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Evaporating Interest Is A Sign Of Glut

A report from the Wall Street Journal on China. “Financial stress at an upmarket developer is rattling Chinese families who paid big deposits for unbuilt homes—showing the risks in presales, one of the sector’s favorite funding tools in China. Problems are emerging at Tahoe Group, which has slowed or stopped development on projects across China in recent months, and the company has fallen behind on bond payments. Some buyers also fear if they stop paying their mortgages on those loans for unbuilt homes they may be blacklisted under China’s ‘social-credit’ system, potentially leading to restrictions on travel, jobs and education.”

“‘We invested the savings of a whole family for a few decades to buy a house,’ said Franklin Yan, a financial researcher. ‘Now we may never get it, and our kids might be blocked from schools if we cannot afford the mortgage. Is this fair?'”

“Mr. Yan said in 2018 he agreed to pay 2.5 million yuan, or about $361,000, for a Tahoe apartment in Taiyuan, a city about 250 miles southwest of Beijing. Mr. Yan, who paid about one-third as a deposit, said progress slowed last year and halted entirely in March.”

“‘The problem is that there are many developers that are increasingly reliant upon preconstruction sales for financing,’ said Logan Wright, Hong Kong-based director at research firm Rhodium Group. ‘So if sales decline sharply, you could see more developers without enough financing to deliver completed homes to those who have already purchased them.’ By forcing developers to cut spending and raise cash with new sales, which then went to meet existing obligations, the government’s deleveraging campaign ‘created some Ponzi-like features,’ in the market, Mr. Wright said.”

“Maggie Wang, a founder of a skin-care startup in Beijing, paid a 10 million yuan ($1.4 million) deposit in July 2019 to cover most of the cost of a high-end flat developed by Tahoe. She said she liked Tahoe’s plans for elegant gardens in the development, and the flat’s layout. Along with other home buyers, Ms. Wang wrote to Beijing authorities in July pleading for help. ‘We are so weak,’ the open letter said. A worker at the site told The Wall Street Journal he hadn’t been paid since February, and about one-third of the construction crew had left.”

The Globe and Mail on China. “Yang Jun can’t see much cause for optimism, no matter where he looks. Dalingshan town in Dongguan, the southern manufacturing hub, once called itself ‘Asia’s furniture products base.’ Now, Mr. Yang can count seven or eight furniture-makers that did well last year, but have declared bankruptcy in 2020.”

“China’s front lines of manufacturing have become its front lines of pain, much of it borne by workers. Mr. Yang’s own factory floor has little of its previous vitality. Last year, he employed 30 people. He’s now down to a dozen. For those people he hasn’t laid off, he has slashed pay. Gone are monthly salaries, replaced by payment per completed piece. ‘The best way to describe our performance this year is ‘money-losing,’ he says.”

“At Xiangxing Precision Hardware Mould Processing Factory, ‘we’ve lost so much money,’ worker Luo Sheng said. ‘Many factories are on the verge of bankruptcy. Cutting wages is normal – and let’s not even talk about salaries. Many people will lose their jobs, because there’s nothing for them to do.'”

The Canadian Press. “The economic uncertainty wrought by the COVID-19 pandemic has turned Toronto’s rental market upside down, industry insiders said. Power once wielded exclusively by landlords has been passed to their would-be tenants, giving renters the chance to negotiate lower prices — and bigger perks. The market has been flooded with rental units previously used as AirBnBs or occupied by people who have since moved in with parents or friends to save money, said Geordie Dent, executive director of the Federation of Metro Tenants’ Associations.”

“‘You’re hearing this kind of across the board. A lot of people are moving into units that are semi-furnished and looked like they were ready to go as an AirBnB,’ Dent said. ‘The other area where I think you might see some increasing supplies (is) from student housing.'”

“William Blake, a landlord and member of the Ontario Landlords Association, said he hopes this serves as a wake-up call to absentee landlords. ‘It’s the amateur landlords who thought, ‘Oh, it’s just an investment. I don’t have to work at all. I just put people in and collect the rent.’ These are the people who are going to be having a hard time during this period.'”

