October 6, 2014

Finding Themselves In A Bubble Situation

The Strait Times reports from Singapore. “If the private property market is suffering price pangs, then those seeking to offload their public housing flats are under even greater pressure. Housing Board resale prices are still falling more steeply than those of private homes, official flash estimates showed. Compared to a year ago, HDB resale prices have fallen 6 per cent and private home prices, 3.8 per cent. R’ST Research director Ong Kah Seng thinks private home prices may start falling faster than HDB resale prices in the next six to nine months. The demand for private property could dry up, he said. ‘As home loan curbs continue, aspirations have to take a reality check.’”

The New Zealand Herald. “Affordability issues for buyers have kept asking prices for properties nationwide at subdued levels for the fifth consecutive month, according to the inaugural Trade Me Property Price Index. The West Coast had the weakest result with a decline in asking prices of 9.5 per cent year-on-year. ‘In recent months we’ve seen that pace of increase all but stutter to a halt,’ said Trade Me Property Nigel Jeffries. ‘The trend is most noticeable in Wellington where larger houses showed a year-on-year decline of 5 per cent, despite the overall market in the capital ticking up nearly 7 per cent.’”

“Anecdotally, Jeffries has heard from real estate agents that many Wellington baby boomers have been selling the family home in central suburbs and buying apartments in the city but this oversupply of larger homes had depressed prices.”

The Sydney Morning Herald in Australia. “Experts say negative gearing is having a greater impact on Australia’s rapidly rising house prices than Chinese investment. Saul Eslake, chief economist from Bank of America Merrill Lynch, said negative gearing was contributing to the inflation of property prices to the point where Australians could find themselves in a ‘bubble situation.’”

“But Grattan Institute chief executive John Daley said Australia’s planning policies have the biggest impact on house prices – much bigger than foreign investment or the tax regime. ‘The numbers on foreign investment are very difficult to gather, but it certainly looks as though they are not the major source of investment in Australian housing,’ Mr Daley said. ‘The essential problem is that land prices are very high, and land high prices are very high because land is a scarce resource and we’re making it much more scarce by making it very difficult to subdivide it.’”

Perth Now in Australia. “The latest RP Data Pain & Gain report shows that only 4.8 per cent of homes in Perth re-sold for less than the previous purchase price but some areas fared worse than others. Sellers in the Mandurah (18.9 per cent) and Subiaco (17.2 per cent) councils, as well as the Shire of Murray, recorded the highest proportion of loss-making property transactions in the June quarter. The average gross loss in Perth was $88,238 and the average gross gain was $242,754 — compared to the national figures of $63,097 and $225,830 respectively.”

“Regionally, WA recorded 16.8 per cent loss-making resales, coming fourth behind regional Queensland (21.6 per cent), Tasmania (21 per cent) and South Australia (18.4 per cent). After WA came regional ACT (11.3 per cent), NSW (10 per cent), Victoria (8.1 per cent) and the NT (6.4 per cent). ‘In the regional market you are seeing some all-right conditions in the coastal lifestyle market but obviously that is off set by the mining areas. I would not be surprised to see both of those figures trend a little bit upwards in both Perth and regional WA,’ said RP Data senior analyst Cameron Kusher. Mr Kusher said this meant they would have a higher level of loss-making sales.”

From Bloomberg. “Underlying the test to China’s control of Hong Kong with pro-democracy protests over the past 10 days are economic tensions that have fueled social unease and concern over the city’s place within the nation. Hong Kong homes are the world’s least affordable, costing 14.9 times household incomes in 2013, according to the Demographia International Housing Affordability survey.”

“There’s a perception that the rich mainland Chinese ‘are here to snap up property, leaving the Hong Kongers to fight for scraps,’ said Dylan Loh, a research analyst studying Chinese politics and international relations at the S. Rajaratnam School of International Studies in Singapore.”

The Business Standard on India. “Today, over 200,000 apartments are under construction in Greater Noida alone, of which 40 per cent are yet to be sold, according to data compiled by Jones Lang LaSalle Property Consultants (JLL). Housing sales have declined for seven straight quarters, while private developers have completed only 9,690, or 5 per cent, of their promised targets. The significant illiquidity in the market has meant that average property prices have risen barely 14 per cent over seven years.”

“Almost 70 per cent of commercial space in Greater Noida is unoccupied, according to JLL data. ‘My family invested a large amount of money in the project because we were so impressed by this presentation,’ says Colonel (retd) Gulshan Joneja, who paid a premium on the commercial space for an assured return scheme that guaranteed monthly payouts till completion. In January this year, Joneja says, his payments suddenly stopped.”

“D P Singh, who retired as a civil engineer from the Delhi Development Authority, also invested his savings in the project. ‘I was living off the monthly payments from the assured return scheme,’ he said, ‘We are in a very difficult place.’”

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Comment by Whac-A-Bubble™
2014-10-06 05:38:05

Sounds as if HK has the same infestation of Chinese equity locusts that coastal Cali has.

Comment by Ben Jones
2014-10-06 08:45:47

I listened to some protestor interviews on the radio this weekend. It seemed like their biggest complaint was the cost of houses.

Comment by Jingle Male
2014-10-06 15:24:22

‘I was living off the monthly payments from the assured return scheme,’ he said, ‘We are in a very difficult place.’

The old developer trick….I’ve seen it hundreds of times in the U.S., usually to fool the lender:

Empty space with the developer guaranteeing the rent is much more “valuable” than rented space at market value…..until the guarantee stops and the new owner learns market value is 30% of the guaranteed rents!

Assured Return Scheme. Critical word: SCHEME.

Comment by Housing Analyst
2014-10-06 18:02:41

The fact that you know it inside and out is priceless.

