October 18, 2016

Investors Have Taken A Bath

A report from Domain News in Australia. “Sydney’s hot property prices and tight rental market have been described as a tenant’s nightmare. But in some suburbs, landlords are reducing their rents to secure a tenant. Sixty kilometres south-west of Sydney CBD, one landlord recently dropped the advertised rent on a three-bedroom house in Narellan. Rented out in 2013 for $430 a week, 22 Mowatt Street was re-advertised last month for $420 a week, Inglis Property Macarthur senior property manager Fia Foglia said. ‘We had no inquiry, no one at the open homes, where six months ago we usually had people queuing up … for a nice, clean rental like this,’ Ms Foglia said. It finally rented after just one person applied.’”

“‘We’ve got another [rental] that has been vacant for six weeks in Oran Park at $550 a week,’ she said. ‘It’s a hard pill for landlords to swallow that they have to drop their rent from $550 to $500.’”

“The weakening of the rental market wasn’t isolated to the south-west, with the outer ring suburbs more broadly seeing rental declines, statistics from the Real Estate Institute of Australia show. It could be a result of high levels of investor activity, which typically occurs in the cheaper outer rings where rental yields are more attractive. The ‘new completions bought in the investor rush of last year’” were starting to hit the market and could be skewing the rental market very quickly, said Real Estate Institute of NSW president John Cunningham.”

The Australian. “Melbourne developer Golden Age will put a 20 per cent cap on the ratio of overseas buyers — mostly Chinese — in its latest Sydney apartment project in a bid to lessen the risk of buyers not ­settling. The company, founded by Chinese born Jeff Xu, released the first stage of its Park One apartments at Macquarie Park in Sydney’s northwest over the weekend and the project’s 230 apartments sold out on the first day.”

“Although the company has only seen a default rate below two per cent in its Melbourne projects, settlement risk is mounting in some pockets of the market, Mr Xu said. ‘Since the banks shut lending to overseas buyers, the apartment market has receded indeed,’ Mr Xu said. ‘Particularly in areas such as Melbourne’s Southbank and Docklands, Sydney’s west, settlement risk will be probably much higher than other areas.’”

“With settlement default potentially transferring risk to ­developers, it would be a very challenging time for those companies to cope if they hadn’t controlled risk in the first place, Mr Xu said. ‘That’s why you will see many companies just sitting there and doing nothing. The market is very different now from a couple of years ago,’ he said. ‘It’s not that easy to launch a new project now. You will have to prepare your display suite quite well now, while for the past few years you might not need it at all to sell apartments.’”

The Gold Coast Bulletin. “A group that was one of the earlier major Chinese investors in the Gold Coast property market has taken a lakeside bath. Huidong appears to have lost $5 million or more on a 2010 investment in a parcel of land within the Hope Island Resort. As is often the case, where there’s a loser there’s a winner and in this case it’s another Chinese group — the owner of the resort’s golf club, Golden Horse. It’s picked up Huidong’s site, which can provide 46 housing lots, but is in no rush to come out of the development starting gates.”

“If the Hope Island buy was merely an Australian entree, it eventually didn’t suit Huidong’s investment tastebuds. It stopped civil works after around $3 million had been spent in an exercise that included moving 36,000 cubic metres of pre-load material on to the site. Later Chinese property agents from Melbourne started quietly touting the land around the market.”

“Golden Horse cantered in with a $10.12 million offer, Huidong accepted it, and the money’s been paid. The restaurateur’s losses include $880,000 on the land, $3 million on earthworks on its raw site, and probably well north of $1 million on body corporate fees and other holding costs.”

From Smart Property Investment. “After experiencing phenomenal price growth of 97 per cent at the height of the mining boom, the fortunes of one formerly popular investment region have well and truly turned. The Isaac LGA in Queensland, including the smaller towns of Dysart and Moranbah, had a 97 per cent rise in median house prices between December 2007 and March 2012 – but this has since declined by 83 per cent, according to QBE’s recently released Housing Outlook 2016-19 report.”

“At the start of the upturn in December 2007, the median price in the Isaac LGA was $335,000, with 451 sales over the previous year. By the cycle’s peak in March 2012, prices were up to $660,000 with 658 sales. Prices now sit well below even their starting point, at just $110,000 with 93 sales over the year to June 2016, the report said.”

“The contrast between boom and bust has been stark. ‘Median house prices climbed rapidly through the early boom period as the influence of mining investment led to job creation, population growth and demand for housing. As the mining investment wound down, median house prices fell sharply while unemployment rates grew rapidly and population left,’ the report said.”

