Fears About Growth Driven By Illegal Money
All Africa reports from Kenya. “The shocking admission last week by the real estate industry that the housing sector has finally been hit by a glut has raised fears about whether one of the country’s four key drivers of economic growth is driven by demand as previously thought, or through illegal money. In just seven years, according to Stanlib, prices of land have risen by 535 per cent in Nairobi, making its sale the most profitable business in the capital. This is despite the harsh business environment that has slowed down economic growth amidst losses and job cuts by companies listed at the Nairobi Securities Exchange.”
“But for the first time in 11 years, the industry this week admitted in two separate reports that there was an oversupply and a fall in demand for housing. ‘I think there is every sign that something terrible is just about to happen,’ says Mr Waweru Kariuki, a property analyst. According to him, the housing bubble usually starts with an increase in demand which attracts speculators to enter the market, believing that profits can be made further pushing demand up. ‘At some point, demand decreases or stagnates as supply increases, resulting in a sharp drop in prices and the bubble bursts,’ he says.”
“But with lack of a regulatory body in Kenya’s real estate industry, it is difficult to ascertain whether the sector’s rapid growth is fuelled by illegal money. Financial Reporting Centre says the institute has found it hard to enforce compliance to the proceeds of Crime and Anti-Money Laundering Act in the industry due to the fragmented nature. A number of high-profile personalities being investigated for graft are also heavy investors in the sector. ‘It is a challenge to monitor suspicious transactions in the real estate sector due to lack of a uniform and recognised regulatory body,’ it says.”
The Telegraph. “China is rapidly losing the confidence of global lenders and capital outflows risk turning virulent if the current policy paralysis continues, the world’s top banking body has warned. ‘There is a perception that the renminbi could weaken drastically,’ said Charles Collyns, the managing-director of the Institute of International Finance in Washington. Mr Collyns said the authorities have so far failed to articulate a coherent strategy, and there are serious worries that outflows of capital could accelerate, broadening into a flood beyond Beijing’s control. ‘The Chinese have not been rigorous and they have not been very convincing,’ he told The Telegraph.”
“‘What is worrying is that there could be a broadening of the outflows. There has been a surge in ‘errors and emissions’ and this is ominous. A lot of this is a capital outflow below board through inflated trade invoices and other forms of subterfuge, and some of it is ending up in the London property market,’ said Collyns, a former assistant US Treasury Secretary.”
The Independent in the UK. “There’s a mansion in the back streets of Belgravia that has been shuttered up for years. The lights are off, nobody’s home. ‘Haven’t seen anybody in there, ever,’ says a builder in a hard hat working on the house next door. He won’t say who for. The empty property next door is allegedly owned by a Russian who is being investigated for money laundering, but there is no way to know if that’s true.”
“Criminals are using British laws – with their high regard for privacy – to hide behind anonymous companies and buy luxury properties in the capital, laundering the dirty money they’ve made from drug deals or stole from schools and hospitals back home. ‘Today the City of London (together with Wall Street) is the world’s largest laundry for dirty money from the drug trade,’ says Roberto Saviano, author of the highly acclaimed book Gomorrah, about Naples’s equivalent of the Mafia.”
“It’s not just London. ‘Aberdeen is a Camorra stronghold in the restaurant business, wholesale food and real estate,’ he says, referring to the mafia in Naples. ‘Cosa Nostra [from Sicily] controls gambling in London; the ’Ndrangheta [from Calabria] has its hands on the real estate in London. The current housing bubble in London is fuelled by criminal money from mafia organisations: properties in the centre of London are being bought with laundered cash.’”
“And it’s certainly not only the Italians. Ninety per cent of luxury properties built in the capital in 2013 were bought by overseas investors, according to a report by Savills estate agents. Russians and eastern Europeans were the most keen, with Middle Eastern, north African and Chinese buyers close behind.”
The New Zealand Herald. “Auckland landlord Ron Hoy Fong, who has 30 properties and runs coaching business Ronovationz from Mt Roskill, said although people based in China now found it harder to buy since the October 1 changes in New Zealand, he thinks that will soon turn around, particularly about May when he expects far more investors to seek to buy. ‘I’m telling my students to just buy as much as you can, to get in before the Chinese,’ Hoy Fong said of his 450-student client base.”
