Monday, January 31, 2011

Details about China's New Property Tax

‘Red envelopes’ for China’s home buyers
The pilot programs in Chongqing and Shanghai target different types of homebuyers. Under Chongqing’s detailed plan, taxes apply to owners of existing villas and villas to be purchased after March 27. The tax applies to apartments at least twice as large as the average floor space of apartments sold in the southwestern city. In Shanghai, the property tax applies to only new housing, including villas, purchased after March 27. The overall tax burden will be heavier in Chongqing than in Shanghai. There are three tax rates in Chongqing: 0.5%, 1% and 1.2%, while it ranges from 0.4% to 0.6% in Shanghai.

While many have ridiculed the tax as a red envelope, some scholars have bluntly declared the taxation “robbery.”
Both the property tax and the New Eight Regulations, announced on the same day, were part of the government’s efforts to cool the housing market since mid-April 2010. In the face of the seemingly endless cascade of measures to tamp down the housing market named by number, many netizens have said the property market may one day see a New 250 Regulations issuance. In Chinese, the number 250, “erbaiwu” is translated as “foolish.”

Sunday, January 30, 2011

What is a Spruiker?

For those not familiar with this Aussie/Kiwi term, here's a textbook example of a Spruiker in the wild.

Buy now or regret it later: Bell
BUYERS looking for new Gold Coast high-rise apartments should move now or risk being shut out of the market over the next five years, according to Gold Coast real estate agent Andrew Bell.
Mr Bell said now was the time to move before stock levels continued to dwindle.

"My advice would be that if you want to buy new apartments on the Gold Coast then you would want to make your move very soon," he said.
Hey, I'm working on commission over here. I need a little help.

Meanwhile, in the reality corner:
Floods and debt leave Queensland banks drenched and in need of mutual solace
Share prices of Suncorp and Bank of Queensland fell after the Standard & Poor's warning, and in the past few weeks companies including Virgin Blue, Woolworths, Macarthur Coal, QR National and Energy Resources Australia have issued profit warnings partly linked to the floods.

But this is just the beginning of profit downgrades as banks, insurance companies, mining companies and retail groups start to tally the direct and indirect impact of the floods and other tough market conditions.
Even before the floods there were concerns that the values of at least 30 per cent of Gold Coast properties were lower than that of their mortgages. House prices are flat, and the property group Mirvac announced last Wednesday that it had made a $215 million provision on zero-margin projects and unsold stock in poorly performing regional markets. Put all that together and you have to wonder whether banks are providing full disclosure of "Gold Coast to Noosa" properties, especially holiday homes.

Saturday, January 29, 2011

Concerns Voiced at Davos about China 'Bubble'

Chinese property 'bubble' fuels hard landing fears
"If you look at the ratio of home values relative to GDP, China is about the same level as Japan's before Japan's bubble burst," he warned.
The Chinese Academy of Social Sciences, a government think-tank, warned in December that of 35 major cities surveyed, property prices in eleven, including Beijing and Shanghai, were overvalued by between 30 and 50 percent.
And confirmation in this article that the property tax is annual.

And nice use of scare quotes in the title there.

Thursday, January 27, 2011

China's Rigged Land Use

How China’s local government rig land-use game
For example, local officials often underreport to provincial agencies the amount of land obtained on behalf of developers. And some falsify other details in the reports sent to those higher-ups who ultimately approve land conversions.

Once the paperwork is complete, though, local-government officials can partition one, large swathe and sell individual tracts piecemeal to a single developer, often privately or through rigged public auctions.

One of the problems is developers grossly underpaying for land, which would imply that local governments are less addicted to land sales for income directly to the government and more addicted to "partnerships" with developers.

Shanghai Property Tax Trial Has Begun

China Approves Property Tax Trials in Two Cities to Curb Prices
The Shanghai rate is “temporarily fixed at 0.6 percent for all taxable housing, and is reduced to 0.4 percent for houses bought at prices less than twice the average of newly built commercial homes last year,” the government said. Average sale prices will be released by the local statistics bureau annually.
In Chongqing, only homes bought at more than twice the average price will be taxed, with units purchased at more than four-times the average taxed at 1.2 percent, Mayor Huang Qifan said in a live webcast on the state-run site. Trials there also begin today.
The article does not specify if this is an annual tax or just a one-time tax.