“The report noted sales volumes in all mining centres fell significantly in 2015/16. ‘It is likely that many owners would rather hold onto their property than sell at a loss, with a large proportion of sales likely to be forced sales, thereby placing further downward pressure on the median price.’”




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63 Comments »

Comment by Mugsy
2016-10-18 03:15:06

As is often the case, where there’s a loser there’s a winner and in this case it’s another Chinese group — the owner of the resort’s golf club, Golden Horse. It’s picked up Huidong’s site, which can provide 46 housing lots, but is in no rush to come out of the development starting gates.”

So the Golden Horse picked up the Huidong? There’s a dirty joke in there but this is a family blog.

 
Comment by 2banana
2016-10-18 04:55:13

Rents equivalent to NYC in any borough but Manhattan.

60 km SW of Sydney…

—-

“‘We’ve got another [rental] that has been vacant for six weeks in Oran Park at $550 a week,’ she said. ‘It’s a hard pill for landlords to swallow that they have to drop their rent from $550 to $500.’

Comment by Prime_Is_Contained
2016-10-18 08:46:19

Rented out in 2013 for $430 a week, 22 Mowatt Street was re-advertised last month for $420 a week, Inglis Property Macarthur senior property manager Fia Foglia said.

OMG, is this really the best example they can provide in an article on dropping rents—a whole $10/wk decline???

Comment by Ben Jones
2016-10-18 09:02:26

No there’s more. What is the rent cut on the air box that she can’t rent? 100%? A couple of weeks ago Corelogic reported some Sydney landlords whacking 50% off to get tenants. It’s a lot worse out there than Domain will ever admit. They’re a REIC outlet. And this is the land of negative gearing. Every 50 pesos lower is that much more out of pocket.

Comment by Prime_Is_Contained
2016-10-18 09:08:07

What is the rent cut on the air box that she can’t rent? 100%?

I get that, Ben—if she used to rent it quickly, and now hasn’t rented it in a long time, she’s obviously charging way too much. The rent drop has occurred in the market, but her wishing-rent price is still sky-high.

That reminds of me of a house-seller following the market down, and thus not getting the transaction closed. Her income losses are currently 100%, but the rental market decline is probably not that significant at the moment; they just haven’t taken it to heart yet.

It sounds like the market has just started to turn there, and LLs have not quite gotten the memo yet… But they will soon! :-)

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Comment by Ben Jones
2016-10-18 09:09:52

This is the kind of quote I find most interesting:

‘We had no inquiry, no one at the open homes, where six months ago we usually had people queuing up … for a nice, clean rental like this’

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Comment by azdude
2016-10-18 05:23:58

I wonder how much home equity is being pulled to by motorhomes and atv’s these days?

I see a lot of people on the road with new toys lately.

Comment by oxide
2016-10-18 08:37:41

What are you seeing? I haven’t seen much in the way of new toys except the occasional monster truck. But then, I live in an area with congested traffic and not much room for toys.

 
Comment by Rental Watch
2016-10-18 09:17:13

http://www.freddiemac.com/finance/refi_archives.html

Here is the data. The answer is that they are pulling out more than $0, but still not close to what was happening in 2005-2007.

Comment by GuillotineRenovator
2016-10-18 11:37:13

You don’t need a HELOC when you have massive subprime lending in new cars and RVs.

Comment by YellenBux
2016-10-18 11:55:09

And mortgages.

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Comment by Ben Jones
2016-10-18 05:35:02

‘Melbourne developer Golden Age will put a 20 per cent cap on the ratio of overseas buyers — mostly Chinese — in its latest Sydney apartment project in a bid to lessen the risk of buyers not ­settling’

My how things have changed. This isn’t some blogger complaining about Chinese speculators. This isn’t a government worry wart trying to get a law passed. This is a developer saying we don’t want you as a customer.

Comment by 2banana
2016-10-18 05:37:26

Why not require a 30% down payment from a Chinese buyer…?

That should cover all if they don’t settle.

Comment by Ben Jones
2016-10-18 05:40:47

What happened to the all cash Chinese buyer? That was all we heard about until 6 months ago.

Comment by oxide
2016-10-18 08:48:02

Good question Ben! I was “all-in” on the Chinese millionaires looking for a safe-house. Now they’re just getting mortgages.

And I find this quite annoying. The US has ruined itself sending so many jobs over to China. The least that China could have done with all those jobs and income is built a semi-idyllic society, like the US in the 1950’s. But nope. They’re still living in cages and keeling over from air pollution. Where did all that prosperity go?