The Pledge Times. “Vantaa, Finland studio prices have fallen by more than 15 percent since last year. In the Helsinki Metropolitan Area, Hypo Bank highlights the exceptional drop in its new housing review. The same has recently been seen in the recession of the 1990s. HS has previously said that in Kivistö, Vantaa, for example quantities of unsold dwellings have sometimes been great. There is an oversupply of small apartments in some places. Small homes in particular have been crushed by investors in recent years, who were pushed aside from the market for at least a moment by the interest rate crisis.”

From Cyprus Property News. “Developers fear they will be left with a large glut of unsold luxury apartments on the market as interest from foreign investors wanes due to COVID-19 restrictions. Built to suit the needs of foreign investors eyeing a Cyprus passport, and beyond the pocket of local buyers, these luxury apartments will soon start piling up, as applications filed from investors has dropped to less than a third of previous years.”

The Malaysian Star. “The government’s plan to impose a vacancy tax on developers to resolve Malaysia’s unsold units have been shot down by property consultants, the view being the tax will not solve the overhang but will instead raise prices. All three consultants say Housing and Local Government Minister Zuraida Kamaruddin should look at other ways to resolve the issue of unsold units that go into billions of ringgit.”

“VPC Alliance Malaysia managing director James Wong pointed out that many housing developers built without proper market and financial feasibility studies, resulting in wrong products, pricing and location of their projects. ‘Secondly, there are 10 local authorities in the Klang Valley. Each approves housing developments without knowing what the others had approved. This has resulted in too many condo and serviced apartments being built too close to each other with insufficient effective demand,’ Wong said.”

“Michael Kok, presiding over PEPS, asked: ‘What exactly is the objective of this tax? If it is (to compel developer to lower prices), it is quite draconian. If it is to deter overbuilding, obviously this is a bad idea. It is akin to closing the stable door after the horse has bolted.'”

The Sydney Morning Herald in Australia. “Drop the word ‘bloodbath’ into your media release and you can pretty much guarantee headlines across the land. But is it true? Is a 27 per cent step-down from the biggest building boom in Sydney’s boom-bust history really a bloodbath? Or is it a long-needed correction, an opportunity to take stock and rethink?”

“Admittedly, most of the papers that ran this week’s ‘Builders warn of looming housing bloodbath’ headline hail from a single stable with a discernible agenda. But their shared premise, which governments routinely support, makes the construction industry some beneficent overlord whose current jitters constitute such imminent danger to us all as to justify billions of dollars in public up-prop.”

“Indeed, Master Builders Association chief executive Denita Wawn seemed to think it perfectly reasonable, this week, to demand $5.1 billion public dollars in special building industry favours to avoid a ‘bloodbath’ now that ‘private sector investment is evaporating.’ But why? The Australian construction industry is surely among the most ruthless, arrogant and self-concerned industries anywhere this side of the law (a line it has been known to straddle).”

“Public benefit? Pah. Developers have to be dragged to it kicking and screaming and, usually, they’re not, which is why our public realm has all the delight and variety of a prison exercise yard. Yet at first sight of their own blood these same schoolyard bullies drop into self-pity, demanding a head pat from nanny and a kiss better. Billions, please, boo hoo.”

“Somehow no one sees the contradiction here. On one side, our development fraternity is so virile, so fabulously tumescent, so eager to perform that the rules should be stretched to accommodate, max lubrication applied. On the other, that same fraternity is so limp it requires the viagra of public moneys to perform at all.”

“And somehow both arguments lead, from opposite directions, straight to the need for public help in ignoring the public good; wildly accelerated planning approvals, public lands, public cash. But again, why? Why wouldn’t we recognise that evaporating interest is a sign of glut, aka bad investment?”