Vancouver Market to "Calm" in 2011

Duly noted little fluff piece for pointing and laughing at later.
Real estate market calm expected to follow hectic 2010 in Metro Vancouver
First some industry people chime in:
However, Adamache said Metro Vancouver should see much less price growth in 2011. . . . "We're calling for a three-percent increase in 2011."
Ron Antalek . . . believes there will be a modest increase in both pricing and demand this year.
Honestly, it's almost capitulation that they admit to a slowdown at all. The newly minted homeowners show signs of long term propaganda exposure.
Mike McDougall recently took possession of a new detached home in Maple Ridge after moving to B.C. from Alberta.

"Hopefully, it was a good time to purchase," McDougall said in an interview.

"From what I hear, it was. I think there's still potential for rates to go up."
That interest rate is not locked in for the life of the loan, you realize. Losing 50k in equity right out of the gate is not a worthwhile trade for rushing into the market.

Wednesday, January 26, 2011

China Tightens Money for Real Estate, Yet Again

China Boosts Second-Home Down Payment Minimum to 60% (Update2)
Premier Wen Jiabao said on Jan. 18 that the government will “resolutely” implement controls on the real-estate market in the first quarter, including curbing speculation and increasing supplies of affordable housing. Property prices rose for a 19th month in December, even after the government suspended mortgages for third-home purchases and restricted loans to developers.
These changes must be having an effect (at least at the development level) given the rush into synthetic Dim Sum bonds as a source of alternative financing for property development.

China is expected to introduce a 0.8 percent real estate levy, which will have a limited impact on the market, according to a Nomura Holdings Inc. Jan. 10 report. The tax will probably be introduced in Shanghai and Chongqing, and rolled out to other so-called overheated cities such as Beijing, Shenzhen and Hangzhou, Nomura analysts led by Alvin Wong said in the report.
I agree it will have little impact on prices. It might drive up rents, however.

Land for affordable housing, reconstruction of shantytowns, and medium and small commercial houses should be no less than 70 percent of the regional government’s total supply, it said.

Regional governments should also “strictly” formulate property purchase policies and local residents with two homes will be banned from further purchases, it said.

Shutting off the Liquidity Firehoses, Harder Than You Think

A command economy? Not so much.

China Banks Push Up Lending Rates to Ration Credit
Instructions have come down from head offices to some bank branches, saying they must strictly abide by credit quotas this month, the China Securities Journal reported, with regulators keeping a closer eye than normal on lending activity as part of their campaign against inflation.
The China Business News said that banks had already lent 1.2 trillion yuan ($182 billion) as of January 24, putting them well on track to blow past limits that regulators had wanted to set for the first month of the year.
The article did not say whether banks also felt pressure to raise lending rates because of a spike in their own funding costs. The banking system has been bit by an unprecedented liquidity squeeze ahead of the Lunar New Year, driving money market rates skyward and compelling the central bank to inject cash in the economy despite its tightening bias.

[hat tip to Bill Grable over at]

Tuesday, January 25, 2011

ANZ's Australian Property Outlook

Just some excerpts that seemed in need of highlighting.


Despite heightened market fears and weak equity markets, the Australian economic outlook remains healthy. Our performance during the GFC was unparalleled and activity has since rebounded strongly. Part of the strength last year was directly attributable to policy stimulus that is gradually being removed. However, the current commodity boom will maintain growth momentum in the years ahead via stronger resource investment, production, exports and profits.
Here is the associated chart:
A bit of wand waving here. The comments, just yesterday, from Canadian, Teck Resources president Lindsay are apropos to this: "All of us in the mining industry are totally, totally dependent on the Chinese economy . . ."
ANZ slapped an upward arrow on a terms of trade chart and tossed up their hands and said "All is well! Let's move on." Wait, what? I, for one, noticed that hook at the top. I guess the arrow was supposed to distract from that?

The bulk of your outlook rests on one customer. Of which the report says:
There is every indication the China slowdown is being managed very well.
Really? Last reports out of China state that the government's tightening measures are having no effect on the run-away train there.

