drbubb

... some negative articles in the press recently ... (1) A rare bust in HK's property market boom Following the government's recent measures to curb speculation, an investor is poised to lose over HK$2.5m, driving fears of a wider downturn Peggy Sito and Sandy Li .. Jul 19, 2011 Hong Kong's property market is booming, yet a property investor has managed to make a rare loss, following the government's crackdown on the home loans market in June. ... Lime Habitat investor who bought from SHKP in June 2009 for $25.38 mn, sold for a loss of $2.5 mn (ie $23.88mn) taking into account stamp tax and the agents commission. (This was a 1,493 sf flat in North Point development.) Amongst 15 resales, this was the first loss-making sale in Lime Habitat, a yet uncompleted development where 168 flats sold in June 2009 at an average price of $9,000. (Note how far the loss-making flat was ABOVE the average. $25.38 million / 1493 = $16,999 psf. Highend buyers cannot afford to be so reckless, and pay 88.8% over the average.) (2) Investors steering clear of property Confidence among investors in Hong Kong housing drops 58pc, more than any other asset class, as soaring values price people out of the market Charlotte So .. Jul 19, 2011 People are losing confidence in the Hong Kong property market after a rally that has enriched many investors but also made homes less affordable for average earners. ... + In Friends Provident survey - confidence in property fell more than other asset classes, from 12 points to 7 points on a scale of minus 100 to plus 100 + Confidence in other assets fell too, but not as much Flats in HK cost 11.4 times average annual income, compared with 5-6 times in London. (But the article does not mention that HK investors pay less in tax, and "waste" less money on transport expenses.)

Three luxury units unsold as caution grips punters Karen Ha .. Thursday, July 07, 2011 Bidders turned cautious at an auction of luxury flats yesterday as the government's property curbs have started to bite. Of the 10 flats that went under the hammer, three of them - two at Baguio Villa and one at Beverly Hills - were withdrawn after failing to win any bids. Base price of the 10 flats ranged from HK$19 million to HK$21.3 million. The seven units that were sold managed to fetch a price that was 2 to 4 percent above the first bid. "The bidders today were very cautious, partly because many are end users and some were first-timers at auctions," said Midland Surveyors director Alvin Lam Tsz-pun. The auction lasted about three hours. A 2,330-square-foot unit at Baguio Villa in the southern district of Hong Kong Island - the first unit under the hammer - took about 10 minutes to receive five bids before it was sold for HK$24.8 million, or HK$10644 per sq ft, only 4.2 percent higher from the first bid. Another flat at Baguio Villa took 20 minutes to draw four bids from the same person before the price exceeded the owner's reserve price. The 2,330 sq ft unit was sold for HK$24.7 million, or HK$10,601 psf. A 1,707 sq ft flat on Mount Davis Road in Kennedy Town was sold for HK$29.7 million, or HK$17,399 psf, after going through 20 bids in more than 30 minutes. The successful bidder, Sunil Nanda, said property prices in Hong Kong were skyrocketing. "I do feel the market is high and there is limited upside in the near term. Property values both residential and commercial are far too high and not enough is being done by the administration to cool the market," Nanda said. He added that the government should increase the land supply as a further cooling measure. The seven units sold generated a total of HK$198.5 million. /see: The Standard http://www.thestandard.com.hk/news_detail.asp?we_cat=2&art_id=112844&sid=32960071&con_type=1&d_str=20110707&fc=7