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Comment by Ben Jones
2014-10-06 07:19:07

From the Business Standard article:

‘Driving east on the highway from Delhi to the satellite township of Greater Noida, the glass-fronted cityscapes gradually give way to dusty untilled fields where young men wave down cars and push glossy brochures through the window. “Looking for property?” they ask, pointing to the construction sites along the road, “Two-bedroom? Three-bedroom? There is a special scheme for the Navratras.”

‘There is always a special scheme for property in Greater Noida, a 20,000-acre industrial and residential township on the outskirts of Delhi. The supply boom has not been matched by demand, and now builders, analysts and investors are unsure what the market will do when 200,000 housing apartments are finally completed.’

“Right now, every builder is faced with a choice: to be a good person and deliver or be a bad person,” says a developer with projects across the National Capital Region (NCR), “With 40 per cent unsold inventory, tight credit, and low sales, the incentive to complete a project is minimal.”

Comment by In Colorado
2014-10-06 07:31:11

The supply boom has not been matched by demand, and now builders, analysts and investors are unsure what the market will do when 200,000 housing apartments are finally completed

Sounds like India has its own ghost cities.

Comment by Whac-A-Bubble™
2014-10-06 08:33:34

It seems like the ghost city problem is destined to only be fully perceived through the lens of history’s rear-view mirror.

Comment by Ben Jones
2014-10-06 09:07:16

What’s strange about India is how the developers handle all this. Instead of abandoning a project or finishing it, they just sit on it, incomplete. The story above tells of how they pretend to still be working on it, I guess so they don’t have to refund money (or get sued) and don’t spend more to move ahead.

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Comment by Guillotine Renovator
2014-10-06 09:41:18

How can they afford to just sit on it and hemorrhage money?

Comment by Ben Jones
2014-10-06 10:04:03

Path of least resistance. They did the same thing in Dubai.

Comment by Housing Analyst
2014-10-06 10:04:21

Lots of reasons to do that. Bill equipment time or take deprecation on it. Most significant reason is a contractor will be in default if de mobilization occurs before Substantial Completion.

Comment by Guillotine Renovator
2014-10-06 11:32:36

Whatever the case, it seems an extremely poor use of money.

Comment by Jingle Male
2014-10-06 15:26:44

The old river of denial….catatonic solution….

Comment by Whac-A-Bubble™
2014-10-06 19:59:32

“Instead of abandoning a project or finishing it, they just sit on it, incomplete.”

I’ve seen this same dynamic in North County San Diego since 2008. Perhaps the local developers are Indian?

Comment by Ben Jones
2014-10-06 07:27:06

‘Prices of private homes in Singapore are in for a protracted and slow price correction, indicating that measures to cool prices may not achieve their target in time. A stalemate has set in, with buyers holding out for better prices while sellers and developers exercise their holding power and refusing to budge on prices.’

‘The pool of buyers for the more pricey landed properties has shrunk much more than that for private condos due to borrowing constraints under the total debt servicing ratio, said SBT, quotng Ong Teck Hui, JLL national research director.’

‘After the fall in luxury home prices, this is the next category of homes to register a fall in prices. It looks like the cooling measures are taking effect although at a slower pace for private homes.’

‘After Australia, the Bank of England (BoE) is looking at limiting mortgage lending to prevent any overheating of property prices. BoE is asking for powers to restrict the size of mortgages compared with the value of a property and borrowers’ income, said the Guardian.’

‘The buy-to-let market will be part of its considerations when deciding to apply any restrictions. Recent data from Nationwide shows house prices fell last month for the first time in 17 months, although average London prices reached another record high of £401,000 - 31% above their 2007 peak - potentially presenting a dilemma for policymakers, said Guardian.’

‘After a series of reforms and penalties, regulators are gunning for hot property prices in their latest target for factors that could destabilise the financial system. The impact is increasingly felt in countries with burgeoning property prices with some starting to limit lending while others seek to boost continuously sagging prices.’

Comment by Ben Jones
2014-10-06 07:31:19

‘Since last summer, house prices have soared – especially in London. Indeed, in the part of southeast London where I live, they have gone up by a nearly a third in one year – not great news when you’re looking to buy a flat.’

‘Of course, what comes up has to eventually come down. And now it finally looks as though the bubble is bursting.’

Comment by Ben Jones
2014-10-06 07:34:10

‘Thirty former government officials have committed suicide this year amid Chinese government’s anti-graft efforts to put to an end to the country’s widespread corruption, reported New York Times. While fear of punishment and shame following the investigation could be a major reason behind the deaths, the suspects may kill themselves to protect their family and wealth, as investigations ends with the death of the suspect under Chinese law.’

‘The death of corrupt officials should not lead authorities to suspend investigations, said Lin Zhe, a professor from the Central Party School of the Communist Party. “The death deal is worth it considering the enormous fortune a rotten official could gain through a corrupt career.”

‘Authorities should continue to inspect the assets of the suspects after their death to assert the government’s resoluteness in battling corruption, said Lin.’

Comment by taxpayers
2014-10-06 09:10:58

said the smug socialist prof

Comment by Guillotine Renovator
2014-10-06 09:43:10

At least they are pursuant, which is more than can be said for our rotten system.

Comment by Ben Jones
2014-10-06 17:08:45

‘London’s luxury property developers are facing construction delays and rising costs at a time when prices appear to be peaking, raising a prospect of a market glut.’


The hottest market in the world, and it rolls over in months.

Comment by Whac-A-Bubble™
2014-10-06 23:13:30

“Assured” and “return” don’t mix.

2015-01-23 18:28:44

Everything is very open with a precise description of
the issues. It was really informative. Your site is very useful.
Thanks for sharing!

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