Wednesday, November 30, 2011

Generation Squeezed in BC

Housing, child care stings 'Generation Squeezed'
With a combined income of $92,000, he and his wife could qualify for a $500,000 mortgage. But Atkinson said the minimum $25,000 down payment is too rich for him and his young family.
Banks are approving at a 5.16x multiplier of salary in a country where there is no such thing as a 30 year fixed mortgage? And people claim there is no subprime.

"We'd have to save up for at least five, six years just to get a decent down payment…and that's really frustrating," he said.
I have bad news for you. If you can't save up for a down payment, then you certainly can't save up for the emergency fund you need to keep a house operating. Houses can ding you for 25k with no warning. If you aren't that liquid, you need the security of the kind of predictable monthly expenditure that one can only get through renting.

A recent study from the UBC Early Learning Partnership found that young families are bringing in roughly the same income as those before them did nearly 30 years ago, even though most families are now duel-income.

Kershaw said while household incomes have flat lined, housing prices have not -- rising 76 per cent in the same period since the 1970s.
THIS is the real issue for this generation. Relative to their parents, where does all the wealth this couple generates working end up? Is it going into more expensive advanced health care? Is it going into supporting the now larger generation before? Is it being distributed upward to a greater degree? Or, most likely, a mix of all of the above?

The wealth shifted away from the pocketbooks of the middle class, but for some crazy reason, house prices continued to mount. That is the essence of the problem. Debt has been substituted for wages and excessive credit issuance is reflected clearly in the rise in price of the most widely leveraged asset: the family home.

"Squeezed" doesn't quite cover it.

Canadian House Price Index Shows Stall has published the September data.

The only remaining city still truly defying gravity is Winnipeg. Ottawa and Quebec City are showing peaks.

In other, possibly related news, the major central banks of the world are again mistaking a solvency crisis for a liquidity crisis, and the markets are ecstatic about this.

Vancouver Realtor: 90% of High-End Buyers are Foreign

Another data point in the foreign influence debate.
Should there be restrictions on ownership of real estate in Metro Vancouver?
Moore says almost 90 per cent of higher-end house buyers are foreign.

“They seem to find Vancouver and the Lower Mainland to be a safe place to live, in terms of worldwide, and they do like our weather, and it doesn’t seem to be slowing down since they began looking for homes in the ’80s,” says Moore. Condominiums are a different story, though, where he estimates it to be more of a 50-50 mix, although he admits 26 of the 28 units he sold at a new complex on Royal Oak recently went to those of Asian descent.
There's the rub with an informal survey. Asian descent doesn't tell you anything about foreign money.

Although much of New West is high on a slope, it hasn’t seen the same pressure from foreign buyers.

. . .

However, Goodwin has noticed many of the South Asian builders that buy land in Burnaby to construct big homes and sell them, are now targeting New Westminster’s West End for its big view lots.
Pilothouse Marketing’s Craig Anderson has been project manager for three recent new developments that went on sale in the city—Brickstone Walk, 8 West and 258, and he estimates 35 per cent of the buyers for the last two were mainland Chinese.
The Real Estate Board of Greater Vancouver doesn’t track specifically where foreign buyers are purchasing homes. However, president Rosario Setticasi says a regular informal poll of up to 400 realtors reveals only about 10 to 12 per cent of home purchases are by foreign buyers.
10-12 percent is enough to boost a market. It's certainly enough to utterly juice a few select submarkets.

Tuesday, November 29, 2011

Vancouver is a Balanced Market

Have to note this for the future. Brian Morton. We'll check back in on him later.

“The threat of a bubble has largely dissipated,” senior economist Robin Wiebe said of Metro Vancouver. “But, really, there never was one.

“When prices rise, new supply is attracted to the market. And that's what's happened.”
Actually, when the supply increases during a speculative frenzy, you just get more objects to trade with in a speculative frenzy. The laws of supply and demand left the building exactly when the increase in price triggered an increase in demand.

According to the index, the average price in Metro Vancouver was $774,000 in October, two per cent more than September and 15.3 per cent more than October 2010.
A gain in excess of inflation is not balanced.

The Fraser Valley was in a balanced market, with prices up 9.6 per cent year-over-year to $494,000, but Victoria was considered a buyers' market, with prices down 7.1 per cent year-over-year to $490,000.
Why is falling prices a buyers' market exactly? Sounds like a perfect wait for a better bargain market.