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Comment by Prime_Is_Contained
2016-10-18 09:02:23

I was “all-in” on the Chinese millionaires looking for a safe-house. Now they’re just getting mortgages.

Speculators, speculators everywhere—and not a drop to think.

 
Comment by Jesus Navas is my Lord Savior
2016-10-18 09:27:02

Where did all that prosperity go?

Actually a lot of prosperity came back to US…only to C-level executives and other higher ups in multinationals.

 
Comment by Carl Morris
2016-10-18 09:36:57

Where did all that prosperity go?

This is 2016, not the 1950s. It all went straight to the top. You should see all the Bentleys and Lamborghinis being used as daily drivers in Shanghai while the poor sell dumplings out of shacks on the side of the road like they have for generations.

 
 
 
 
 
Comment by taxpayers
2016-10-18 05:41:47

If banks historically have to have defaults below 2?% to stay solvent what loses can they accept w net interest margins so low?
Also ,hard to get sba default rate
Bet it’s high

 
Comment by taxpayers
2016-10-18 05:51:37

Send Chinese buyers here
22151

 
Comment by Michael in Brisbane
2016-10-18 05:55:56

Greetings from Australia. A member of Parlaiment resigned yesterday due to the collapse of his home building business. His name is Bob Day. Last night on the news, they interviewed a couple who have been waiting over two years for their home to be completed. Also a plumbing subcontractor who is still waiting for a $25,000 payment for services rendered. It’s quite a scandal. Now back to our regular scheduled housing bubble, still in progress…. Cranes in the sky everywhere in downtown Brisbane. Settlements being cancelled. Rents being lowered everywhere. Is this the year it finally crashes down under?

Comment by Ben Jones
2016-10-18 06:03:03

I read about the Day mess. It sounds like he paid too much for a shack building company a few years ago.

 
Comment by GuillotineRenovator
2016-10-18 11:40:34

Enjoy the coming misery.

 
 
Comment by Ben Jones
2016-10-18 06:10:03

‘Future supply is robust, with more than 15,000 units underway and over 66,000 in the planning stages.’

https://www.multihousingnews.com/post/yardi-matrix-an-end-to-san-franciscos-bull-run-2/

They are always so surprised. “Can you believe it, it stopped going up? No, it can’t be happening, it’s going down!”

 
Comment by Ben Jones
2016-10-18 06:12:43

I’m going on the road for a few days so I’m just going to throw some links up here and there. There will be some delays and down time.

apartment glut is ‘going to get ugly’
The Australian Financial Review-25 minutes ago
Prices of apartments will fall 10 per cent to 15 per cent over the next one to two … of Company Directors, said falling rents are a “pretty strong price signal” the …

Comment by Prime_Is_Contained
2016-10-18 09:01:09

I’m going on the road for a few days

Where are you heading to, Ben?

Comment by oxide
2016-10-18 10:29:09

Wherever he is, I hope he does more filming. I miss the YouTubes.

 
 
Comment by phony scandals
2016-10-18 10:56:04

“I’m going on the road for a few days”

Then we’ll need some travelin tunes.

http://www.youtube.com/watch?v=EzGhc9XRv9Q

 
 
Comment by Ben Jones
2016-10-18 06:17:50

How the Apple (AAPL) Car Stalled
TheStreet.com-17 hours ago
What happened after, he explained, was that former Apple lead engineer Bob Mansfield who previously worked with iPhone, iPad, and Mac development came …

Apple doesn’t make cars. What made them think they could? Should have tried the burrito business first.

Comment by Professor Bear
2016-10-18 06:20:55

“What made them think they could?”

1. Extreme hubris
2. Easy money

What next: Google cars?

Comment by Ben Jones
2016-10-18 06:28:06

I worked for a small dotcom disaster. I remember. “Oh, this isn’t working, let’s become a pet web site thingy, or maybe something to do with real estate or health. I’ve got it, burritos!” You got lot of overpaid people sitting around a table trying to justify their jobs and in Apples case, a way over priced stock. They have to do something. An outsider might say, just fire these bozos and make your walkie talkies.

 
Comment by Rental Watch
2016-10-18 09:20:41

I think Google is pretty focused on making the brains that go into the self-driving cars–let someone else build the cars. Alan Mulally is on their board, and so if anyone over there thinks that building a car business is easy and lucrative, he can set them straight.

 
 
Comment by Professor Bear
2016-10-18 06:27:13

Are Google cars smart enough to know that you have to occasionally yield at green lights, depending on what the other drivers do?

