Friday, March 28, 2014

A guide to South Africa's economic bubble and coming crisis

A guide to South Africa's economic bubble and coming crisis
Unsecured loans, or consumer and small business loans that are not backed by assets, are the fastest growing segment of South Africa’s credit market and are essentially the country’s own version of subprime loans. Unsecured loans have grown at a 30 percent annual compounded rate since their introduction in 2007, when the National Credit Act was signed into law. Unsecured lending has become popular with banks because they are able to charge up to 31 annual interest rates, making these riskier loans far more profitable than mortgage and car loans in the low interest rate environment of the past half-decade. The unsecured credit bubble is estimated to have boosted South Africa’s GDP by 219 billion rand or U.S. $20.45 billion from 2009 to mid-2013.

Like U.S. subprime lenders from 2002 to 2006, South Africa’s unsecured lenders target working class borrowers who have limited financial literacy, which has contributed to the country’s growing household and personal debt problem. A 2012/2013 report from the National Credit Regulator showed that South Africa’s 20 million citizens carried an alarming 1.44 trillion rand or U.S. $140 billion worth of personal debt – equivalent to 36.4 percent of the GDP. In addition, household debt now accounts for three-quarters of South Africans’ disposable incomes.
Sadly, they seem to have stopped updating the data behind this widget, but for an illuminating chart, here is the old Clicks and Mortar from the Economist for South Africa.
Interestingly, house prices don't look alarming at relative to average incomes. Since this isn't a graph based on the median, it's possible that income disparity AND a credit bubble are making this chart look rational. South Africa's income disparity is among the highest in the world.

Sunday, March 23, 2014

Foreign buyers buying and demoing habitable homes in violation of rules

Outcry over house demolitions breaching Foreign Investment Review Board rules
But Mr Raimondo said: “There’s certainly heritage-featured homes that are quite habitable that are being bulldozed for huge French provincials selling for multi, multi-millions, three million.

“It may well be that some of that doesn’t comply with the FIRB rules.

“It’s been going on for some time now.’’

He said it was “obvious the majority of buyers in a certain area (are) doing this”.

Wednesday, March 5, 2014

Chinese, Canadians, U.S. and Singapore big buyers of Australian Real Estate

Locals priced out by $24b Chinese property splurge
Wealthy Chinese buyers have purchased $24 billion of Australia housing in the past seven years, and over the next seven years an additional $44 billion will be spent on residential property, Credit Suisse estimates.

Chinese top the list of foreign investors in Australian residential property. Chinese top the list of foreign investors in Australian residential property. There was $17.2 billion worth of approved residential property investment coming in from overseas in the year June 30 2013, down from $19.7 billion in the previous period, according to the Foreign Investment Review Board.

Foreign money is roughly 5% of the entire market. Deutsche Bank economist pins high costs on low interest rates and domestic buyers. But first time buyers appear to be feeling the squeeze.
First-time buyers in February comprised less than 10 per cent of all mortgages processed by mortgage broker AFG for the first time since June 2010.
The article goes on to list the ways foreign investment could be avoiding FIRB approval.

Tuesday, March 4, 2014

Moving money from Shenzhen to Hong Kong on the black market

Inside China's Underground Black Market Banks
“We have a relative in Hong Kong who does business in Mainland China,” one of the Zhous said. “Once a week, he visits us to pick up Renmenbi for his import business, and in return he maintains a pool of Hong Kong Dollars for us across the border. He is family, so we trust him. We all avoid the official exchange rates, and everyone is happy.” Unless a client makes an extraordinarily request, this exchange involves about $500,000 per week, though it could be up to fivefold that amount if it is a public holiday, like during Golden Week in October.

