distance they jump is translated into a corresponding discount.’
‘In another project, people who are able to write obscure, complicated Chinese characters are awarded certain discounts.’
‘A home sales manager who declined to be identified said that the competition had become so intense and fast-evolving that offering buyers free parking spaces or interior decoration services were regarded as outdated practices.’
Do Chinese home sellers offer cars and vacations financed on mortgages, the way U.S. home sellers were during the subprime lending era?
‘Policymakers across the world will face growing challenges from the threat of secular economic stagnation in the advanced economies, especially in the euro area, demographic changes and a retreat from globalisation, according to Willem Buiter, the chief economist for Citigroup.’
‘China, he said, needed to move away from its export-led, investment-led growth model to more sustainable growth based on domestic demand, consumption and services. “But getting from here to there will not be easy, as the reformists are still not fully in control,” he said, noting that the country faces an unsustainable credit bubble and a construction boom in luxury property while facing shortages in affordable housing.’
secular economic stagnation in the advanced economies, especially in the euro area, demographic changes and a retreat from globalisation ??
Nice post Ben…..
Read this and then read it again….And then maybe one more time…Because, if true, it could get ugly…We may end up as the cleanest shirt in the dirty laundry but may not like the effects…
Another great post Ben…Thanks…
‘For the past couple of weeks in the early days of this campaign we have diverted by another unexpected intrusion. This comes from COPE’s mayor candidate Meena Wong in what I would say is a contemporary take on the invitation to “eat the rich.”
‘The phrase originated in the 18th century and comes from the philosopher Jean-Jacques Rousseau whose work inspired the French Revolution. It originally read: “When people shall have nothing more to eat, they will eat the rich.”
‘Brought forward to the here and now, the anxiety most broadly shared in our community is less about food and more about affordable housing. And that ultimately is what Wong is on about.’
‘COPE historically has focused its energy almost exclusively on the East Side of town. Wong’s issue, which has set off a spark that has drawn global attention, deals with the West Side. It has to do with the growing number of vacant multi-million dollar houses, many falling into disrepair, in the city’s wealthiest neighbourhoods and how it is an issue that affects the whole city.’
‘It is, we are told, an obscene display of wealth, a manifestation of global capitalism where housing is not about homes but about investment opportunities.’
‘To curb this excess that drives up the price of all property in the city, Wong would like a tax on vacant housing — much of it foreign-owned, that would go towards the construction of affordable housing.’
“Wong would like a tax on vacant housing —”
Not a bad idea. It would dis - incentivize holding off the books housing inventory.
‘Activists of civil group A Varos Mindenkie (AVM, the City Belongs to Everyone) on Saturday entered and occupied a building in Budapest which has stood unused for nearly 20 years. The building, in central Budapest’s 6th district, is owned by an offshore company, AVM told MTI.’
‘AVM seeks to focus attention on the fact that a many Hungarians have housing problems, whereas hundreds of thousands of properties are not used for any purpose.’
‘On a factory floor in the western Chinese city of Chengdu, steel sheets are stacked two metres high, ready for their final transformation into hot water heaters. It’s a labour-intensive and noisy process that relies on a steady supply of hot and cold rolled steel from nearby mills. Yet there’s no need for a long-term contract.’
“There’s so much steel around we just buy it on the spot market,” says the general manager of Rheem China, Ching Lee. This has proven a wise call as speciality steel prices have come down 15 per cent over the past two years. “I definitely have the upper hand in that negotiation,” says Lee, who helped establish this factory for the Australian manufacturing icon 20 years ago.’
‘As he takes AFR Weekend on a tour, the former Telstra accountant describes business as “a bit slow” and “lumpy”. There’s been an uptick in recent weeks, he says, although it may not last. “Property developers having trouble selling apartments are throwing in free air conditioners and hot water heaters,” he says. “We’ve just got a big order from a government housing project in [the neighbouring province] of Guizhou. They want 3000 hot water heaters.”