Self-driving cars
Google’s self-driving car in broadside collision after other car jumps red light
Autonomous Lexus SUV could not prevent accident that caved in front and rear passenger-side doors, setting off airbags and forcing it to be towed away
One of Google’s self-driving Lexus SUVs was hit in the side by a driver running a red light.
Photograph: Tony Avelar/AP
Samuel Gibbs
Monday 26 September 2016 05.19 EDT
Last modified on Thursday 13 October 2016 16.04 EDT

One of Google’s self-driving cars was involved in one of the worst autonomous vehicle accident yet, when a driver ran a red light and collided with the passenger side door of the modified Lexus SUV.

The driver of the vehicle passed through a red light as one of Google’s fleet of autonomous Lexus SUVs passed through a green light on Friday afternoon. The collision, which occurred at the intersection between El Camino Rea and Phyllis Ave in Mountain View, California, caused the Google car’s airbags to be deployed, and caved in its front and rear right-side doors.

Mountain View police said that no injuries were reported, but the Google car had to be towed away on a flatbed truck.

Comment by Bill, just south of Irvine
2016-10-18 08:46:22

I so much dread the driverless car concept. By he time they take over the streets and make the 33,000 yearly deaths by auto go way up, I will be retired and live along dedicated bike trails, maybe Scottsdale, maybe in my area of Orange County.

 
Comment by Prime_Is_Contained
2016-10-18 09:12:22

You didn’t report the best part of the story, PB! The autonomous car DID detect the other driver about to run the light—and started braking to avoid it, which confused the human driver, who then took control of the vehicle, and drove it directly into harm’s way.

Self-driving for the win in this case.

Comment by Prime_Is_Contained
2016-10-18 09:29:52

the human driver, who then took control of the vehicle, and drove it directly into harm’s way.

Hmmm, just spent some time hunting for the original source that gave me that impression. I thought I had read it in one of the news, but didn’t find it again there.

The description in Google’s monthly report does match what I described, though. The vehicle detected the likely red-light runner (presumably based on its speed/failure to brake), applied the brakes to avoid, and the human then took control and drove it into harm’s way.

https://static.googleusercontent.com/media/www.google.com/en//selfdrivingcar/files/reports/report-0916.pdf

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Comment by Rental Watch
2016-10-18 09:31:02

Why go farther than “a driver ran a red light”. If this was a self-driving car, it wouldn’t have run the red light.

What will happen to all the Uber drivers, and truck drivers? But it goes farther than that…what will happen to all the ER docs, physical therapists, rehab clinics, wheelchair companies, ambulance drivers, freeway clean-up crews, etc.

Not using resources that don’t need to be used is a good thing.

Self-driving cars can’t arrive fast enough. Even if it starts with MUCH smarter accident avoidance in cars, and lower insurance premiums if you agree to switch on the smart accident avoidance software, that would be a great start.

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Comment by Professor Bear
2016-10-18 10:07:10

Reread the story. The Google car did not run the red light.

 
Comment by Rental Watch
2016-10-18 10:16:05

My point is that the problem was not with the self-driving car, but the other car that ran the red light.

If both cars were driven by the machines, there would have been no accident.

 
Comment by Carl Morris
2016-10-18 10:39:37

And the exact same thing could have just as (or more) easily happened to a human driver.

I’m confident that we can make a single autonomous car much safer than a human in almost every situation. It’ll be when there are lots of autonomous cars that it will be interesting to see if any weird unexpected things happen due to them all trying to take the same evasive action at the same time or something like that, causing a “stampede” :-).

 
Comment by oxide
2016-10-18 11:24:17

I’m skeptical that there would be sufficient time for that scenario. Yes, the driver can probably react quickly enough to step on the accelerator, but only if he were already in control of the car. ISTM that the act of taking control would take a significant amount of time.

And Carl, I think we’ll see the opposite of a stampede. More likely, a “confused” self-driving car would simply stop, resulting in a couple dozen cars frozen in one intersection like a herd of deer in the headlights.

 
Comment by Prime_Is_Contained
2016-10-18 11:30:08

Actually, IMO it is when the majority of cars are autonomous that they will become far safer than an individual autonomous car. Most of the accidents that Google’s self-driving cars have been involved in are when they have been rear-ended by human drivers.

Bill, as a tech guy, I’m really surprised that you are so negative on the self-driving cars. They already drive far more safely than humans do in the aggregate, and they will only get better with time.

 
Comment by tj
2016-10-18 11:50:18

It’ll be when there are lots of autonomous cars that it will be interesting to see if any weird unexpected things happen due to them all trying to take the same evasive action at the same time

very unlikely because autonomous cars will communicate with each other. they will ‘know’ what the others intend to do before they are close.

when all cars are autonomous there will be no traffic lights, stop signs or highway patrol.