No mention of how much additional credit needs to be issued to sustain these gains "with sales of the expensive homes having moved through the system." (read: foreign $) and where that credit is going to come from to even match the recent gains ongoing. If the shift in buyers is real (they admit it is) where is that money going to come from?

Hat Tip: Smokin' Jayne commenting at VREAA

Monday, November 28, 2011

Jim Chanos on His Trip to Australia and Hong Kong

Video at the link below.
Chanos Says China Bank System `Extremely Fragile'
Our concerns about what we saw in Australia: an economy clearly tied to China, has hitched its wagon to the tail of the tiger.
The banking system in China is extremely fragile. . . . In fact because of what happened in the last two crisis in 99 and 04 when non-performing loans went crazy in China, without even a recession, the Chinese banking system was not recapitalized like ours was, it was papered over. So going into this credit expansion Chinese banks are sitting on lots of bonds from these so called asset management companies from 99 and 04 and they are keeping them on their books at par, at full value. In the case of Agricultural Bank of China, which we are short, those restructuring receivables are equal to over 100% of their book.

And when they talk about those foreign reserves of 3 trillion dollars, what everyone forgets is there is liabilities against that. And everyone seems to think it is just a free and clear open checkbook. It's not.
There is a growing sense that the Chinese government will ease. What we point out is their credit this year is going to grow between 30 and 40% of Chinese GDP. If that's tight, I'd hate to see . . . [Betty: what loose would look like.]

OECD Notices China Has a Problem

And they don't mince words.

Real-Estate Risks Overshadow China’s Economic Prospects, OECD Report Shows
“While the exit of small developers would not pose a problem, the failure of large promoters could put some bank lending at risk, perhaps triggering negative chain reactions,” the Paris-based OECD said in a report today. “A key risk is an overly quick liquidation of unsold property.”
And there is a lot of unsold property, not including up to 64 million empty apartments.

China’s economy, the world’s second biggest, will expand 8.5 percent next year even as export growth is pulled down by weak demand and a decline in the nation’s competitiveness, the report said.

Elsewhere in Asia Pacific, Australia has scope to cut interest rates should Europe’s sovereign-debt crisis stall global growth, the OECD said, a scenario investors already are betting on.
If downside risks to the international economy materialize, “monetary policy should be eased significantly to sustain demand in the context of moderating inflation,” the OECD said. Australia’s government could also boost spending, it said, though that would delay a pledged return to a budget surplus in 2012-13.
So, imagine this. Australia cuts rates, but that only applies to the domestically funded 2/3 of a mortgage. International appetite for Australian mortgage debt will not necessarily increase proportionally to track the same rates. In terms of funding mortgages, Australia's central bank is not in full control.

Affordability Index for Vancouver at 90.6%

Real estate becoming more affordable: RBC
Everywhere except the large metropolitan areas, that is.

For example, an affordability reading of 50% means that home-ownership costs, including mortgage payments, utilities and property taxes, take up 50% of a typical household's monthly pre-tax income.

The index in Vancouver stands at 90.6%, Toronto 52.1% and Montreal 40.9%.

Sunday, November 27, 2011

This Sure Doesn't Sound Like a Place with a Housing Shortage

Empty Richmond houses attract metal thieves
Thieves are breaking into abandoned Richmond residences to steal valuable metals such as copper and aluminum, RCMP said on Tuesday.

It's so common it's called urban mining.

The thieves break into empty homes and take copper pipe and wiring, radiators, appliances and aluminum-framed doors and windows for the metal to sell to scrapyards.

Housing Starts in China, Including Affordable Housing at 2.2% year-on-year

Also, the manufacturing sector is expected to have fallen into contraction. And since exports are up nearly 16%, this points to a pull back in domestic demand, the only thing that can rescue the economy.

China May Find It Hard to Break Fall
Wang Tao, China economist at UBS, estimates that new housing starts fell to 2.2% year-on-year in October. More alarming, that number includes government investment in affordable housing that was meant to ride to the rescue as private investment slowed.
This certainly implies that the big central government push for affordable apartments has failed.

