Real Discounts A Response To Real Supply Glut
Bloomberg reports on China. “Thousands of families who bought homes in Kaisa’s unfinished projects in Shenzhen fear they’ll become collateral damage in President Xi Jinping’s anti-graft drive, which risks spreading to embroil other developers. The city suspended official registration of presale contracts at four of Kaisa’s unfinished developments, leaving legality of the purchase agreements in doubt, although construction work continues. Zhang Yinghua and her husband sold their home in central China in July so that their son, who was becoming a father, could buy a place in the southern metropolis of Shenzhen, across the border from Hong Kong.”
“Months later, the 65-year-old new grandmother found herself and her 1-month-old grandson joining more than 1,000 property owners chanting ‘I want my home’ in a peaceful sit-in. ‘Now I don’t even have a home to return to,’ Zhang, who lives with her husband, son and daughter-in-law, paying 4,000 yuan ($640) a month for a rental apartment in Shenzhen, said in an interview.”
AAP on New Zealand. “New Zealand’s largest real estate group had 2010 properties on hand in Christchurch in January 2015, up 25 per cent on the same month last year. The average sale price of $NZ402,745 ($A386,715) in the month was down 13 per cent on the same month last year. This is the lowest monthly price Harcourts has reported for Christchurch since January 2013 when the average house price was $NZ384,648. ‘The increasing supply of property-on-hand is an indication that stock is not moving as quickly as it has been,’ Harcourts’ chief executive Hayden Duncan says.”
The Property Observer on Australia. “Port Hedland’s dramatic property price struggles were brought into sharp focus over the weekend at the auction of a home at 18 Edgar Street in Port Hedland. ABC reported that the fibro cottage passed in at auction at $360,000, with the highest offer reflecting 2006 price levels. The house had traded just four years ago for $1.3 million. In 2009 it sold for $870,000 and at $350,000 in 2006.”
“The home’s sales agent, Barry Walsh at Jan Ford Real Estate, tells Property Observer that at the peak of the mining boom, property prices in the Port Hedland and South Hedland regions were unsustainable. ‘It was totally unsustainable where it was, and now that it’s stabilising, it will bottom out, and is in the throes of doing that,’ says Walsh. He says ‘18 Edgar Street was advertised to rent at $2,400 per week at the market’s peak,’ said Walsh. ‘And now, you wouldn’t rent it for $500 per week. That’s a reflection of the rental market.’”
The Economic Times on India. “Good news for prospective home buyers in India’s big cities - finally, some real discounts from real estate majors. Take a look at these builders’ offers in Mumbai, NCR, Bangalore and Kolkata: flash sales offering nearly 25% discount on per square feet rates, free studio apartments for those who buy top floors of a luxury residential block, free modular kitchens, air conditioners and even wardrobes.
“Home sales data is that rare economic indicator that’s refusing to improve - 832.09 million sq ft of unsold inventory as on end-December and 8% fall in sales for the quarter ending December, according to figures from property research firm Liases Foras. Real discounts are a response to this real supply glut. And builders are not the only concerned lot. Investors who had bet on handsome resale margins are stuck with unsold apartments. Some of them are willing to sell apartments at below current market prices.”
“‘Developers are stressed in terms of sales. They need to show bookings to even raise construction finance,’ said Ashwin Chawwla, CEO of BigDeals. Yashwant Dalal, president of Estate Agents Association of India, says developers are offering brokers bigger incentives but the problem is the lack of buyers. ‘In this kind of market, builders have no option but to lure buyers with incentives and offers,’ Dalal says.”
“Singapore home sales posted the weakest start to a year since the 2008-2009 global financial crisis government lending curbs stemmed purchases. Developers sold just 372 units last month, the lowest January sales since 2009, when they offloaded 108 homes, according to data by the Urban Redevelopment Authority. In December, 230 units were sold, the data showed.”
“Singapore’s annual home sales dropped to a six-year low in 2014 as property policies hurt buying sentiment. Sales fell by half to 7,316 units from 2013, the lowest number since 2008, according to data from the authority. ‘Singapore is facing headwinds,’ Kwek Leng Beng, the billionaire chairman of City Developments Ltd., Singapore’s second-biggest developer, said at a briefing today.”
The Philippine Daily Inquirer. “Metro Manila’s residential property market contracted in 2014 in terms of both additional inventory and sales take-up. But the current levels were, according to property consulting firm Colliers Philippines, ‘more rational’ compared to the exuberance seen in the previous three years. In a briefing on Thursday, Colliers Philippines director for research and advisory Julius Guevara said that nearly 40,000 residential units were sold last year, 7 percent lower than the take-up in 2013.”