Saving face, one water heater at a time.
‘Jeremy Frimer, a professor of psychology who used to believe “Bible-thumping social conservatives were like obedient robots,” has recently published some research indicating — to his own surprise — that liberals can be just as authoritarian as conservatives. It all depends on who the authority is. If the authority is viewed as conservative, conservatives are more prone to favor obedience and liberals less so. If the authority is ideologically neutral (such as an office manager), there is no real difference. And if the authority is liberal — should you obey an environmentalist? — then liberals become the authoritarians and conservatives become the rebels.’
‘Perhaps conservatives tend to be more intrinsically authoritarian — “God says it, I believe it, that settles it” — while liberals tend to be more instrumentally authoritarian: Government should have as much power and obedience as it needs, so long as the right people are in charge and doing the right thing.’
‘That might help explain the weird China envy that seems to be spreading like a virus among the op-ed writers of The New York Times. Take Thomas Friedman, aka Patient Zero, who has repeatedly wished America “could just be China for a day. … You know, I mean, where we could actually, you know, authorize the right solutions,” and who has said that while one-party autocracy “certainly has its drawbacks. … when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages.”
‘Friedman seems to have infected his colleague, Mark Bittman. “Say what you will about the Chinese,” Bittman wrote earlier this month, “but they know how to make wholesale changes.” This was in a column about, of all things, obesity — the Chinese are eating too much, as Bittman sees it — in which he noted the sharp rise of Chinese life expectancy during the past half-century. He didn’t note that half a century ago, 20 million to 40 million Chinese people starved to death during the government’s Great Leap Forward. Wholesale changes, indeed.’
‘A strain of this thinking might even have spread to The Washington Post. “Alas,” the newspaper lamented the other day in an editorial about Medicaid expansion, “Virginia’s constitution, which requires the legislature to sign off on all appropriations … affords the governor little authority to act on his own.”
‘Yet these days nobody seems more enamored of executives acting on their own than the nation’s chief executive. To the left’s mild dismay, President Obama has embraced executive powers — domestic eavesdropping, unilateral military action — he used to denounce. He also has championed the greatest expansion of government power in a generation, the Affordable Care Act’s individual mandate — and would have used that law to severely attenuate religious freedom, if he and his supporters had had their way.’
‘Now he is escalating a war on ISIS without consulting Congress, and liberals are alarmed. The alarm is entirely appropriate — but also a bit late. The time to oppose the expansion of executive authority is when it’s being used for causes you otherwise support — because you can’t take it back later, when it’s used for causes you don’t.’
“We’ve paid a heavy price for having a president whose priority is expanding his own power,” said Obama back in 2007. Yup.’
We’ve got a bit of that China envy here on this blog. Oh, if only we could tell everybody how it’s gonna be, it would be right!
How far we’ve drifted. Janet, print some money and save us! We don’t know how many houses to build, or walkie talkies, or what we should price stuff at. What a buncha weenies this country has turned into.
‘Aussie Home Loans executive chairman John Symond says governments should dampen property prices by increasing housing supply rather than regulators intervening to douse demand. “I think at the moment it is premature,” he said of the Reserve Bank’s indications it may tighten lending rules to reduce the risk of a sudden property price crash.’
“It is all very well to look at Sydney and say, ‘wow, look at how property prices have gone up in the last two years’! What about the previous 10? Average 2.2 per cent growth before inflation, the worst-performing capital city in the land.”
‘Big house price rises in the past year in Sydney and Melbourne are simply a function of housing supply not keeping up with high demand from fast population growth allied with low interest rates, he said. This had driven investors to buy, adding to price rises and forcing out first-time buyers.’
‘”The reality is governments have failed to address the orderly supply of housing. There are so many reasons first home buyers have been forced out: the cumbersome bureaucracy to get land releases, the cost per apartment or housing block is anything from $100,000 to $150,000.”
