China Home Price Drop Spreads as Housing Demand Weakens – Bloomberg 09-18-14

Salient to Investors:

  • Centaline said a wait-and-see attitude is still prevalent among homebuyers
  • Donald Yu at Guotai Junan Securities said there is still room for prices to go down further as the policy easing only increased the number of people qualified to buy, not the number of those able to as mortgages remain tight.
  • Alvin Wong et al Barclays expect most developers to accelerate sales to strike for a more secure cash position amid the market uncertainties – more attractive price discounts seem necessary to compensate for the expensive mortgage rate.
  • Peter Churchouse at Asia Hard Assets Report said the government’s cooling measures have actually worked so they now take the foot off the brake, and we will see a bottoming of this cycle in the next 2 to 3 months.

Read the full article at http://www.bloomberg.com/news/2014-09-18/china-home-price-drop-spreads-to-more-cities-as-demand-weak.html

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China May Soon Go the Way of Japan, Says Merrill Lynch – BloombergBusinessweek 09-10-14

Salient to Investors:

Naoki Kamiyama and David Cui at Merrill Lynch said:

  • China is weaker than it appears, resembles Japan in 1992, and may enter an asset-deflation phase.
  • China’s imbalanced growth, government stimulus, overcapacity, overwrought housing market, and severely under-capitalized financial system may be a more serious problem than Japan’s was in the late 1980s and early 1990s.
  • China has repeated Japan’s missteps: being overly dependent on exports, China resorted to stimulus when export demand fell in the financial crisis, causing an asset bubble which it is seeking to deflate with tighter monetary policy.
  • Property prices may be starting to fall, with non-performing loans in commercial banks increasing more in half1, 2014 than in all of 2013.
  • China won’t resume its growth path until it resolves its long-overdue bad debt problem and massively recapitalizes its financial system – at least 1-2 years away because the new leaders are still consolidating their power.

Read the full article at http://www.businessweek.com/articles/2014-09-10/is-china-another-japan-in-the-making#r=rss

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Speculators Go Online Chasing Profits as Home Prices Drop – Bloomberg 09-10-14

Salient to Investors:

  • Since 2011, online investors since 2011 have helped drive a 50-fold increase in financing through peer-to-peer websites, and are turning to property as falling home prices prompt China to ease curbs aimed at stamping out speculation. China is trying to revive local-government revenues at the risk of bringing home-flippers back to the market.
  • Andy Chang at Fitch Ratings said that if liquidity rebounds, home prices will start to rise and sentiment improves, with peer-to-peer lending playing a stronger role. Chang says there are few investment channels with satisfactory performance in China – property remains relatively good among industries.
  • Ryan Li at JPMorgan Chase said speculative buying accounts for more than 20% of demand in first-tier cities.
  • Xu Hongwei at wangdaizhijia.com said that when the market recovers, local governments change their tune and the media is again saying things like ‘the property industry is overall  healthy. wangdaizhijia.com says 60% of investors lending through peer-to-peer websites had annual income of under ¥100,000, 85% of them male, and 80% between 20 and 40 years old: total outstanding investments rose to ¥58.1 billion at the end of August 2014 versus ¥1.2 billion at the end of 2011.
  • Fu Bei at Standard & Poor said the risks of online property speculation are very high because anybody with 1,000 or 2,000 yuan can take part and expects prices to keep falling because of the supply of unsold apartments. Bloomberg estimates the inventory of unsold new homes in 20 large cities jumped to an average of more than 23 months of sales in June.
  • Zhang Haiqing at Centaline Group said this short-term speculation is irrational and won’t become a trend because it is not supported by prices in a market downturn.
  • The average home price in China, excluding government subsidized housing, rose almost 180% from 2000 through 2012 versus a 10% gain in the Shanghai Composite Index.
  • Peer-to-peer lending pools money from small investors with as little as ¥50 to finance anything from wedding preparations, personal medical expenses to car purchases.
  • Dai Fang at Zheshang Securities said developers are selling for low prices because homes are not selling well, but the key question is: what if they can’t sell it?