“He said the residential property market was only continuing the ‘correction’ that started in 2013 after hitting a high of 51,000 residential units taken up in 2012. Asked to define what Colliers considered a ‘rational’ residential market, Guevara said this was a market driven by real underlying homeowner demand and not investors who intend to rent out these units.”
Housing bubbles seem to be violently hissing air on multiple continents at the same time in early 2014. It’s shaping up to be an interesting year in the annals of the HBB.
The Christchurch report is a stunner. Like they hit a brick wall.
Maybe it has taken them four years to realize that their town got destroyed by an earthquake. Aftershock?
2015 (what happened to the predicted stock market crash of 2014?)
“Port Hedland has seen vast amounts of iron ore moved out from the Pilbara’s mines, stimulating its property markets.”
But that’s not all that stimulated its property markets …
“But as the local mining economy moves from the construction phase to operations, the transient labour population, many of whom were fly-in, fly-out workers, and tenants, has declined.”
So the town IS NOW LOSING the money the transient population - the mine construction people - used to pump into their economy PLUS they ARE GOING TO LOSE the money the mine operations people were going to pump into their economy because the market for the used-to-be-pricy iron ore they mined sort of went south.
So this mining town is now destined to go from boom to bust … and this, I believe is a good time to trot out my favorite example - an extreme example - of what can happen to a mining town that goes from boom to bust:
https://www.google.com/search?q=bodie&biw=1813&bih=857&source=lnms&tbm=isch&sa=X&ei=BUDjVIHzJ8bloATdi4KYDQ&ved=0CAYQ_AUoAQ&dpr=0.75
“the fibro cottage passed in at auction at $360,000, with the highest offer reflecting 2006 price levels. The house had traded just four years ago for $1.3 million. In 2009 it sold for $870,000 and at $350,000 in 2006.”
I think that “fibro” means asbestos. These things were around when I was a kid, but now would be as attractive as Kryptonite.
If it wasn’t a housing mania on top of a commodities boom, these transient workers would be housed in barracks of some sort, not million dollar “homes”.
The scenery shown in the article is spectacularly ugly.
“Traded” four years ago for $1.3 million; recently “passed in at auction at” $360,000.
Interesting shift in terminology there for the mania sale price versus the post-collapse sale price…
‘18 Edgar Street was advertised to rent at $2,400 per week at the market’s peak,’ said Walsh. ‘And now, you wouldn’t rent it for $500 per week.’
360k is still too high.
$360k is no bargain. Even three of them is no bargain at that price.
Isn’t there a 120X rent metric for purchase price? I.e. 120 X $500 = $60,000.
Hmmmmmmmmm…
We have to get up to Bodie some time soon — it looks so cool!
‘The troubled Chinese developer Kaisa Group disclosed on Monday that its debts now total more than $10 billion and that it urgently needs to restructure its borrowings if a proposed rescue deal by Sunac China Holdings is to proceed.’
‘Bondholders had hoped Sunac’s proposed acquisition of a 49.25 percent stake in Kaisa would help bring its debt under control, but Monday’s disclosure indicates the borrowings could be higher than they had feared.’
‘Kaisa bonds due in 2020 have dropped to 60 cents on the dollar, 15 points off the highs they struck after the news of Sunac’s proposed stake purchase. Trading in its shares was suspended earlier on Monday.’
‘Kaisa’s liquidity will be tested once again next month, as it has coupon payments due on its bonds with 2017 and 2018 maturities. The company also warned on Monday that it would experience a substantial decline in its net profit for 2014 and that its cash flow could be hit by an continuing block by the government on sales at some of its developments in Shenzhen.’
‘QUEENSLAND house hunters will soon be spoiled for choice, with two Brisbane regions making it on to the national top 10 for new housing approvals last year. Australian Bureau of Statistics figures showed 21,811 dwelling units were approved in greater Brisbane last year, over 3000 more than the previous year, and over half of which were made up of dwellings that weren’t houses.’
‘In December alone the number of multi-unit dwellings in the pipeline for Queensland jumped 3.1 per cent, off a November surge.’
“Interestingly, the resource-intensive regions of Mackay and Gladstone-Biloela, where market conditions have softened substantially, have also made it into the top 10 for the state for new dwelling approvals over the year,” Mr Lawless said.’
‘Mr Lawless did have a word of warning for buyers in areas where supply was ramping up heavily, saying there was “an element of risk”.
“We recommend that prospective buyers factor supply levels into their housing market analysis and undertake additional research where they fear an area may be in oversupply or at least moving in this direction,” he said.’
