The Housing Bubble

‘Buyers are paying up to $100,000 more than the listing price because of the boom.’”

Absolutely no bubble here. Nope, this is just good old fashioned appreciation at work. Nobody will be hurt by this in the slightest as prices in Australia always go up.

“‘One of the biggest trends we are monitoring across pretty much all the markets we focus on is the ongoing globalization of demand for property.’”

Which means if your city is considered “the in place” to invest money by the global money crowd then your city gets to enjoy all the advantages of an huge influx of money which is something that a lot of people consider a big problem (and it is a big problem in that it distorts things) but its “big problem” is nothing like the big problem a city has to deal with when the inward flow of money slows down or even comes to a halt and reverses itself.

Go here for an extreme example of what happens to a place when the inward flow of money comes to a halt and reverses itself:

https://www.google.com/search?q=bodie&biw=1813&bih=857&tbm=isch&tbo=u&source=univ&sa=X&ei=85ZtVe_4M5H3oAS_-oKQAQ&ved=0CDwQsAQ&dpr=0.75

Now go here for an example of an “in place” that money flows into:

https://www.google.com/search?q=aspen&biw=1813&bih=857&source=lnms&tbm=isch&sa=X&ei=VZdtVdcfkdigBO6MgrgI&ved=0CAgQ_AUoAw&dpr=0.75

City officials may publically bitch and moan about the enormous influx of money coming into their city from somewhere else and how everything gets distorted but deep down they probably don’t really mean it because this influx of money will come in handy when budget issues need to be addressed.

‘As China encourages farmers to pool their land for better productivity, the country has gone on high alert for illegal seizures and speculation. Xinhua reporters have found some local governments setting impractical targets for transfers. These fanciful targets can only be met by strong-arming farmers into transferring their land whether they like it or not. On top of this, some governments use barren land to balance that taken out of production and put under commercial development. An influx of speculative money, eagerly encouraged by officials keen to massage their land transfer figures, has made things even worse.’

‘Zhang Chuntong is an agricultural official in Henan Province. He has observed investment flooding into “eco-agriculture” and agritourism. “Many ‘investors’ are simply stockpiling land and waiting for policy windfalls. They have little knowledge of agriculture and most projects are making losses,” he said.’

‘When projects fail, farmers and local governments are usually left to count the cost. Zhang Haojun, a farmer in Henan, leased his land to a company that grew sorghum, but as the harvest season neared, the company representatives vanished from their office.’

“I was promised 1,000 yuan for a year’s rent, but they only gave me 500 and left the sorghum to rot in the fields,” he said.’

‘Brazil used to have one of the world’s fastest-growing economies, but now it’s a basket case. Brazil was hit by a perfect storm of economic disasters. It is still a commodities-producing country, heavily dependent on exports of its crops and natural resources. In the past year, though, the economies of the countries that buy its goods, particularly China and Germany, have slowed, drying up demand. And the prices of its main exports have plummeted.’

‘Just two years ago, Eike Batista was Brazil’s richest man and the seventh-richest person on the planet, worth $34.5 billion. He had a private fleet of yachts and jets. Now he is more than a billion dollars in debt. His downfall is Brazil’s in microcosm. A gold-mining baron, Batista moved into oil and gas in 2007, and his initial explorations promised some $1 trillion in oil and gas deposits 37 miles off the coast, in the Atlantic Ocean. The value of Batista’s oil company soared, and the firm borrowed heavily on that strength, only to be unable to pay when the oil proved tough to get at and far less plentiful than Batista had estimated. His other companies were in commodities, which have collapsed worldwide. Now Batista is nearly bankrupt and on trial for insider trading. “Theoretically, I’m at zero,” he recently said. “But I’ll be back.”

‘After three years of construction, Dai Quang Minh Company has announced to open nearly 400 apartments of Sala project for sale in June at the price of VND40 million (US$ 1,900) per square meter. Several housing land projects have also been opened for sale…Chairman of HCMC Real Estate Association Le Hoang Chau said that businesses have brought out new projects and revived a number of frozen ones after eight years of difficulties.’

‘The launch of a series of new projects with attractive advertisement has confused potential house buyers and put investors in a severe competition to get customers. The Government has recently warned of the return of a property bubble.’

‘Deputy Director of Him Lam Land Company Ngo Quang Phuc said the housing supply very abundant and advised customers to carefully find out about projects that they are interested in so as to make an accurate choice, suiting their demand and financial conditions.’

