The Housing Bubble

A report from Bloomberg on China. “The ranks of China’s wealthy continue to surge. As their economy shows signs of weakness at home, they’re sending money overseas at unprecedented levels to seek safer investments — often in violation of currency controls meant to keep money inside China. This flood of cash is being felt around the world, driving up real estate prices in Sydney, New York, Hong Kong and Vancouver. So how do these volumes of cash get out when Chinese are limited by rules that allow them to convert only $50,000 per person a year? The methods include China’s underground banks, transfers using Hong Kong money changers, carrying cash over borders and pooling the quotas of family and friends.”

“Now, policy makers are starting to take the outflow seriously. While it’s not about to run out of money, China has intensified a crackdown on underground banks that illegally channel cash abroad. It’s also trying to capture officials suspected of fleeing overseas with government funds. ‘It’s not legal for people to use secret channels to move money abroad, because this is smuggling,’ says Xi Junyang, a finance professor at Shanghai University of Finance & Economics. ‘But the government has kept a laissez-faire attitude until recently.’”

“Jenny Cai, a Shanghai resident, bought a A$1.2 million ($867,000) apartment in downtown Sydney after seeing pictures at a marketing event in Shanghai. To do it, she asked her husband and daughter to combine their $50,000 annual quotas with hers to come up with the down payment. Cai intends to pay the mortgage by renting out the place, as well as pooling her family’s quotas in coming years. ‘The purchase is the easy part,’ says Ca, who works for an export company. ‘Making payments is a lot of hassle.’”

The Hong Kong Standard. “Three Midland Realty agents have bought a flat in Tin Shui Wai at a price that is 30 percent below market values. They bought a 441-square-foot unit in Kingswood Villa for HK$2.6 million, or HK$5,856 per sq ft, following a HK$1.1 million price cut. The price was 28 percent, or HK$1.03 million, lower than other units of a similar size in the same housing estate. Midland Realty’s residential department chief executive Sammy Po Siu-ming said the homeowner had put the unit on the market in August, but no one had shown interest.”

The New Zealand Herald. “Auckland average residential asking prices have dropped more than $18,000 in just a month, from $851,531 in September to $832,713 last month. Data from realestate.co.nz showed Auckland’s drop was reflected elsewhere: nationally, the asking price fell from $568,215 in August to $539,823 last month. ‘Chinese buyers have also backed off as they see a lengthening series of small roadblocks put in their way - consider wealth lost through China’s sharemarket rout and struggle to get funds out of China amidst a new crackdown on capital outflows by the authorities,’ said BNZ chief economist Tony Alexander.”

“‘The number of new listings coming onto the market in October is up significantly on last month, as we have come to expect in spring,’ said Brendon Skipper, realestate.co.nz chief executive. A total of 13,405 new properties were listed last month, 12 per cent up on September. ‘It may well be that the supply of properties plays its part in the slight easing in asking prices we’re seeing,’ Skipper said.”

The Australian Financial Review. “Caution has swept the Sydney and Melbourne housing markets, as buyers and sellers revise their positions and transact at lower prices amid a housing slowdown. In Beecroft, things were a bit slower. A $3.4 million four-bedroom home over 1663 square metres at 155 Copeland Road East Beecroft was passed in. McGrath’s Rebecca Roe, who is marketing the property with Kevin Dearlove, said they were negotiating privately with buyers and were confident the house would sell. ‘The home was unique for Beecroft … close to Cheltenham Girls. But the market has come down a bit,’ Ms Roe said.”

“Western Sydney, where prices have been trending down, is also playing catch-up. ‘There were more buyers out this weekend because they are out looking for a good deal [after hearing news the market has slowed],’ LJ Hooker’s Peter Tannous said. ‘[In Merrylands] we sold four properties yesterday because owners realised they need to meet the market.’”

The Malaysia Chronicle. “Siva Shanker, the immediate past president of the Malaysian Institute of Estate Agents (MIEA), says he is absolutely certain that for the next one to three years, the biggest winner will be the rental market. ‘The guy who wants to rent will suddenly be able to find a nice, brand new condo with facilities for half the price it should actually go for,’ says Siva.”

“This, he says, is because in 2012, 2013 and 2014, many properties were bought on speculation by those wanting to flip them – sell them – as soon as they were ready to be occupied. And a lot of these condos will be ready at the end of this year and in 2016 and 2017. These flippers, he says, did not put any of their money down because they took out a 100% housing loan. Because of the economic slowdown, the buyer who bought a unit with the intention of flipping it right away might now find it difficult to sell even if he drops his price.”

“‘He wants to sell it at RM900,000 but there are no takers at that price, so he drops the price to RM800,000 and still there are no takers, down to RM750,000, RM700,000, still no takers, and now he is at RM650,000, which is dangerously close to how much he bought it for, and he is panicking like mad. The bank doesn’t care if the market is good or not. You still have to pay the bank loan,’ says Siva.”

The National on Dubai. “Sale prices for apartments and villas continued to decline in the third quarter of 2015 amid a ‘torrent’ of newly announced projects, according to a new report. The research firm Phidar Advisory said that announced residential projects had reached ’saturation point.’ The chairman Khalid bin Kalban also said that he believed the market had been affected by a lack of cash. ‘No one is providing liquidity to real estate – especially the banks. Their terms and conditions are a bit difficult to achieve.’”

“He said that developers were ’substituting the banks and taking the risks’ themselves by offering much more generous payment terms. ‘Developers with deep pockets will definitely have to do that because this is something they find themselves forced to do. There are no other institutions willing to fund at this point in time.’”

The Coventry Observer. “Buying ‘dream’ holiday homes in Egypt has turned into a nightmare for two couples who forked out their life-savings on properties which have never been built. Six years ago, former Massey Ferguson worker Susanne Lewis and husband David ploughed £40,000 into the promise of a luxury apartment in Hurghada on the Red Sea Coast. And around the same time, Coventry University telephonist Suzanne Dobson-Smith and husband Jim spent £58,000 buying a beachfront apartment on the same Oasis Marina resort.”

“But following terrorist attacks four years ago which hit the country’s tourism industry and plunged the Egyptian economy into meltdown, building work drew to a sudden halt. Suzanne has employed a lawyer to try and recoup the lost cash – but fears her life-savings are gone and that she will never see her dream holiday home. She also partly blames the stress of the situation for the collapse of her marriage to Jim, with whom she has two children but is now divorced. She told the Observer: ‘It would appear we have lost our money and are the owners of an uninhabitable property in the middle of the desert with a building site around it.’”

“David told the Observer: ‘It made sense to buy somewhere for us, our friends and family. We bought an apartment like so many other people and stupidly paid for it all at once. We have spent thousands flying back and forth to sort this out and have lost our life savings. We hope eventually we will get the money back.’”