The Housing Bubble

A report from the Canadian Press. “Climbing Vancouver’s property ladder can be a daunting experience at any time, but recent scorching market conditions have forced many to re-evaluate their ownership goals as prices climb skyward and the supply dwindles. When Eleanor King started looking for a new home in February, she wanted a place that she could renovate and add a rental suite for some extra income. King says the initial search was “horrible” because every house in her price range went within days of going on the market. Even homes that seemed uninhabitable were selling for $1 million. Then an ad in a local paper caught King’s eye. There were six townhouses for sale, just off Vancouver’s trendy Commercial Drive.”

“King purchased all the townhouses in July for nearly three times her original budget. She had to invest ‘a lot of money’ and take out a large mortgage to do so, but five of the homes are now being rented and she expects that the income will become part of her pension. ‘I’m hoping that as it goes along, it will start to pay in instead of me paying out,’ King says.”

Bloomberg on the UK. “Knightsbridge is the worst performing housing market in central London this year as rising taxes curb valuations in the district. Prices fell 6.1 percent as an increase in the stamp duty charge damped demand and sales volumes fell, according to Rupert des Forges, a partner at broker Knight Frank LLP. Knightsbridge ‘was probably at its most frothy when the market turned,’ Des Forges said. From March 2014, ‘a lot of asking prices were beginning to get very disconnected from transactional levels,’ he said.”

NDTV on India. “Through 2015, property developers and investors sitting on plenty of real estate have been hoping feverishly for sales and prices to recover. So I got the MD & CEOs of India’s most credible corporate houses in real estate together for a crystal ball-gazing debate on property prices in 2016. Anita Arjundas of Mahindra Life Space Developers added ‘Look at data in terms of promotions, offers, and the fact that almost all projects today are launched on payment linked plans. So you pay 20% now, 80% on possession - that’s straight discounting. Prices have definitely corrected at a project to project level by 10 - 15% and even where they have remained flat all through 2015, there is time discounting.’”

“Many developers who have been lax and taken the buyer for granted have realized that fixing their business is the only way to win the buyer back. That’s also the beauty of a slowdown. Complacency vanishes. There’s a rethink on the product.”

The Korea Times. “The housing market seems to be losing its upward momentum after the key rate hike by the United States Fed and concerns of an oversupply of new apartments. Around 320,000 new apartments are scheduled to be sold in 2016, which is the most since 2008. The government also announced plans to strengthen mortgage regulations. In the provinces, banks currently take into account only the value of the house or apartment when someone applies for a mortgage. From May, however, they will also evaluate the applicant’s income to see whether he or she has the capability to pay back the mortgage.”

“The measure comes amid growing concerns over the record-high household debt which is nearing 1,200 trillion won, but the announcement of the plan negatively affected the housing market in the provinces. According to the Korea Appraisal Board, apartment prices in eight provinces and cities including South Chungcheong Province, North Gyeongsang Province and Daegu fell this week. ‘The momentum for the price rise has been slowing down since mid-November. Following the realization of negative factors on the real estate market, investors are increasingly worried about the direction of the market,’ said Lee Mi-yun, a researcher at Real Estate 114. ‘On top of the key rate hike in the United States and the strengthening of mortgage regulations, concern is increasing of the oversupply of housing.’”

From China Daily. “The rare official notice urging property developers to ‘properly’ reduce housing prices should serve as a stern warning to those who bid recklessly to send land prices soaring in first-tier cities such as Beijing and Shanghai. To effectively and timely destock the housing inventory, local governments must take measures to stop the recent return of ‘land kings,’ who buy and sell plots at prices higher than even the current housing prices.”

“It is not because such land sales will substantially change the overall supply or prices in local property markets, but by tolerating jaw-dropping high land prices, local governments will seriously undermine the credibility of the national campaign to slow down, if not totally stop, the rapid accumulation of unsold houses. Latest data show the country’s unsold home inventory hit 696.4 million square meters at the end of November, up 10 million sq m over the record figure reached in just the previous month.”

“To put the problem of oversupply in perspective, according to E-House China R&D Institute, for every new home sold in first-tier cities in October, there were nine unsold; the ratio was high as 1 to 12.2 and 1 to 18.9 in second-and third-tier cities. By linking the reduction of unsold houses with the plan to significantly raise the number of migrant workers who can permanently settle in cities in the coming five years, the country’s top leaders are trying to find a creative way to save the real estate sector from being a propeller to becoming a drag on the national economy as they advance the course of urbanization.”

“But if property developers mistake the move as another step to spur housing prices and keep increasing the costs of land in major cities, potential homebuyers will have no choice but to adopt a wait-and-see approach while unsold houses loom as a threat to the economy.”

The Malaysian Insider. “Amid the challenging economic environment, the property industry is expected to remain tough next year as a result of the slowdown from the 2011-2013 property boom which saw home prices growing at double digits. Since the second half of this year, there was a reported growing number of investors who were eager to dump their properties even at below market price. According to the latest report by the Valuation and Property Services, the residential overhang and unsold situation in Kuala Lumpur was not encouraging.”

“The overhang numbers for condominiums in the first half of 2015 increased to 1,346 units worth RM1.23 billion, up by 28.7% in volume and 28.1% in value compared to the same period in 2014. The report also revealed the increase of unsold “under construction and not constructed” units to 10,742 and 1,181 units respectively. There were 9,291 transactions worth RM11.01 billion in the first half of 2015 in Kuala Lumpur, a decline of 7.4% in volume against the same period of 2014 while transaction value slipped by 6.5% after experiencing an 18.1% uptrend in the corresponding period.”

“UEM Sunrise Bhd’s CEO, Anwar Syahrin Abdul Ajib said, the rental market may face downward pressure next year as some house buyers who intended to sell their luxury apartments/ properties bought three years ago during the boom period, may find it difficult to get buyers. ‘Many of them who bought their houses with Developers Interest Bearing Scheme will now have to pay their loans. If they cannot sell, they will have to rent out their properties and there will be an influx of rental offerings in the market which will then push down the rates,’ he said.”