The Canadian Mining Industry is "totally dependent" on the Chinese Economy

Chinese demand kept recession at bay
Teck Resources Ltd. president Don Lindsay told a Vancouver mining conference Monday that this country's dependence on China has saved it from going through the worst of the recession but is likely to bring volatility in the future.

"All of us in the mining industry are totally, totally dependent on the Chinese economy," he said at the Association for Mineral Exploration's annual conference at Vancouver. "Their demand for commodities has kept prices high. The ripple effect throughout B.C. and the rest of the country has been very, very important."

Sunday, January 23, 2011

Hong Kong, Sydney, Vancouver -- Top Three Least Affordable Cities

PDF is here:
7th Annual Demographia International Housing Affordability Survey: 2011

And the "winner" for least affordable in the English-speaking world is:

Hong Kong, with a median multiple of 11.4

followed by:
Sydney, Australia 9.6
Vancouver, Canada 9.5
Melbourne, Australia 9.0
Plymouth & Devon, UK 7.5
San Francisco, US 7.2
London (GLA), UK 7.2
Adelaide, Australia 7.1
San Jose, US 6.7
Brisbane, Australia 6.6
London (Exurbs), UK 7.2
Auckland, NZ 6.4
Perth, Australia 6.3

So, in the top 13 we have every major Australian city. That's pretty amazing. Congratulations Australia. You spare no efforts at misallocation of capital. No point in doing these sorts of things by halves, after all.

After Vancouver, we have to go all the way to 21 at 5.2 to pick up Montreal. Montreal is frequently touted as being affordable because house prices are in the range of $250k to $300k, but that doesn't mean it doesn't have room to fall. And the multiplier certainly supports that.

At 24 we have Toronto at 5.1, Another bubblicious city ripe for adjustment. Calgary at 4.0 looks downright responsible and only gets the label of "Moderately Unaffordable" from the report, as do Ottawa at 3.6 and Edmonton at 3.5.

Central China was not included in the analysis.

Short Sellers Target Chinese Companies Listed in U.S. Using Reverse Mergers

For the average Joe, the main warning is: check your small cap funds that they aren't trading any of this stuff.

Texas Short Seller Fights China Fraud in $20 Billion U.S. Shares
Sky One and the other companies have moved onto U.S. exchanges through a process called a reverse merger, in which a closely held company buys a publicly traded shell company -- and retains the U.S. listing as its own instead of extinguishing it, as usually happens in takeovers. Bird says that many reverse merger companies are deceptive, at best, about their numbers.
The SAIC is the Chinese government agency responsible for market supervision, regulation, and enforcement. According to a SAIC filing, Sky One’s operating unit, Harbin Tian Di Ren, had 2008 sales of 6.93 million yuan, roughly $1 million at 2008 exchange rates. Yet to the SEC, Sky One reported 2008 sales of $91.8 million, with Tian Di Ren accounting for at least 65 percent, or $59.7 million.
The company’s shares are available to retail investors through such funds as the Oppenheimer Main Street Small Cap Fund and the Powershares Golden Dragon Halter USX China Portfolio, and are scooped up by small cap index funds.

Roth Capital Partners, an investment bank in Newport Beach, California, that has been one of the most active in helping Chinese reverse merger companies raise money, recently tried to define the size of the market. It came up with a list of 94 companies with a market capitalization between $50 million and $1 billion that trade an average of at least 50,000 shares daily, with a total stock market value of more than $20 billion.

Fitch's Final Stress Tests Released for Australian Banks

The original report is available for free from if you register.

The three scenarios were (all declines were assumed to spread over a 3 year time frame)
20% decline in house prices and 2.5% default rate
30% decline in house prices and 6% default rate
40% decline in house prices and 8% default rate

Australian Insurers, Banks Can Weather Housing Drop, Fitch Says
Net bank losses, after insurance protections are applied, will be about A$100 million ($99 million) under the mild scenario, about A$800 million under the moderate, and about A$2 billion in the severe scenario, the results of the test show.

Mortgage insurers’ losses will reach a maximum 4.4 percent of capital resources in the mild case, 26 percent under the moderate and 56 percent under the severe scenario. They reach these levels in the third year of a downturn, Fitch said.