 
Comment by snake charmer
2016-10-18 12:12:05

Just like every technological advance, self-driving cars will have unintended consequences that will balance out the advantages. It’s always a lot more of a zero-sum proposition than we think.

 
Comment by tj
2016-10-18 12:35:54

i think the advantages will significantly outweigh the disadvantages. just like most technology. right now i can’t even see what the disadvantages will be.

 
Comment by In Colorado
2016-10-18 15:06:40

Good luck getting Europeans to accept self driving cars. They won’t even drive cars with automatic transmissions. BTW, this is true in most of world.

 
Comment by tj
2016-10-18 15:14:27

those greenies in europe will welcome them with open arms when they realize how many miles they will save. they will save mucho miles.

 
 
 
 
 
Comment by Professor Bear
2016-10-18 06:18:36

‘It is likely that many owners would rather hold onto their property than sell at a loss, with a large proportion of sales likely to be forced sales, thereby placing further downward pressure on the median price.’

Try not to catch yourself a falling knife.

And if you happen to catch one, try not to hold on to it forever.

 
Comment by Ben Jones
2016-10-18 06:34:31

‘At the start of the upturn in December 2007, the median price in the Isaac LGA was $335,000, with 451 sales over the previous year. By the cycle’s peak in March 2012, prices were up to $660,000 with 658 sales. Prices now sit well below even their starting point, at just $110,000′

They’re on a 30 year bubble in Australia but they will never admit it.

 
Comment by Professor Bear
2016-10-18 06:38:08

Make way for the ‘high pressure’ economy:

Gas, housing drive fastest rise in inflation in five months
By Jeffry Bartash
Published: Oct 18, 2016 8:56 a.m. ET
Prices of goods and services climb 0.3% in September, CPI shows

 
Comment by Professor Bear
2016-10-18 06:44:36

It’s not a panic, it’s a contrarian rally indicator, especially if the Fed starts buying stocks to “prime the pump”.

Rush to cash biggest since Brexit, 9/11
By Mark DeCambre
Published: Oct 18, 2016 9:36 a.m. ET
Flight to cash may be a contrarian bullish signal, says BAML
A24/courtesy Everett Collection
Cash rules.

Wall Street investors appear to be taking a more bearish stance, at least as measured by their flight into cold hard cash.

According to Bank of America Merrill Lynch’s most recent monthly survey of fund managers, the proportion of investors rushing to cash hit 5.8% in October, up from 5.5% in the prior month, as investors grow more bearish on stocks and favored cash over ultralow yielding fixed-income securities.

Comment by Bill, just south of Irvine
2016-10-18 08:50:32

A better deal is to check the long term currency charts and see whomthe losers have been relative to the dollar. When rates go up investors dump the dollar and people go for Swiss francs and gold bullion. The question is when.

I’m loading up on more precious metals in a matter of days. Not ready to get back into GDXJ yet.

 
 
 
Comment by Prime_Is_Contained
2016-10-18 08:43:49

Melbourne developer Golden Age will put a 20 per cent cap on the ratio of overseas buyers — mostly Chinese — in its latest Sydney apartment project in a bid to lessen the risk of buyers not ­settling.

Want an even simpler idea that lessens the risk of buyers not settling?

Larger down-payments.

 
Comment by absolutebeginner
2016-10-18 10:24:36

I am constantly amazed at the amount of wealthy/high-cost real estate locations in the USA. Most of the Boston-Washington DC corridor and many places out west in CA, CO, WA, etc. and in big Midwest cities. Where is all this money coming from to support it all?

Comment by Carl Morris
2016-10-18 10:40:55

Possibly from where the money used to be when it was more evenly distributed?

Comment by absolutebeginner
2016-10-18 11:52:44

I guess I am perplexed by the economy in general. I don’t know many people who actually make something tangible for a living. They provide services. I am equating the city growth and rising costs to services going up in price perhaps? Real estate in itself just sits there unless you have money from away bidding it up independently of its capital worth?

Comment by rms
2016-10-18 13:46:04

Here’s a good one. Enjoy!
http://picpaste.com/make_deals.jpg

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Comment by dumb.borrowed.money
2016-10-18 12:48:36

Playing rope-a-dope again?

 
 
 
Comment by absolutebeginner
Comment by phony scandals
2016-10-18 17:14:28

Those must be pictures of the economic activity that came from the 200,000 jobs Senator Hillary Clinton created in upstate New York.

 
Comment by Karen
2016-10-18 18:15:08

Talk about a worthless pile of dirt

 
 
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