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Lower Valuations, Rising Defaults, Major Discounting, Falling Rents And Over-The-Top Incentives

A report from Daily Mail Australia. “The bank account of China’s youngest female billionaire has taken a hit after she sold her luxury pent house apartment in Sydney for a loss. ‘Nancy’ Zetian Zhang sold her three-story penthouse overlooking the Sydney Harbour Bridge at The Rocks for $13.5million – $2.7million less than she paid for it. The 2015 sale was the top price for an apartment sale that year.”

“The property was put up for sale again in June 2017 with the asking price of $18 million. However, the price tag dropped to $15 million early last year.”

From News.com.au. “Sam Karagiozis has always been a big believer in bitcoin. And he was prepared to put his money where his mouth is, investing $15 million to roll out the first ever nationwide network of bitcoin ATMs several years ago through one of his companies, Auscoin. But then, the crash happened.”

“Today, one bitcoin is worth $4946 — and Mr Karagiozis estimates he’s lost around $3 million as a result. It’s not just bitcoin that has caused Mr Karagiozis’ profits to take a hit — he estimates he has also lost a further $2 million thanks to Australia’s housing market downturn.”

From Mirage News. “Off-the-plan units top the list of the most perilous property investments, and the risks will rise dramatically if changes to negative gearing and capital gains tax go ahead, according to Riskwise Property Research CEO Doron Peleg.”

“‘So, when a market is already weak, for example off-the-plan units in an over-supplied area, as we see in capital cities around the country, this will contribute further to the price reductions,’ he said.”

“He said an example of this was inner-city Brisbane where weakness in the market had led to lower valuations, rising defaults on settlements, major discounting, falling rents and ‘over-the-top’ incentives to get buyers across the line.”

From ABC News. “Property analysts are predicting the Opal Tower effect to hit the value of Sydney’s off-the-plan apartment market in the coming months, contributing to what one expert is calling Sydney’s ‘feeding frenzy of negativity.'”

“Tens of thousands of new units get set to hit the local market this year — creating an expected oversupply in Sydney — property analysts say the flow-on effect of the Opal Tower drama, combined with softened market conditions, will create a ‘new reality’ for new apartment owners and investors.”

“‘There’s so much uncertainty out there now,’ said Andrew Wilson, chief economist at My Housing Market. ‘There’s a high-point of supply in the market and a general retreat in buyer confidence. And then Opal Tower happened — it couldn’t have come at a worst time for developers.'”

“However the January period is traditionally a quiet time for the housing market, and AMP chief economist Shane Oliver said the true impact of Opal Tower would not be known until February when ‘normal activity’ returned to the market.”

“‘But what we do know is investor and buyer demand has fallen sharply, even before Opal Tower,’ he said. ‘And now to add to that there’s uncertainty of the finished product — that’s going to make it so much more difficult to sell off the plan.'”

From Whimn.com.au. “I am an active member of Generation Rent. Over the past ten years I’ve willingly helped numerous homeowners chip away at their massive mortgages while I’ve sat back, chomping on my smashed avo, copping rent increase after rent increase.”

“But now renters are finally getting their revenge. Recently I decided to try my hand at negotiating a rent reduction, and I won. Thanks to a little research and one email to my property manager, I’m now saving $1500 a year on rent.”

“LJ Hooker’s Evelyn Daoud has been a real estate agent for a decade and said this year has been the first she’s ever experienced rent decreases. And she says more are on the way as the market continues to fall.”

“Estate agent Wendy Flanagan says she’s telling nervous landlords the rental market is the worst it’s been in 13 years and to expect further falls as a wave of brand new apartments flood the market. ‘Owners are taking a hit just to get their properties leased, otherwise it could sit vacant for weeks on end,’ said Ms Flanagan.”

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This Post Has 32 Comments

  1. ‘Owners are taking a hit just to get their properties leased, otherwise it could sit vacant for weeks on end,’ said Ms Flanagan.”

    I don’t know why any renter would ever deal with an accident landlord, unless they priced the rent so low you couldn’t afford not to. That just seems like an inherently unstable arrangement.

        1. The one on Silicon Valley start-ups. As of right now, it’s on the second page of aggregated stories.

    2. At this point, it looks like unless the sellers bring down the price by about 10-15 percent, there will be no takers. I am seeing houses priced at $1.6M to $1.8M sit in the market for 50, 60, 70 days in West San Jose, one of the more desirable parts of the city – given its proximity to Apple and other Si Valley companies. Perhaps the sellers should bring down the list prices to the $1.4M to $1.6M range and see what happens..

  3. FWIW: I ran across this chart …

    https://www.hussmanfunds.com/wp-content/uploads/comment/mc190118a.png

    Here’s some accompaning verbage …

    “In recent days, we’ve heard a number of analysts gushing that the S&P 500 is vastly cheaper than it was only a few months ago. It’s worth noting that they’re actually referring to an index that is now less than 10% below the steepest speculative extreme in history. The chart below puts current valuations into perspective, using our Margin-Adjusted P/E, which is better correlated with actual subsequent 10-12 year market returns than the price/forward operating earnings ratio, the Shiller CAPE, the Fed Model, and a wide range of alternative valuation measures that Wall Street uses to reassure investors that valuations are anything less than obscene.”