The analysis of the various declines is mostly a glancing look at declines in the UK, Ireland and US. The conclusion that the banks will remain healthy is heavily dependent on mortgage insurance.
Here is Fitch's loss chart for the insurers:

Under the Severe scenario (40% drop in prices) the insurers will loose 56% of their capital as a result of covering mortgage losses. That's a pretty hard hit. That leads me to wonder what the insurers are holding as capital. Please tell me it's not real estate trusts . . . (after what the U.S. has dealt with, I don't assume anything anymore).

Heh, Fitch had thoughts in a similar vein:
Mortgage insurance provides good protection to the Australian major banks, assuming reinsurance covers operate as expected.
. . .
Although, capital resources in total appear sufficient to meet losses under each scenario, high regulatory capital minimums may require additional capital to be raised. Where a group has internal reinsurance cover, it is also likely in a severe scenario that these covers would be called upon at the same time as a capital call. In such a scenario the strength of the group would become an important factor in determining whether the LMI could continue to operate.

A China-Inflation Round-Up from Dian Chu

A nice summary of the inflation situation in China.

China vs. Inflation: A Love-30 Match So Far
The actual December Consumer Price Index (CPI) came in exactly as leaked—easing to 4.6% month-on-month from the 28-month high of 5.1% pace in November. For the whole year, CPI grew 3.3% in 2010.

China’s National Development and Reform Commission was quick to declare the government's effort to contain inflation has achieved initial, incremental success. However, instead of a rally, commodities sold off the morning after, and it is fairly easy to understand the market reaction since the official figures seem to defy economic common sense.

Why does everyone seem to believe China's numbers most of the time? It isn't exactly a transparent government.

Saturday, January 22, 2011

Get Out While You Can, Vancouver

Anecdotal, so take it only for what it is.

Vancouver's Westside going through bidding wars again
One house near 20th and Laurel has just sold for over $500,000 the asking price.

He says the owners got thirty offers the next day and the house sold for $1,611,000.

The following week a woman living across the street listed her house. It sold for over $250,000 over the asking price, with multiple offers.
Related Video from CBC

Friday, January 21, 2011

Cheerleading Continues in Australia

The article fails to actually define the criteria for "hottest spot", but based on the notion of growth potential explicit in the recommendations, we'll assume it means "best value possible under the circumstances dependent upon wishful dreams of paper gains in the near to short term".

Hottest spots to buy real estate in 2011
In keeping with the buzz over middle-ring suburbs (10km or more from capital cities), RP DATA has picked Strathfield, Sydenham and Berala in Sydney’s west as its bargain hunter gold mines.
Wow, a gold mine. If I dig under these houses, I will find precious metals? I think this is going to have to be a point and laugh at later article. "Gold mine", really? Wait, I get it, the author was getting tired of just saying "housing always goes up. You can bet your future on it."

RP DATA is bullish on Mentone and predicts it will be one of Australia’s top real estate performers in 2011. The bayside suburb is 21km from Melbourne and is appealing for investors due to its waterfront location, easy access to the capital, and amenities. Although, with a median house price of $690,000, the precinct won't be within everyone's budget.
Takes practice to say that with a straight face, I bet. Or botox.

Sydney rental prices were also unchanged at $480 for houses and $440 for units for the last quarter of 2010.
What's this little gem at the bottom of the article? Amusingly, immediately after the words "extremely tight rental market" that somehow failed to translate into an actual increase in rents.

A collapsing real estate market is caught by investor-buyers as a last resort, but only, ONLY, after the price to annual rent ratio drops below 15 (or 12 even, if it's a solid buyer's market). 480 per week is 2000 per month is 24000 per year times 15 is wow, $360,000. That's the market bottom value of the average house in Sydney. Look at that number: $360,000. That's the cash-flow positive purchase price for a landlord in Sydney. Hm, I wonder what the average median price of a house is in Sydney. Oh, just something in the neighborhood of $673,500.

Nothing could possibly go wrong with that.

