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Investing In The Flat Market Has Become Risky

A report from the Canadian Press. “Albertans struggling to enter the real-estate market have at least two chances to win a home this year. All one needs to do is pay an entry fee and submit an essay. Owners of the two properties are among many in the province affected by a slumping real-estate market. Homes are listed for months without a single offer.”

“Alla Wagner, who has limited mobility after a fall, put her 5,000-square-foot (464-square-metre) house in Millarville, a hamlet in the foothills of the Canadian Rockies, up for sale last year so she could downsize to a smaller bungalow. Her house was appraised at $3 million three years ago, she says. She first listed it at $1.9 million.”

“‘The market is so low that I wasn’t even getting a single offer,’ Wagner says. ‘It was very painful to watch.'”

The Global Times on China. “‘My colleagues and I thought the news was really funny, Tian Lin (pseudonym), a 55-year-old Hegang native, told the Global Times, commenting on the news that housing prices in Hegang, a declining city in Northeast China’s Heilongjiang Province, were as low as 300 yuan ($44) per square meter.”

“Housing prices in Hegang are falling and are much cheaper than other cities in China, Tian said. Hegang ranked last among 341 cities included in house pricing statistics, with an average of 2,177 yuan per square meter, according to China Real Estate Association in March.”

The South China Morning Post on Hong Kong. “Investors’ appetite for new flats priced above HK$10 million (US$1.27 million) is showing signs of waning as they are hesitating to dig deeper into their pockets for large units. As of 5pm on Monday, developer Billion Development and Project Management only managed to sell 160 out of 307 units on offer at its Centra Horizon project in Pak Shek Kok, Tai Po, according to agents.”

“Most of the units sold were priced below HK$6 million, with only a few takers for units costing more than HK$10 million, they added. During the sale of the first batch at the end of April, investors snapped up more than 75 per cent of the 295 units on offer, waiting patiently in long, snaking queues outside the company’s sales office for a chance to buy a flat.”

The Taipei Times on Taiwan. “The prices of old luxury apartments in Taipei’s prime Xinyi District have fallen 30 percent from their high in 2015 as buyers favor newer properties despite a pickup in buying interest.”

“The figures suggest they cost NT$959,800 per ping (3.3m2) for 144.36 ping of floor space including parking space, or a 30 percent drop from NT$1.37 billion for transactions at the same location in 2015, said H&B Business Group, the nation’s largest real-estate broker by number of franchises.”

“It is the first time that apartments in the district have sold for less than NT$1 million per ping, even though buying interest for upscale housing has recovered somewhat, H&B researcher Mandy Lang said. ‘While people with high net worth have demonstrated a better interest in acquiring luxury homes, they generally insist on price concessions from sellers,’ Lang said.”

From Business Live on South Africa. “Buying a rental flat or two may have been the go-to investment for many South Africans with a little cash to spare 12 to 15 years ago. Back then, you typically only needed a 10% deposit to buy a property; the bank would fund the balance.”

“Rental yields (annual rental income as a percentage of market value) were fairly attractive, at 7%-10%, and most landlords were assured of a standard annual rental increase of 10%. Vacancies were low, so it was easy to find a new tenant if yours left. It all meant that your investment often started paying for itself in three to five years.”

“Not any more. Today, buy-to-let owners are lucky to get a 5% annual rental increase when leases come up for renewal. And, for the first time in more than a decade, there is an oversupply of rental stock. As a result, many landlords — most notably those in the oversaturated Cape Town market — have had to drop rentals or risk losing tenants.”

“The latest flat rental data from property economists Rode & Associates shows that vacancies for rental apartments across SA hit a historical high of 7% in the first quarter of 2019, up from 5.5% a year earlier and substantially ahead of the 1%-3% average of a decade ago.”

“Kobus Lamprecht, head of research at Rode & Associates, says the percentage of flats standing empty in Cape Town, for instance, surged from 1.8% to 8.1% over the past 10 years (to the first quarter of 2019). Joburg has recorded a similar, though less pronounced, increase over the same time — from 2.8% to 7%.”

“Lamprecht says it’s not only financial pressure that is negatively affecting rental demand: ‘New rental housing stock has also increased notably, thereby pushing the rental market into oversupply.'”

“Lamprecht refers to the latest Stats SA figures, which show that the number of newly built flats and townhouses — square metres completed year on year — increased by a substantial 58% in the 12 months to end-January. Given the softer housing sales market, he says, developers have struggled to sell many of these newly built units, and have had to rent them out instead.”

“FNB property sector strategist John Loos says the latest consumer price index (CPI) for housing and utilities underscores just how weak the housing rental market is. Loos says rental inflation decelerated from 5.39% year on year in September 2017 to 3.84% in February.