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This Post Has 69 Comments

    1. Hey Ben…I’m a builder in Australia_ only whine I have is the unbelievable B.S that’s involved in building even the most modest chicken shed…and the relentless bureaucratization of the entire process.
      I think it’s only the infrastructure, commercial and large project builders that are busy whining. They team up with the unions to deliberately make the compliance bar too high for new entrants to compete…it’s a long established, cozy and profitable arrangement for all concerned.

      I’ve got plenty to do in a small rural town. My clients are happy and so am I…no whining here. No handouts wanted either. Just wish all the petty bureaucrats would piss off and let us get to work…

      Cheers

      1. “They team up with the unions to deliberately make the compliance bar too high for new entrants to compete…it’s a long established, cozy and profitable arrangement for all concerned.”

        Indeed. That’s exactly how it works!

    2. “The builders in Australia are whiniest bunch in the REIC.”

      The squeaky wheel is the one that gets the grease.

  3. ‘We invested the savings of a whole family for a few decades to buy a house…Now we may never get it, and our kids might be blocked from schools if we cannot afford the mortgage. Is this fair?’

    Well, it was cheaper than renting Franklin.

  4. “‘We invested the savings of a whole family for a few decades to buy a house,’ said Franklin Yan, a financial researcher. ‘Now we may never get it, and our kids might be blocked from schools if we cannot afford the mortgage. Is this fair?’”

    You bought into a housing bubble, and in doing so priced out the prudent and responsible. Is that fair, Franklin? And you’re worried about a social credit score from a deeply corrupt, evil, tyrannical regime? Maybe you should be working to overthrow them instead.

    But to show we’re not completely unsympathetic, we will stamp our little feet in solidarity with you. Ready, HBBers?

  5. By forcing developers to cut spending and raise cash with new sales, which then went to meet existing obligations, the government’s deleveraging campaign ‘created some Ponzi-like features,’ in the market, Mr. Wright said.”

    Yeah, we know all about governments and criminal private banking cartels masquerading as central banks creating “Ponzi-like features,” Mr. Wright.

  6. Also from the Globe and Mail article:

    “We have seen broad income reduction across all kind of jobs,” said Andy Xie, a prominent independent economist. “That appears to be China’s way of dealing with economic issues. It’s kind of a very hard-nosed approach, letting people take it, suck it up.”

    But commies care? Capitalism bad, bah!

    ‘“And in a bleak time like this, nobody can guarantee that all workers are able to get pieces to work on,” Mr. Yang said. But “it’s impossible for people to get paid without working, given that their boss doesn’t have enough food to eat.”

    ‘The slowdown, which began last year but has dramatically accelerated as the pandemic has laid waste to economies around the world, has afforded Mr. Yang time to contemplate how he got here. He recounts two decades of work in Dongguan in a few sentences: “Open a factory, spend more than 17 million yuan” – $3.2-million – “in rent, hire workers and improve techniques, and end up with nothing at all. The only things I have are my parents, a wife and children who are struggling, a broken heart and white hair that has come in too early.”

    Easy come, easy go, that’s the saying right Yang? How the mighty have fallen.

    1. The only things I have are my parents, a wife and children who are struggling, a broken heart and white hair that has come in too early.”

      You tried to work within a deeply corrupt, oppressive collectivist system. That was your first mistake.

    2. “He recounts two decades of work in Dongguan in a few sentences: ‘Open a factory, spend more than 17 million yuan’ – $3.2-million – ‘in rent, hire workers and improve techniques, and end up with nothing at all. The only things I have are my parents, a wife and children who are struggling, a broken heart and white hair that has come in too early.'”

      Aptly describes most of the signers of my Dotted Line Specials.

      I like it.

      😁

  7. Glen Head Long Island, NY Housing Prices Crater 14% YOY As NY/NJ/CT Suburbs Slip Deeper Into Mortgage Defaults And Foreclosures

    *Select price from dropdown menu on first chart

    As one Long Island broker bemoaned, “Sellers are defaulting before we can get their house sold.”

  8. ‘It’s the amateur landlords who thought, ‘Oh, it’s just an investment. I don’t have to work at all. I just put people in and collect the rent.’ These are the people who are going to be having a hard time during this period.’”

