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The End-User Expectation Of Price Rationalisation In The Quarters To Come

A report from Bloomberg on Canada. “Canada’s home sales skidded to the lowest level since 2012 last year after dropping for four straight months through December. Nationwide, sales totaled 458,442 for the year, a drop of 11 percent which was the biggest since 2008, the Canadian Real Estate Association said. The 2.5 percent December drop from the prior month was the most in eight months. Vancouver and Toronto led the slowdown in transactions.”

“‘It’s clear that higher interest rates are having an impact, said Benjamin Reitzes, a macro strategist at BMO Capital Markets. ‘It was a difficult year and you are coming off a very strong run for housing,’ he said, adding there is little chance of a ‘major comeback’ in 2019.”

From Mansion Global on the UK. “Is 2019 the year of despair or one of opportunity? The property market is moving slowly, particularly in London and the southeast, and forecasts are mostly bleak. ‘Many estate agents are predicting negative or neutral growth for 2019. ‘ Vendors are becoming more committed to sell as soon as possible before prices fall any farther,’ says Jess Simpson of the buying agency Jess Simpson Property Search.”

“Research by UBS found that 39 per cent of listings in London are now reduced, and experts say buyers (investors and residential purchasers) are achieving price cuts of 30 per cent as developers and impatient sellers try to offload stock. There are plenty of other examples in west London — a house on Wycombe Square in Kensington has just been sold for 33 per cent less than the seller paid for it in 2008 — £7.7 million down from £11.5 million.”

The South China Morning Post. “Hong Kong developer Sino Land will offer up to 30 per cent discounts at a development in Tai Po to try to drum up sales amid a weakening housing market in the city. The first batch of 108 units of its Mayfair by the Sea development 8 in Tai Po district, New Territories, will be offered at an average price of HK$13,228 (US$1,686.65) per square foot, the developer said Monday.”

“In comparison, The St Martin by Sun Hung Kai Properties, about a 10-minute walk away, sold for an average HK$18,698 per square foot in July of last year, shortly before the city’s 28-month bull run in home prices ended. The number of property transactions in Hong Kong fell 58 per cent to 3,024 in ­December 2018 from the same period in 2017, according to Midland Realty.”

The Australian Financial Review. “Sales of off-the-plan units have surged across Australia’s biggest cities but the market downturn and an unwelcome light on defects could prove disastrous for buyers who have bet big on the apartment boom. Prices are now falling, particularly in those pockets of the capital cities where cranes have most recently dominated the skylines.”

“Over the past five years fear of missing out pushed property prices in Sydney up by more than 75 per cent as buyers rushed the market and entire apartment complexes sold out within hours of launching. Now, after years of warnings from industry pundits about unsustainable growth in the property market and the risk of what would happen in a credit squeeze the final blow came from the industry itself on the most basic issue of all, building quality.”

“‘We see a lot of defects across most buildings,’ property valuer Anna Porter tells The Australian Financial Review. ‘A study into new builds between 2000 and 2012 found around 80 per cent had reported structural defects. ‘What we have seen is that in years gone by when developer margins are tightening the only place they can make more money is through reducing the cost of the build, and to reduce the cost of the build is to cut corners in the quality of the building, because they need to find savings somewhere.'”

“‘They set up special-purpose vehicles to acquire sites and develop them. It’s harder to sue builders and developers because on many occasions when you find out there’s a problem, you realised that the developers or builders create these two-dollar companies which don’t have any assets. Which in effect decreases the quality of work because even if they do get sued, their assets are safe,’ says law firm partner Chris Kerin.”

The Hindu Business Line on India. “With home sales slowing down in Kolkata, developers across the city have taken to marketing by offering a host of freebies, première facilities and discounts. While discounts may not be openly advertised, sources say some deals are closed 10-15 per cent lower than marked price on down payment. This incidentally is the highest drop in the last three years.”

“Unsold inventory is taking longer time to be disposed. While previously units were sold over 12.1 quarters (approximately three years); they are now taking 12.6 quarters (or three years three months) to dispose.”

“‘Residential sales volumes remained at an all-time low in 2018. The primary reason behind low sales is the end-user expectation of price rationalisation in the quarters to come,’ real estate consultancy firm, Knight Frank said.”

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This Post Has 24 Comments

  1. ‘There are plenty of other examples in west London — a house on Wycombe Square in Kensington has just been sold for 33 per cent less than the seller paid for it in 2008’

    You read that right: ten years of bubble and more wiped away.

    1. Holy cow! 30% below 2008 price in central London. That’s a shocking number for us here on HBB; imagine just how shocking it is for the average unaware London homeowner reading this on an RE hype site like Mansion Global.

