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They Assumed Prices Would Always Be On The Uptrend, And The Chickens Have Come Home To Roost

A report from the Jamaica Observer. “Real Estate Broker, Anya Levy, is cautioning financial institutions about irresponsible lending. Levy pointed to one mortgage institution, which she did not name, which is offering mortgages of 110 per cent a reckless undertaking in her view as this is overexposing, if not overlending. ‘So in essence what you are doing is a combo loan, part secured and the other part unsecured, so when you see something like that dangling in front of you it is a sign of danger,’ Levy warned.”

“She cautioned about these loans, observing that some people have been grabbing at them and buying real estate for investment in Airbnb properties. She issued a stern warning for mortgage institutions to be responsible in their lending practices and policies to prevent the risk of a real estate bubble arising, given the fact that there is an oversupply of apartments in the country with upwards of 1,000 units being unsold in and around Kingston.”

From Mortgage Broker News in Canada. “Is calling Canada’s real estate phenomenon ‘a bubble’ accurate? ‘We saw a [Bloomberg] study come out that had Canada as the second-most recognized real estate bubble on Earth after New Zealand,’ said Ron Butler, ‘and that’s after home prices in Vancouver have come off as much as 35%. It’s still a massive bubble here.'”

From Citizen TV in Kenya. “Developers in the real estate industry have quelled fears of an impending crash to one of Kenya’s key economic segment even as property prices remain on the decline. ‘What we have been experiencing is an oversupply situation and I wouldn’t believe we have the ingredients for a bubble to burst as there would be external factors leading to the burst which we are yet to see,’ said Knight Frank Managing Director Ben Woodhams.”

The Economic Times in India. “The Worli-Lower Parel stretch in South Central Mumbai, once a vaunted spot for premium realty, has emerged as something of a problem zone for real estate developers, particularly for those building luxury residences. Sales are slow, and some projects now look unlikely to ever be completed. ‘It is no longer a liquidity crisis. It is a consumption crisis that will affect all sectors if not managed now and become a solvency crisis’ said Gagan Banga, MD, Indiabulls Housing Finance.”

The Star Biz on Malaysia. “Banks with large exposure to housing loans may have a problem as a result of the way properties were priced, marketed and sold the last several years, industry sources say. This is particularly so if borrowers default on their housing loans. ‘The number of distressed cases are on the rise, but this is not being reported,’ a source says. Or it could be under-reported.”

“An indication of rising distressed cases is the rising foreclosures. People bought properties in droves over the past 10 years, paying minimal downpayment and some made multiple purchases. Banks disbursed loans based on sales and purchase agreement (SPA) price, instead of the actual house price, less rebates and freebies. Essentially, the conclusion after speaking with developers, property consultants, a bank source and two auctioneers is that the ‘chickens have come home to roost.'”

“Sources concur that today’s weak property market must be viewed from 10 years ago when prices began to rise starting 2009/2010. This was the period of easy credit, creative marketing strategies, multiple purchases, and young people entering the market in droves. The purchase of multiple units, prevalent in the years starting 2009/10 was due to developers giving huge rebates, the use of mortgage brokers, investor clubs and the speculative element in society, a source says.”

“The market was ‘hot’ and banks outsourced their services using mortgage brokers, the source says. These mortgage brokers may apply up to six banks for a buyer. When three approve a loan, instead of buying one house which cost RM800,000, the buyer may end up buying three. The ‘motivation,’ he says, is the cash rebate which sometimes run up to 30pc of the house price.  On the conservative side, the buyer may be offered RM100,000 rebate for a RM800,000 house. Three houses mean RM300,000.”

“Assuming a 30pc rebate, that is RM240,000 per house. So the borrower takes a 90pc loan, or RM720,000. The buyer gets a ‘cash back’ of RM160,000. Buyers rationalise he can use the cash back to pay the car loan or use it for one of the three houses on completion and flip the other two. ‘They did not expect the market to turn,’ the source says.”

“Banks were unaware of multiple loan applications. ‘The whole process is to cheat the banks,’ the source says. ‘This led to banks asking for termination letters from the other banks, when they got wind of it,’ the source says. Buyers face financial difficulties when they have to pay full installment, the source says.”

“The issue is complicated further with completed unsold units. As at Dec 31, 2018, Malaysia has unsold completed residential units including serviced apartment and small offices home offices totalling 45,027 units, valued at RM29.69bil. There are multiple consequences of using overall headline price in the SPA inclusive of rebates and other freebies, instead of the net house price. It affects the banking sector when the amount disbursed is more than the net house price.”