    Die, speculator scum.

    1. “Just because a prior investment didn’t work out doesn’t necessarily mean that should tarnish the reputation for future endeavors,” said Alan Todd, head of U.S. CMBS research for Bank of America Securities. “It’s not like something was done in bad faith.”

      In other words, we speculate! If we win, we keep. If we loose, taxpayers keep it! Sort of communism for the 1%s. We own everything in common. Wen it is profitable, the 1%s own it, when it’s not, the 99%s own it. And so, taking turns in a “fair way”, we build a new bright and glorious future!

      1. Because laws can’t replace a Morale Code. And when the Moral Code is bankrupt, the entire society goes bankrupt, and then…chaos, or US–2020!

  11. Leon Cooper and former FDIC Chair Sheila Blair have joined the chorus of voices warning that the Fed’s easy money policies are creating systemic risks to the financial system.

    https://finance.yahoo.com/news/leon-cooperman-says-fed-fuels-162258145.html

    (Bloomberg) — The Federal Reserve has created a speculative bubble that has pushed debt levels beyond what the U.S. economy can support, Leon Cooperman said.

    “They have created a real speculative environment,” Cooperman said Monday on Bloomberg Television. “I am uncomfortable at the present time, not because of the virus, because I’m focused on something the market isn’t focused on. And that is the amount of debt that’s being created. Who pays for the party when the party is over?”

    It took the U.S. “244 years to go from zero national debt to $21 trillion,” he said. “We will probably end this year with $27 trillion. That’s a growth rate in debt far in excess of what the economy is growing at and I think that’s going to be a problem down the road.”

    1. Can’t wait to see the 244 year growth chart in the U.S. national debt.

      Borrow, borrow, borrow,
      Spend, spend, spend!!!

        1. Thanks!

          You’d need to be a blind, deaf, dumb, and possibly stoopid economist to miss the overlap in that figure between the Fed’s post-2008 period of extraordinarily low interest rates and the exponential growth trend towards the highest ratio of debt to GDP in U.S. history.

          And it looks like the “projected” portion of the figure starts out before COVID-19, suggesting that the ratio may increase by “more than expexted”, given massive deficit spending and shrunken GDP this year.

    2. “…and I think that’s going to be a problem down the road.”

      Has to be the understatement of the century.

  13. Jerome “Janet” Powell is going to be giving a speech to the elites assembled at Jackson Hole, Wyoming, laying out how the Fed intends to spur inflation. Because low prices are such a huge problem to the 99% in our oligarch-looted economy and their pleas to the counterfeiters and racketeers at the Fed to further destroy their purchasing power have finally been heard, or so the MSM would have us believe. I have obtained an advance copy of his speech:

    “Printer go BRRRRRRRRR.”

    https://www.cnbc.com/2020/08/24/powell-set-to-deliver-profoundly-consequential-speech-changing-how-the-fed-views-inflation.html?__source=twitter%7Cmain

  16. The McCloskeys, Democrat donors and ambulance chasers turned NRA poster children for waving firearms at BLM “protesters” who invaded their neighborhood, have turned on their former party after the Soros-installed St. Louis AG slapped them with felony firearms charges. Couldn’t happen to nicer people – sorry, but this pair deserves to reap the consequences of their support for a corrupt and malign party, as well as being vile human beings, and Republicans should have nothing to do with them.

    https://www.vice.com/en_us/article/jgxn7x/that-gun-waving-couple-from-st-louis-made-a-weird-dark-appearance-at-trumps-convention

    1. The NRA would never put those idiots on a poster. They looked so dumb — seriously, they would have handled the weapons better even if they had watched a single cop show — that it made all sport shooters look bad. If I were the NRA I would have engaged in damage control.

  17. Pay attention class, this is important and it will be on the final …

    Three prominent companies that were listed on the Dow Industral Averages have been removed and have been replaced by three other prominent companies. In other words the DJIA is a managed index that is continuously diddled with so as to show the winners.