  2. ‘They set up special-purpose vehicles to acquire sites and develop them. It’s harder to sue builders and developers because on many occasions when you find out there’s a problem, you realised that the developers or builders create these two-dollar companies which don’t have any assets. Which in effect decreases the quality of work because even if they do get sued, their assets are safe’

    Surprise surprise!

    1. Sounds like a rather elaborate legal construct to enable them to screw their customers with no accountability.

      1. “Sounds like a rather elaborate legal construct to enable them to screw their customers with no accountability.”

        Sounds like nirvana.

  3. ‘Hong Kong developer Sino Land will offer up to 30 per cent discounts at a development…In comparison, The St Martin by Sun Hung Kai Properties, about a 10-minute walk away, sold for an average HK$18,698 per square foot in July of last year, shortly before the city’s 28-month bull run in home prices ended’

    So they are fooked…

    1. The St Martin

      They seem to think giving the place an aspirational Western name will make it worth more. They wanted to be like us and they have outdone themselves. Biggest pile of smoldering debt ever.

  5. Now, after years of warnings from industry pundits about unsustainable growth

    Odd. I don’t remember your voice in the wilderness.

  6. “Canada’s home sales skidded to the lowest level since 2012 last year after dropping for four straight months through December. Nationwide, sales totaled 458,442 for the year, a drop of 11 percent which was the biggest since 2008“

    And coincidentally this is when foreign buyers withdrew but…

    “‘It’s clear that higher interest rates are having an impact, said Benjamin Reitzes, a macro strategist at BMO Capital Markets. ‘It was a difficult year and you are coming off a very strong run for housing,’ he said, adding there is little chance of a ‘major comeback’ in 2019.”

    Oh right, it was the interest rates that caused the bad numbers. Not foreign money launderers that had the brakes put on by their government.

    1. Then”idea” of living in a tiny home might sound fun but living in it doesn’t appear to be as fun. I personally would opt for a nice rv that I could move around to different environments as I please

  10. Here’s some more good news from China to help keep the January effect stock market rally going on Wall Street tomorrow.

    The Financial Times
    Automobiles
    Carmakers face cuts and gloom as China sales shift into reverse
    Groups must adjust as world’s biggest market shrinks for first time since 1990
    China on the turn: Falling sales for the first time in nearly three decades will mean car groups such as Volkswagen, GM and BMW will have to get used to China as a profit drag rather than profit driver
    © FT montage / EPA
    Tom Hancock in Changshu
    5 hours ago

    …
    After almost three decades of world-beating growth, annual passenger vehicle sales in China, the world’s largest car market, have reversed for the first time since 1990, shrinking 4 per cent last year to 23.8m.

    The downturn creates big problems for the world’s largest carmakers as it eats into their profitability, threatening production cuts, job losses and a destabilising price war that will have repercussions across the globe.

    “If we don’t get a large and determined policy response — and we’re talking a big macro stimulus, not just a tax cut on cars — then the industry is going to need to make substantial production cuts,” according to analysts at Bernstein.

    Michael Dunne, an industry consultant and former GM executive, added: “The shift we saw last year takes us into uncharted territory. Everyone will be super-focused on how to adjust because they don’t want to be left with too much inventory.”
    …

  11. Not everyone has received the memo that Housing Bubble 2.0 has popped, just yet.

    No wonder the IRS staff who do income verification for mortgage applications were deemed essential!

    Why mortgage lending at Wells Fargo, Chase and Citi plunged
    By Andrea Riquier
    Published: Jan 15, 2019 3:01 p.m. ET

    Is 2019 likely to bring higher or lower mortgage lending volume?

    How low can they go?

    With earnings from three of the four biggest banks in, one metric stands in sharp relief. Mortgage lending just keeps plunging.
    …

  12. Finally some good economic news out of China!

    China’s new home prices rise 10.6% in December
    By MarketWatch
    Published: Jan 16, 2019 12:36 a.m. ET

    BEIJING–Growth in China’s home prices gained momentum in December from a year earlier, as some cities eased restrictions in the property sector amid signs of a slowdown in the economy.

    Average prices rose 10.6% in December, according to calculations by The Wall Street Journal based on data released by the National Bureau of Statistics on Wednesday. That compared with a 10.3% gain in November.
    …

    1. There is a huge number of federal employees and contractors whose continued employment depends on their continued eligibility to hold a top secret security clearance. Financial irresponsibility or mismanagement is a huge red flag, as it raises questions about whether you’re living beyond your means or might otherwise be a security risk. If the Washington D.C./Northern Virginia housing bubble craters, these employees can’t just walk away from their underwater shacks, as that could impact their security clearances, and livelihood. So a lot of them are going to spend the rest of their careers trying to get out from under their underwater shacks.

      2. “There is a huge number of federal employees and contractors…”

        Ditto for the Navy that is typically situated along the coastal regions where the bubbles are the among the largest.

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