Read the full article at http://www.bloomberg.com/news/2014-09-10/speculators-go-online-chasing-profits-as-home-prices-drop.html

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China Home Glut May Worsen as Developers Avoid Price Drop – Bloomberg 08-07-14

Salient to Investors:

  • Zhu Haibin at JPMorgan Chase said property investment will remain the biggest macroeconomic risk in half2 even as a deceleration in investment is less severe than half1.
  • Hua Changchun at Nomura said completed apartments must come to market sooner or later, and potential buyers will continue to expect prices to fall.
  • Donald Yu at Guotai Junan Securities said the increased supply will lead to declining prices in half2.
  • Moody’s Investors Service said construction activity would slow significantly if future demand for property is met increasingly from running down inventories rather than from new supply.
  • Yao Wei et al at Societe Generale said easing of home-purchase curbs mitigates near-term pain, but won’t reverse the downtrend
  • Lan Shen and Stephen Green at Standard Chartered said the worst times for China’s real-estate sector are still ahead.

Read the full article at http://www.bloomberg.com/news/2014-08-06/china-home-glut-may-worsen-as-developers-avoid-price-drop.html

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Bubble Trouble Seen Brewing in Australia Home Prices – Bloomberg 11-06-13

Salient to Investors:

Housing in Australia accounts for 60 percent of average household wealth versus a global average of 45 percent.

Average household debt has been near 150 percent of annual income since 2006 versus 135 percent in the US. House prices have not fallen more than 10 percent in any one year for more than 40 years.

RP Data said houses in Sydney took 26 days on average to sell last week versus 36 days six months ago: In Melbourne, 34 days versus 46 days.

Saul Eslake at Bank of America Merrill Lynch said it is easy to see how a bubble could emerge, but for now price increases are not being accompanied by a rapid rise in borrowing or building. Eslake said rising sales to investors puts the housing market in a more precarious position if economic conditions unexpectedly sour because they are not as committed as owner-occupiers, and Australia’s tax structure encourages investors to buy when they otherwise would not.

Investment in residential property by self-managed superannuation funds has risen 65 percent since mid-2008 and 10 percent in the 12 months to June, borrowing on average 70 percent of the value of a home versus 90 percent for regular borrowers.

National Australia Bank said foreigners accounted for 12.5 percent of purchases of new homes in Q3 versus 5 percent through most of 2011.

Michael Blythe at Commonwealth Bank of Australia said Australia’s population concentration puts upward pressure on capital city dwelling prices.

Craig James and Savanth Sebastian at Commonwealth Bank of Australia said talk of a housing bubble appeared in Australian media articles more times in September than at any time since 2003.

First-home buyers accounted for 13.7 percent of loans in August, the lowest level since April 2004, and versus a high of 31 percent in May 2009.

Matthew Hassan at Westpac Banking said buyers are not looking to buy in anticipation of significant capital gains.

Population growth in Australia averaged 1.6 percent a year over the past decade, meaning it needs 170,000 new homes a year versus actual supply of 154,000. ANZ Bank said Australia has a shortfall of 270,000 homes, equivalent to 20 months of housing construction, and will climb to 370,000 by 2015.

Paul Bloxham at HSBC said developers and households are unlikely to build new houses unless prices are rising, so a housing price boom is a necessary evil.

Adair Turner said the UK economic recovery is heavily focused on that favorite old British activity – another house price boom.

The IMF said Sweden needs to take measures to prevent consumer debt and housing costs from spiraling out of control.

Chinese home prices rose the most in October for the 17th consecutive month of increases.

Read the full article at  http://www.bloomberg.com/news/2013-11-05/bubble-trouble-seen-brewing-in-australia-home-prices-mortgages.html

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Chinese Malls Waive Rents as Vacancies Loom: Real Estate – Bloomberg 07-02-13

Salient to Investors:

Chinese landlords are forgoing rent and paying to outfit stores for mass-market fashion brands to blunt the impact of a boom in shopping-mall construction that threatens to push up vacancies.

Big mall operators can withstand the slowdown at the expense of smaller ones as smaller cities add retail space at a faster rate than larger ones.

CBRE said half of the shopping centers under construction around the world are in China.

Cushman says developed markets such as Hong Kong and Singapore have vacancy rates of between 6 percent and 7 percent because of a shortage of supply. Cushman expects a 38 percent increase in supply in China by next year, and vacancy rates in some less affluent cities could rise to over 30 percent by next year versus as low as 6.8 percent in  Q1 2013.  Cushman says retail vacancy rates in Shanghai will rise to as high as 9.6 percent in 2014.

Shanghai, Beijing, Guangzhou and Shenzhen are considered the first-tier cities.

Sigrid Zialcita at Cushman said the problem in China is no proper planning, with cities prone to periods of oversupply.