“Rapidly rising property ownership costs are, of course, further eroding buy-to-let returns. Loos refers to key housing-related CPI items, including municipal rates and water (costs normally carried by landlords) that were still rising at an average 10.99% year on year in February, as recorded by Stats SA – more than double the rental inflation of 3.84%.”

“As Lamprecht puts it: ‘Investing in the flat market has become risky.'”   

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This Post Has 50 Comments

  1. ‘the number of newly built flats and townhouses — square metres completed year on year — increased by a substantial 58% in the 12 months to end-January. Given the softer housing sales market, he says, developers have struggled to sell many of these newly built units, and have had to rent them out instead’

    That’s the crazy thing about shacks. They can actually build more of the dang things.

    1. That’s the crazy thing about shacks. They can actually build more of the dang things.

      That’s crazy talk, Ben. Next you’re going to claim that once shacks head to the foreclosure auction, they can be purchased for well under the cost of construction, thus undercutting both new construction and the comps.

      Pshawww….

  3. The market is definitely flat, with price declines already underway in some quarters.

  5. Dear Gawd – the fooking crazy boomers.

    A disabled 58 year old single woman rumbling around a 5,000 sq ft house in the Canadian Rockies…

    Can’t sell it…(how the heck does she even heat it, clean it and perform maintenance on it???)

    Now has a contest (with an entry fee) to “sell it” – cause she just can’t give it away! Well, kinda. But she will NEVER get enough people to enter her silly contest.

    And then (in the remainder of the article) there is a 71-year-old in deteriorating health in a 7,000-square-foot house with another contest…

    2. This is a canary in the coal mine of what is going to happen all across the US. So many near retirees have health problems and mobility problems and they are going to figure out that they can’t maintain their massive homes now that children have all gone. 5-10 years the selling starts happening en masse due to demographics. The downward price pressure is going to be long and sustained and won’t be stopped, unlike quantitive tightening is being threatened to be.

  7. Little known historical fact: the first telegram ever sent said “Realtors are liars.”

  8. Personal credit demand in freefall
    14 May 2019

    The housing finance slump reverted to trend during March 2019, down 3 per cent over one month and down 11 per cent over a year, the monthly ABS lending data yesterday shows.

    Plain vanilla consumer credit – already a challenging segment for banks – is turning anorexic.

    Personal finance supply (but really demand) fell a stark 11 per cent just over March from February. Over the full year personal finance tanked by 24 per cent.

    Complementary data from the Reserve Bank of Australia on use of credit cards shows similar trends.

    Total credit card balances declined by $430 million from February to $51.5 billion in March 2019, to be 2.2 per cent below the level of a year ago, Mike Ebstein of MWE Consulting wrote in an analysis of the RBA data.

    https://www.bankingday.com/nl06_news_selected.php?selkey=24964&stream=60

    1. Oh dear…that reverse wealth effect is a bit*ch for tapped-out debt donkeys and FBs.

    2. “Plain vanilla consumer credit – already a challenging segment for banks – is turning anorexic”

      – with unconventional demand drying up and conventional demand now at “debt saturation” (I.e. “tapped out”), what’s left on demand- side?
      Answer: with demand pulled forward via Fed machinations, what’s left is “air pocket.” Please fasten seatbelts (and pass the popcorn).

      1. Answer: with demand pulled forward via Fed machinations, what’s left is “air pocket.”

        In engineering that’s called cavitation.

        3. Eeeebola, $ickle cell$ anemia$, monkey.poxe$ … $helter $hack price degradation$ are becoming increa$ingly $ystemic.

        4. In engineering that’s called cavitation.

          Yeah…and by “air” they just mean “lack of liquid water”. There’s nothing to breathe in there.

      2. Since Australia substitute RBA for Fed, or whichever CB for country of choice. CB-induced global housing bubble. Same cause, same ending, but with a little different timing.

    3. Thanks to Trump we are moving passed an economy based on consumer credit and housing bubbles to one which exploits our fossil fuel advantages. I said that months ago

      1. VW $34 billion investment in new electric vehicles coming down the pipe. Gas engines will soon be as irrelevant as steam powered trains are.

        1. as irrelevant as steam powered trains

          It’s all about energy sources. Steam power was a really great way to use solid fuel for motivation. It was made obsolete by the advent of liquid fuel. Electric motors or electric vehicles are not a technology revolution and electricity is not an energy source. Electricity not being an energy source seems a difficult concept for some.

          Electric vehicles will make economic sense when we run out of liquid fuel. Then it will facilitate going back to solid fuel at the generating plant, like coal. It will be much less efficient than the system we have now regards driving long distances as a typical lifestyle.