“‘When developers initiated such rebates, they did not consider the consequence in a down market. We are in that market today,’ the source said. ‘They were happy to make high profits during the good years and they assume prices would always be on the uptrend.'”

This Post Has 67 Comments
  1. ‘The Worli-Lower Parel stretch in South Central Mumbai, once a vaunted spot for premium realty, has emerged as something of a problem zone for real estate developers, particularly for those building luxury residences. Sales are slow, and some projects now look unlikely to ever be completed’

    I’d bet most people have no idea that last decade Mumbai was the most expensive residential real estate on the planet. By square foot, higher than any city: London, Manhattan, Hong Kong, any of them.

      1. Low HOA fees in Mumbai, and of course they’re not building anymore land there. Be a contrarian, and BTFD!

      2. Yes, when I post numbers which show the biggest bubbles in the world, I am told they are garbage or what you have in the streets when you have no working sewers

      3. Amazing considering the city has no real functioning sewer system.

        Sure they do. It’s a jobs program for the lower caste. More useful than digging holes and filling them back up again.

  2. I remember these at the end of housing bubble v1.0…

    “Levy pointed to one mortgage institution, which she did not name, which is offering mortgages of 110 per cent…”

    1. “For his part, executive director and head of corporate advisory at Sygnus, Greg Samuels explained that given his company’s diversified real estate portfolio, such risk of overexposure is significantly minimised. Sygnus offers financing for real estate projects as well as short-term equity holdings in real estate developments, among other financial and business services.

      “’We at Sygnus structure our portfolio to minimise such risk, where we are not going to be overexposed to residential development if something should happen,’ Samuels shared. He declared, ‘Sygnus has built in the necessary safeguards to protect us in the event of a bust.’”

      Wait for it …

      “One of these safeguards is that all of Sygnus’s projects are carried out through a partnership or co-investment with pension funds, with interest in holding real estate for sale or rental and getting out in approximately three years.”

      Safeguards = Partnership or co-investment with pension funds.

      “You can’t lose with the stuff I use.” – Reverend Ike

    2. Is a 110 percent mortgage the flip side of negative yielding bonds?

      The world’s awash in Yellen bux seeking money heaven.

      1. It is not just Yellen Bux which have actually been reduced by $600 billion or more since Trump took office. It is all the other countries which still are actively creating money. Even a country like Turkey when it creates more fiat currency that “money” supports bubbles throughout the world.

  3. ‘It affects the banking sector when the amount disbursed is more than the net house price’

    Don’t you hate it when that happens?

    1. It used to be called fraud and bankers used to go to jail for that.

      Then we were fundamentally transformed.

    2. They make it sound like they are innocent bystanders instead of the creators of the bubbles. Soon we find out how are banks are tied to their banks. All these scams were not suppose to blow up prior to the creation of world government. Hillary, how could you lose when the Globalists were so counting on you. All the money they gave to your foundation and the black mail information they had on Bill with no return. Now, that is what Mr. Banker thinks is criminal.

      1. They were happy to make high profits during the good years

        It’s not like any of these guys around the world will have to pay back their bonuses. Well, maybe in China. A Globalist Conspiracy is not required.

  4. I remember these at the end of housing bubble v1.0 too…

    “People bought properties in droves over the past 10 years, paying minimal downpayment and some made multiple purchases.”

  5. “Real Estate Broker, Anya Levy, is cautioning financial institutions about irresponsible lending.

    You’d think Fauxahontus and Maxine Waters would be doing this, instead of some realtor we’ve never heard of.

          1. Wow. I know he’s a goofball, but I hadn’t heard that (and I read a lot about developing scandals re: treason, coup).
            The side by side with young Fidel is fascinating. That Margaret got around.

  6. “Banks with large exposure to housing loans may have a problem as a result of the way properties were priced, marketed and sold the last several years, industry sources say. This is particularly so if borrowers default on their housing loans.

    Thank goodness this is un-possible, because today’s borrowers have so much skin in the game due to tight lending standards after 2008, as well as the strong increase in public morality observed in recent years, that they would be loath to shirk their financial obligations by walking away.

    Oh, wait….

  7. Seems like all these rich housing places are dumping now.

    And it will roll downhill..