‘The hero of the Chinese stock bonanza is the Chinese government. On Friday—a day after the market’s precipitous plunge—China’s central bank declared it wanted a “healthy” stock market, and leading state-run newspapers ran front-page articles proclaiming the bull market’s driving forces—monetary easing and economic reform—to still be intact.’

‘Why are China’s authorities so brazenly talking up stocks? There are two main reasons, says Anne Stevenson-Yang of J Capital Research, a Beijing-based research group. In the near term, a continued bull market will funnel risk-free money to indebted firms, many of them state-owned.’

“It allows companies to swap out debt for equity, because you don’t have to pay back equity, of course,” Stevenson-Yang tells Quartz. “It also creates a financing channel for companies that doesn’t require Chinese banks to [fund the equity-for-debt swap]. That’s the idea—’let’s get people to finance them.’”

‘The second goal, she says, is to maintain an alternative to the sluggish property market as a way for households to accumulate wealth. A rising stock market makes people feel wealthy again, even if their real estate assets aren’t appreciating like they used to.’

‘With more than two-thirds of their assets sunk into apartments, Chinese households’ sense of wealth—and therefore, their willingness to spend money—has hinged on home values. The sharp drop in property prices that began in 2014 has eaten away at that financial security—a big problem, given that the Chinese economy desperately needs consumers to spur demand.’

‘But by hyping the market, the government is essentially urging its people to buy the stocks of companies with very weak—and in some cases possibly fraudulent—fundamentals. Last week’s selloff shows just how fragile China’s stock rally is. When the market finally reverses, it will be Chinese households who have ended up paying for the excesses of the state, once again.’

‘A crackdown on foreign buyers and property investors who dodge tax is being welcomed by voters, according to the latest ONE News Colmar Brunton poll. It follows the Government’s moves to try to cool down Auckland’s rampant housing market.’

‘For months National rejected calls for a clampdown on speculators cashing in on Auckland property…But Labour’s housing spokesman, Phil Twyford, told ONE News: “People know that speculators are driving house prices higher and higher and sadly National’s panicked half measure simply won’t make much difference at all.”

‘Labour’s reviewing all of its policies, but Mr Twyford said one thing is certain. “Under Labour foreign buyers will be banned from buying houses in New Zealand, end of story.”

‘Statistics compiled by reporters of Chinese online business news service Caixin show that five major shipbuilding enterprises in China have gone bankrupt over the past six months. Apart from these companies, several other renowned shipbuilders, including Sainty Marine, which is listed in the A-share market, were also reported to be struggling with financial woes.’

‘According to the China Association of the National Shipbuilding Industry, the number of shipbuilding orders posed a year-on-year drop of 78.1% in the January-April period.’

‘Statistics by Clarksons, the world’s leading provider of integrated shipping services, also indicate severe recession in terms of new orders received by the Chinese shipbuilding industry since the beginning of the year. The drop in orders has been continuing since last June, Clarksons said.’

‘One private shipbuilding company owner told Caixin that “many companies have been forced to take orders even though they know the orders will only generate minor profits, or no profits, or even losses, because they have to keep operating.”

‘In my own life, the efforts of the Move To Toronto Lobby — a growing consortium of friends who have migrated from Vancouver in pursuit of greater professional opportunities — have picked up steam.’

‘Every year, another friend seems to make the trek out East, and as skeptical as I am about the Big Smoke, they all seem to land on their feet. Despite the crummy climate and the housing costs similar to Vancouver they seem more than happy with the trade-offs: greater career choices and a big city buzz no one would ever call mind-numbingly boring. Conversely, my social circle is also thinning out in favour of smaller communities. Not the burbs mind you, but places like Nelson or Squamish, where you can own a house.’

‘And speaking of houses, the other thing that has me reconsidering my future here has been the pushback against the #donthave1million affordable housing campaign. It’s one thing to have a robust public debate over how we might address the affordability crisis, but predictably, much of the discussion has devolved into generational mudslinging.’

‘Cases in point: Bob Rennie and Shelley Fralic. While the condo king responded with condescending advice that Vancouverites give up on the idea of owning single-family homes and instead, one assumes, set sights on his signature shoeboxes, the Vancouver Sun columnist urged cash-poor millennials to get more education and — here’s a novel thought — a job. Their comments belie that they, like so many, completely missed the point of the campaign.’

‘Take Rennie’s comments regarding #donthave1million founder Eveline Xia and her supporters. “We’re all paying attention to these girls, they’re holding up banners, and wanting affordability to be a party game,” he told the South China Morning Post. “And it’s a really serious issue.”