‘Mr Symonds said the glut in apartments in Sydney and Melbourne, however, would lead to a “tapering” of prices there. But barring a big rise in interest rates, he argues prices won’t crash.’
‘Kim Cannon, the managing director of non-bank lender Firstmac, a 30-year veteran of the sector, also argues the problem at the moment is “good old-fashioned supply and demand”.
‘Most of his borrowers are investors and he has recently raised Firstmac’s maximum loan-to-valuation ratio to 90 per cent to remain competitive. But the average across its loan book is 62 per cent and he said he did not want to see borrowers investing on a 5 per cent deposit and relying on rent to repay. “The time to worry is in a speculative market – when people are buying and selling off the plan without even seeing the property. But I just don’t think it is a speculative market,” he said.’
If you are asking the government to boost this and suppress that, you don’t have a free market. And then everybody wonders why there’s a glut of “luxury” air boxes and empty houses, rents through the roof and sky high debt.
“…has recently published some research indicating — to his own surprise — that liberals can be just as authoritarian as conservatives.”
Well d’oh…
Liberal Fascism - Jonah Goldberg
your article reminds me of this book
‘Reserve Bank Governor Glenn Stevens’ mention of the possibility of some regulation to reduce the risk in Australia’s property market has sparked debate among economists about the value of what’s called Macro Prudential Regulation.’
Macro Prudential Regulation. Every time we see some new fancy term invented to explain away these corrupt bastards failings we should just get a rope.
…”‘To curb this excess that drives up the price of all property in the city, Wong would like a tax on vacant housing — much of it foreign-owned, that would go towards the construction of affordable housing.’”
I’m no fan of government market manipulation, but that horse is already waaaay out of the barn. Having said that, this tax proposal seems like it may have merit and encourage the more efficient utilization of resources. Tax the shit out of empty, misallocated structures whether they be bank-owned or privately held. If they can’t afford the taxes it will encourage them to sell to someone who might actually live there. If they can afford the taxes then let them pay through the nose and hold it.They were wealthy enough to drive up prices, grossly overpay and leave the property vacant- let them overpay a shitload more. They can look at it as a badge of honor to their conspicuous consumption!
When its gamed, and it will be gamed, how will the general public benefit?
So two blocks from work there’s a new empty commercial retail building (surprise), and to avoid a $10K tax they can month-to-month rent the whole building to the hot dog cart guy across the street for $1/yr. Yo, park your dogcart in the building instead of wheeling it all the way home. So the advantage to society is … um …
This might be a slightly extreme example. But either you make the tax a token meaningless amount like a tiny fraction of prop tax, or if you make it too large then the building owners wife will “run” a candle and pirate and scrapbook store which is never open. As long as biz license taxes are lower than $X plus occupancy permits etc.
Take it a step lower. Allowing speculators to hoard the necessities of life in order to profit at the expense of ordinary people is fundamentally corrupt, be it food, water or housing. The most efficient solution is not to allow corruption just to tax it. This only brings dirty money into government coffers and the cost of necessities remains unnaturally high.
+1
Yeah, you are all right- its better off to just do nothing
Along the lines of your suggestion, we already do this to some extent in NY. Taxes on your residence are significantly discounted.
‘The Chinese have unearthed US$10bn of fraudulent trade financing deals. Although of minor relevance to the forex market where the news first broke, the impact on commodity pricing could be much larger were it to emerge that the fraud is wider and deeper than has so far been revealed. These fraudulent trades have all found their way into the statistics for Chinese demand in commodities which in turn has held significant sway over global price formation.’
‘Should we suddenly discover that demand has been materially overstated, then we must assume that the global pricing structure is incorrect. Pop go commodity prices, pop go commodity stocks, pop go commodity currencies, pop go freight prices… I could go on. If there is straw which might be capable of breaking the camel’s back, this could prove to be the one.’
