Some Chinese Buyers Will Break Their Contracts
Bloomberg report on Canada. “British Columbia’s decision to impose a 15 percent tax on foreign buyers to cool Vancouver’s scorching housing market is poised to derail more than 400 home purchases worth millions of dollars and may prompt calls for legal action. At least 427 deals are likely to collapse due to the new measure, according to Dan Morrison, president of the Real Estate Board of Greater Vancouver, citing responses from 27 brokers to an e-mail inquiry. The group didn’t calculate the value of those sales, though they would be worth about C$404 million ($307 million) based on the average purchase by a foreign buyer of C$946,945.”
“That may just be the tip of the iceberg. ‘It’s a domino effect,’ said Elton Ash, Western Canada regional executive vice president for Re/Max Holdings Inc. Not only will foreign buyers be hit but also Canadians who had contracts to sell and had already put offers on their next house, he said. Morrison said the effects could take years to play out given some deals involve the sales of condos still being built.”
“British Columbia joins governments from the U.K. to Australia imposing measures to tame markets that have become unaffordable for many local residents. Public support for intervention was building in Vancouver, where anecdotes abound of offshore investors bidding up prices then leaving homes empty.”
The Australian. “The ingredients for the next banking ’scandal’ are now sitting on the table ready to be mixed. It will be a scandal like none other in Australian history because it will involve Chinese rather than Australian residents as the victims. Readers will be well aware that this year I have been documenting the Australian bank antics which played a big role in the apartment building boom which has caused some 230,000 apartment to now be under construction and due for settlement in the next two years or so. The vast majority have been bought on 10 or 20 per cent deposit by Chinese and other Asian investors.”
“The Reserve Bank has forecast a glut of apartments but has not explained to Australians the involvement of the Australian banks and APRA in creating this crisis. I want to first emphasis that where there are legal agreements for Australian banks to fund the settlement of apartments sold to Chinese, or anyone else, they will be honoured. But in the vast majority of cases there was no legal agreement. The Chinese investors were usually given non-legally-binding comfort by the banks that they would fund about 70 per cent of the purchase price. There were usually tags on the non-binding offer like ‘subject to market values’ etc.”
“On many occasions, bank executives may not have made direct contract with Chinese buyers but instead the assurance was given by an agent with the middle ranking bank executives turning a blind eye. But there is little doubt they knew what was happening.”
“If the Reserve Bank is right and there is to be an apartment glut causing severe damage to the building industry, our education industry and our international reputation, it may require a royal commission or a Senate inquiry to find out what really happened in the banking industry.”
ABC News in Australia. “Chinese property buyers are the biggest group of offshore investors, having spent $24 billion in the year to June 2015. But many are now facing challenges of obtaining finance as the big four banks tighten their lending restrictions at a time when most Chinese buyers want to get their loans financed through Australian banks. Often, Chinese buyers don’t want the Communist Party to know exactly what they own, and Chinese residents are only allowed to take $50,000 out of the country a year.”
“‘Whereas before they might have used to take overseas income as part of their allowance for paying off the loan a lot of banks have said no we’re only looking at domestic income,’ BIS Shrapnel property analyst Angie Zigomanis said.”
“Real estate agent Yang Li regularly sets up stalls at China-related events around Australia and said half his clientele is from Asia. ‘80 per cent of the investors who invest in Melbourne properties … they just trust the law, they reckon it’s a proper economy here,’ Mr Li said. ‘In the last couple of years Australian property market is really, really hot but I think from end of last year early this year it has cooled a little bit — due to bank policies. It’s hard to get money from the bank’.”
“With a lot of supply coming online in the next few months, Marshall Condon, a mortgage broker who provides finance for development projects, including Chinese buyers, warns some will break their contracts. ‘We might see a few more fall-overs and people not settling,’ he said. ‘In saying that what we’re hearing in the market — 50 per cent [of the offshore sales are] a bit of a concern.’”
The Wall Street Journal. “It was only a matter of time before defaults emerged in China’s self-extolled offshore bond market. The disruption that has ensued is telling. China City Construction International defaulted on 2.5 billion yuan of debt in recent weeks, making it the first credit event in the market for so-called dim-sum bonds—yuan-denominated bonds traded Hong Kong. The market was meant to be a proving ground for the internationalization of China’s currency.”
“Theoretically, bondholders should put their faith in Beijing. But in late April, CCC International’s parent company suddenly disclosed there had been a change of major shareholder: The central government had gone from 100% owner to 1% owner, with control shifting to Huinong Fund International Investment, whose stakeholders include large state-controlled Chinese banks and asset managers.”