    “It’s been a cruel summer for Hamptons real estate

    Real estate sales and prices in the Hamptons continued to fall in the second quarter, marking a year and a half of declines, according to a report from Douglas Elliman and Miller Samuel. It was the worst second quarter for sales in eight years.”

    https://www.cnbc.com/2019/07/24/real-estate-in-the-hamptons-had-its-worst-spring-quarter-in-8-years.html

      1. It’s funny how some songs, even though you like them when they first came out, grow on you over time.

        I will never like this one, no matter how much time goes by:
        youtube.com/watch?v=Rqnw5IfbZOU
        Okay, as long as you don’t listen to the lyrics.

    1. But the Bo$ton Globe told me if you don’t have a house in Taxachu$$et$, it’s already too late.

        1. Finally. Sheesh. It’s been like watching paint dry here. You feel the little tremors and see cracks appear and then nothing.

    1. I’ve been looking for a Honda Accord Coupe, and there is more inventory now than there has been,and the time it takes to sell them has certainly increased. I’m waiting for a Craigslist cash deal though where the seller has the title-in-hand and is willing to negotiate. These pickup trucks are a sure loser, e.g., more than 100,000 miles and still asking $25k plus! WTF?

      1. On CL under cars search for grandmother grandfather father mother – individually – you will eventually find an older model low mileage vehicle a child is selling for deceased or ailing older family member. I bought a 20 year old car with 57k miles on it and was best financial move I made last year. Minimal property tax no maintenance no payments. Also no breakins or theft motivation. Saved $5000 over buying new in first year. When it dies I will sell it for a dollar.

        1. I’m looking for a “fun” car, e.g., the Honda Accord Coupe. The 3-yr/old 2016 models are near the end of the steepest part of the depreciation curve, but new enough that the rubber door and window seals are still supple. I’ve got my heart set on a v6 with manual transmission, which are difficult to find in the U.S. but plentiful in Canada. Go figure? Fingers crossed!

        2. I bought a 20 year old car with 57k miles on it and was best financial move I made last year.

          Perfect. I’m trying to find something like that for my son who is off at college and managed to get a internship/job in a neighboring town so he needs to drive regularly. But it’s harder to do that long distance, so my mom’s on the case because she lives close to that college.

    1. I frequently drive through neighborhoods I’m interested in to get a sense of what may be coming on the market. I just got home from cruising one such neighborhood. It looks like people have gotten the memo that real estate has peaked here. Dated and arguably neglected one-story ranch homes with at least a decade of yard overgrowth are finally getting attention . . . in July . . . when it’s 90+ degrees. Similar homes have been selling between $800K to $1M. People pay these prices for the lot size, school district, no HOA fees/rules and no Mello-Roos.

    1. The secondary offering, waiving lock-up restrictions for insiders, is super scammy.

      1. This whole market is super-scammy. Future historians are going to marvel at how blatant the fraud was and how the sheeple rushed to park their money in the Ponzi despite overwhelming evidence that policymakers, regulators, and enforcers were all complicit with the Wall Street grifters who were running a massive pump & dump.

    1. Do not forget how the local officials assisted with zoning etc. And as I have been saying it is not an accident. High housing prices support big government and vice versa.

      1. Government getting in bed with commerce/big business/Wall Street has created a stupid economy.
        Everybody is affected by this madness. And the politicans think that bigger government that picks winners and losers by bigger taxes will solve this problem. Look at these clowns, they are dangerous.

  8. Pending sales data out. Up 1.6% YoY. Relaxed lending standards, low down/no down (high LTV), high DTI, subprime/no FICO, etc. all having desired effect. Not sure low rates having much effect due to still ridiculously high prices. Scraping the bottom of the barrel continues for a while longer. More can- kicking/short-term bounce. Outcome delayed, but not prevented. Eerily similar to 2006-8. I’m sure it’s different this time though…

    1. Drove through London ON a few days ago. The amount of new high density uglyness construction is staggering. Then suddenly, all farm fields.

  9. If Medicare was paid into by 1.5 of income by FICA from around 1970 onward, plus before 65 you have to pay for private insurance , than why should anyone be entitled to Medicare who didn’t pay into it for 40 or more years like most seniors have.

    That would be like saying all those payments don’t matter. It would be like saying Social Security for all
    without the person paying in for 30 to 40 years.

    These ideas by the left are picking winners and losers and they aren’t fair.

    1. These ideas by the left are picking winners and losers and they aren’t fair.

      I suspect they have a different definition of “fair” than you do.

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