Can China Rescue Its Economy?
Most worrisome, it appears that the factory sector is shrinking due to weakness in domestic, as opposed to export, orders.
Unfortunately for Beijing, its technocrats have already expanded their money supply to stratospheric levels. China’s M2 was 34% larger than America’s at the end of last month, even though its economy was less than half the size of ours. China’s money supply increased rapidly in the last three years, creating today’s high rates of inflation. Inflation, which came down rapidly last month according to the Bureau of National Statistics, is still uncomfortably high, perhaps more than twice the official figure.

In view of this, Beijing’s only real option is to buy GDP growth by direct spending, what some call “tidal wave investing.” The center can spend, but China has already built its “ghost cities” and other unviable projects, from one end of the country to another. A signal from Beijing that it was spending again would definitely buoy sentiment, yet technocrats no longer run a command economy and have limited means of forcing investors into projects that look unprofitable.

Ordos Has Fallen from up to 13,000CNY/sqm to Average of 3,000CNY/sqm

So says the HK Standard.
Stay cautious as bubbles burst amid tighter money
Real estate prices in Ordos are said to have dropped sharply to an average 3,000 yuan per sq m. So not only is de-leveraging occurring in Europe and the United States, it is in China too to a certain extent.

Don't underestimate the effect on Hong Kong, where the stock market plunge has caused investors to lose huge amounts in the past few months.

Meanwhile, property developers have started selling flats below secondary market prices.

Saturday, November 26, 2011

Melbourne Auction Clearance Rates Worst in 7 Years

The article says sellers were spooked into pulling houses off the market. That's a bit confusing. Do they want to sell them, or not? This is the part of the market where the real estate agents' rhetoric comes back to bite them.

Only half of all houses up for auction in the past month drew purchases
Just half the properties going under the hammer have sold in the past four weekends - the worst run of auction results in seven years.

About 1000 homes will still go for auction today and tomorrow, the most in a weekend since early this year.
This weekend is the biggest for auctions since February 27, when 994 properties went under the hammer.

"The clearance rate that weekend was 64 per cent," Mr Larocca said.

Friday, November 25, 2011

30% of Australian House Funding Comes from Overseas

Why? Why do Australians borrow money from abroad to buy overpriced houses from each other?

House prices at risk from Europe crisis
The implications of another meltdown in credit markets are dire. Roughly a third of the funding for Australian mortgages comes from overseas bond markets. Were a third of the big banks' sources of capital to suddenly dry up so would credit for housing markets here. Ergo, price drops.

Ontario Wharf Condos Going Under the Hammer

Going once, going twice ... Muskoka Wharf suites to be auctioned off

Full ownership condo-hotel suites previous asking up to $375,000 going for reserve of $85,000
Conventional condos previous asking up to $650,000 going for reserve of $155,000
Commercial space previous asking up to $507,900 going for reserve of $120,000

80% of Construction Companies in China Say Builders Behind on Payments

And 27% of builders said developers want to slow construction.

Most Chinese Builders Face Payment Delays, Credit Suisse Says
“We have put a full stop on land purchases,” Vice President Alex Liu said yesterday in an interview in the southern Chinese city of Guangzhou, which neighbors Zhongshan, where Agile is based. “We’ll stop for at least the next three months and probably assess the situation again after Chinese New Year.” The Lunar New Year runs Jan. 23-25.

Land purchases by Chinese developers plunged 42 percent in the first 10 months this year, according to China Securities Journal, citing data from B.A. & 515J Group. Residential land spending dropped to 65.7 billion yuan ($10.3 billion) at top 10 developers by sales, the newspaper said. The property companies, which include China Vanke Co. and Poly Real Estate Group Co., spent more on residential sites in the less affluent tier-two or tier-three cities than in the metropolitan areas for the first time, the newspaper said today.

Economist Warns More Housing Markets Have Turned

UPDATE: Original Economist Blog Post is here
Based on the average of the two measures, home prices are overvalued by about 25% or more in Australia, Belgium, Canada, France, New Zealand, Britain, the Netherlands, Spain and Sweden (see table). Indeed, in the first four of those countries housing looks more overvalued than it was in America at the peak of its bubble.