“Hoy Fong’s statements follow one of Sydney’s top real estate agents saying his Chinese clients were finding it increasingly difficult to get money out of the country. ‘It is getting harder for them to send money out … I’ve been told since the start of the year it has tightened up,’ Lu Lu Pallier, from Sotheby’s International Realty, told the Australian Financial Review.”
“‘I’m told the buyers are still there. They want to buy. They just can’t right now but they will - US$72 billion could leave China. That will go all around the world but some of it will come to New Zealand. Even if it was only US$10 billion to US$20 billion, that’s a lot,’ Hoy Fong said.”
The Herald Sun in Australia. “After years of struggling to get a toehold in Sydney’s sky-high property market, home buyers are taking advantage of recent price falls in some of the city’s most affluent suburbs. New figures show prices in a handful of up-market areas are now up to $150,000 less than they were a year ago. Buyers capitalised by pushing for better deals. The average apartment buyer in Birchgrove and Forest Lodge knocked more than 6 per cent off the original asking price of the home they purchased, while the average Hunters Hill buyer negotiated a 13 per cent discount.”
“Vendors were willing to dish out such high discounts after realising their pricing was wrong, SQM Research director Louis Christopher said. ‘December sellers looked at the kind of prices homes were selling for over June, when the market went nuts, and expected the same result. Most were heavily disappointed. They then dropped their prices,’ Mr Christopher said.”
‘With attention growing on the use of shell companies in high-end real estate, an activist organization released a report Sunday night that said several New York real estate lawyers had been caught on camera providing advice on how to move suspect money into the United States.’
‘The report is the result of an undercover investigation carried out in 2014 by Global Witness, a nonprofit activist organization that has been pushing for stricter money-laundering rules. The lawyers featured in the report include a recent president of the American Bar Association.’
“It wasn’t hard to find lawyers to suggest ways to move suspect funds into the United States,” said Stefanie Ostfeld, a spokeswoman for Global Witness. “We went undercover because it is the only way we could show what really happens behind closed doors. The findings speak for themselves — something urgently needs to change.”
‘Two lawyers — Mr. Koplik and Gerald Ross of Fryer & Ross L.L.P. — went as far as suggesting to the Global Witness investigator that they could get the minister’s money into the United States secretly by using their law firms’ bank accounts, the report said.’
‘Global Witness described this as a “loophole” in the financial system, saying that banks were not required to know the identity of lawyers’ clients.’
“And you don’t have to declare to bank authorities where the money comes from, because you said you even don’t know who they are?” the investigator asked Mr. Ross, according to the report. “They’ve asked me, ‘So you have a lot of money coming in,’” Mr. Ross replied, according to the report. “I said, ‘Yes, it’s real estate deals.’ ‘Oh, thank you very much.’”
This is why we elect lawyers to the presidency. They are good at certain things.
I wouldn’t hold my breath waiting for the state bar association to discipline those two. And as far as the rule of law is concerned, let me guess one possible response: the authorities will prosecute Global Witness. Because nothing says “justice” like going after a whistleblower.
Kudos to these activists!
Has the phenomenon of large-scale international capital flows funding luxury real estate investment in major cities around the developed world occurred throughout modern financial history? Or is it a transient artifact of the present mania?
…you mean like Christopher Columbus & Ferdinand Magellan? Marco Polo?
I think he means strawberry pickers from south of the border Jingle_Fraud.
“…large scale international capital flows.”
You think strawberry pickers? HA!
You think wholesale fraud is sustainable?
You truly are Jingle_Fraud
fed is very active on the internet, and not in a passive way. This we’ve known. I’ve noticed the word gullible getting tossed around here lately.
http://www.zerohedge.com/news/2016-02-01/america-meet-your-apolitical-federal-reserve
‘Swiss bank UBS saw its shares slide on Tuesday on news that investors were pulling money out of its division serving wealthy clients — a token of the market turbulence that has shaken the world in the past few months.’