‘Girls? Xia is 29. I am 32. The oldest of our generation turn 35 this year, and, as anyone who’s walked down the streets in East Van’s more affordable (read: rental-oriented) neighbourhoods can attest, we’re in the middle of a baby boom. We are at an interesting point in history when traditional hallmarks of adulthood — higher education, career-track jobs, and homeownership — have been extended due to circumstances beyond our control. So I can see how from the outside it would appear as if we’re enjoying some kind of extended adolescence. But the reality is no party, and it’s certainly not a game.’

‘Biology didn’t get the memo about the extra 10 years it now takes to get established, and so we’re having families while we’re still scrambling to put together the building blocks of basic adult life. You want a serious issue? Try figuring out how you’re going to balance pricey mortgages or market rents with potential childcare costs and increasingly precarious employment that doesn’t include parental leave. That’s my reality. That’s what has me eyeing a Plan B. But of course, that’s just fine with the critics who think those who can’t afford this city should just pack up and leave.’

‘Some rankings classify Vancouver as one of the most livable cities in the world, but not all studies come to the same conclusion. In MoneySense magazine’s annual list of the best places to live in Canada, Vancouver doesn’t make it into the top 10 – or the top 40.’

‘Out of a total of 209 cities, Vancouver comes in at number 46 – down from 39 last year. When population size is taken into consideration, the city ranks ninth out of 15 large cities across the country.’

‘So why the huge discrepancy between other studies that rank Vancouver so favourably compared with other cities across the world? Not all studies look at the same criteria. For example, The Economist’s list that found Vancouver to be the third most livable city in the world (and tops in North America) looked at such factors as healthcare, infrastructure, environment and education – but it did not consider affordability.’

‘The MoneySense ranking gave Vancouver poor marks for unemployment, income levels and housing affordability. Vancouver is consistently listed as the most expensive city in Canada. One example of this can be found in last year’s cost-of-living survey released by Mercer. The cost of housing is constantly top of mind for Vancouverites, with the average home selling for more than double that of the Canadian average.’

‘Prime Minister Tony Abbott says he wants house prices to continue rising, putting him at odds with Treasury Secretary John Fraser, who has delivered a stark warning that Sydney and parts of Melbourne are in the grip of a house price bubble.’

‘As the Reserve Bank of Australia prepared for today’s monthly board meeting on interest rates, Mr Fraser said he was concerned record low rates were fuelling over-investment. “It does worry me that the historically low level of interest rates are encouraging people to perhaps over invest in housing,” Mr Fraser said.’

‘But Mr Abbott told parliament he hoped the market would continue to rise. Mr Abbott earns $507,000 a year and his Forestville home is mortgaged to NAB. His comments came under attack, with Opposition leader Bill Shorten saying Mr Abbott was out of touch.’

‘“I wonder what a young family looking to buy their first home thinks of the Prime Minister saying he wants house prices to go even higher,” Mr Shorten said.’

‘The Reserve Bank is expected to keep rates on hold today after last month’s historic cut to 2 per cent, despite subdued inflation providing room for another cut. It comes as new data revealed house prices actually went backwards in May. The CoreLogic RP Data Home Value Index of capital city home prices fell by 0.9 per cent in May, the first drop since November last year. But prices grew 9 per cent higher over the year overall.’

‘In Sydney house prices recorded the first monthly fall in a year, slipping 0.7 per cent in May to a median of $752,000.’

‘Commsec economist Savanth Sebastian said the price correction was likely due to tougher lending criteria from the banks. But Labor backbencher Ed Husic called on the banking regulator to do more.’

“It is well and truly time for APRA (Australian Prudential Regulatory Authority) to take the garden hose out and apply the regulatory cold shower on this frenzy that is occurring,” Mr Husic said. He said the sustainability of rising prices in Sydney was creating social issues.’

“It means that people get driven further and further on to the urban fringes,” Mr Husic told parliament.’

‘When inappropriate investments become worthless, it is not the wealthy who are being fleeced’: ASIC chairman Greg Medcraft. ‘When inappropriate investments become worthless, it is not the wealthy who are being fleeced’: ASIC chairman Greg Medcraft.’

‘The battle over the banking industry’s reputation intensified on Friday, as two of Australia’s top regulators took a simultaneous swipe at the culture at the heart of the nation’s largest financial institutions. “When culture is rotten, it often is ordinary Australians who lose their money. Markets might recover, but often people do not,” Australian Securities and Investments Commission chairman Greg Medcraft said at the Stockbrokers Association of Australia’s annual conference on Friday, in a speech calling on financial institutions to clean up cultural problems.’