Brisbane is a great little city and in many ways the polar opposite of Sydney and Melbourne. Lots of laid back folks and much slower pace of life however I don’t think I’d be jumping into the RE market there just because tons of permits had been issued. Permits do not equal sales.
‘There is no doubt that a slowdown is taking place in India’s real estate sector. This is prompting cash-strapped builders to now offer discounts like higher floors at no extra cost, zero stamp duty/registration charges, free parking slots, free interior works, and subsidised home loans to lure buyers. The technique is simple— rather than visibly reducing prices, builders are sweetening the deal.’
‘A report by real estate research firm Liases Foras shows that property sales have fallen 8 percent across the top six cities— Mumbai, NCR, Bangalore, Chennai, Pune and Hyderabad— while total unsold inventory across the six cities stood at 832.09 million square feet, or 39 month’s level against 31 month’s a year ago.’
‘Rising inventory and falling sales and launches implies however that the freebies are failing to impress buyers. While genuine buyers continue to stay clear due to the high pricing of flats, investors have instead chosen to put money in the stock markets due to a lack of meaningful appreciation in the realty sector.’
‘RisC&W Executive Managing Director South Asia Sanjay Dutt said: “Despite the upliftment of economic sentiments post the election, the end user uptake of residential units has been restricted leaving a reasonable unsold inventory that developers would like to off-load.”
‘Hard-pressed for funds, builders are now providing discounts and offering flexible payment options too. For instance, realty firm Supertech is offering a studio apartment free on the purchase of a Rs 1.38 crore luxury flat in Noida to woo customers. Under the scheme, if customers purchase 2,300 sq ft top floor flats worth Rs 1.38 crore in Capetown project at Noida, they will get free studio apartments of 500 sq ft worth Rs 22 lakh in Golf Village project on Yamuna Expressway.’
‘What this means is that builders are trying everything possible to push sales but as people shy away from buying property, developers continue to wrestle with high debt, construction costs and unsold inventory’
‘The number of homes for sale in WA has jumped, with the Real Estate Institute of WA declaring Perth’s market was continuing to slow. Just over half of sellers are dropping their asking price, with the average discount being 5.3 per cent.’
‘December quarter figures show a stand-out feature was a 28 per cent spike in listings, taking the number of properties for sale to more than 13,000.’
‘REIWA president David Airey said sales peaked two years ago and had been trending down since the March quarter of 2013. “Turnover for the December quarter is about 14 per cent below the 15-year average,” he said. “The distribution of sales within various price ranges was pretty steady, although there was greater activity in the more affordable $400,000-$450,000 range, as well as some increased sales with homes over $1 million,” Mr Airey said.’
‘Mr Airey said that in the multi-residential market, early data from Landgate suggests that sales for units, apartments and villas remained weak. “The December quarter indicates turnover to be almost 30 per cent under the long term average and highlights weak investor activity. Early Landate data suggests a median price for multi-residential dwellings of almost $444,000, up marginally on September,” he said.’
“The downturn in the mining and construction sector continues to impact on the Pilbara, with Port Hedland dropping almost 3 per cent in the quarter and 14 per cent over the year to a median price of $773,500. Karratha has been hit much harder, down 15.4 per cent in the quarter and down by almost 30 per cent over the year to $499,000,” Mr Airey said.’
‘Of all the indicators released about China’s 2014 economic performance, some of which are surprisingly positive, China’s coal mining industry stands out as one of the worst performing sectors of the year, with a decline in industrial profits of 46.2 percent. The coal mining industry faced falling prices and excess capacity in 2014, after a four-year run, from 2009 to 2012, of above-average prices. The industry’s malaise became highly visible in the media last year as several shadow banking loans to coal mining companies faced potential default in 2014.’
‘For one, improved environmental standards around the world have reduced orders for this heavily polluting resource, and China has forced smaller mines to close or be purchased by state-owned companies. About 1,000 small coal mining companies were shut down in 2014. In the past four years, 5,920 coal mines have been closed. Most Chinese mining companies, about 70 percent, incurred losses in the first 11 months of 2014, as national governments have adopted climate change policies that attempt to transfer the reliance on polluting fuels to renewable and cleaner energy.’
‘The transition to a diminished reliance on coal is difficult, however. Chinese regulators have attempted to maintain coal contract prices in order to maintain economic stability, but even so, coal prices declined 20 percent in 2014. Stockpiles of the fuel at coal mining companies increased 2.6 percent year on year, to 87 million tons, while stockpiles of coal at power plants rose by 17 percent. Excess inventories and overcapacity will likely maintain the pinch in the coal sector over the next year.’