‘The Zurich-based bank, which nevertheless booked higher fourth quarter profits, cited “very low levels of client activity and pronounced risk aversion” as it reported 3.4 billion Swiss francs ($3.3 billion) had flowed out of its wealth management arm, which handles money from rich people outside the U.S. Outflows in emerging markets and Europe outweighed inflows in the Asia Pacific region and Switzerland.’
‘Shares in UBS Group AG were down 7.8 percent at 15.37 Swiss francs in midday trading in Europe.’
That there was a bubble in Kenya, where the median income is about $1000 USD per year, speaks volumes of how the bubble is global.
Shanghai ghost-offices reflect Internet Plus bubble
‘Last month my company moved offices to a high-rise in downtown Jing’an district. We spent several months seeking a suitable office space, visiting over 20 properties across the city, many of which had been recently vacated by Shanghai’s first wave of “Internet Plus” startups.’
‘Based on my conversations with real estate agents and property owners while perusing these ghost-offices (some with business registration license plaques still hanging on the walls), I was able to piece together clues about the demise of these failed startups.’
‘Internet Plus was one of last year’s biggest buzzwords on the Chinese interwebs, with success stories like Alibaba, Tencent and Baidu enticing millions of young entrepreneurs to team up with techies to get in early on the future of China’s surging IT economy.’
‘So a bunch of tech-savvy tuhao (nouveau riche) in Shanghai started selling themselves to venture capitalists, angel financiers and private investors, each boasting that they had the talent, the team and the technology. All they needed was a tycoon to back their idea and everyone would get rich.’
‘Anyone who has ever met a tuhao knows how carefree these guys are about money. Most come from wealthy families and, after daddy gave them a few million to play with, made their own fortunes in real estate, mining or the stock market. In other words, they’ve never had to work for a living; to them, money comes easily - and goes just as easily.’
‘So once these smooth talkers found some sucker to invest in their vague idea, the very first thing they did was go out and find some glitzy property to base their new business. One building owner recalled the day his downtown property started receiving unbelievably high offers from these wealthy wannabe entrepreneurs.’
‘This is a reason why, in the past few years, Shanghai’s property prices have hyper-inflated. He admitted that he was tempted to breach the contracts of his current clients, who were paying the market standard, so that he could move in these tuhao techies at 20 percent the going rate.’
‘Other real estate agents and property owners I met with, however, were more short-sighted. Big-spending, fast-talking tuhao had only to flash a thick red stack of RMB to persuade them to kick out the old tenants, many of them established companies and long-term clients, and move in the new kids on the block.’
‘In keeping with their luxury lifestyles, however, instead of applying their newfound capital to their R&D departments, these youngsters were mostly concerned about appearances. They’d spend hundreds of thousands of yuan on expensive furnishings but absolutely nothing on their actual product - because there was none! Their business models were like New Year’s Eve fireworks - brilliant yet ephemeral.’
‘But having blown their wads on a fancy office, some couldn’t even afford to pay their monthly utility bills. Many absconded just as quickly as they had moved in, leaving all their furniture behind and forsaking their rental deposit just to bail out early.’
‘It was reported that China’s tech sector in 2014 raised $7.2 billion in private equity, up from $1.6 billion in 2013. And yet, by the end of 2015, only a small minority of the first wave of Internet Plus startups were still in operation. Some fizzled out due to ineptitude, others let greed get the best of them.’
‘Indeed, Xinhua News Agency published an article this week exposing a Ponzi-like scam by Ezubao, a new O2O financial platform, which absorbed 50 billion yuan ($7.6 billion) from 900,000 individuals nationwide who had been lured by the startup’s promises of high investment return.’
“O2O”
P2P ?
The Ezubao story is notable even for a country whose economic culture makes Sodom and Gomorrah look like the Garden of Eden. From the WSJ, as quoted on David Stockman’s blog:
“[P]rosecutors said that Ezubo didn’t invest the money it collected, but rather used it to pay down earlier debt—and to fund lavish lifestyles for Yucheng’s Mr. Ding and several female executives. Mr. Ding allegedly gave one favored colleague a 130 million yuan ($19.7 million) villa in Singapore, a pink diamond worth 12 million yuan, luxury cars and 550 million yuan in cash.