“That triggered a ‘change of control’ clause allowing CCC International bondholders to redeem the bonds at 101% plus accrued interest. CCC International initially said it would comply, but then said it couldn’t, and informed bondholders it was in default on the principal payment, according to Moody’s. So much for that sturdy state sponsorship.”
‘Theoretically, bondholders should put their faith in Beijing. But in late April, CCC International’s parent company suddenly disclosed there had been a change of major shareholder: The central government had gone from 100% owner to 1% owner’
‘The Chinese investors were usually given non-legally-binding comfort by the banks that they would fund about 70 per cent of the purchase price. There were usually tags on the non-binding offer like ‘subject to market values’ etc.’
‘On many occasions, bank executives may not have made direct contract with Chinese buyers but instead the assurance was given by an agent with the middle ranking bank executives turning a blind eye. But there is little doubt they knew what was happening.’
Oh, you’re scamming us? I thought we were scamming you!
‘Marshall Condon, a mortgage broker who provides finance for development projects, including Chinese buyers, warns some will break their contracts. ‘We might see a few more fall-overs and people not settling,’ he said. ‘In saying that what we’re hearing in the market — 50 per cent [of the offshore sales are] a bit of a concern’
Psst, Marshall. See my post from yesterday. These Chinese speculators are already defaulting.
Vancouver is in a full scale rout.
Cash purchases have been stymied by the need for real cash - up front - and they haven’t got it ! Surprise !
All houses are bought with cash. Borrowed cash.
‘Often, Chinese buyers don’t want the Communist Party to know exactly what they own, and Chinese residents are only allowed to take $50,000 out of the country a year’
It’s like the three stooges.
‘80 per cent of the investors who invest in Melbourne properties … they just trust the law, they reckon it’s a proper economy here’
Surprise!
Q. How can you buy a $1million dollar home with only $50K in your possession?
A. Use a 5 percent down payment subprime loan.
Or right here in the US with a 3% down payment subprime loan.
“Vancouver is in a full scale rout.”
The leverage ratio in Canada is staggering, and the bottom falling-out of the oil business was probably the last straw.
Interesting how the same thing is happening across two different countries, allegedly for two different reasons, at the same time. In Canada we’re told Chinese speculators are defaulting on their contracts because of the 15% tax, in Australia it’s the banks refusing to lend. Not a word about those increasing capital controls back home? Or the imploding Chinese economy?
One more example of what Ben has said - there’s always a new fictional narrative to justify market moves.
There’s usually some truth to it that gets exaggerated. You may remember a couple-three years ago a Vancouver developer got caught using fake Chinese “buyers” at a condo showroom. Think of how much prices have gone up since then. Why would any faking be needed? Or did the prices go up because of it? Or in a mania, does real and unreal become blurred?
It’s not just these two countries; Singapore started tamping down their market in 2009. Hong Kong clamped down on mainland speculators. The UK took some action. New Zealand did a little bit and then stopped. The US even made a small squeak.
It’s here in the US in a big way.
The unintended consequences will be that the Chinese will throw their money elsewhere. Like more U.S. real estate for example. Get ready for higher prices in California beach cities.
From the comments yesterday:
‘At the very first, I was told I only had to pay 20 per cent downpayment,’ Mr Liu. ‘Then they told me I had to pay 30 per cent, and later 40 per cent, as the banks won’t lend and we have to borrow from small financial organisations. Last night I was told I have to pay 55 per cent for down-payment. But how am I supposed to find so much in cash in such a short time?’
FWIW I was in Toronto on vacation last week for a couple of days and the new foreign buyer regulations were front page news each day…it will be very interesting to see how it all shakes out. As a native of S.F. can definitely appreciate why the locals pushed for relief from the speculators…
‘the new foreign buyer regulations were front page news each day’
The PC Canadians dithered over racism accusations for years and years before they took action, while the REIC and the government lined their pockets. Now 90% of the people support this and want more, while their economy is about to take a big wallop. And not at a good time.
Meanwhile the Australians have no problem singling out foreigners to prohibit sales to or tax or deny loans. It’s like another planet. Of course the Australian REIC hid behind the racist thing too but got scared of the bubble and begged the government to do something. Actually, the exact same thing happened in Canada recently.
‘The Toronto Real Estate Board says the average resale price of a home in the Greater Toronto Area climbed to $709,825 last month, up more than 16 per cent compared to a year ago. The average price of a detached home soared 21 per cent from July 2015 to $952,983.’
‘The real estate board says there were 9,989 homes that changed hands in the Greater Toronto Area last month — the highest number ever recorded in July.’