    The question you may want to ask is “So what?” My response is:

    The Dow Jones Industral Average is a favorite benchmark used by many to demonstrate that the true path to riches is a hefty investment in the stock market and this is best illustrated by tracking what would happen to a dollar – how it would grow – if it were placed into the stock market and was allowed to remain there so as to grow. This is a very effective sales technique but it is faulty in that the index being used is faulty and that is because the stocks listed at the beginning of a resonably lengthly time period are not the same stocks listed at the end of the time period.

    FWIW, and all that.

    Salesforce, Amgen and Honeywell higher premarket on Dow-joining news; Exxon, Pfizer and Raytheon move lower – MarketWatch
    https://www.marketwatch.com/story/salesforce-amgen-and-honeywell-higher-premarket-on-news-to-join-dow-exxon-pfizer-and-raytheon-move-lower-2020-08-25

    1. As you point out, it’s not a true index, but more of a demonstration that the stocks of the companies that are outperforming their rivals always go up, in the long run.

      Got rigged market indicators?

      1. “… a demonstration that the stocks of the companies that are outperforming their rivals always go up, in the long run.”

        Pick the ones that are going to be winners. If they are not going to be winners then don’t pick them.

      3. As you point out, it’s not a true index

        It never claimed to be. It is the Dow Jones Industrial AVERAGE.

        1. It never claimed to be. It is the Dow Jones Industrial AVERAGE.

          Not only that, but if they weren’t allowed to switch out companies, eventually there would be zero companies in the average.

        1. Letters to the Editor: Fires, heat and humidity: Is nature trying to kick people out of California?

          ‘The unremorseful, blazing heat does not seem to be stopping anytime soon. (“Over 1 million California acres have burned since July as monster fires rage in Bay Area,” Aug. 22). Fortunately, I do not have to endure what my neighbors in the north are experiencing. Dry thunderstorms? That does not sound pleasant. Actually, the south has it pretty bad too. The rolling blackouts drove my neighbors insane.’

          ‘This whole ordeal with the burst of wildfires, thunderstorms and lethal temperatures makes me think that Mother Nature is slowly giving up on humankind. On one hand, I do not blame her, since humans have taken her beauty for granted for centuries. However, at the same time, I plead for there not to be another power outage.’

          https://www.latimes.com/opinion/story/2020-08-25/fires-heat-and-humidity-has-mother-nature-given-up-on-california

          But, weather? Interest rates!

          1. “(“Over 1 million California acres have burned since July as monster fires rage in Bay Area,” Aug. 22)”

            “makes me think that Mother Nature is slowly giving up on humankind.”

            Makes me think of the same monster fires I saw when my old man was watching the evening news on our black and white TV in the 60s when I was a young kid.

            But now it is of course https://youtu.be/mfhBM_Yay6w Climate Change!

            Wine Country fire of 1964: Eerie similarities to this week’s tragedy

            Bill Van Niekerken
            Oct. 10, 2017

            Flames tearing through Napa and Sonoma counties and beyond. Tens of thousands of acres charred. Residents displaced from their homes. Fifty-three years ago, a fire with eerie similarities to this week’s tragedy struck Wine Country.

            The Nun’s Canyon Fire scarred about 7,000 acres and demolished a score of homes along Route 12 between Kenwood and Sonoma. The Mt. George Fire burned about 5 miles east of Napa and consumed a half-dozen homes and 7,500 acres. The Green Valley Fire was an eastward extension of the Mt. George Fire, dipping into Solano County and threatening several expensive homes — $100,000 mansions in the 1964 real estate market — and the Green Valley Country Club.

            https://www.sfchronicle.com/chronicle_vault/article/Wine-Country-fire-of-1964-Eerie-similarities-to-12267643.php

          2. But, weather? Interest rates!

            It’s what happens when you cram 40 million people into where there were only 10 million before, replace a prudent spending government with tax and spend marxists and let the rule of law go to Hades in a hand basket.