Warning of plunge in house prices
''The latest global house price indicators are now falling in eight of the 16 countries surveyed by the magazine, compared with five countries in late 2010,'' the magazine said.
Using price-to-income ratios - a gauge of affordability - and price-to-rent ratios, The Economist said home prices were overvalued by 25 per cent or more in Australia, Belgium, Canada, France, New Zealand, Britain, the Netherlands, Spain and Sweden.

Charts below are from here
Ireland and the U.S. are approaching a normal market (where affordability is at long-term historic norms), so they are included as a metric. Britain and Spain are still adjusting. Australia, despite the year and a half of decline, is still second only to Hong Kong (and South Africa, which is not shown) in being over priced.

Looking at prices relative to rent, which adjusts for pure demand for shelter, the chart shifts around. France pulls into the lead for most overpriced, and New Zealand, Canada join Hong Kong.

That could be exacerbated by a looming credit crunch, the magazine said.

But the analysis did not account for local supply and demand factors, the Real Estate Institute of Victoria said.
REIV is delusional. Those buyers aren't paying with local cash. A global credit crunch does not have to abide underlying demand. Buyer will can't be expressed as high prices if the creditors pull back.

Wednesday, November 23, 2011

Dot Com Chinese Style

China Real Estate posts 3Q loss as market cools
The Chinese real estate information and consulting company posted a loss of $413 million, or $2.94 per share, down from earnings of $6.6 million, or 4 cents per share, in the same period a year earlier.

Revenue grew 47 percent to $69.2 million from $47.2 million.

Tuesday, November 22, 2011

Mortgage Your Future, Please.

Anything, ANYTHING to keep the sagging bubble inflated and the commission checks rolling in. Mortgage everyone's future. Sacrifice every last dime of credit. The bubble must continue.

Real estate lobby group pushes for Canadian-style first home buyers scheme
The Real Estate Institute of Australia is urging the government to adopt a successful Canadian scheme that allows first-home buyers to tap into their superannuation to assist with making their first purchase.
The Canadian Home Buyer's Plan has been in operation since 1992 and allows first-home buyers to withdraw up to $25,000 from their retirement savings plan to purchase or build a home.
The scheme has proven popular, with nearly 1.4 million Canadians withdrawing money from their retirement savings to participate in the plan between 1992 and 2004.
"The Canadian Home Buyer's Plan is the perfect example of this proposal in action and REIA would like to see it implemented in Australia as a solution to overcome the problems faced by first-home buyers."
Newsflash. They aren't participating because prices are too high. If there are no longer enough buyers at elevated prices, then prices will come down until those buyers can enter the market, entirely with traditional financing. Encouraging them to borrow from themselves serves only those with an interest in propping up the market; it does not serve the buyer. The repayment requirement to the retirement plan will still be part of the household's ongoing debt load.

Shift in Structure of Developer Financing to Bubble Model Leaves Hole When Banks Get Conservative

This is rather interesting. Without a bubble to drive presales, developers are dead in the water. This structure accelerates the cycles by cutting off new development until there is enough shortage to drive credit excesses and start the cycle again.

$1 billion in distressed property on the market
I've heard one agent claim that there aren't developers in the old sense of the word anymore, just facilitators between banks and buyers.

Developers don't build a project and sell it - projects can only be financed to be built if they are pre-sold. And you can't pre-sell a project for site you want to buy from a receiver.

The banks' wariness of lending to developers while still recording writedowns in the sector is leaving those parts of the economy dependent on construction weak, with the Gold Coast the clearest example.

The Reserve Bank's latest statement on monetary policy not surprisingly reported credit remains tight for developers. Except for those fortunate enough to be cashed up, developers can't borrow and therefore they can't buy, leaving the banks to hold written-down property portfolios that aren't producing income.

Monday, November 21, 2011

RBC Predicts Canadian House Price Rise in 2012 Except for BC

Canada’s housing market forecast update
British Columbia
2011 forecast average: $603,300; 2012 forecast average: $593,200
2011 forecast gain: 8.9%; 2012 forecast gain: -1.7%

2011 forecast average: $357,100; 2012 forecast average: $358,900
2011 forecast gain: 4.9%; 2012 forecast gain: 0.5%

In terms of prices, the gains expected this year now generally appear to be a little stronger than previously projected (5.3% overall in Canada versus 4.9% previously) but are still unlikely to move very much next year (now projected to rise 0.5% overall versus 0.1% previously)
They underestimated 2011 gains and tweaked up the forecast for 2012. The report is good news for those in favor of a massive wealth transfer between generations. Young and want to set up house without renting? Jump on the massive debt bandwagon with the proceeds going to the generation before you.