          I’ve been in communities where most of the vehicles are electric. They are inexpensive, small, light weight, slow and designed for short trips. Works great. That’s the world you’re looking forward to, not the $100,000 luxury 4,000 lb autopilot 600 mile commute to see beloved son and mate. At least for people of modest means or modest intentions.

          1. It’s all DonkeyTalk.

            IC engines and gas and steam(fossil fueled by the way) turbines will continue to be the prime movers long after we’re all gone.

          2. Gas vehicles are not efficient. They convert about 20% of the stored energy in gas to power the wheels. Electric motors convert about 85%-90%. Electricity isn’t an energy source, you are right. It can come from coal, nat gas, hydro, nuclear, solar, or wind. But electrically powered vehicles are far more efficient in terms of energy usage. The real advance in technology has been battery storage. Better battery technology is the real revolution.

          4. Housing

            Yes, but Mania.

            “Electric motors convert about 85%-90%.”

            Sure. You still think electricity is an energy source. Electric generation is only about 35% efficient. Multiply that by transmission efficiency, times charging efficiency of 85% and you’ll get a number close to your “gas” number. The Tesla batteries weigh something like 1200 pounds, so you’re pushing that around in addition to your own frame (even on empty). A full tank of gas weighs less than you do. Doesn’t sound like efficiency.

          5. Let’s just put it this way, I get about 170 mpg equivalent in my EV. Yes, I paid a lot more for it, but my EV is one of the few things I know of there you pay more upfront and you end up playing less over time in fuel consumption and maintenance. Contrast that with say a house where the higher the purchase price, the more you pay to maintain, property taxes, clean, furnish, etc.

  9. Coal mine exhausted and the government builds 90,000 new houses out where the work used to be.

    “The low price of housing in Hegang is also due to the excessive supply caused by renovation of shanty areas in the past few years, which has led to a large number of houses in the suburbs, Zhang Dawei, the chief analyst of Centaline Property told The Beijing News.

    “Hegang has launched projects to transform coal mining shantytowns, mining subsidence areas, urban shantytowns and villages in the city since 2008, according to the Hegang government in January 2018.

    “A total of 97,000 households have been demolished, with 93,000 households resettled and subsidized since 2008, achieving a basic balance between supply and demand…

    “Instead of adjusting urban planning, the policy-making organs of the cities with serious population outflows have continuously increased the scale of urban development resulting in the oversupply of housing.”

    1. Does it seem like the Chinese government is creating future jobs in demolishing unneeded housing?

      1. “Maybe they can fill the houses with Syrian and Central American refugees.”

        1. Oops, hit “post comment” instead of the button to toggle on my talk-to-text!

          I was going to add the comment that I’ve suggested this resettlement plan before. But alas, China still won’t taken those poor refugees.

      2. Like Japan, China is smart enough not to import problems. That cure is worse than the problem. In fact, population stagnation is only a problem when you are running Ponzi schemes like Social Security. If you have programs designed to pay for themselves and not programs which rely on two or three people to pay for each person drawing benefits you do not need population growth

      1. China – do we? Have you seen the progress they have made in the last 25 yrs? Compared to the USA? Tariffs are taxes, American just pay more for stuff.

        1. China made the progress due to the large surpluses with the U.S. Trump has pulled the rug out underneath China and the globalists which profited when China was paying workers ten cents an hour. China which is now paying more like $5 or 6 an hour lost most of its advantages over US due to lower productivity and shipping costs. Add a 25 percent tariff and it has no advantage over the US. Add in its much higher energy costs and it has a real problem.

          1. China

            Biggest smoldering mountain of corruption, malinvestment, theft and debt in the history of mankind. That will be the cause of its implosion.

          3. Are you going to short China and get rich?

            Of course not. I already have everything I need. I know what history teaches about the destiny of the trappings of wealth bought with debt. So I’ll watch.

      2. I honestly think so. They’re squealing like stuck pigs now.

        Maybe they could channel some of that energy into innovating their own ideas, instead of stealing them from everyone else.

        1. I remember those pictures of the Chinese building exact replicas of American and European monuments like the Capitol and the Eiffel Tower. I remember googling houses for sale just to see what a single family detached home in China looked like. And I couldn’t find any! It’s all Western-style apartment towers 90 stories high.

          And of course it’s the Americans who take the hit for Cultural Appropriation.

          1. It’s all Western-style apartment towers 90 stories high.

            Most of them are “only” 20-30 stories, but otherwise you are correct. You can drive for an hour straight through the suburbs and never reach the end of them.

  11. Hi a question about the housing stats
    —-
    As they report median or average prices, does that include new homes (say condos that had a deposit, but closed a year later).

    The reason i ask is that the new stock is generally more expensive — so ti would partially inflate the median or average price.

    Or am i just wrong

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