AFTER THOSE PROTESTS ... there was a brief selling panic INDICES: Index : Latest : Previous Week Previous Month CCLI : 98.89 : - 1.40 % : - 0.81 % MMLI: 95.33 : - 1.56 % : - 1.27 % [CCLI = Centa-City Leading Index] [MMLI= Mass Centa-City Leading Index] Announced every Friday, latest on 2011/07/15; reflecting secondary residential property price from 2011/07/04 to 2011/07/10 (based on scheduled formal sale & purchase date, where formal and preliminary S&P date has a 14-day time lag on average) Investors cut prices in rush to sell flats Concerns about further government actions to cool a soaring market have investors rushing to realise gains ahead of a potential slump Paggie Leung and Peggy Sito .. Jul 06, 2011 SCMP Flat owners are cutting prices to unload their investment properties because they fear the government will launch more cooling measures on top of last month's tighter restrictions on mortgage loans. Investor Jenny Chan has sold all her property investments - four flats in Mei Foo and an office unit in Mong Kok - during the past few months in anticipation of more measures to come. "I have just kept one unit to live in. I do not know when the government will impose measures again, but prices are too high," Chan said. "I expect prices will drop sooner or later and I am waiting for another property cycle to begin again." According to property agents, more owners of flats of all sizes had cut asking prices by between 5 and 8 per cent. Some had made even deeper cuts of more than 10 per cent, with the aim of offloading their property assets as soon as possible. On Hong Kong Island, a 675 sq ft flat at Lei King Wan sold for HK$5.95 million. The flat owner originally asked for HK$6.5 million but cut the price by 8.5 per cent in the wake of the slow market activity. In Sha Tin, an investor sold his 395 sq ft flat at City One for HK$2.28 million - nearly 12 per cent lower than his original asking price of HK$2.59 million. "It's getting more obvious that investors want to get rid of their properties as they worry that the government may launch more measures to curb soaring prices in the policy address in October," Century 21's Sha Tin regional manager Jessica Chow Suk-ping said. "They want to realise their gains first, and then watch the market before they make their next move." Last month, the government cut the maximum amount that banks could advance on a mortgage loan for homes valued above HK$10 million by 10 percentage points to 50 per cent of the property's value. For properties priced from HK$7 million to HK$10 million, the maximum loan-to-value ratio was lowered to 60 per cent from 70 per cent. Tougher mortgage restrictions were also imposed on non-resident borrowers. Chow said the latest round of cooling measures had a stronger impact on sentiment than the previous round of measures in November, when the government introduced the additional stamp duty of up to 15 per cent on homes resold quickly. "Last time, only one in 10 flat owners was willing to lower their asking price," she said. "But this time, half of them are cutting prices and they think flat prices may have already peaked. On the buyer's side, they want to bargain for the lowest price possible and about 90 per cent of them are end users." Gary Lam Lung-nam, a senior district sales manager at Centaline Property Agency's North Point branch, said investors were stunned by the government's determination to curb price surges. "At least 30 to 40 per cent of owners are taking the initiative to lower their asking prices by about 3 per cent at the beginning," he said. "But they are then willing to reduce prices further by as much as 7 to 10 per cent if buyers are willing to pay deposits by cheque because there aren't a lot of buyers in the market." Lam said sellers with properties priced between HK$9 million and HK$11 million were most affected by the latest mortgage rules. For example, a client had cut the price of his 1,048 sq ft flat in North Point's City Garden by 8.8 per cent or HK$920,000. It eventually sold for HK$9.58 million. With buyers and sellers retreating from the market, Ricacorp Properties said that from June 27 to July 3, there were only 146 secondary market flat sales in the 50 largest housing estates in Hong Kong it monitored. That was down 3 per cent on the 151 transactions of the previous week. That was the lowest figure since November 2005 after taking out Lunar New Year periods when the market is quieter. Eight housing estates recorded no transactions during the week. They include Kornhill, Residence Oasis, Island Harbourview, Park Avenue, and Villa Esplanada. Ricacorp director David Chan said although more sellers were cutting prices, buyers remained conservative. He said that since the market lacked clear drivers transaction volumes were likely to remain low this week. /see: http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/114098/hong-kong-property-prices/

WHAT THE DEVIL ... will happen to HK's high property prices ? Home prices rose last 24% last year and are up 12% so far this year as newly affluent mainland Chinese snap up apartments here. According to a report by Demographia International, Hong Kong property, at 11.4 times gross median annual household income, is the most unaffordable in the world. Nearly half the population lives in government or subsidised housing and buying their own home is out of reach for many residents. Tycoon targeted And discontent over unaffordable housing is fuelled by the belief that government policy favours powerful property developers over ordinary people. Even billionaire tycoon Li Ka-shing, once feted by residents for his rags-to-riches life story, has become a target of protests. Hong Kongers are voicing their dissatisfaction by taking to the streets Earlier this year a group of young people camped outside the offices of his offices and protesters at the 1 July march carried placards that depicted Mr Li as a devil. They resent the hold Mr Li's business empire has over the Hong Kong economy where it's often said that anyone living here cannot go though a day without spending money at one of his businesses. His conglomerates have a dominant hand in key sectors including property development, retail, electricity generation and container ports. "We remember the days when we called Li Ka-shing superman," says Ms Loh. "There has been a fall from grace." Measures The government has acknowledged that the rising income gap is a problem and is taking some steps to address it, although progress is slow /more: http://www.bbc.co.uk/news/business-14197240

