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The Declines Have Prompted Many Investors To Cut And Run

A report from the Brookville Times in Canada. “Take heart, millennials, Toronto condo prices now averaging $560,000 may be on their way down The chill that has crept over some segments of the Toronto housing market may soon extend to one of its persistent hot spots: condominiums. Projects are taking longer to sell and, in some areas, developers are using incentives to move units.”

“‘There are cash incentives being offered, discount parking being offered,’ said Robert Gidwani, a broker at REsource Realty. ‘We’ve seen a bit more incentives especially in the resale market, we are seeing fewer multiple offers coming in.'”

“The question is whether condos will join the slump in the single-family home segment which are down almost 10 per cent from the peak last year, signalling a broader correction in the Canadian housing market. Carrying costs — mortgage payments, property taxes and maintenance fees — increasingly exceed rental income. That negative monthly cash flow reached $424 on average for resale condos in the first quarter of 2017, according to brokerage Realosophy.”

“Many investors will accept negative cash flow as long as they see price gains on the underlying asset. However sustaining the recent pace of price gains over the longer term may be difficult, the Bank of Canada said in a report this month. ‘If expectations reverse and prices recede, speculators may quickly sell their assets, which could lead to large, rapid price declines.'”

From Bloomberg on Hong Kong. “A shock jump in Hong Kong’s currency is signaling a decade- long liquidity party is finally coming to an end. That may be bad news for the city’s housing market. The Hong Kong dollar surged as much as 0.6 percent on Friday, its biggest gain in 15 years. While traders gave differing reasons for the move, the common theme was concern that the city’s borrowing costs will catch up with those in the U.S. as the Federal Reserve continues to hike rates.

“A currency peg with the U.S., open financial borders and a booming economy meant Hong Kong property was one of the greatest beneficiaries of ultra-low lending costs in the wake of the global financial crisis. Home prices rose more than 170 percent in the past decade making the city the world’s least affordable.”

“‘The market has underestimated the pace of interest rate increases in Hong Kong,’ said Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets Hong Kong Ltd. This ‘will bring pressure to the property market and leveraged home buyers.'”

“The three-month interbank rate, known as Hibor, was last at 2.125 percent, its highest level in almost a decade. ‘The short-Hong Kong dollar carry trade has come to an end,’ said Ken Peng, an investment strategist at Citi Private Bank in Hong Kong. ‘Friday’s move suggests borrowing costs in Hong Kong have tightened a lot and will tighten further.'”

“While residential prices in Hong Kong’s secondary market have climbed 16 percent over the past 12 months, according to Centaline Property Agency, developers have begun to offer perks such as free rail tickets to accelerate sales. Some are selling apartments at discounts, and others aren’t providing mortgages due to concern that rising borrowing costs may increase defaults.”

From Domain News in Australia. “Value-hunters were thick on the ground at auctions of cheaper homes in Sydney at the weekend. Well-researched home buyers are increasingly targeting less expensive properties priced below the median price for their suburb.”

“Cunninghams’ managing director John Cunningham said all five registered bidders posted bids for an elevated apartment at 7/2B Kangaroo Street, Manly. The top-floor, two-bedroom unit with good views landed a $1.056 million opening bid and rose to a sale price of $1.306 million.”

“‘This is the marketplace. It is still a supply-and-demand marketplace and, therefore, properties are moving, albeit in our area probably at a good 10 per cent less than the prices they were getting 18 months ago.’ Cunningham said.”

“Across town, a three-bedroom townhouse in Rozelle drew seven registered bidders. McGrath Balmain fielded bids from five of the bidders before selling 4/66 Quirk Street under the hammer for $1.406 million. The selling price was above the $1.37 million reserve, but well under the Rozelle median house price of $1,643,750.”

From Perth Now in Australia. “Perth apartment prices in some inner-city suburbs have plunged to decade lows, unlocking the door for first-homebuyers. Comparing average weekly income figures to median unit prices reveals apartments in Perth are at their most affordable since 2004, before the start of the mining boom.”

“Average unit prices across the metropolitan area have tumbled 10 per cent from a peak of $450,000 in 2014 to now sit at $405,000. The falls have been even steeper in some areas, including Tuart Hill (-23.3 per cent in the past 12 months), Yokine (-21.6 per cent), Maylands (-18.3 per cent), Rivervale (-16.4 per cent) and Joondanna (-12.5 per cent).”

“Each suburb is within 10km of the CBD and apartments in all five now carry median asking prices at or below $350,000. The metro-wide declines, coupled with a tightening of credit, have prompted many investors to cut and run — just as thousands of apartments started construction. The result is a bargain bonanza, especially at the bottom end of the market.”