Shanghai Mayor Holds Rare Presser Regarding Property Tax

Shanghai Resorts to Property Tax to Stem Prices
SHANGHAI—Shanghai's mayor on Friday said the city will impose a controversial tax on property, a move by China's richest city that may be rolled out nationally as authorities scout for new ways to cool housing prices.
The country has one the most expensive real-estate markets anywhere relative to the income of its citizens. Global Property Guide, a Manila-based consultancy, says a square meter of property stands at 164 times China's per capita income, compared with 33 times in high-priced Japan.

No mention of the details of how the tax will work.

Plans for the tax are also emerging as Chinese cities sit on enormous, but largely hidden, deficits. In Shanghai, which last year funded a lavish World's Fair, the Shanghai Expo 2010, but hasn't broken down the costs and is now developing a Walt Disney Co. theme park, Mr. Han pledged to make more government accounts public over the coming year. He said the city also hopes to lead China in implementing a value-added tax on the services industry.

Added: the only real upside to the tax is it will give munis an income stream besides selling land to developers, taking the government, if only a little, out of the developers' pockets.

Thursday, January 20, 2011

British Columbia Waterfront Properties Take a Serious Hit

Bubbles burst on the margin first. The same people who don't believe 20% price drops in one year are possible for Vancouver, probably thought the same about this sub-market.

Some high-end rural waterfront properties see substantial price drops
She said one of the most dramatic price markdowns was a restored character house on an acre of Denman Island westfacing waterfront, first listed in 2007 for nearly $1.5 million, which recently sold for $665,000. “It was amazing. It was a beautiful renovation.”

As well, a Courtenay waterfront property originally on the market for $1.2 million, is now listed for $789,000.

Kneeland, who currently has about 500 listings on her website, said it’s a good time to make a great deal.
Does the universe cease to exist if a realtor goes a day without mentioning that it is a great time to buy?

Neilsen said that owners who are forced to sell are seeing steep price reductions, but many are simply refusing to drop their prices until the market changes.
The market is certainly going to change.

China's Runaway Growth Defies Slow Down Efforts

GDP growth was reported as 10.3% for the whole of 2010.

Fears of overheating as China's runaway growth defies efforts to slow it down
Monthly CPI inflation remains high at 0.5 per cent, and is expected to increase on a large money overhang and a positive output gap.

"Meanwhile, negative real interest rates will continue to draw investment into the property sector, pushing prices even higher.

"We believe the expected launch of a property tax will not curb prices," but push rents higher, and so worsen inflation.
Last week Beijing announced a 15 per cent rise in minimum wages as it tried to balance controlling inflation against bridging the growing income gap between rich and poor.

If analysts are correct that Chinese companies are operating at razor thin margins, this increase in the cost of labor will push them into the red or force them to significantly raise prices.

This Christmas I noted that most of the children's clothing I bought for gifts was already made in places other than China: Vietnam, Cambodia, Guatemala . . . 2011 could be the turning point in China as export behemoth. Their own aggressive growth policies have driven up the price of their raw material inputs, real estate, and now their distorting currency policies (and corresponding bad luck in the state of the worldwide food market) are driving up the price of labor. Price competitiveness is going to be very difficult to maintain here on out.

Tuesday, January 18, 2011

GS Report: Lending in China Surged by $150 Billion in First Two Weeks of 2011

China’s Wen Pledges to Counter ‘Abnormal’ Loan Growth (Update1)
Jan. 18 (Bloomberg) -- Chinese Premier Wen Jiabao pledged to counter “abnormal” credit growth after speculation that lending may have surged by as much as 1 trillion yuan ($150 billion) in the first two weeks of this year.
The nation also faces increasing challenges in allocating its foreign exchange reserves, Yi said. Those holdings have swelled to a world-record $2.85 trillion.

China will gradually move toward making the yuan convertible on the capital account over 2011 to 2015, so long as the risks are controllable, he added.

Australian Foreign Purchase Enforcement Paltry

Just 15 purchases have been blocked in the nine months since the "crackdown" was announced.

Success of crackdown on foreign property buyers called into question
The federal government tightened foreign investment rules last April amid concerns Asian buyers were driving property prices beyond the reach of local first home buyers.
Under the new rules, temporary residents must now sell any property they own in Australia before leaving the country, while overseas-based investors are unable to purchase already-developed Australian real estate.
The new rules followed an earlier relaxation of foreign investment regulations in 2008.
I'm sure the timing of that had nothing to do with propping up the Australian bubble just as it was beginning to pop along with the U.S. and the UK.