US Debt is Falling Here's an interesting blog post at Time.com that points out how overall US debt is falling: The U.S.'s overall debt - which is government debt plus individual household debt plus corporate debt and bank debt - when compared to our GDP, which is how most economists look at these things, is actually much lower than many other developed nations. Overall, the U.S. and its citizens owe a little over $41 trillion. That, of course, is a lot of money. But when compared to the U.S. GDP, it's not a shockingly bad number. In fact, it's pretty good, when compared to other nations. The U.S.'s debt is equal to 275% of our GDP. That percentage for the United Kingdom is over 450%. Japan's overall debt-to-GDP is about the same as the U.K. Spain comes in at nearly 350%, and France's debt is above 300%. Our debt level is about the same as Germany, which everyone think is pulling off economic miracles these days. But more importantly than that, the U.S. appears to be the only developed country where the overall debt level is falling... Of course, the reason our overall level of debt has been falling is because of individuals and not government. Government debt is continuing to rise. Private household debt has been falling, in large part because people have been losing those households, and the debt that goes with them. Consumers have also reigned in spending and are now saving at the highest level in years. And that is one of the reasons that the economic recovery has been slower than expected. But Charles Roxburgh, who did the study for McKinsey, says his point, at a time when there has been a lot of focus on government debt, is that overall debt matters. Private debt - what individuals, banks and companies owe - can become public debt, as we have seen from the bailouts. So the fact that our private debt is falling is a positive in the government debt debate. Read more: http://curiouscapitalist.blogs.time.com/2011/07/18/surprise-u-s-debt-is-falling/#ixzz1SZlZPQmN

ANOTHER comment... "George Osborne talks of rebalancing the economy away from debt-fuelled government and household spending and towards exports and investment but the OBR's figures show his austerity programme will force households to take on ever more debt just to make ends meet. The future growth in the economy that is needed to bring unemployment down will only come about if we choose to live beyond our means." The OBR now expects debt as a percentage of household income to increase from 160% in 2010 to 175% in 2015, where last June it was forecasting a small decline. Real personal disposable incomes are forecast to increase by 1.3% over the next four years. /see: http://www.guardian.co.uk/politics/2011/apr/02/family-debt-burden-government-figures

The Private sector in the US has been cutting debt since 2007-8. The US public sector continues to raise debt levels. UK private households are now massively exposed with near record debts (even if mortgage debts have come down a bit), reckless complacency, and ultra-high home prices. The hammer will descend soon. Good luck. I think this article may have it wrong... Labour MP Chuka Umunna highlighted at the Treasury Select Committee earlier today, it shows that household debt is set to rise from £1,560bn in 2010 (160% of household income) to £2,126bn in 2015 (175% of income) – an increase of 36.3%. By 2015 UK households will have amassed over two trillion pounds worth of debt. The household debt-to-income ratio (the best measure of how manageable the debt burden is) fell from 2007 until 2010. It is now forecast to start rising again. Osborne described pre-crisis household debt-to-income ratios as unsustainable – and yet the ratio is forecast to hit a new all-time high in 2015. More damagingly for Osborne, the OBR forecast for June 2010 (pdf) – before his first budget – predicted that household debt in 2014 would stand at £1,718bn. But following two Osborne budgets that number has now been revised up to £1,963bn – an increase of £245bn. In other words as a result of Osborne’s policies the direct debt burden on UK households is set to increase by nearly a quarter of a trillion pounds in the next three years. Back in June last year, before Osborne’s policy changes, the OBR forecast (pdf) that public sector net debt (government debt) would be £1,294bn in 2013/14. After two budgets and a spending review they have revised that (pdf) to £1,251bn – a reduction of only £43bn. Here we can clearly see the impact of Osborne’s changes over the next three years: public debt down by £43bn BUT private household debt up by £245bn – five times as much. This shouldn’t come as a huge surprise. In today’s Financial Times one city economist notes that: 'With real household disposable income set to fall this year through a combination of flat employment, negative real wages, tax rises and benefit payment cuts, the only way we are going to see spending grow in 2011 is if the savings ratio falls.' /source: http://falseeconomy.org.uk/blog/household-debt-up I do not think "spending will grow", but rather fall, as both the public and private sectors try to cut debts Here's a comment from the same source... This is ideology gone mad: He probably quite-firmly believes that consumers are forward-looking rational, just as those in the rational expectations school insist they are--a contestable thesis at the best of times--but in so-believing, he's indirectly committing the state as-of-right to accept a decline in the economy. Consumers understandably seem to be heading towards a retrenchment in spending to go with the axing of public services. But instead of leveraging the relative health of the public balance sheet to help consumers do so, whilst maintaining aggregate demand sufficient to grow the economy, Osborne wishes to ensure both happen simultaneously--and crush us all in the process. It's cutting off your nose to spite your face. The truth is that, behind the scenes, he'll hope that the Bank of England will keep it easy for the public to borrow--despite the already over-leveraged position of the average UK household and despite the already over-leveraged financial sector--and that this borrowing will directly translate into higher spending and higher GDP. Good luck with that; here's looking at an ever greater balance sheet recession and a decade of stagnation!

