The Housing Bubble

A report from the Daily Telegraph in Australia. “Finding a property can be like striking gold in the Sydney market, but one developer is letting buyers have both. Johnson Property Group, the developers behind Trinity Point at Lake Macquarie, is giving away 500g gold bullion bars valued at $28,888 to those who buy at the October 9 launch. It is the latest in a raft of new incentives offered by ­developers, as fears of a ­future oversupply of apartments and a drop in values threaten to deter some from buying off the plan. SQM Research founder Louis Christopher said it was not out of the ordinary for ­developers to try alternate ways of attracting buyers.”

“‘Most developers, even in good times, will offer some type of carrot to differentiate themselves,’ Mr Christopher said. ‘They want to hold the face value of the offering of that property, so during bad times you’ll find incentives get stronger and stronger, anything besides dropping the asking price. It effectively means that anyone who buys in is buying at a lower price, but that doesn’t affect the face value listing of that property.’”

From Domain News. “Golden Week, which kicks off on Saturday, is one of just two major holidays in mainland China, and many cashed-up citizens visiting Australia on vacation also jump at the opportunity to inspect real estate. Sotheby’s principal and agent Michael Pallier said there had been somewhat of a drop-off in Chinese buyers recently. In September, of four sales he made of homes worth more than $10 million in the eastern suburbs and lower north shore, three were made to Australian buyers, with just one to a Chinese buyer.”

“‘If I had done that this time last year, it would have more likely been three Chinese buyers and one local buyer,’ Pallier said.”

“Beijing-based real estate promoter Arron Liu agreed business had declined in recent months. Mr Lui, who organises tours in Australian cities for prospective Chinese buyers, says more restrictive lending requirements from Australia’s big four banks, aimed at foreign borrowers, were to blame. ‘Last year, we organised about three trips a month of about five or six people each time,’ Mr Liu said. ‘Now we only have a few people [interested] but we have yet to have enough to form a group.’”

The Australian Financial Review. “Plane-loads of wealthy Chinese will once again travel to Australia for holidays and a spot of property shopping during China’s ‘Golden Week’ break which starts on Saturday, but this year’s trade will be different, agents and consultants say. Luxury agent House 18’s Michael Zhu was not upbeat about the market. ‘Sure, people are still looking but the buying has lessened,’ he said. ‘The borrowing conditions are a joke. It has turned off a lot of people. The number of Significant Investor Visa approvals have also dropped so many on-the-side property acquisitions have also fallen away.’”

“Queensland’s implementation of a foreign 3 per cent surcharge next week, joining NSW and Victoria, could deliver another blow to foreign capital, especially at this time of the property cycle, Grant Thornton head of real estate and construction Sian Sinclair said. ‘When Victoria introduced it, the housing market was going gangbusters… investors were still interested in investing here,’ she said. ‘It will be interesting to see if [Queensland tax] takes more of a bite especially since we’re inching towards the end of the cycle. We have many markets in Brisbane and Melbourne with surplus stock particularly with investment products.’”

“‘It’s just been really a cumulative wave, which started with the FIRB (Foreign Investment Review Board) fees and the federal government introducing foreign CGT withholding tax. It’s not a ‘welcome to Australia’ to foreign investors.”

The Australia Business Review. “Scott Morrison says we’ve got five years or so to ‘increase our resilience’ because of China’s growing debt problem. We may not have that long. China has become the great innovator of global finance: socialism with a credit bubble. Eight years after the headquarters of capitalism, the US, had one of its periodic rediscoveries of the consequence of financial excess, the People’s Republic of China has discovered the bountiful alchemy of housing and debt. For the moment, the consequences of it remain undiscovered.”

“If China’s debt-fuelled housing bubble does actually burst, Australia will need all the fiscal and monetary firepower it can get, and both are in short supply at the moment, what with the policy rate at record lows and the budget deficit at record highs. But will such firepower be needed? That is the question. Will China’s obvious housing and debt bubble burst untidily, or will Karl Marx tidy it up?”

“The main problem in China is not so much the level of debt — ­although that’s bad enough — it’s that so much of it has been wasted, with the result that credit intensity (the amount of credit needed for a given increase in GDP) is ­collapsing. That’s because 50 per cent of China’s debt lies in the SOE sector, which is hopelessly unreformed and inefficient.”

“And with a Politburo rotation due at the next Party Congress in 2017, it’s very unlikely that any tough reform decisions will be made in the short term — in other words, credit expansion will continue to be main source of growth, even as its efficiency continues to decline. It’s not as if the government is unaware of the problem. At the G20 meeting in Hangzhou in September, President Xi Jinping campaigned for structural reform and said: ‘Following the old road of relying purely on fiscal and monetary policy leads to a dead end.’ But talk and walk are strangers in China.”

The Sunday Times. “The Barnett Government is being accused of misspending hundreds of millions of dollars in property investments in the Pilbara. The State Opposition pointed to new figures which show scores of Government-owned properties remain vacant and the value of taxpayers’ investment in Pilbara real estate has nosedived. ‘The Liberal-National Government has a lot of explaining to do,’ said WA Labor leader Mark McGowan. ‘Taxpayers have been hit with losses of hundreds of millions of dollars.’”

“‘Over half of the government-owned properties are sitting empty and it seems no end is in sight. The Government flooded the market at the worst time, after the boom, when the market was on the decline and jobs were already being cut. The decision has impacted mum and dad homeowners directly, with many Pilbara residents unable to sell their own property because of the oversupply,’ he said.”

“National Party leader Brendon Grylls – also the Housing Minister – said a decision to invest in housing in the Pilbara was made because ‘in 2011 the Pilbara had a problem’ with sky rocketing rentals and property values. On Port Hedland’s Moore St, near one the world’s biggest bulk export port, there is a house that symbolises WA’s post-mining boom economic slowdown. Built in 1965, 57 Moore St is a three-bedroom brick and tile home set on 964sqm that sold for $939,000 in August 2008, just one month before the start of the global financial crisis.”

“Five years later in July 2013 – when the iron ore price was at US$140 per tonne – it was put back on the market for a $1.59 million. Three months ago the home was finally sold for $340,000 – a staggering $599,000 loss on the original investment. In fact, the sale price was $5000 less than it exchanged hands for in 2006./;

“An analysis of the Pilbara property market by The Sunday Times uncovered numerous other example of houses selling at losses close to half a million dollars. This includes a three bedroom South Hedland home bought for $750,000 in 2012 and sold in May for $230,000, and a four-bedroom house in Karratha bought for $840,000 in 2009 and sold for $270,000 this month.”

“In Newman, the median sale price has collapsed 75.7 per cent from $805,000 in 2013 to $196,000 this yea, according to CoreLogic data. Port Hedland recorded a 56 per cent drop in median price from $1.2 million in 2013 to $525,000 in June. It was a similar story South Hedland, which had a 60 per cent fall over the same period, from $895,000 to $355,000.”

“Despite the grim figures, there is a silver lining. South Hedland selling agent Jim Henneberry said local families who had been priced out of the market during the boom were now able to afford to buy their own home. He said while it was devastating for those who bought property for close to $1 million in 2011 only to then have it repossess by the bank and sold for as low as $200,000, the adjusted market opened the door for owner-occupiers.”