“NYT Property Group director Brock Robertson specialises in the Maylands area and said prices in the riverside suburb, less than 6km from the CBD, were at or below 2007 levels.”

“‘You can get a two-bedroom unit for under $200,000 now and a one-bedroom for under $150,000 — it is amazing what is available,’ he said. ‘A lot of these places are being sold by investors trying to cut their losses. If they have bought in the last 10 years most of them are losing money. The only people making a profit are people that bought pre-2005.'”

“Across Perth, almost 17,000 units received developmental approval in the four years to 2017. Just 1333 approvals were granted in the first seven months of 2018.”

“Real Estate Institute of WA president Hayden Groves said transaction levels in Perth were at their lowest since 1990, despite the city’s population and housing stock doubling in the three decades since.”

“‘Investors from five years ago who were on interest-only loans are now being forced to convert across to interest and principal and with no capital gains in that time and rents falling 20 per cent, a lot of them are dumping their stock,’ Mr Groves said. ‘That’s putting downward pressure on values and creating plenty of choice for first-homebuyers.'”

This Post Has 13 Comments
  1. ‘a decade- long liquidity party is finally coming to an end. That may be bad news for the city’s housing market’

    Oh dear…

    And Perth has got its a$$ kicked for years and now this! Could multi-year a$$ kickings be on the way for formerly hot-now- price-slashing regions of the US?

  2. ‘Across Perth, almost 17,000 units received developmental approval in the four years to 2017. Just 1333 approvals were granted in the first seven months of 2018’

    You read that right. Down double digits and still building like crazy. Yellen bucks going to money heaven.

  3. ‘Many investors will accept negative cash flow as long as they see price gains on the underlying asset. However sustaining the recent pace of price gains over the longer term may be difficult, the Bank of Canada said in a report this month. ‘If expectations reverse and prices recede, speculators may quickly sell their assets, which could lead to large, rapid price declines.’

    Are you really an investor if what you buy loses money? I mean, I could buy candy bars and say I’m investing, if that’s the case.

    ‘sustaining the recent pace of price gains over the longer term may be difficult, the Bank of Canada said in a report this month’

    That’s why you make the big bucks.

    ‘If expectations reverse and prices recede, speculators may quickly sell their assets, which could lead to large, rapid price declines.’

    Quickly? We are talking airboxes. What if speculators can’t sell cuz they all want to sell at the same time? Yikes!

    1. Exactly. Welcome back 2007. Happened once and again. Outside of higher rents at present, it is same old tune. If rents colapse, and that is the last support standing, then get ready to repeat history. Increase in interest rates and bond rates will expedite. Cash will talk.

      1. The financial media doesn’t talk about how TRILLIONS were lost on negative interest rate government bonds. Oh yeah, I’m gonna pay somebody to borrow my money! It’s the new normal, that was actually pretty brief. And now:

        ‘A shock jump in Hong Kong’s currency is signaling a decade- long liquidity party is finally coming to an end. That may be bad news for the city’s housing market. The Hong Kong dollar surged as much as 0.6 percent on Friday, its biggest gain in 15 years. While traders gave differing reasons for the move, the common theme was concern that the city’s borrowing costs will catch up with those in the U.S. as the Federal Reserve continues to hike rates.’

        “‘The market has underestimated the pace of interest rate increases in Hong Kong,’ said Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets Hong Kong Ltd. This ‘will bring pressure to the property market and leveraged home buyers.’”

        “The three-month interbank rate, known as Hibor, was last at 2.125 percent, its highest level in almost a decade. ‘The short-Hong Kong dollar carry trade has come to an end,’ said Ken Peng, an investment strategist at Citi Private Bank in Hong Kong. ‘Friday’s move suggests borrowing costs in Hong Kong have tightened a lot and will tighten further.’”

    2. They aren’t losing money if the price is going up. It has been the case for the last 6-7 years that prices of houses have been going up. So so long as you sell before the music stops you will come out ahead even if you lost a little each month on carrying cost.

      1. Except … while all the geniuses were investing, the property taxes and HOAs were going up at least twice or more the rate of inflation.

        When the music stops they will be paying a lot of attention to the negative cash flow

      2. “So so long as you sell before the music stops you will come out ahead even if you lost a little each month on carrying cost.”

        HAHAHAHA…. that’s pure speculation Johnny-boy. The problem is the music stops 6 months ago and IF they didnt sell at that time, you are LOSING money. There is only one exit door and now, millions of speculators are heading for it. Grab some popcorn and relax. The fun is only beginning.

    3. I could buy candy bars and say I’m investing…

      That would be stoopid, but you don’t have to be smart to be a degenerate gambler.

  4. Does that include all the Drug House communities (Free, new house per addict) in Seattle. All you have to do is become an addict to get a new build.

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