Monday, January 17, 2011

Ghost Towns in Spain

Ghost towns built for tens of thousands aren't just for China.
Here I live alone
(note: google translate)
He says: "The loneliness you feel at night. It's like living in the countryside." One of his first acts was to put bars on windows and doors. Pour your deck an extension of urbanized land. Grids of asphalt and palm trees on what was a farm with pomegranate, fig and almond trees.

Headline Indicator Goes Red for Canada

What a difference a one on the calendar makes. The headlines from Canada have turned 180° since December. There seems to be a preliminary move to blame the mortgage rule changes for the downturn, even though the rule changes trail the slowdown (at least in BC).

Rule changes have as much to do with interest rates as mortgage debt
The rising value of real estate has created a “wealth effect”, inciting consumers, who feel richer than they are, to take on debt to buy the goods and services they want.

Wait, Canadians have been overspending? When did that happen? Why haven't we heard about this, oh, say, last year, maybe?

Consumers maxed out, housing tapped out

There are two overriding themes behind the latest moves and comments by and from policy makers and economists: Consumers are maxed out, and the real estate market is tapped out.

Tighter mortgage rules will hit B.C. the hardest
The new rules will disproportionately affect first-time homebuyers and people who live in B.C., home to the country’s highest housing prices, said Tsur Somerville, director of the UBC Centre for Urban Economics and Real Estate.

“The sense is, there are more first-time buyers in the Lower Mainland who have been using the 35-year mortgage,” he said in a phone interview. “Either those people have to come up with a slightly higher down payment, or they just can’t bid the same price on a house.”

I can't wait until the press claims they were out ahead of the decline before it happened.

Sunday, January 16, 2011

China Promises Affordable Housing But Will Local Governments Implement it?

Misleading title. Neither the government's actions, nor the article have anything to do with deflating the bubble, just ameliorating the effects of it.

China Takes Big Steps in Affordable Housing to Bring down Real Estate Fever
However, both policy makers and market observers have pointed out that the good intentions of the central government's regulations and construction plans could fade if local governments, which rely largely on land transfers for their revenues, fail to have them properly implemented.


"The central government is determined to speed up affordable housing construction, but it depends on local governments to carry out the plans," he said.

Local governments could be reluctant to implement them, as they are asked to both transfer the land at a low price and help finance these projects, which will definitely reduce their fiscal revenues, he explained.

With 10 million units planned for 2011, the government will continue to be developing property, directly into the teeth of the bubble. Since they feel social stability depends upon it, expect them to remain in the game (become the game) when the rest of the market crashes.

Friday, January 14, 2011

China Raises Big Bank Reserve Requirements to 19%

China hikes reserve requirements again
The central bank raised the level of reserves that banks are required to hold by one half of a percentage point. Chinese major banks will have to set aside 19% of their reserves and small and medium banks will have to keep 15.5% of their deposits as reserves, a record high for the country's deposit-taking institutions, the Chinese government said.

For comparison the reserve requirement in
Brazil is 15%
U.S. is 10%
India is 6%
Canada and Australia are 0% or N/A (As Jesse points out below, it's not REALLY zero. Not Applicable might be a better label.)

Thursday, January 13, 2011

BC Home Prices Reach Average of $505,178 in 2010

VANCOUVER - The average price for a home in British Columbia reached a record high of $505,178 in 2010, the B.C. Real Estate Association says.

Home sales fell 12 per cent last year to 74,640.
Be nice if they also gave us the median.

All markets have segments and an average is a melange of market segments piled together and skewed upward (given that it is zero-bound) but let's see what the multiplier works out to.

BC household income averaged $67,890 in 2008. Assume a similar increase as the last two years, that would bring us to an approximation of $72,000 for 2010, or a multiplier of 7x. For the record, the U.S. crashed at a multiplier of 6.4x 4.9x (edit: I just recomputed the multiple (median price against median household income) from April 2006 and it was 4.9x).