Xinhua said Ezubo employees sought to conceal evidence as prosecutors closed in, at one point burying more than 1,200 accounting books in 80 plastic bags six meters underground in the outskirts of Hefei, the capital of China’s eastern province of Anhui.”
http://davidstockmanscontracorner.com/slouching-toward-the-dark-side/
Behind China’s woes, myth of competent autocrats
‘The relentless economic slowdown and the unfolding panic in China’s financial markets have blasted apart several long-cherished myths. One of them is that of a competent autocratic regime run by clever technocrats and decisive politicians. Recent stumbles by Beijing, such as the ill-fated and costly decision to save a crashing stock market bubble, the surprise devaluation of the yuan, or renminbi, and the subsequent massive intervention by the People’s Bank of China to support the currency, demonstrate that Chinese technocrats may not be as clever as many thought. As for the country’s politicians, they appear to be decisive, but only in making bad calls.’
‘For the ruling Chinese Communist Party, competence is its claim to rule. Unelected by the people, CCP leaders have consistently tried to show that their ability to deliver economic benefits justifies one-party rule. So the party has an existential stake in competence because evidence of incompetence threatens its hold on power.’
‘For foreign investors or trading partners, Beijing’s competence is practically all they can count on. With its lack of transparency and absence of the rule of law, China exudes a level of policy uncertainty that would make most uncomfortable.’
‘Skeptics have always questioned the idea that China has been endowed with unusually gifted technocrats who enjoy sufficient independence in policymaking and can thus compensate for the well-known flaws of autocratic regimes, such as arbitrary government, systematic falsification of data, cronyism and the lack of transparency. They point to obvious and chronic policy failures such as overinvestment, under-consumption, environmental neglect, and poor provisions of public goods as evidence of managerial incompetence.’
‘Until China’s recent market meltdowns and surging capital flight, believers in the myth of autocratic competence seemed to have a slight edge in the debate. They customarily trotted out China’s stellar growth data as prima facie evidence of the competence of China’s rulers.’
‘Incompetence in economic management was far less costly when China enjoyed strong tailwinds in growth, such as cheap labor and open access to global markets. These structural factors both concealed and offset the impact of bad policies. One example was Beijing’s gargantuan debt-fueled stimulus program in the wake of the global financial crisis. The injection of the equivalent of $15 trillion in credit into the Chinese economy between 2009 and 2013 temporarily supported growth and helped the world avert a global depression, but the consequences have been calamitous — a huge property bubble, massive overcapacity, and unsupportable levels of debt. These are the very ills responsible for China’s economic slowdown today.’
‘Like receding tides that expose naked swimmers, decelerating growth in the Middle Kingdom today reveals the incompetence of its economic policymakers — and the deeper causes of managerial incompetence throughout the system.’
‘Among the systemic causes of bad policies, the most obvious culprit is the dominance of politicians in economic policymaking. While there is no shortage of capable technocrats inside the party-state, those who have the final say, from members of the Standing Committee of the Politburo all the way down to the humble county party chiefs, are typical politicians who are more influenced by considerations of their personal political gains than those of economic efficiency.’
‘The other systemic cause of incompetence is the well-known ill of progressive degeneration of talent in an autocratic regime. Government service in an autocracy often carries high moral costs for talented individuals: It leads to the loss of personal dignity in a political hierarchy where the only thing that matters is the status of an official (that is why Chinese officials have business cards with minute details of their official ranks and status that Western businessmen would find totally incomprehensible). Junior or subordinate officials in this system are routinely humiliated and mistreated by their superiors. With the private sector offering better opportunities and psychological well-being, most talented individuals would prefer to seek their fortune outside the government.’
‘An even worse consequence of the chronic and progressive degeneration of talent is the tendency of political bosses to promote officials they see as non-threatening to their own advancement. Obviously a technocrat who consistently outshines his CCP chief is a serious political risk, either in the accumulation of political capital or the tournament of promotions. This practice allows, over time, mediocre officials masquerading as competent technocrats to populate and dominate the system from top to bottom.’