‘Canada sheds 31,200 jobs in July, unemployment rate rises to 6.9%’
‘Biggest 1-month drop in full-time employment in 5 years’
‘Biggest 1-month drop in full-time employment in 5 years’ ??
Money line right there…Thats the one to watch going forward..
combine big spender tradue w lower oil and kaboom
“….but how am I supposed to find so much in cash in such a short time?”
Oh look, Ben’s offering you a money tree!😁
and no letters to write or squirrels to feed.
never been a better time to snap it up.
Seattle, WA Housing Prices Nosedive 9% YoY As Rental Rates Crater
http://www.zillow.com/seattle-wa-98102/home-values/
Ben
There may be some surprises about how those “investors” did get cash into Canada.
From the reports I’ve seen so far, I’d bet a lot of them have Canadian loans.
‘Whereas before they might have used to take overseas income as part of their allowance for paying off the loan a lot of banks have said no we’re only looking at domestic income,’ BIS Shrapnel property analyst Angie Zigomanis said’
And they all have US mortgages domestically.
Nope.
dumb.borrowed.money.
Wrong, Housing Analyst.
Are you sure?
Sunnyvale, CA Housing Prices Crater 5% YoY As Mortgage Defaults Balloon
http://www.zillow.com/sunnyvale-ca-94086/home-values/
Hope n’ change, bitchez….
http://www.zerohedge.com/news/2016-08-08/poorer-your-parents-new-study-shows-81-americans-worse-2005
what is more fun to quote:
hope and change
or
trickle down economics
or deficits don’t matter
or
mission accomplished
?
“Fighting for us” soon to join the list.
Real journalists will script the narrative you need.
Or what difference does it make now?
what difference does it make now ??
It doesn’t…Damage has been done…Its been all damage control since September 2008….
Commercial real estate bubble deflating in London. Residential won’t be far behind. All hail BREXIT!
http://wolfstreet.com/2016/08/08/city-of-london-office-values-plunge-6-in-one-month/
It’s not just London. I’m seeing these reports from all around the globe.
I hope we (USA) never forget to privatize gains and socialize losses.
lol@lola
That’s what 95% of the sheeple voted for in 2008 and 2012 with their votes for the crony capitalist status quo.
Always, always, always talk to your real journalists first. Always.
Security Force of 85,000 Fills Rio, Unsettling Rights Activists:
http://www.nytimes.com/2016/08/08/world/americas/rio-olympics-crime.html
Another gentrification article for review and discussion:
http://www.washingtonpost.com/sf/local/wp/2016/08/08/2016/08/08/as-the-nations-capital-booms-poor-tenants-face-eviction-over-as-little-as-25/
sorry i really dont have much sympathy for people unless its a medical emergency, i have kept out of trouble by remembering what my father taught us, the landlord ALWAYS gets paid first in full, you can stall the others a little.
at one time we had 7 apartments to take care of due to deaths, estates , and relatives needing to go back to the old country Hungary for their sick relatives , and my father was the closest to them in southern fairfield county CT.
“…..Public support for intervention was building in Vancouver, where anecdotes abound of offshore investors bidding up prices then leaving homes empty.”
There should be an escalating tax on vacant properties! Problem solved…..or soon will be!
No,and send foreigners w/o kids to n va to buy
Zika virus fear could depress home values in Miami
Appraisals should take the disease into account, group says
August 5, 2016
http://www.housingwire.com/articles/37724-zika-virus-fear-could-depress-home-values-in-miami
Meanwhile, in unfixed, directionless Spain….
http://wolfstreet.com/2016/08/08/its-getting-uglier-in-spain/
spain has free-er HC and obviously pays u not to work
see Singapore for better results. In the 98 meltdown unemp hit 3%
The Hamptons Housing Market Has Crashed: Luxury Home Sales Drop By Half As Prices Plunge
Tyler Durden’s picture
by Tyler Durden
Jul 18, 2016 8:34
http://www.zerohedge.com/news/2016-07-18/hamptons-housing-market-has-crashed-luxury-home-sales-drop-half-prices-plunge
“Zika Zone” Turns Into Ghost-Town As Planes Spray Neurotoxic Insecticide Over Florida Residents
According to shop owners and managers in the town of Wynwood, Flordia – also known as the “Zika Zone” – the area has been noticeably empty of the usual crowds that form to see the local murals and shop at local businesses… “It’s actually been pretty much a ghost town…”
24,014
AUG 8, 2016 6:40 PM
http://www.zerohedge.com/
What central bank “No Billionaire Left Behind” monetary policy has wrought: 1 in 3 Britsh households are on the verge of homelessness.
https://www.rt.com/uk/355195-households-homelessness-savings-shelter/
Obviously the Brits need American-style Affordable Housing programs to enable the average household to afford a home.