‘In this context US$10bn is not huge. To immediately extrapolate from the relatively small fraud, of which we so far have knowledge, to arrive at the whole of Chinese commodities demand to be a load of smoke and mirrors would be fatuous. China Import Iron Ore prices which had just fallen below US$80.00 the day before, yesterday fell further to close at US$78.60. This time last year that was US$134.00.’
Should we suddenly discover that demand has been materially overstated”
A consequence of very low interest rates ? Money should flow to the most productive uses not speculation unless that money is essentially free ? I don’t know ?
don’t be dissin MAY ,yo
The Malaysian Reserve. “Iskandar Malaysia, the main southern development corridor in Johor, is seeing the formation of a housing bubble
they work there vs welfare slobs in EU /US
backdating now - bs headline- it’s still on !
US home prices rise at slowest pace in 20 months
US home prices rise in July at slowest pace since November 2012 amid slowing sales
july numbers= may/june sales which are historically storngest
“The only way the world can keep growing, it would appear, is by piling on debt.”
That worked for a short time. Welcome to the world of negative returns on credit expansion.
Yep. Coming soon to a U.S. city near you.
Economic Report
City-by-city look at home prices in July
Published: Sept 30, 2014 10:14 a.m. ET
San Francisco sees a drop in prices
Miami was the only city to show an improvement in July.
By Steve Goldstein
D.C. bureau chief
WASHINGTON (MarketWatch) — The following is a look at U.S. home prices in July, as reported by the S&P/Case-Shiller 20-city composite. Nationally, the gain was 0.6% to take the year-on-year advance to 6.7%.
• While decelerating, home prices are still running more than two to three times the pace of inflation.
• Prices are down by about 17% from the peak, but up 29% from the March 2012 lows.
• New York was the only city where prices rose more than 1% on the month (it was 1.1%).
• San Francisco recorded its first price decline of the year and was the only one of the 20 Case-Shiller cities in the red.
…
“San Francisco sees a drop in prices”
If tony San Francisco real estate prices collapse imagine what Modesto or Stockton would look like?
“On a global level, growth is being steadily drowned under a rising tide of debt…… What Deleveraging?,’ points out that far from paying down debt since the financial crisis of 2008/9, the world economy as a whole has in fact geared up even further.”
Could there be a more crystal harbinger? The world has short-term memory issues and is addicted to video games.
Americans are taking on debt once again. The difference is that this time we’re borrowing to finance new cars, college tuition, and other consumer goods.
HA double plus
Welcome to 2013. Happy New Year!
That’s no different than the last few decades. What’s different now is that there’s no realistic chance that most of the loans being made today will be paid back.
QE4′ll fix it…
Gonna need a jubilee year or “this sucker just might go down”.
Car loan delinquency rates are up
http://www.usatoday.com/story/money/cars/2014/09/09/transunion-auto-loans-delinquent/15344353/
It also started to happen 2007
http://m.wsj.com/articles/SB119690536188815285?mobile=y
The Australian. “Sydney couple Daniel Yuen and Hua Ping Xu recently purchased a two-bedroom apartment in inner-city Sydney, and Mrs Xu said while prices were ‘ridiculous’ she had confidence in the market. ‘Honestly, my husband and I still believe the market will keep going up, we definitely think the price is too high, which means a lot of first-home buyers will struggle to afford to buy, but it is what it is,’ she said.”
Don’t look behind the curtain.
China
‘Sure, there is a bubble, but the bubble does not have to burst now,’ Shen said.”
In terms of the world’s property bubble, if this is the mentality we are dealing with for the foreseeable future we are truly doomed and deserve what we get as I have no doubt officials in many other nations feel the same way as this Chinese official. It seems the utter idiocy truly has no bounds.
Can someone please explain to me why we cannot have a sound world monetary system in which the money suppply grows at a pace in line with population and economic growth (if there is any that is). Of course thisis a rhetorical question as I now full well why the corruption exists BUT WHY DO WE PUT UP WITH IT ????