‘While coal production and consumption in China have more than doubled since 2000, these industrial gains will have to be dampened in order to account for the now-ubiquitously dubbed “new normal” in the energy regime. Short-term pain in this dirty sector is virtually inevitable.’
“China has forced smaller mines to close…as national governments have adopted climate change policies that attempt to transfer the reliance on polluting fuels to renewable and cleaner energy”
In other words…Fubar is spreading.
maybe the peasants are clearing a runway for al gore’s jet
by hand
Maybe they are running their steel mills with all those surplus solar cells they made.
‘When Group of 20 finance ministers this week urged the Federal Reserve to “minimize negative spillovers” from potential interest-rate increases, they omitted a key figure: $9 trillion.’
‘That’s the amount owed in dollars by non-bank borrowers outside the U.S., up 50 percent since the financial crisis, according to the Bank for International Settlements. Should the Fed raise interest rates as anticipated this year for the first time since 2006, higher borrowing costs for companies and governments, along with a stronger greenback, may add risks to an already-weak global recovery.’
‘The dollar debt is just one example of how the Fed’s tightening would ripple through the world economy. From the housing markets in Canada and Hong Kong to capital flows into and out of China and Turkey, the question isn’t whether there will be spillovers — it’s how big they will be, and where they will hit the hardest.’
‘The expected increase in U.S. interest rates makes the dollar-denominated debt of emerging markets “a source of concern,” World Bank Managing Director Sri Mulyani Indrawati said Tuesday. Developing nations “are going to have to face this new reality” of higher rates, Indrawati, a former Indonesian finance minister, said.’
‘Fed tightening could be especially problematic for China, where policy makers are already battling capital outflows and may exacerbate them with easing measures, resulting in a “circular trap,” said Manik Narain, a currency strategist at UBS AG in London.’
‘Developed markets aren’t necessarily immune, especially those such as Canada and Australia, which rely heavily on exports of oil, iron ore and other commodities. Prices of those goods, which are denominated in dollars, have fallen as the greenback has strengthened and demand has weakened.’
‘The effects can be seen in Canada, where central bank Governor Stephen Poloz said this week that rising U.S. interest rates could have an additional tightening effect, with a separate IMF report in January saying an overvalued housing market may cool.’
‘Hong Kong, which has fixed its currency to the U.S. dollar since 1983, typically raises borrowing costs in tandem with the Fed. Property prices in the city may fall as much as 20 percent this year because of a weaker rental outlook and the potential for interest-rate increases, according to a December report from investment bank Bocom International Holdings Co.’
There seem tto be considerable headwinds to tightening.
The headwinds were clear and ignored when these entities at first went into debt.
‘China Housing & Land Development, Inc. (NASDAQ:CHLN) has lost 16.28% during the past week and dropped 28% in the past 4 weeks. In this bearish onslaught, the volume was measured at 91,275 shares. China Housing & Land Development, Inc. has a 52-week high of $2.54 and a 52-week low of $0.31. With around 34,801,000 shares outstanding, the company has a market cap of $13 million.’
‘While many lower-tier cities grapple with vast volumes of unsold housing, some developers choose to beat a path to an untapped market. A giant red stadium in the shape of a drum stood out amid barren surroundings in the cold, arid and hazy northern city of Hefei, the capital of Anhui province. According to locals, the stadium is in the Guinness World Records, where it is listed as the largest drum-shaped building.’
‘The building turns out to be the showroom for a property project being built by Dalian Wanda Group Co Ltd, China’s largest commercial property developer, which claims that the massive complex will cost more than 30 billion yuan ($4.8 billion).’
‘A giant electronic screen hanging from the ceiling in the center of the showroom plays programs that draw comparison to projects in Manhattan, the Central district of Hong Kong and the Ginza in Tokyo. On the screen are digital renderings of the gigantic project, which will eventually have office towers, apartments and villas, exhibition centers, a theme park, cinema chains and an artificial lake.’
“The provincial government’s headquarters will move near here and a new subway line will run through. Soon, the price is going to rise,” a saleswoman told a visiting couple.’
‘In 2014, the average home price in Hefei rose 4.13 percent to 7,423 yuan per square meter. By comparison, the average price in other second-tier cities, which are similar in size to Hefei, fell 5.53 percent, according to the academy.’
‘And yet even with the gain in 2014, prices in Hefei were far below those of comparable cities. In Hangzhou, a richer second-tier city, the average was 16,133 yuan per sq m in December, and that was after a 10.63 percent contraction in 2014. For developers, these gaps signal opportunities.’