Other tidbits: The BC 2009 per capita personal income was $35,196. The personal savings rate was -3.7% in 2008 and -4% in 2009 (compared to Canada as a whole, which was positive 3.6% and 4.6% respectively). According to Personal Income and Saving Rate by Province/Territory, 2008 and 2009 and Median total income, by family type, by province and territory.

Note also that adjusted personal income declined in BC between 2008 and 2009. And has been pretty much flat since 2006.

What can we conclude? That BC is more than likely using increasing debt to hold up their lifestyle/just get by in the face of increased cost of housing.

A booming housing market is not a positive. It should be a warning that incentives are out of whack. Left unaddressed by policymakers, it will leave a generation indebted.

I'm just going to call a top

Chinese Spend Big On Belgian Racing Pigeons
At euro156,000 ($ 205,000) for barely a pound of feathers and lightning-fast fowl, Blue Prince has a one-way ticket to pampered retirement and lifelong breeding in China, which these days has become a predictable destination for topflight birds.

Exactly the price it would be if it were an equal weight of gold. But I suppose the pigeon is potentially a productive asset . . .

Wednesday, January 12, 2011

Chongqing Readying Property Tax (update)

Details are slim. The tax may take effect the end of March and may be 1% and only on new properties. If true, that will not generate enough revenue to get the municipality to be less beholden to real estate development for income.

China City Set to Tax Residential Real Estate
How significant the planned taxes will be in practice remains unclear. Little information about the planned tax in Chongqing has been disclosed, such as at what value the tax will start to be assessed, exactly how the value will be determined, and what the tax rate will be. China lacks accurate data on house ownership, and enforcement of tax collection tends to be lax. Xinhua said the Chongqing municipal government "is rushing to draft a detailed regulation" for the tax. The report provided no further details.

China's Chongqing To Collect Real-Estate Tax On All High-End Homes - Mayor
BEIJING (Dow Jones)--China's southwestern Chongqing city plans to levy a real-estate tax on both existing and new high-end residential properties, Mayor Huang Qifan said Wednesday on state television.

High-end homes are defined as properties that are more than three times the average price in the city, state television reported, citing Huang. It didn't provide further details on the tax

Monday, January 10, 2011

Apartment Buying Melee in Hangzhou

Real Estate Rage Erupts in Hangzhou
One buyer quoted in the Youth Times said he spent 5,500 yuan, or roughly $830, just to ensure that he would get a spot on one of the first buses to reach the compound. The paper described the scene at the sales office after the would-be buyers expressed their frustrations: trampled security gates, turned over tables, a couch floating in a fountain.

Buyers got into a tussle over who had first dibs on apartments averaging $1200 per square meter ($111 per square foot).

Vancouver House Price Predictions for 2011

Lots of traffic comes into the this blog with the keyword "predictions". Since gambling with one's ego is the cheapest way to gamble, I'll plot some predictions out. Why not?

(BTW, you can always click on the graph to get a larger version.)

Vancouver House Price Change Year over Year Plotted Monthly with Predictions

This is the graph from Seriously Royal LePage? posted the other day. I added some trend lines, one linear and one a repeat of the previous decline in prices. I also made a hybrid of the two, in red. First off, I don't think that bottom that formed in 2009 will reappear this time around. Two factors were arresting the market's plunge at the beginning of 2009: Chinese bailout money spilling into Vancouver and Canada loosening lending standards which increased liquidity for traditional purchases.

The green (linear) line may hold firm until the market drops to 0% growth, year on year. Sentiment has a long way to swing, but after it does, recent history makes for a decent guess as to momentum.

So, my back of the envelope predictions for 2011 are:

March, detached house price (0% year on year): $800,000 (essentially flat from the last few months)
September, detached house price (-12% year on year): $699,000*
ADDED: December, detached house price (-15% year on year): $653,000

(* september 2010 was a slightly off beat month, I averaged August to October and took 88% of that.)

[The underlying chart has been updated for January]

Credit Rule Changes in Australia

Under-reported rule changes regarding issuing credit in Australia.
Credit .... Not so easy ?
This is new ? Prior to this new legislation it was ok for Australian lenders to issue loans to people knowing they couldn't pay them back ? Really ? That could explain some of the things we have witnessed over the previous decade, but surely that wasn't enshrined in legislation.