    2. Shameful really…. There’s so many bad actors involved with that one, where do you start?

  20. We have breaking pick-me-up news for the stock market in the form of plummeting consumer confidence.

    Remember: Bad news for the real economy is music to Wall Street’s ears, as it is a sign that more stimulus will soon be pumped into the economy to further goose share prices.

  21. “Some buyers also fear if they stop paying their mortgages on those loans for unbuilt homes they may be blacklisted under China’s ‘social-credit’ system, potentially leading to restrictions on travel, jobs and education.”

    This is what we need in this country.

    A reminder: Be sure to cast your vote correctly this November.

    😁

    1. “Some buyers also fear if they stop paying their mortgages on those loans for unbuilt homes they may be blacklisted under China’s ‘social-credit’ system, potentially leading to restrictions on travel, jobs and education.”

      1. Oops, accidentally hit “post.”

        I was going to reply that their sort of system is frightening. Imagine having the government tell you you can’t travel because of your “social score.” Or, you can’t get a job. And this is where the Dems want to take us.

        2. The US does some of this already with FICO score. Financial behavior is seen as a proxy for moral behavior.

  22. No amount of free cheese is ever good enough. That’s why there needs to be ZERO free cheese period. EVER.

    It’s official: Millions of student loan borrowers won’t have to make payments on their debts through the end of this year, the Department of Education clarified last week.

    But the extra few months of student-loan relief likely isn’t enough to mitigate the economic devastation borrowers are experiencing. And the timing of the resumption of payments could still create administrative headaches for borrowers.

    “We’re still just kicking the can down the road,” said Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center. “What we were really hoping for was a long-term solution that would both stop the hemorrhaging and then allow people to recover.”

    https://www.marketwatch.com/story/student-loan-borrowers-can-skip-payments-until-2021-but-that-may-not-be-long-enough-11598369805?mod=mw_latestnews

    1. There are some long-term solutions, such as making some tuition dischargeable in BK, reducing interest rates to 2%, or allowing the graduate to work off some debt in a public-service job. Maybe they can all be part of the new “peace forces” in the cities.
      It’s not ideal, but at least the moral hazard isn’t too serious.

    2. Stop lending nonsense. Make education merit based, as in Europe. Problem solved. I have two degrees, paid nothing, but had to study hard to earn it. It’s not that difficult after all, and lending to anybody just to”buy” education is hilarious.

      1. “…and lending to anybody just to”buy” education is hilarious.”

        They’re lending to anyone to buy their vote.

    3. Millions of student loan borrowers won’t have to make payments on their debts through the end of this year, the Department of Education clarified last week.

      I saw an article yesterday that advised to still make the payments, as your entire payment will go towards principal.

      My first thought was: that’s what a prudent and responsible populace would do. But we don’t reward that kind of behavior anymore. Imagine being prudent and still paying, and then there’s a student loan jubilee that rewards those who didn’t pay a penny.

      1. Can you save interest on a student loan by adding extra principle, like you can on a mortgage? I couldn’t do it 20 years ago. The only way I could pay extra was to just pay the thing off entirely.

  23. I keep looking at rental prices and think to myself “how are these even possible?” They have more than doubled, and do not even remotely represent wages. How are people affording this to even allow them? I truly do not understand it.

  24. The looting of America began with the outsourcing of jobs and manufacturing to Foreign Countries.

    At the same time the welfare State expanded which was another way for the Globalist and Monopolies to use Government funds to compensate for the looting of America, while it created crime infested hell holds.

    The Dem party represents the Globalist, the Monopolies and the Welfare State, all part of the corrupted overtaking of America. Investment is nothing more than a Ponzi Scheme creation of wealth using real estate as the fake wealth creator .

    The Globàlist, the Monopolies and places like China want the looting to continue all under the false narrative of racism and Commie takeover.
    The USA needs to go back to being a productive Country , and enough of the Global Looters and BLM Commie Looters that want to take over the already fleeced America .

    Biden can’t unite anything because it’s the parasite Looters verses the productive working class.

    It’s all about the failure of Globalism , monopolies and the welfare State creating the looting of America.

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