The Housing Bubble

Reuters reports on Sweden. “Sweden’s housing market and high levels of household debt are a growing risk to the country’s financial system and authorities need to take action, the head of the country’s central bank said in a newspaper interview. The Riksbank has slashed its benchmark rate and launched a 200 billion crown ($23 billion) bond-buying program to head off the threat of deflation, fuelling borrowing and leading to worries of a housing bubble. ‘It is more dangerous every day that passes,’ Riksbank Governor Stefan Ingves said in an interview in the daily Svenska Dagbladet. “But you cannot calculate if something is going to happen.’”

“He said that with the Riksbank focused on inflation, it was up to other authorities to tackle the housing market, and called for action from politicians. ‘In the previous Stability Report in spring we could see the risk level for Sweden was higher,’ he said. ‘There is no shortage of analysis, but a lack of decision-making.’”

The Nikkei Asian Review on China. “China’s economy remains beset by heavy downward pressure, official data released Wednesday shows, as falling prices discourage production and investment and fuel a vicious cycle. Electricity generation, an indicator of production activity, fell 3.2%, a sharper decline than in September. A manager at a state-owned coal mining company in Henan Province saw his pay drop after the Chinese New Year from more than 300,000 yuan ($47,120) a year to his basic salary of less than 2,000 yuan a month.”

“‘I’m planning to quit the company and open a Sichuan restaurant,’ he said, adding that he has canceled plans to buy a home.”

3 News on New Zealand. “The Auckland housing market slowed last month following the introduction of new restrictions, according to the latest industry figures. The city’s median price slipped 3 percent to $748,250 in October from September, and the volume of sales dropped 19 percent to 2,546, the Real Estate Institute of New Zealand said. The central bank introduced Auckland-specific lending restrictions this month, while the government’s more stringent enforcement of taxing speculators’ capital gains began last month. ‘The drop in the number of sales in Auckland in October is the result of a softening of demand over the past few months and the new IRD and bank account rules introduced at the start of October,’ institute chief executive Colleen Milne said in the report.”

The Daily Telegraph in Australia. “‘You only find out who is swimming naked when the tide goes out.’ Billionaire Warren Buffett’s famous warning of what happens in changing markets is ringing true for Sydney real estate as the winding down of the city’s recent price boom reveals the suburbs where homebuyers paid too much money. Core Logic RP Data figures show home prices have begun falling in 36 of the Harbour City’s 700-odd suburbs and most are areas that had the hottest home auction markets earlier this year. These include Edgecliff, Rushcutters Bay and Balgowlah, near Manly, where median unit prices fell between 4 and 7 per cent over the last three months. Double Bay units recorded an even bigger price fall of 15 per cent over the same period, the largest decrease of any Sydney suburb.”

“Prices in these four areas had climbed by up to $200,000 in the three years prior to July. SQM Research analyst Louis Christopher said that in the heated market some excitable buyers paid too much for their homes, especially at auction. ‘Property values in the Sydney market as a whole are not overvalued and will not fall significantly anytime soon, but a lot of people who purchased property in May and June, when the market was peaking, probably paid more than their homes are worth now,’ Mr Christopher said.”

“Laing and Simmons-Potts Point selling agent Nuri Shik said vendors need to adjust their expectations to the slowing market, but added that well-presented apartments are still getting good results. One of his clients, the Keys family, is taking this mantra to heart by renovating their Darlinghurst apartment at 4 Clampton Place prior to selling it. ‘It needs an update and it will be fun to fix it up,’ Colleen Keys said. ‘It does concern me that there is a lot of talk about prices coming down, but for now I think the market is still good for both buyers and sellers.’”

The Kyiv Post in Ukraine. “Property prices in Ukraine fell along with the hryvnia at the beginning of the year. ‘Prices have dropped by around 40 percent,’ said Katrina Bankova, an estate agent at the largest real estate agency in Kyiv. ‘Rents for elite properties have dropped by 20 to 25 percent. Properties which went for up to $3,000 a month have dropped by 50 percent,’ said Tim Louzonis, co-founder of AIM Realty Kiev, which specializes in properties for expats.”

“Buyers now have unprecedented bargaining power compared to the previous 15 years, making it an attractive proposition for investors. ‘There is no market price. Before you used to be able to say a square meter here cost X but now it’s a market of bargaining…The last apartment I sold was going for $120,000, but they sold it for $100,000. Sometimes people go down by $40-50,000,’ said Bankova.”

“And there is a chance it could get cheaper. Property professionals in Kyiv are still divided on whether the market has reached its lowest point. ‘The clients have changed. They’ve become more picky,’ said Alexandr Laznenko, an agent at one of Kyiv’s largest real estate firms. ‘People don’t want what’s on the market. They want to find a bargain every time.’”

The Rio Times in Brazil. “Host countries can expect a fall in demand in the property market after they have put on big sporting competition, but usually after the event has taken place. Rio de Janeiro is struggling already, according to reports. In Barra da Tijuca, a wealthy neighborhood in the city which will host much of the Olympic Games, the new high-rise accommodation built for athletes has failed to sell well. Only 230 of over 3,600 units have been sold. Many of them have now been taken off the market.”

“Real-estate companies are slashing prices and offering incentives and freebies to entice buyers to the market. Online sales portal VivaReal, in partnership with a number of construction companies, has expanded Black Friday (November 27th) to include the whole of November marking down properties throughout the month. Elsewhere in the city, projects are failing to materialize.”

“The port area in the centre of the city, which has been undergoing extensive regeneration, has a number of new offices that stand empty. Buildings, a property research firm, says almost a quarter of office space in the area is tenantless. ‘We imagined this crisis would occur only after the Olympics in 2016, but it’s happening now, calling into question the aggressive bets made on projects in the lead-up to the Games,’ Leonardo Schneider vice president of Secovi, a housing syndicate, explained.”

From Mexico News Daily. “Social housing projects in Baja California abandoned for financial reasons and the lack of amenities such as schools and hospitals have become breeding grounds for disease and petty crime. About 100,000 homes are believed to have been abandoned across the state and are now being occupied by wild animals, gangs and drug users.”

“Alejandro Arregui, Baja California representative of the national mortgage fund Infonavit, said the problem had been partly caused by purchasers being in arrears on payments on 13,000 apartments, of which at least 5,000 had been abandoned as a result. ‘The problem of abandoned housing stems from poor planning whereby no development centers were created,’ said Lauro Arestegui of the federal Secretariat of Agrarian and Urban Development, adding that residents’ problems with making payments were thought to be primarily caused by poor access to basic services such as schools and hospitals and work places.”

“The problem has persisted unchecked for several years despite legal efforts by local authorities to reclaim the apartment blocks. They have become perceived as gang strongholds and therefore lawless no-go areas. Local authorities have identified half a dozen such ‘hotspots’ in Tijuana. In one of them, Villas del Campo, half of the 35,000 homes are estimated to have been abandoned.”