1 in 5 Vancouver Homes and 1 in 20 Toronto Homes Sold for over $1 Million

Canada House Prices: 1 In 5 Vancouver Homes Now Sell For More Than $1 Million
CREA's data shows the percentage of homes sold above the million-dollar mark has doubles since 2009. The same is true for Toronto, where more than 5 per cent of homes sold this year went for more than $1 million. That's double the percentage in 2009.
This doesn't mean that 1/5 of the homes in Vancouver are worth a million. Houses that are being used speculatively are brought back to market faster than the norm.

Saturday, November 19, 2011

Digging Deep for the Last Wave of Buyers in Vancouver

‘Mingles’ moving housing markets
Single women are the latest target demographic for the real estate ponzi scheme. Fun times. Can't afford it alone (meaning a $500k apartment. APARTMENT.), you and a friend can go into massive debt together.

Much of the desire for homeownership is driven by fear of being priced out of the market. The Real Estate Board of Greater Vancouver says the benchmark price for a detached home in Vancouver is $884,778, but even a condominium apartment has a price tag of $402,702.
Buy now or be priced out forever! Where have we heard that before? Oh yeah, here.

“They look at rental rates in an era of low vacancy and they figure they can put their money to work for them,” Mr. Simpson says. “They want to jump on the equity train right away and build equity.”
These numbers only work in a rising market, meaning one tracking significantly ahead of inflation. Otherwise, not so much.

She is part of a trend that adds an extra stage to the housing market.
Ha, they actually admit it in the article. An extra stage before . . . what? Didn't seem to finish the thought here.

“I would say a lot of my friends are doing this,” says Ms. Yan. “People are getting married later in life, too. Weddings are so expensive. I figured I would invest in an asset for now. I know it’s not my final home.”
Fortunately, there is always the option of elopement.

“They’re not getting married, so they should get on with their financial lives,” he says. “They have cash flow increasing and they can afford it, plus financially it makes tremendous sense.”
It makes tremendous financial sense to go illiquid at the point in your life with the most uncertainty about where you will land long term. Maybe that's part of what is going on here, that uncertainty is stressful and to solve it these kids take years of savings and leverage it into a deed, therefore removing the stressful uncertainty. You WILL be in that apartment paying that mortgage. I guess this is one way of keeping those young'uns in Vancouver, bury them deep in a debt trap.

Real Estate Funds Attracting Investors in Chinese property -- well, not exactly

Real estate funds rush to enter China
The Hong Kong-based CITIC Capital Holdings Limited announced this week that the CITIC Capital China Retail Properties Investment Fund completed its first phase of funding earlier this month, closing at $225 million.
The fund, which attracted institutional investors from the United States, Europe and Asia, aims to raise a total capital commitment of $600 million and is focused on retail property and mixed-use development with a substantial retail portion in China's second- and third-tier cities, according to the company's statement.
Soros' fund is also rumored to be planning adding Chinese real estate to its portfolio.

The kicker is this:
"From the beginning of 2012, there should be good investment opportunities," he said.
He expects the market correction to last one and a half years. But "if the market correction takes longer, say three years, we'll focus on China's second- and third-tier cities in the first one and a half years and then center on first-tier cities in the second one and a half," he said.
They are getting in a position to vulch.

Tuesday, November 15, 2011

Dim Sum Bonds Surging

Up six-fold since last year. Some big names issuing yuan debt.

China Wary of Choking on Dollar Driving Hong Kong Dim Sum Bonds
Reflecting a trend, McDonald's Corp. issued 200 million yuan of debt in August 2010, marking the first Dim Sum deal by an overseas nonfinancial company.

Bond sales by Caterpillar Inc., Volkswagen AG and Tesco Plc, leading a charge of over 80 issuers, could bring total sales to 230 billion yuan ($36 billion) this year, a sixfold jump from last year, according to HSBC. The lender forecasts Dim Sum bond sales could total as much as 310 billion yuan in 2012.