‘Andy Chang, a Hong Kong-based realty analyst with global credit ratings agency Fitch Ratings Inc. said that in third-and fourth-tier cities, most households already own two to four houses, leaving them with little incentive to buy more, especially since housing prices are no longer a one-way bet.’
‘Fears of an apartment glut in Melbourne have been rejected as local sales for the southern hemisphere’s tallest residential tower kick off this week. The Australia 108 project approved for Southbank will have 1105 apartments, with hundreds reportedly already sold to overseas investors.’
‘Some units have been snapped up by local buyers, but the project will officially go to market from Saturday. Prices range from $450,000 for units on lower floors to about $20-$25 million for a super penthouse on the 100th floor.’
‘A Property Council industry briefing was told yesterday that Melbourne apartment construction had started to “run out of puff” following years of double-digit growth after the GFC.’
‘Ari Petrovs, from real estate firm CBRE which is handling Australia 108 sales, dismissed suggestions that the apartment market was a bubble waiting to burst. “I think it’s too hard to describe something as a bubble now,” he said. “I think there are so many interwoven factors influencing it. For example, what’s just happened is the Australian dollar has dropped and … it’s cheaper to deploy your money here on a product.”
‘Mr Petrovs said that while the inner-city apartment market had stark differences in quality, there was continuing demand for units. “What we will see, and we have been seeing, is that if you’re a young person working in the CBD, you love the lifestyle, you’ll just jump from the older apartment to the new apartment and keep going to the new product,” he said.’
‘City of Melbourne date released last year showed there were more units being built than at any time in the city’s history, with most construction driven by foreign investment.’
“Deploy your money here on a product”? I like Melbourne, but those prices are beyond ridiculous and the artist’s rendering of the building shows that it not only will be super-tall, but super-ugly, a spectacular indictment of the ego and willful blindness that conceived and approved it. The apartments clearly are intended to be “snapped up” by fugitive Chinese capital, not for young people who can’t afford them.
Petrovs essentially admits that the units are a commodity, a bauble, like powdered rhino horn or something.
I’d worry that someone might hack the elevator software. Then you’ll be stranded 1,000 feet up.
They should have stopped at the 9th floor, the floors with those nice garden balconies.
‘Alberta Premier Jim Prentice has told Innisfailians his government will soon roll out a 10-year plan to correct the course of the province’s worsening financial picture from collapsing world oil prices.’
“We’ve had a pretty good thing going in Alberta. We’ve been like the luckiest people on the planet. We’ve had the best of everything,” said Prentice but reminding his audience the province also has the most expensive public service system in the country. “We are going to have $50 oil for a little while folks. If you are talking to people who say, ‘Don’t worry about it because oil prices are going to bounce back up’, that’s wrong. Don’t believe them.”
“There is not a single energy expert in the world, not a single financial analyst that we’ve talked to who thinks that oil prices are going to bounce back any time soon,” he added.’
“If we do nothing here is what happens. The deficit next year will be about seven and a half billion dollars,” said Prentice. “We have a contingency fund to set aside to protect us, a rainy day fund. We will blow through that in eight months. Then we will be eating up the Heritage Trust Fund, which will be gone in two years, and we are still facing low oil prices.”
“There is not a single energy expert in the world…”
There were just a short time ago. Bubbles sure can stop abruptly.
Paging AlbqDan…
Wouldn’t it be more useful to have a rational conversation?
Arguing with a stopped clock can get tedious.
Sorry to be a little late in commenting, but that post on high end condos being rented out in New York is key.
Until recently, the Chinese, Arabs, Russians, Europeans etc. were content to buy these things and keep them vacant, aside from using the as hotel rooms every year or two. That meant that a lot of U.S. new supply wasn’t really new supply.
But now, with their economies down, the dollar up, and these paper $billionaires felling a little less flush, perhaps they are starting to think they might like to earn a little rent. That means the new supply may turn out to be new supply after all.
‘Copper futures fell the most in a week after a report showed declining property prices in China, the world’s largest metal user.’
‘New-home prices fell in 64 out of 70 cities in January, Chinese government data showed on Tuesday. That signaled an interest-rate cut in November, the first since 2012, hasn’t revived construction yet. Property accounts for about half of China’s copper demand, according to Goldman Sachs Group Inc. ‘
The other half of demand is for the machinery required to do the construction and provide the materials. It’s busted.
LOL, and the third half of the demand for copper in China is those crazy multiple loans against a single piece of collateral.
“It’s busted.”
Dead, down, crippled, broke and busted.