UK HAS RECORD DEBT LEVELS It’s pretty scary to have such a giant debt overhang at a time of economic and financial calamity. Historically, what tends to happen after a big debt build up of this sort is that there is a crisis followed by a prolonged period of “deleveraging”, during which debt is brought back into alignment with lower asset values. This process will inevitably be a big drag on growth. Based on analysis of 45 different historic episodes of such deleveraging, McKinsey’s finds that it usually lasts six or seven years and ultimately ends up reducing debt to GDP by a quarter on average. To comply with the historic pattern, the UK would therefore need to reduce its debt mountain by the equivalent of more than a whole year’s GDP. That would be a huge drag on output. And here’s the scary bit; for the UK and most other advanced economies, the deleveraging process has barely begun. Any reduction we’ve seen in private sector debt has been matched by rising public indebtedness. The real consolidation, together with its negative impact on output, has yet to occur. http://www.housepricecrash.co.uk/forum/index.php?showtopic=166855&st=0 this is different from the us, which has already begun to reduce private sector debt levels

BDEV couldnt make it thru 100p on the first try. But if this action spreads, it will soon have another go Mo.: Rt'mov : London : Hometrack %/ Nt'wide H-oldSA Halif.SA Hal.NSA: HNindex : mom : DelusIdx J. : : 240,394 : 438,622 : 153,550 - 0.1% / 168,205 = n/a = 163,049 163,642 : £165,924 :+ 0.70% Jl : : 236,597 : 432,641 : ===================================== mom: - 1.58% : - 1.36% : Est.DI: 142.6% / +0.60% := n/a = :+1.58% :+0.80% : + 0.70% Crash Cruise speed may be back soon.

BDEV couldnt make it thru 100p on the first try. But if this action spreads, it will soon have another go Mo.: Rt'mov : London : Hometrack %/ Nt'wide H-oldSA Halif.SA Hal.NSA: HNindex : mom : DelusIdx J. : : 240,394 : 438,622 : 153,550 - 0.1% / 168,205 = n/a = 163,049 163,642 : £165,924 :+ 0.70% Jl : : 236,597 : 432,641 : ===================================== mom: - 1.58% : - 1.36% : Est.DI: 142.6% / +0.60% := n/a = :+1.58% :+0.80% : + 0.70% Crash Cruise speed may be back soon.

One in three house sales are failing to complete due to fears of new recession QUOTE Nearly a third of house sales collapsed in the first six months of this year as nervous buyers and sellers pulled out of deals, according to a report. A leading firm of property lawyers said 29 per cent of deals fell through in the first half of the year – up from 21 per cent in 2009. The figures highlight the moribund state of the housing market and the reluctance of many would-be buyers to splash out in uncertain economic times. . . . First-time buyers have been particularly hard hit with banks demanding chunky deposits in exchange for a home loan. Government figures show that 173,000 houses were sold in the first three months of the year – well down on the 459,000 sold in the last quarter of 2006 as the housing market reached its peak. The 1st Property Lawyers report said that 39 per cent of failed deals collapsed because sellers took their homes off the market. It put the figure down to the scrapping of Home Information Packs, which cost the seller hundreds of pounds. Not for sale: The report said that 39 per cent of failed deals collapsed because sellers took their homes off the market ‘Sellers are now able to test the market without having to pay any upfront costs,’ said Mr Montgomery. UNQUOTE /see: http://www.dailymail.co.uk/news/article-2015192/One-house-sales-failing-complete-fears-new-recession.html#ixzz1SFapkLwi

They should call it a "Housing Elevator", and make it clear that the BofE (amongst others) has its finger poised over both the Up and Down buttons Have people noticed the move in Barratt? BDEV ... update Further downside may be dead-ahead, with a CROSS confirm a bigger move down in BDEV, to be followed by a break in UK house prices

They should call it a "Housing Elevator", and make it clear that the BofE (amongst others) has its finger poised over both the Up and Down buttons Have people noticed the move in Barratt? BDEV ... update Further downside may be dead-ahead, with a CROSS confirm a bigger move down in BDEV, to be followed by a break in UK house prices

