The Housing Bubble

The Wall Street Journal reports on Brazil. “Brazil’s largest mortgage lender has sharply reduced credit for the nation’s home buyers, dealing a blow to the real-estate sector and to Brazil’s struggling economy. State-run Caixa Economica Federal, the bank responsible for about 70% of Brazil’s home mortgages, said late Monday that starting May 4, it will lend only 50% of the value of existing homes, down from 80% previously. After years of strong growth, demand for homes and apartments has fallen sharply as Brazil now teeters on recession. Signs of slowdown already abound. Weak sales and a glut of inventory are weighing on developers’ earnings.”

“São Paulo real-estate broker Adriana Sebastiana da Silva said she has closed just a single sale so far this year. She said Caixa’s pullback will make things worse. ‘There aren’t a lot people with the cash for a 50% down payment,’ Ms. da Silva said. ‘This will hinder the market even more.’”

The Gulf News on Saudi Arabia. “Residential property sales in Saudi Arabia’s capital Riyadh have plunged since the kingdom introduced tougher mortgage rules last November, research from JLL shows, and the consultancy predicted the restrictions would spur further countrywide declines. Buyers can now borrow a maximum 70 per cent of a property’s sale price; previously, there were no sector-wide limits. The restrictions aim to prevent a bubble forming in residential real estate of the kind seen in Dubai several years ago.”

“The number of house sales in Riyadh between the time the new lending limits were introduced and the end of last month fell 70 per cent from a year earlier, JLL wrote in a report this week. The number of apartment sales dropped 33 per cent. ‘Sales are expected to decrease further (due to) the mortgage laws,’ said Jamil Ghaznawi, country head of JLL Saudi Arabia, said in the report. ‘The laws have affected other parts of Saudi, including Jeddah.’”

Livemint on India. “Real estate developers are taking longer to sell luxury apartments, and are holding back on launching new projects in the segment due to weak demand in a subdued property market. In south Mumbai, where most of the city’s luxury and high-end apartment projects are located, the inventory period has risen from 40 months to about 70, experts say. In a desperate attempt to clear inventories, builders are now looking at new ways to attract customers, including offers of discounts. Last year, residential property prices in posh neighbourhoods in the Delhi region are reported to have dropped by about 25-30%, with some builders giving away discounts as high as 40%.”

“‘Six years to clear inventories is an alarming figure. While there is demand, too many projects are competing for it,’ said Ashutosh Limaye, research head, JLL India.”

AsiaOne on Malaysia. “Following a marked slowdown in demand for property in Iskandar Malaysia, property players expect further signs of a slowdown in the second half of the year, when marginal investors begin to take delivery of their units, especially those in the high-rise luxury segment. Johor is expected to face a housing glut, the result of developers launching numerous projects in response to unprecedented demand; Chinese developers, in particular, have been aggressively pumping out units by the thousands.”

“Malaysia Institute of Estate Agents (MIEA) president Siva Shanker said he expects the ‘newly-completed speculative property’ segment to come under pressure this year, with low take-up rates in the secondary market. Johor, being more exposed, could be more affected. The chairman of MIEA’s Johor branch S Vadeveloo added that young Johoreans or those working in Singapore had bought these units in the belief that they could be ‘flipped’ for a fat profit when completed - and this was before last year’s ban of the developer interest bearing scheme.”

Want China Times. “During the recent annual meeting of the International Monetary Fund (IMF) in Washington DC, Zhu Min, IMF vice president, stated that unoccupied houses in China cover land in excess of 1 billion square meters, which poses a risk to the nation’s realty market, according to Beijing-based China Times. A previous study made by Gan Li, professor at the Southwestern University of Finance and Economics, suggests that there are 49 million unoccupied houses in urban areas nationwide, making a hefty unoccupied-housing rate of 22.4%.”

“‘Despite limited demand, many third and fourth-tier cities are laden with huge housing inventories, forming a bubble which may burst, especially in view of the low transaction volume for new houses in these cities’ remarked Zhang Dawei, superintendent of the market research department of Centaline Property.”

Yahoo Singapore. “Recently, there were reports on units in high-end condominium projects being sold at a big loss. As property buyers, we often hear from developers and property agents that property prices will always go up in the long run. Does the property market always manage to recover, with prices going higher than the previous peak?”

“In 2003, I bought a unit in a seafront condominium. When it was under renovation, two neighbors staying at the units above mine dropped by for a chat. They both bought their place first-hand from the developer. ‘Do you mind telling us what price you paid?’ I told them the amount. ‘Oh, that was more or less what we paid for last time.’ ‘Which year did you buy your place?’ ‘It was 1984. Do you know about their launch at that time?’ ‘I don’t know. I was still in primary school in 1984.’”

“I did a search of the old newspapers. I found that the condominium was selling in a depressed market that year. My two neighbors weren’t overpaying at all. It was amazing that, almost twenty years later, despite inflation and after all the ups and downs in the economy, we were back to the launch price! Who said prices can’t go back twenty years? They don’t just go back, they can even go back to where they started from.”