Dim Sum bonds are a way for China to hedge its dollar bets. The world's second-largest economy is promoting the use of yuan in global trade and finance because the weakness of the U.S. dollar may hurt its record $3.2 trillion in foreign-exchange reserves.

Australians Becoming Reluctant About Buying Houses

Percent of people intending to buy a house in the next 12 months:
January 2011: 21.6%
May 2011: 19.1%
September 2011: 16.9%

I don't know historically what percent act on their intent every year, nor do the older surveys include this data point, but that's some serious churn even it if it's half. If transaction costs are 10% of $450,000 (the median this year) and half of those 22% with intent actually bought, that would be $4500, averaged across all households, being thrown away on real estate transaction costs. About what is spent on clothing/footwear and health care combined.

Property buying losing appeal even as prices retreat
The survey said buyer reluctance was reflected in price expectations, with 46.4 per cent of respondents predicting lower house prices next quarter, more than double (20.9 per cent) the figure nine months ago.
Takes a while for change to sink in with people.

Monday, November 14, 2011

The Province Asks if It's Time to Curb Foreign Real Estate Purchases

Is it time to curb foreign real-estate buying in Vancouver?
Not only does this speculative buying seem to be driving housing prices into the stratosphere - Re/Max recently reported the sale of Vancouver homes worth more than $2 million rose by 118 per cent in the first four months of this year - it's starting to have a corrosive effect on the economy as young people start to leave the city in search of affordability, she said.

"This erosion is really undercutting our future sustainability and other strengths," she said. "We are losing a generation of young people."

Basically, this is a perennial blog topic gone mainstream. And the comments on the article show it. A lot of vicious language in there and foregone conclusions.

Underpinning the article is the steadfast belief that Canada welcomes all comers and that belief restricts how this topic is approached, in contrast to a blog, anyway. They gave examples showing the broad range of uncertainty about how much market influence was in play. They quoted good old Cam Good, who is always got his mug plastered on articles of this sort. He whines a bit about whiners, funny enough. But the article fails to address the most interesting question regarding this topic, which is, what is the economic background of this wave of immigrants? I'd love to see a survey on this, but I know that's a dream.

The Chinese system doesn't operate the way the Canadian (or U.S. one does). It rewards people for different things. This wave represents the most successful players out of that system. How many of these sometime immigrants are from the private sector. How many were bureaucrats? How many from state-owned enterprises? Money is influence, even though the numbers aren't huge (11k 12k a year?), their influence is presumably in excess of the numbers, so I find it surprising that their origins are so opaque. Canada just sort of happens by accident like that, and apparently likes being that way so no one collects any data (or publishes what they do have).

On the upside, having this wave sink their cash into overpriced real estate guarantees they will lose half of it while funding a few retirements, so there is that.

Sunday, November 13, 2011

Everyone in China Has Their Finger in Real Estate

The Henan Soong Ching Ling Foundation with assets of $476 million is being investigated for its real estate dealings. It spent $140 million on charitable activities last year. It failed to explain the source of the funding for a $63 million dollar, 24 meter stone statue of the founder. (Click the link below for a picture.)

Probe into charity's real estate spending
A report by Xinhua News Agency revealed the foundation raised a great deal of money selling health insurance in the vast rural areas of Central China's Henan province, some of which was then lent to property developer.
The agent, who has run the business since 2007, added that the project named "charitable health insurance" was run in such a way that it would appeal to villagers. He explained that most farmers chose to buy the insurance as they were promised they would receive an annual 400 yuan in interest once they paid 10,000 yuan in premiums.

Saturday, November 12, 2011

The Anatomy of Blame in a Real Estate Collapse - Ireland

Irish Real Estate Tycoon Declares Bankruptcy in Belfast
Sean Quinn, an Irish property mogul who parlayed a gravel pit into a sprawling business empire, on Friday declared bankruptcy in a Belfast court, unable to pay the €2.8 billion he owed to a troubled lender that Ireland nationalized in 2009.

The state-backed bad bank is seeking repayment.
“I am certainly not without blame,” he said Friday. “I am not in the business of pointing fingers or making excuses.”

“However,” he added, “recent history has shown that I, like thousands of others in Ireland, incorrectly relied upon the persons who guided Anglo and who wrongfully sought to portray a blue-chip Irish banking stock.”