‘The regulator is worried that a crisis of confidence among many members of the public, in the wake of a slew of governance scandals in some of Australia’s largest banks over the past year, could weaken the integrity of financial markets. Commonwealth Bank of Australia, ANZ Banking Group, National Australia Bank, Macquarie Group, and UBS are among those that have dealt with the fallout from scandals over the past 12 months.’

‘In recent months, a parade of bankers have appeared before a federal Senate Inquiry over poor advice, while UBS bankers fronted a NSW inquiry over a research report related to the sale of the State’s electrical poles and wires.’

‘Australian Prudential Regulation Authority chairman Wayne Byres said banks must lift their efforts to ensure remuneration plans encourage ethical behaviour, declaring that “something serious is amiss”, despite growing regulatory pressures to improve standards. “It is clear that in many cases, aspirational statements of organisational culture have been no match for the personal incentives that are created for individuals,” he said.’

http://www.smh.com.au/business/regulators-put-banking-culture-and-incentives-in-the-firing-line-20150529-ghcmuk.html

From the first link:

‘A handful of elite cities around the world have increasingly become magnets for residential investments from super-rich foreigners looking for safe places to park their fortunes.’

‘Living in the world’s most desirable cities has long been associated with exorbitant housing prices for a multitude of reasons, ranging from high infrastructure costs to demand that far outstrips the supply. Yet this vast injection of wealth is increasingly contributing to soaring home prices in places as far flung as London, Vancouver, Miami, New York, Panama City, Istanbul and Sydney.’

“The international picture is very obviously what I call ‘flight money,’” said Matthew Montagu-Pollack, publisher of the Global Property Guide, an online resource for people looking to purchase homes abroad.’

‘In the past year, residential property prices in prime locations favored by foreign investors rose sharply — 19% in New York, 15% in Bali and Istanbul, 13% in Dublinand 11% in Sydney, according to Knight Frank, a London-based real estate consultancy with clients spanning the globe.’

‘From 2008 to 2012, average house prices in Hong Kong — ranked as the world’s least-affordable city for housing — rose more than 117%, according to the Global Property Guide. The average property in London costs $750,000, a one-year jump of 19%, according to Britain’s Office for National Statistics.’

‘Australia’s Foreign Investment Review Board says Chinese investors pumped nearly $6 billion into the residential housing market there in 2013.’

“Six years after a forced demolition left him homeless and destitute, 55-year-old Hao Jianzong has gotten his revenge by killing Cao Junxi, the man in charge of the wrecking operation. Many Chinese Internet users have expressed sympathy, with some even hailing him as a hero.”
____________________________/

That could have been a vignette from the movie “A Touch of Sin,” which I highly recommend. The film continues to be banned in China for reasons that quickly will become obvious to the viewer.

Some letters to the editor in Australia:

‘That Prime Minister Abbott is hoping house prices continue to grow shows he is not governing for all Australians (”Reno rumble: Abbott bursts buyers’ bubble”, June 2). Like many parents I’m hoping they do not so my children and grandchildren can afford to buy a home.’

‘Unlike Tony Abbott, I oppose tax concessions encouraging “lazy” investors to buy up established housing, which adds nothing to overall housing stock, creates few jobs and keeps a significant proportion of housing off the market, thereby forcing up the price of the remainder. Imagine the boost to the economy if that money was invested in companies, research and the development of new products for export.’

Bill Bowron Farrer (ACT)

‘I doubt Tony Abbott’s daughters will need to worry about their future housing needs, but the vast majority of Sydney’s young people are struggling and deeply concerned. Who do you govern for, Tony Abbott?’

Anne Cooper Earlwood

‘House prices will go up to a point where most people simply won’t be able to afford to live in Sydney. Then, when interest rates are at zero, and the economy has ground to a halt, people will suddenly realise that you can’t eat assets. Houses are indigestible.’

Robert Franzos Vaucluse

‘Speaking of bubbles, the honorable Prime Minister Tony Abbott (leader of a mere 23 million people) is by recent estimates the second highest paid leader in the world after Barack Obama. Isn’t it time we pricked his bubble?’

Inge Close Manly

http://www.smh.com.au/comment/smh-letters/not-buying-tony-abbott-on-rising-house-prices-20150602-ghev77.html