Oh wait…
Chinese reneging on contracts and deals? Say it isn’t so. Guy next to me on a flight dealt with 3M Adhesive’s Int’l accounts, he told me doing business with the Chinese was not trustworthy. They’ll lie cheat and steal their way and shake your hand while doing so. He said he’s seen Chinese business owners back out of a deal, only to open a factory or shop next door and provide the same product/business line.
Anyway, I suppose ‘Murcans walk out of contracts to, especially whenhome values plummet and your under water…
Money-bleeding SF-based tech firms are shedding office space as they move into the post-unicorn era.
http://wolfstreet.com/2016/08/08/twitter-on-future-of-san-francisco-commercial-property-bubble/
Naw everyone is just developing squirrel apps and fart noise apps from home. Telework so you don’t have to have draft lines, poker tables, and catered lunches at a tech unicorn.
You mean like those apps that add puppy-dog ears and a long tongue to your selfie video?
That is the next Amazon, let me tell you!
Seems like the FED has taken risk out of the markets. How long can it last?
They have opted for short term risk smoothing, without realizing that the end result of mindless, market-distorting fire suppression measures is development of a thick undergrowth of bad debt which ultimately fuels the financial markets equivalent of a crown fire.
FED has taken risk out of the markets. How long can it last ??
FED’s are not driving the bus…World capital markets are…
When you give car keys and whiskey to children, you have only you to blame.
Nice windows
Detroit’s foreclosure crisis is partly self-inflicted
By Tracy Samilton • Jul 22, 2016
“Well, I got the house through the auction in 2012,” says Hicks. “I got it for $2,400. And I been here ever since, and I love my house. I always wanted my own house and this is my first house. Picture windows – I got three picture windows, one on the front, one on the side, and one on the back. I always wanted something like that.”
http://michiganradio.org/post/detroits-foreclosure-crisis-partly-self-inflicted - 78k - Cached - Similar pages
Jul 22, 2016 .
‘Not enough houses for all of the people who want to buy them. It’s a good problem to have, and one that the Buffalo Niagara region once longed for as it watched other parts of the nation experience a superheated housing market.’
‘Well, that housing bubble ended up bursting, leaving countless homeowners in foreclosure or underwater in states like Nevada and Florida. Some are still trying to climb out.’
‘The big news – at least, for those of us around here – comes in the form of remarkable data showing an emerging housing shortage for what looks like an influx of buyers. As News business reporter Jonathan D. Epstein wrote, home prices hit a record high for the month of June. At the same time, the number of homes available for sale plummeted to a record low. It is, happily, one of the “hottest seasons” for the regional housing market in recent memory.’
‘Sellers are getting multiple offers and cash deals are becoming more common. Indeed, this is a sea change from the days when some houses around here sat for months with no offers. Demand is also up in areas like the Lower West Side and East Side. As home values and, eventually, property taxes, rise, longtime homeowners face the possibility of being priced out of their homes. That’s a problem that will have to be dealt with.’
‘It’s all good, and getting better. It’s all adding up to a housing crunch. It’s about time.’
Which office in Central Planning And Propaganda sends this stuff out? “Cash buyers” and “bidding wars” are the two mythilogical narratives exposed as BS right here on the HBB so far. Now it’s supposedly happening in Buffalo, NY too.
Are all these buyers, cash out equity boomers? Because everyone I know under 30 certainly isn’t looking for homes right now, or they have given up. These are teachers, engineers, financial professionals, consultants…
All what buyers?
US Housing Demand Plummets To 20 Year Low
http://1.bp.blogspot.com/-0q8fIAsczFk/VUANHEhSbnI/AAAAAAAAjRs/oANwXOUviGw/s1600/MBAApr292015.PNG
‘To gain more insight into the lending climate for commercial real estate, REBusinessOnline reached out to some of the most experienced mortgage bankers and direct lenders.’
‘Bernard: Like the rest of the known planet, we have been very bullish on all forms of multifamily lending, whether it be new construction, refinancing, market-rate apartments, manufactured housing communities or seniors housing. We also remain bullish on any financing in the City of Detroit, where we have placed over $700 million in the last 27 months.’
‘We are still very positive on the Michigan industrial market, which is very tight and not overbuilt at all.’