Quinn points out that their lending him exorbitant amounts of money was in their own interest. (A pattern that repeats itself across the pond, I might note.) During a bubble banks take an ever increasing short view. Of course those big bonuses (no matter how cooked the books) probably has something to do with that. Something no one is addressing, which means we'll get to repeat this nonsense all over again.
His fall came after he secretly invested in derivatives based on shares in Anglo Irish Bank, a strategy that went sour in 2008. These “contracts for difference,” or C.F.D.’s, enabled Mr. Quinn to bet on the bank’s shares without buying them outright, meaning he could win huge tax-free profits or take enormous losses.

Since then, Mr. Quinn and his family have taken legal action to contest the validity of his bank debts, arguing that the €2.8 billion, or $3.9 billion, was lent for the “illegal purpose” of propping up Anglo’s own share price.

I have no sympathy for Mr. Quinn, but I appreciate that he's big enough to get a voice in showing how the rot within the executive suites at these banks was a significant driver of widespread financial fraud.

477 Real Estate Firms in Beijing Close Down

477 real estate firms to lose qualifications
These real estate enterprises did not apply for extensions after their qualifications expired or have canceled their business licenses, said the statement.
The list contains some subordinate real estate enterprises of some famous companies, as well as some unknown enterprises.

Thursday, November 10, 2011

Auto Sales Falling in 3 out of 4 BRIC Countries

Down 1.1% in China (month on month? Driven by an 18% decline in minivan sales, aka cargo moving vehicles)
Down 1.1% in India (year on year. Passenger vehicle sales down 24%)
Down 8.8% in Brazil (year on year for cars and light commercial, down 5.5% if averaged against business days)
Up 27% in Russia (year on year, car sales only)

China Auto Sales Fall, Cars Plunge in India as Loan Costs Rise
"In India, passenger-vehicle sales tumbled 24 percent to 138,521, the biggest drop since December 2000, according to the Society of Indian Automobile Manufacturers."
"Deliveries of passenger and commercial vehicles in the [China] fell 1.1 percent to 1.52 million in October . . . the China Association of Automobile Manufacturers said yesterday."

UPDATE: Brazil Auto Sales Slow, Still On Target For Year -Anfavea
"October sales including trucks and buses totaled 280,567, the lowest sales figure for the month since 2008."

Car sales drive Russian imports up
"Over the last 10 months approximately 2 million new cars have been sold in Russia."

Wednesday, November 9, 2011

Chinese Land Sales Faltering, will Pinch Local Governments

Local governments (with the exception of two experimental property taxes in Chongqing and Shanghai) rely on land sales to fund, well, pretty much all fixed asset investment. They are restricted from borrowing money, but have done so anyway, using special financing vehicles, Enron style. Now they must make payments on those vehicles as well as generate enough income to continue. And their main source of revenue is fading fast. Aside from accelerating an expected property tax rollout slated for 2012/13, things are going to get ugly, both for critical local government spending and also the banks that backed their earlier creative financing.

FEATURE - Chinese cities fret as land sales fall
"The land market is cooling down so quickly -- it's as if all the property developers vanished overnight," said an official at the department that handles government land sales for Changsha, a central Chinese city of 7 million.
On Tuesday, two days after Beijing pledged to "unswervingly" maintain property curbs, a major auction for 12 plots in the southern city of Guangzhou was abruptly cancelled, without explanation, just three hours before opening.

China Debt Reckoning coming in January

China's cradle of entrepreneurs braces for debt reckoning
That test will take place in January, when companies and individuals have to settle their bills ahead of the Lunar New Year.
Still, many people in Wenzhou are awaiting with dread the most tense time for businesses even in very good years -- debt collection time.

"Chinese like to settle their debts between January 1st and the start of the Lunar New Year," said Hu Zhenhua, a professor of economics at Wenzhou University. The first day of Lunar New Year celebrations is January 23.
More important is that many businesses have themselves started relending money or borrowing for speculative purposes -- a practice that paid off handsomely in good times but is now exposing many to big losses.

"I just wish that my clients, if they have cash, wouldn't invest in things like stocks, gold, and property. If it's not properly managed, it will be dangerous for our industry," said Chen.