‘The worst aspect of progressive degeneration of talent inside the Chinese bureaucracy is the rigid process of recruitment and promotion instituted in the post-Tiananmen era. The CCP now mandates a minimum number of years and the number of positions an official must serve before he or she can be promoted to a key position. This system may provide all-round managerial experience to a Chinese official, but it also helps the less talented to rise to the top because inside the party-state, the deciding factor for getting ahead is not proven achievement but avoidance of mistakes. Again, if they punch every clock, risk-averse careerists, not dynamic and truly talented leaders, tend to thrive in the party-state.’
I rather enjoyed the sociology part of that discussion, but let’s be honest, it’s not limited to the Chinese Communist Party. The “chronic and progressive degeneration of talent” also would apply to some places where I formerly worked. So could advancement based on avoidance of mistakes.
I’ve been leery of this whole thing since Yellen raised rates. Recall she held back, and held back. Data dependent. Then all of a sudden, we’ve got to do this. It looks too much like a trap being sprung. But for who, the Chinese? Vacuuming up vast sums of money out of the emerging markets just when they can least defend their currencies. I saw this headline at Financial Times just now:
Business chiefs urge true globalisation
I bet they do. Could this be an engineered crisis to be used to slam some new economic order down everyone’s pie-hole? Chi-coms won’t be in much of a position to fight it if their currency crashes. The pitchforks would come out and it won’t be square dancing old ladies holding them.
It’s plausible; let these Chinese borrow and borrow, wasting the money on a historical scale. Knowing they are economic simpletons and deeply corrupt. Here kittie-kittie, chase the string. Almost everyone is vulnerable; Russia, the EU, Asia, India, South America, Africa, the Arab oil monarchs.
‘U.S. companies are growing more concerned about the prospects of a recession in the year ahead for the first time since the end of the financial crisis.’
”So far this year, the number of companies whose executives have mentioned recession concerns to analysts and investors is up 33 percent from the same period a year ago; the first such increase since 2009. Some 92 companies have discussed a U.S. recession in their earnings calls, according to Thomson Reuters data.’
‘That gloomy talk highlights worries that growth in the world’s largest economy may be coming to a halt.’
“Perhaps the consumer economy is doing okay, but there is a depression in the energy economy and it feels like there is a general malaise if not a recession looming in the industrial and manufacturing economies,” David Grzebinski, chief executive of tank barge operator Kirby Co told analysts.’
‘And household hardware maker Stanley Black & Decker Inc chief financial officer Don Allan told analysts that the company was prepared to cut jobs and pullback spending in the event of a slowdown.’
http://finance.yahoo.com/news/u-ceos-unleash-recession-fears-190343269.html
I’ve been thinking the same thing. When China supposedly hacked the Federal Governments Networks Obama said he’d respond. Perhaps we are witnessing the response. Tie that in to man made islands, Russian support, yuan convertibility, and a World Bank. It’s plausible.
‘Rich buyers taking advantage of record low borrowing costs have pushed prices in Tokyo beyond the reach of many ordinary buyers, taking the wind out of property sales.’
‘While the average sales price of an apartment in greater Tokyo rose 9.1 percent to a 24-year high of 55.2 million yen ($466,000) in 2015, offerings dropped by almost 10 percent, according to data by the Real Estate Economic Institute Co. Deals of properties with a price tag of 100 million yen or more climbed 86 percent, while those of cheaper homes under 50 million yen fell by 18 percent. The nation’s biggest banks including Mitsubishi UFJ Financial Group Inc. lowered variable mortgage interest rates to a record low of 0.625 percent this month.’
‘The decline in borrowing costs and the wealth effect from rising Japanese share prices under Prime Minister Shinzo Abe have favored wealthier Japanese more than ordinary households, who are finding Tokyo apartment costs increasingly prohibitive. Cheap debt may not be enough to sustain price gains this year as a stock rout damps sentiment, creating headwinds for property developers and mortgage lenders, according to analysts.’
“With the rise in new apartment prices, they are now beyond the reach of many regular buyers,” said Hidetaka Yoneyama, a senior research fellow at Fujitsu Research Institute. “It is getting more and more difficult to hike prices as those who purchased on the back of the positive asset effect are now declining too as share prices soften.”