Steven McCord at Jones Lang LaSalle said mall space in China’s four major cities will grow 40 percent by the end of 2015, versus double in 16 smaller cities.

Michael Zhang at RET Property Consultancy said some new malls may struggle to reach even 70 percent occupancy, forcing delays in opening.

Jinsong Du at Credit Suisse said China’s housing market may be oversupplied, but China’s commercial property sector is definitely.

Read the full article at  http://www.bloomberg.com/news/2013-07-02/chinese-malls-waive-rents-as-vacancies-loom-real-estate.html

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China Home-Price Gains Add to Dilemma on Cash Crunch: Economy – Bloomberg 06-17-13

Salient to Investors:

New home prices in Beijing, Shanghai and Guangzhou posted the biggest gains in May since at least January 2011, and 69 of 70 cities tracked showed increases, the most since August 2011.

Zhang Zhiwei at Nomura said China’s dilemma is that it is difficult to tighten the property market, which it needs to bolster the economy, which has a strong reliance on property. Zhang said local governments are reluctant to enforce policies aimed at cooling the housing market.

Guangzhou prices rose 15 percent from a year earlier, Beijing 12 percent, Shanghai 10 percent.

Knight Frank said home prices in China had the biggest quarterly gain among 55 countries globally in Q1 2013, based on Beijing and Shanghai prices.

Charlene Chu at Fitch  said we are starting to see liquidity issues.

Investment banks from Morgan Stanley to Barclays are cutting 2013 growth forecasts.

Jenny Huang at SinoPac Financial expects property prices to start stabilizing by the end of the year as it takes time for the market to adjust to policies. Huang said economic indicators still point to a weak economy.

Read the full article at http://www.bloomberg.com/news/2013-06-18/china-may-home-prices-rise-as-major-cities-post-record-gains-1-.html

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Copper Futures Fall in New York as China Adds to Growth Concerns – Bloomberg 03-25-13

Salient to Investors:

China’s swap market is signaling interest-rate increases for the first time since 2011 after inflation accelerated to a 10-month high and the housing market defied government-cooling efforts.

Hedge funds are making the biggest bet against copper on record.

Edward Meir at INTL FCStone said China’s growth story remains intact, but has serious short-term concerns given the property bubble and the ratcheting up of the government response. Meir said the global outlook is patchy at best and copper supplies are outstripping demand.

LME said stockpiled copper is the highest since October 2003 and inventories have risen 77 percent in 2013.

Read the full article at http://www.bloomberg.com/news/2013-03-25/copper-falls-in-london-on-concern-china-use-slowing-lead-gains.html

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Hong Kong Homes Face 20% Price Drop as Banks Raise Rates – Bloomberg 03-22-13

Salient to Investors:

Deutsche Bank said Hong Kong prices could fall as much as 20 percent over the next 2 years after lenders raised home loan rates.

Buggle Lau at Midland Holdings said the pile of measures plus higher interest rates will be a big challenge for the market – as many as a third of real estate agent branches in Hong Kong will close.

Tony Tsang and Jason Ching at Deutsche Bank said the new government measures, potential further rises in mortgage rates, and the expected increases in new supply in the medium term will bring larger corrections to property prices.

Miller Samuel and Douglas Elliman Real Estate said a Hong Kong apartment costing $970,000 would be $700,264 in Manhattan.

Savills said Hong Kong has the highest housing costs among major global cities, including London, New York, Paris and Tokyo.

Demographia said Hong Kong homes cost an average of 13.5 times the gross median household income versus 12.6 times a year ago, the most expensive housing market.

Dominic Chan at BNP Paribas said lenders may increase mortgage rates in 2013 by 50 basis points to neutralize the impact of the risk floor – larger banks increasing followed by smaller ones but not by too much that would cause home prices to fall, which isn’t good for them.

Venant Chiang and Christie Ju at Jefferies, who in August predicted a decline in home prices of as much as 10 percent in 2013,  said the change in the monetary environment remains their key concern for the overall Hong Kong asset market outlook.

Jefferies said the affordability ratio for Hong Kong homes of 40 square meters to 70 square meters – half of total private housing – is 49 percent. Jefferies said prices will have to decline 15 percent if mortgage rates rise by 1 percent to maintain the same level of affordability.

Read the full article at http://www.bloomberg.com/news/2013-03-21/hong-kong-homes-face-20-price-drop-as-banks-raise-rates.html

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