Sunday, November 6, 2011

Cut off My Finger Instead

When loan sharks cornered Zhong Maojin and wanted to take over one of his pharmacies in lieu of payment, he offered them a more traditional payment. “If you like, you can cut off one of my fingers instead,” Zhong, 42, says he told them.

Giving up the store would have made it impossible to pay back another 130 creditors, Zhong said. He’d borrowed 30 million yuan ($4.7 million) at interest rates as high as 7 percent a month to expand the business. Many of the lenders were elderly neighbors who’d mortgaged their homes.
This this this. There has been a lot of press about the loan sharks, but less so about the 50% of households with their life savings tied up in this Chinese Madoff style Ponzi scheme. There is no reserve requirement in the shadow banking system and the total debts undoubtedly far exceed the total original capital. Like Lehman Brothers collapse, managing the great unwind in an orderly fashion will be difficult, to say the least. This article cites an estimate of 8% of total lending (4 trillion yuan or 630 billion $) is shadow banking.
A previous credit squeeze in Wenzhou 25 years ago affected 200,000 lenders, resulting in 523 kidnappings and more than 30 deaths, according to a local government website.
Many of Zhong's informal lenders mortgaged their houses to lend to him.
The collateralization of homes means Zhong’s problems may stretch back to the banks. One-third to a half of money used for private lending originally comes from banks, said Lu Ting, an economist with Bank of America Corp.’s brokerage unit.

Saturday, November 5, 2011

22 Months of Inventory in Beijing

Home price-cuts get steeper, more extensive in China
In September and October, only 10,743 homes were sold in Beijing, down 46 percent from a year ago. New home sales in the first ten months totaled 69,079 units, down 17.8 percent year-on-year, while second-hand home sales dropped 35.8 percent to 101,188 units, according to

According to the Centaline Property Agency, a supply of 9,152 new homes in October has added Beijing's total house supply to 118,000 units, a new high since June 2009.

It would take 22 months to consume the inventory even if there were no new supply, said the agency.

Friday, November 4, 2011

Australian House Price Index from ABS for September Quarter 2011

The acceleration in the declines has disappeared with the exception of Brisbane. The charts change shape from release to release, even for older quarters, due to revisions. Things look less precipitous than previously. But a 3-5% loss on top of inflation at 3.5% starts to add up to an slow-leak investment.

Sydney certainly appears to believe in a soft landing, but we only have two quarters of 0% growth from them so far. Sustaining it will be difficult, and not because property won't continue to be dear in Sydney, it will be because of access to credit.
Australian Change in Houe Prices September 2011

Thursday, November 3, 2011

Vancouver October 2011 House Prices

The biggest news this month is that the peak price in Vancouver continues to be June 2011. The Real Estate Board of Greater Vancouver's HPI house price index for both overall and detached has continued to meander below the June 2011 price. Detached has fallen 1.78% or $16902 (yeah, my stats teacher from college would cringe at that kind of precision being reported, but he's not here.) The overall price has declined 1.26% or $7966.

Given the global economic climate and an ongoing vacuuming up of spare credit in China it is hard to imagine the trends will reverse, but Vancouver likes to surprise.

Vancouver House Price Change Chart Oct 2011

Vancouver House Prices Graph 2010 and 2011 compared

As to sales, 2011 continues to be dead on the five year average.
Vancouver Housing Sales Detached over Five Years

As to inventory, 2011 is running 2nd or 3rd for highest inventory. You can see in 2008 how the inventory shot to the moon as financing fell apart. Yeah, the value of a house isn't inherent, it's based on how deep in debt the buyer is allowed to get. Inventory shot up so fast, REBGV stopped reporting it in their press releases. The numbers charted below are computed based on 2009's numbers and the reported percent change from the previous year.
Vancouver MLS Inventory chart over five years

Tuesday, November 1, 2011

Germany Upset after Greek Referendum Call

The good people of Germany remain unaware that their government is merely bailing out their own insanely over-leveraged banks.

Fury in Germany after Greek referendum call
"You can't help thinking that they should be grateful as Europe is trying to help," said Konstanze Pilge, a 26-year old student, walking near the Brandenburg Gate in central Berlin. "Now it looks like they are going to mess things up."
"It just goes to show once again what a huge mistake it was not to throw Greece out of the euro zone at the start," said Wolfgang Gerke, a banking professor and president of the Bavarian Financial Centre think tank.