From a thread on the Main Board, Is it time to buy a UK property In the US, it was not a complete collapse Middle Class, it is a painful readjustment where those who were reckless in their home-purchases will suffer for a few more years, and maybe longer, if they invested in McMansions in the outer ring suburbs. The US government was hellbent on increasing homeownership during the Clinton administration. And home buying was again encourage in the Bush years, when Greenspan used over-investment in housing as a way of pulling the US economy out of a post-Dotcom bust. The main mechanisms were low interest rates and by doling out mortgage credit with little thought of whether the loans could be repaid in the long term. Unfortunately, those making these short term policy decisions were "successful": A knock-on effect of the increasing in homeownership by handing out cheap credit to "anyone with a pulse" was that US home prices shot up. Those who were naive enough to buy into the bubble, rather than selling into it, were left saddled with very large mortgages and maybe, if they were very unlucky, trapped in homes in the outer-ring suburbs. (The banking industry was one of the engineers of this disaster, but many banks wound up saddled with bad mortgage loans stuffing up their balance sheets- They ignored warnings from various quarters, including my own articles in 2004 and 2005 / Example: Lessons of the Grandparents from October 2005.) Now US home prices have retreated to affordable levels, but banks are now lending caustiously so people can no longer borrow at high Loan-to-Value percentages unless they have very large and secure incomes. Further, many homeowners are stuck with big mortgages, and so are not in a position to take advantage of the many bargains that are around. Also, most have not yet figured out the extent to which living far from jobs and social activities is going to be a continuing future financial disaster, when oil prices shoot up in the years to come. The real bargains are those near cities which will have job growth, preferably within walking distance, or with mass transit commuting links, where the price of transport will not be directly linked to future oil prices. America is now paying the price for its short term thinking, and will continue to do so until it "comes to its senses" and starts thinking longer term, and voters demand that their politicians think that way too.

They have given help so far, but "forever" is not on the agenda. When that fact becomes clear, perhaps as a result of a spreading debt crisis, there will be a mass exodus from BTL

Then when the roof needs repair or the boiler needs replacing: You've got big problems. The BTL investor really only makes decent money if: + He has no mortgage, and/or + Property prices are rising Remove the second of these, and it is a bad business for most landlords with gearing beyond maybe 50-60%

And then their houses get taken away (once the over-generous subsidies are capped or removed)

from drbubb's diary

When Financial Collapse comes, falling House prices, and paying your mortgage will be a HUGE part of the problem faced by most households.

Top 10 Locations for 2-Bedroom Home Rental Yields Location No.2BR .......... Properties for Sale Typical Asking Price(£) No. 2-Bed Properties for Rent Typical Rent (£ pcm) ========== ........ ......... Rental Yield (gross per annum) Bootle...... 331 70000 113 450 7.7% Hamilton... 410 80000 129 495 7.4 Thamesmead 169 175000 180 1075 7.3 Mansfield. 464 85000 113 494 7.0 Manor Park 128 156250 116 895 6.9 Brentford. 214 307500 238 1733 6.7 Beckton..... 115 195000 128 1094 6.7 Dundee....... 362 89475 214 490 6.6 London*.... 21754 305000 22600 1650 6.5 Hull......... 1213 87950 221 472 6.4 *The typical asking prices and rent for London were calculated by sampling over all properties in the Home.co.uk property search within 10 miles of the centre of London

Well, I do think that rates will rise, as the debt problems from Europe eventually spread into the UK. In the meantime, bonds in the US and the UK are benefiting from a (temporary) "flight to safety". But there is no long term safety in these instruments, only a short term blip.

You gotta stay flexible, and watch indicators like BDEV and rates What helped UK property prices this spring? This slide in 10 year rates - CHART ...may have been a factor.

RACE TO RENT as Buyers retreat - say SCMP headline (in Property section) "Flat hunters are finding it increasingly difficult to rent a home in Hong Kong as uncertainty about the market outlook means there are fewer buyers and more tenants." + Complaints about flats available being snapped up very quickly (within one day) + Buyers reluctant to buy, are seeking to rent instead (after seeing prices rises of 10pc or more in 2011) + Flats in places like Yuen Long have jumped in rents: from HK$8500-9000 range to HK$10000-12000 + 42 pc of deals are sales, with the rest rentals, and in a more robust market 70pc might be sales + Overall rental index is now at HK$22.13, very close to its Sept.1997 high of HK$22.20 Article concludes saying that "summer is always the peak season for the residential leasing market" (Perhaps because people find it easier to shift when children are out of school, and expats flood into new flats in August and Sept.) == == == I think the agents are trying to talk price lower at the moment, because they are getting heavy resistance from buyers. But I do not think that rising rents are bearish for property. In 2008, before prices collapsed, there was first a big drop in rental demand, as expats left HK.

Thanks for you comment, sep. Keeping posting. It's the best way of getting over a (wee) feeling of being intimidated

I think you will get paid to wait