  4. I’m wary of anecdotal losses from celebrities and billionaires. They are known to deliberately pay over market when they buy, because not getting what they want isn’t an option. It’s the $200k-$2M crowd I’m watching.

    1. “It’s the $200k-$2M crowd I’m watching.”

      The folks who recently came down with a collective case of cold feet regarding real estate purchases?

  5. “Today, one bitcoin is worth $4946 — and Mr Karagiozis estimates he’s lost around $3 million as a result. It’s not just bitcoin that has caused Mr Karagiozis’ profits to take a hit — he estimates he has also lost a further $2 million thanks to Australia’s housing market downturn.”

    At least he had the good sense to diversify his HODLings.

  6. Is it safe to assume the stock market will immediately resume its ascent following today’s baby bear dip?

    1. The Financial Times
      Global Market Overview Markets
      Global growth worries weigh on Asia stocks
      Yen slides after Japanese exports data show fall in shipment
      Hudson Lockett in Hong Kong 32 minutes ago

      Wednesday 05.15 GMT
      What you need to know
      – Stocks broadly lower in Asia after rough day on Wall Street
      – Renminbi rises as PBoC boosts liquidity ahead of holiday
      – Yen lower after Japanese exports fall, BoJ lowers inflation forecast

      Overview

      Asia-Pacific equities were mostly down on Wednesday amid weakening sentiment over global growth and concerns about trade talks between the US and China. Japan’s yen eased after trade data showed the sharpest drop in exports since 2016 and the Bank of Japan trimmed its inflation outlook, while the renminbi gained on a liquidity boost from China’s central bank and crude prices stabilised after falling during the previous session.

      Hot topic

      Stock markets were heading lower in Asia on Wednesday after a rough day on Wall Street, where the S&P 500 finished the day down 1.4 per cent on the return from a long weekend and after the Trump administration rejected an offer from Chinese officials to travel to the US this week for preparatory trade talks.
      …

      1. The Financial Times
        Market dashboard
        Capital markets
        Analysts grow gloomy on global profit growth
        Dim forecasts buck the upbeat trend of recent years
        Robin Wigglesworth
        2 hours ago

        Wall Street’s expectations for global corporate profit growth have dimmed significantly, with analysts now forecasting that earnings-per-share will rise just 6.5 per cent in 2019. That comes as concerns grow over the fading health of the international economic expansion that excited investors just a few months ago.

        Back in October the consensus estimate of investment bank analysts was that global EPS would grow 10 per cent in 2019. The downgrade to less than 7 per cent now, reflects cuts in forecasts across the US, Europe and the developing world, according to strategists at Citi.
        …

      2. Finally a silver lining in the gloom weighing on the stock market!

        Opinion: That steep drop in consumer sentiment is actually good news for stocks
        By Mark Hulbert
        Published: Jan 22, 2019 10:41 a.m. ET
        S&P 500 tends to perform better following low readings than after high ones
        Getty Images

        CHAPEL HILL, N.C. — The recent huge plunge in consumer sentiment is good news.

        That’s because consumer sentiment is a contrarian indicator. The stock market tends to perform better following low readings than after high ones.
        …

        1. Yes, of course! Gloomy consumer sentiment means that the despondency stage (of the cycle) has set in, and we all know what the next stage is. To the moon, baby!

          What’s great about this is that the bull lasted 10 years, and it only took a few weeks to correct it.

          1. What’s great about this is that the bull lasted 10 years, and it only took a few weeks to correct it.

            Just shows you how smart “they” really are. We should stop questioning them and just enjoy it.

    3. Investors’ Rush To Cash Signals More Big Declines Ahead
      By Mark Kolakowski
      Updated Jan 22, 2019

      Investors are increasing their cash balances at the fastest pace since the financial crisis year of 2008, and that may be an ominous signal for the stock market. In the fourth quarter of 2018, the balances in money market funds jumped by $190 billion, while an additional $2 billion was added during the first 17 days of January 2019, per Lipper Research, a division of Thomson Reuters. Based on history since 1952, the S&P 500 Index (SPX) has tended to fall in years when cash allocations rise, Goldman Sachs finds.
      …

  7. I’m loving the gasoline prices under $3/gallon. I paid $2.939 at Costco today…the lowest price I paid in many months.

    1. The Wall Street Journal
      Commodities
      Oil Falls on Fresh Demand Worries
      Analysts expect slower growth in China and around the world to lower consumption of materials
      By Christopher Alessi and
      Amrith Ramkumar
      Updated Jan. 22, 2019 3:36 p.m. ET

      · Oil prices fell Tuesday, pausing a recent recovery on fresh worries that slower global economic growth will lead to lower fuel consumption.

      · Brent crude, the global oil benchmark, fell $1.24, or 2%, to $61.50 a barrel on London’s Intercontinental Exchange. Prices are up 22% from their Dec. 24 16-month low but still 29% below their Oct. 3 multiyear high
      …

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