‘Sue Blumberg: NorthMarq Capital, the largest privately owned mortgage banking firm in the United States, provides sources of debt and equity on all property types. We work directly with Freddie Mac Program Plus, Fannie Mae DUS program and FHA, as well as a correspondent to 50 life insurance companies, numerous banks and financial institutions. In addition, we have servicing and production relationships with 12 CMBS lenders.’
‘Our annual production exceeds $12 billion. The average loan size is $12 million. We service 5,700 loans, carrying a servicing portfolio balance of more than $47 billion. More than 50 percent of the loans originated in the last three years have been multifamily, evenly split between life company lenders and the agencies. About two-thirds of our loans are refinances.’
‘As a company, we are bullish on multifamily. Continued demographic changes point to continued rental housing in all age groups — from young adults through empty nesters. There is no sign homeownership will be trending up anytime soon. Both suburban and urban apartments are enjoying steady rent increases and high occupancies.’
‘The industrial market is booming, with distribution centers in the Midwest expanding and becoming very desirable investments due to the increase in online shopping that drives faster delivery expectations.’
‘The office sector has strengthened and become more diverse.’
‘Snyder: At this part of the cycle, I wouldn’t say we are bullish on any asset class in particular, but we do think well located, newer vintage multifamily will continue to perform well. At the same time, I wouldn’t say we are bearish on any particular asset’
‘Krawitz: As a correspondent for multiple life insurance companies, we seek to lend on assets that have well-diversified tenancies. Clearly, multifamily is preferred in this regard.’
‘REBO: Apartments have been the darling of the lending community in recent years. Do you anticipate that trend to continue for the foreseeable future, or are lenders starting to tap the brakes on apartment lending?’
‘Snyder: We don’t foresee the rent growth that some markets have experienced over the past five years continuing. That’s especially the case in Chicago where there is a new project announced each month. So, at some point we will move past equilibrium and supply will outpace demand. It hasn’t happened yet, but the next 12 to 18 months will be interesting. In general, lenders are aware of the new supply pipelines and are pulling back leverage to developers.’
‘Hofmann: We track the apartment supply coming to market closely and still feel positive about the sector as an asset class. We have a strong multifamily franchise, particularly given Key’s presence with Fannie Mae as well as Freddie Mac and FHA. We will continue to be very active in the multifamily sector and see continued growth and opportunity.’
‘Krawitz: While there are some indications that the tepid wage inflation may tap the brakes on the ability of landlords to push through rental increases, apartments are squarely fulfilling the housing needs of millennials and baby boomers alike. Lenders will continue to keep multifamily at the top of their lists, albeit with more discretion than in the past.’
‘Blumberg: Multifamily has shown incredible resilience due to the demographics and trends in rental housing. Homeownership has been on the decline, especially for first-time buyers and new households. This trend is predicted to continue for three to five years.’
‘Like the rest of the known planet, we have been very bullish on all forms of multifamily lending’
Does this sound like a restrained lending environment? What these guys and gals are saying behind the scenes is available, but I don’t think many are paying attention. Except for the HBB of course.
And once it’s made known on the HBB the liars swarm and DebtDonkeys stampede.
‘Matt and Kate Strudwick have taken advantage of the buyer’s market in Darwin to purchase a project home in Larrakeyah. “We wouldn’t have been able to afford to buy in this location a couple of years ago,” Mrs Strud-wick said.’
‘The couple bought a pre-cyclone, elevated house on a 1000sqm block last month. They had been looking for a solid, older home with pool since last year with an aim to renovate.’
“We were originally looking at Fannie Bay and Parap,” Mr Strudwick said. “(Current market conditions) didn’t change the timing but it helped us get into the location. Last year this place was $1.05 million and Kate looked it and I said she was dreaming. Then at the start of this year they dropped it down to offers over $970,000. We were looking in the low $900,000s and we stayed true to that — just.”
‘The couple said they found vendors were prepared to drop prices to make a sale. Selling agent David Oliver said buyers were seeing more value in the Darwin market. “There are people buying because they see value,” he said.’
The photo says a lot. 900k Australian pesos.
Good lord, a mobile home on stilts for 900k. Great value for money there [/sarcasm]
Wailuku, Hawaii Housing Prices Crater 13% YoY As Housing Demand Evaporates
http://www.zillow.com/wailuku-hi/home-values/
As (reluctantly) reported by real journalists:
https://www.washingtonpost.com/news/wonk/wp/2016/08/08/venezuela-is-stuck-in-a-death-spiral-and-its-only-getting-worse/
I can’t believe the Washington Post would actually publish this article.
P.S. Cloward-Piven is real.