Friday, December 6, 2013

17 Countries with Housing Bubbles

According to Nouriel Roubini, cheap credit is driving up prices in some smaller (and not so small) markets. These 17 countries may have housing bubbles. If they pop, God help us all.
Roubini sees housing prices getting out of whack in quite a few small and mid-sized nations that are well-governed and managed to avoid the worst economic effects of the financial crisis: Switzerland, Sweden, Norway, Finland, France, Germany, Canada, Australia, New Zealand and the London metropolitan area in the U.K. He adds some key emerging markets that show the same dynamic: Hong Kong, Singapore, China and Israel, and major urban centers in Turkey, Indonesia, India and Brazil.
Hat Tip: 4SlicesofCheese at

Tuesday, October 22, 2013

London prices hit new highs on "frenzy"

Overseas investors are in a "frenzy". London house prices at new high
Asking prices in London saw an "unsustainable" 10 per cent month-on-month increase in October, pushing typical asking prices in the capital to STG544,232, leapfrogging a previous high set in July by more than STG28,000.
Prices across the country are 3.8 per cent higher than they were a year ago, although in London they have shot up by 13.8 per cent over this period, Rightmove said.

Monday, October 21, 2013

House prices in Netherlands down 4%, return to 2003 levels

September Data from Netherlands CBS

Prices for September are down over 4% year on year, a moderating of the fall that was -10% mid-summer.

Prices of existing owner-occupied dwellings were at the same level in September 2013 as in early 2003. They were 19.6 percent below the record level registered in August 2008. 

Rabobank thinks housing is undervalued
by 25 to 30 percent, and that prices will recover in another year. But admits that mortgage debt is already among the highest in Europe.

Worth noting that a gain of 30% would more than wipe out the entire decline since the change in world credit spurred by the crisis and would send prices to new highs.

Here are Dutch house prices against average income compared to Britain and US. You can decide if this looks undervalued and ripe for a rise.

Sunday, October 20, 2013

Real Estate Highlights of Credit Suisse Wealth Report

Global Wealth 2013

Along with most countries in the developing world, personal wealth in India is heavily skewed towards property and other real assets, which make up 86% of household assets.
Much of the pre-2007 rise was due to the appreciation of the euro against the US dollar. However, France also experienced a rapid rise in house prices, as a result of which real property now accounts for about two-thirds of household assets. Personal debts are just 12% of household assets, a relatively low ratio for a developed economy..
nterestingly, the composition of wealth is heavily skewed towards real assets, which amount on average to USD 294,100 and form 59% of gross household assets. This average level of real assets is the second highest in the world after Norway. In part, it reflects a sparsely populated country with a large endowment of land and natural resources, but it is also a manifestation of high urban real estate prices.
The long-term rise in real estate was interrupted only briefly, and since 2008 the market has seen both new construction and house price increases. Rapid growth in mortgages has fuelled a continuing rise in household debt. Mortgage terms were tightened in 2012 and the market cooled somewhat, but there are continuing concerns. It is not clear whether the final landing will be soft or hard.

Thursday, October 17, 2013

Dubai renewed boom spurs calls to remember the crisis

Dubai property sector comeback stirs fears of new bubble
Some residential property has bounced by about 20 percent, said Alan Robertson, chief executive officer for the Middle East-North Africa region at Jones Lang LaSalle property consultancy.

"We think prices will continue to grow quite quickly over the next 12 months, but over the next 24 months we will see the rate of growth slow down," he told AFP, adding that prices were still 20 to 30 percent below their 2008 peak.

Parable for the Spanish Bubble, Deer take over 37 million euro estate

Two years ago the 37-million euro Spanish hunting lodge overrun by deer a parable of property bust
Now, just two years after he lost the property to the bank, wild sheep roam at will and with no hunting, the deer population has multiplied more than fivefold, said Fabian Vinagre, the caretaker of the estate near the Spanish city of Caceres 305 kilometers (190 miles) west of Madrid.
Sareb’s sell-off is part of the process of Spain’s recovery from a five-year slump that caused property prices to plunge more than 30% and drove default rates on loans for real estate activity as high as 31%.
Even so, Spain’s property market slump is still deep. House sales fell 15% in August from a year earlier and home- mortgage approvals fell an annual 43% in July, according to Spain’s National Statistics Institute. Fitch Ratings said today the non-performing loan ratio for mortgages increased to 5.2% from 4.1% last quarter.