‘A pull-back of “Asian money” from Tokyo’s real estate market at a time when local income levels aren’t keeping up with apartment price gains is potentially bad news for the Bank of Japan’s rosy economic outlook, said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. A fall in the price of residential property values could also trigger losses at banks that lend against the homes as collateral, he said.’
‘The Topix Real Estate Index has fallen 13 percent to 1,353.96 in Tokyo so far this year, outpacing a 10 percent drop in overall Topix benchmark gauge.’
‘The increase in stocks and property prices under Abe has generated a positive wealth affect for the economy, even if some people may rightly complain they can no longer afford a home in Japan’s capital, according to Takuji Okubo, the Tokyo-based chief economist at Japan Macro Advisors.’
“Basically, that is Abenomics,” said Okubo. “Abenomics has affected the richer half of Japanese more positively than the lower half.”
“Basically, that is Abenomics,” said Okubo. “Abenomics has affected the richer half of Japanese more positively than the lower half.”
Not just Japan and not just Abenomics happened right here in the US with the FED bail out , QE etc.
Careful, some posters still believe in Keynesian econ
The Chinese government has encouraged its citizens to buy gold. But if gold is their biggest asset, they are at risk of door to door confiscation without the widespread ownership of guns in severely gun-controlled China. They have bought crypto currency last Fall and they will continue to throw their wealth into crypto currency. All they need to do is memorize a 51-character string and they could travel with none of that wealth in that mind wallet confiscated.
Here in America, the “barbarous relic” is hated so much that going good to door to confiscate precious metals would be far more costly than any gain from doing it. Lots of agents will get lead instead.
“memorize a 51-character string”
Works great until somebody gets their head cut off!
There are no secrets. The FBI didn’t have any problem taking the Silk Road wallet.
They are starting their own version of cyber-currency. But there are several things involved here. They have an affinity for property. They are suspicious, even superstitious. Even the corruption crack-down is suspect. I posted an interview with a Chinese businessman in Cambodia a while back where he said it’s the government officials taking all the money out. If that’s the case, this international crime sweep is for show.
This has been going on for a long time. The NAR got real estate excluded from the Patriot Act! I’ve said for years, it’s designed this way. Chinese don’t really love Vancouver houses, it’s just super easy to get the money there. Why not gold or stocks? Because they don’t enjoy the protection of the system. Nobody even knows who owns what. Swiss bank account? That can be nabbed in an instant and the bankers prosecuted for tax evasion. How many UHS are wearing orange jump-suits?
BTW, the latest fad in Chinese money-laundering is pink diamonds in Australia. It’s no secret either.
I roughly counted the votes in the GOP Iowa thing from last night:
http://www.cnn.com/election/primaries/states/ia
I got around 145,000. How many people are in Iowa? The intertubes say:
3.107 million (2014)
I’ve long said the primaries are where the two party system stinks the most. It’s where they operate in secret, kill off any threat to the war party. Now we’ll soon be told “it’s all over” before people in New York, Florida, Texas or California cast even one primary vote. A country of over 300 million picking it’s Führer in contests almost no one participates in.
I noticed that whole counties had only a few hundred votes.
The coin toss thing is priceless.
It ends up polarizing the parties–far left vs. far right, when most of the country prefer someone in the middle. I would much prefer open primaries–Bernie Sanders, Trump, and Cruz wouldn’t stand a chance, and you might just have more centrist candidates attempt a run.
It doesn’t change the fact that our president will likely still have an “R” or a “D” after their name, but at least we won’t have a socialist/liberal nut-job, or bible-thumping conservative crack-pot in the White House.
At this point I’d settle for somebody in the white house that wasn’t a flat out liar, regardless of his politics.
Nothing liars say is meaningful.
Gig Harbor, WA Housing Market Craters; Prices Plummet 9% YoY On Ballooning Excess Housing Inventory
http://www.zillow.com/gig-harbor-wa-98332/home-values/
Even ZH is late to the new years eve party sometimes.
“Liar Loans Are Back In 2007 Housing Bubble Redux”
http://www.zerohedge.com/news/2016-02-02/liar-loans-are-back-2007-housing-bubble-redux