The major parts of the latest legislation are that the lenders or lending assistants must:

provide a credit guide that discloses information about the lender, including all fees, charges, interest and commissions they will receive.
not provide, suggest, or assist with a credit contract that is unsuitable for the consumer.

Sunday, January 9, 2011

Increase in Australian House Inventory Presages Price Declines

44% jump in property listings points to price falls in 2011: Expert
The new figures suggest that the shortage has been overblown. Residential property listings were 328,270 during December, representing an increase of 44.9% over the year.

Louis says the figures dispel the myth of property undersupply in most cities, and says certain capitals such as Brisbane are recording a dangerously high level of properties on the market.
Christopher also says he is concerned about Darwin, which recorded the largest increase out of all capital cities at 57.3%.

If the bubble burst still needed a triggering event, the floods may turn out to be it.

Mercenary Trader Wonders if China Has Reached the Skyscraper Indicator

A somewhat off-beat measure of a market peak.

Weekender: Did China Just Ring a Bell?
As the above graphic shows, for some time the world’s tallest building has been the Burj Khalifa in Dubai, opened in January 2010.
So getting back to the bell ringing, I give you “China plans $1.3 bn seven star hotel:”
Beijing authorities plan to build a “seven-star hotel” modelled after Dubai’s Burj Khalifa — the world’s tallest building — in a $1.3 billion joint project with Saudi Arabia.
The hotel will be erected in western Beijing’s Mentougou district some 30 kilometres (18 miles) from the Chinese capital’s centre, the state-run Beijing Morning Post said in a Thursday report, quoting a local parliamentary meeting…
Classic isn’t it?

Dubai X 1000 indeed. It was supposed to be a warning, not a cookbook.

Friday, January 7, 2011

China Real Estate Mimicking Florida, Circa 2005

Latest Stats Show Chinese Real Estate Too Hot To Cool Down
According to the Land Reserve Center’s official announcement, the 2010 land transfer fees in Beijing, as of Dec. 30, 2010, totaled 163.672 billion yuan (approximately US$24.8 billion), an increase of 76.37 percent compared with 2009. Beijing has displaced Shanghai as the city with the highest amount of land income. As a result of the tighter regulations in 2010, Beijing’s property market trading volume (number of properties) was reduced, but housing prices did not decline, rising instead over 40 percent.

Does this next bit sound too familiar?
Chinese media reported that the land transfer fees in some cities have exceeded more than half of the local regime’s annual revenue. The significant increase in these fees indicates that the local government's dependence on land income is deepening.

The government's curbs aren't working because the government no longer controls liquidity. Central Planning is a mirage.

Pop some popcorn, prop your feet up, and settle in for 2011's episode of You Live in Interesting Times.

Thursday, January 6, 2011

Seriously Royal LePage?

Home prices expected to rise further: Royal LePage
Home prices will continue a "moderate and steady climb" this year, helped along by an improving economy and low interest rates, according to a report released Thursday.
Okay, Royal LePage (if that is your real name) I have a little chart for you. Below is the monthly % change in prices in Vancouver, Year over Year. Do you notice a trend? A really strong trend? Squint and I bet even you can see it.
Vancouver House Price Change Year over Year Dec 2005-Dec 2010
Also, you cite low interest rates as part of your reasoning for Canadian households to burden themselves with even more debt, even though mortgages are typically 5 year adjustable. On a 35 year mortgage, that's called a teaser rate, and it will have exactly the same consequences as teaser rate mortgages in the U.S. Oh, and by the way, Canadian banks are hoping for government-imposed change in mortgage terms back to 25 years, max, if not 10% down. How does that fit into your plans?

At some point the shilling becomes flat out irresponsible.

Disjoint Between Official and Private China Housing Statistics

Private, official data not on the same page

Prices in Hangzhou rose the most, by 47.1 per cent, followed by 37.9 per cent in Chongqing and 37.1 per cent in Beijing, according to the China Real Estate Index System (CREIS), run by Soufun, China's biggest online real estate firm.

In contrast, data from the National Bureau of Statistics showed home prices rose just 2.4 per cent in Hangzhou, 7.9 per cent in Chongqing and 9.1 per cent in Beijing in the year to November. It has not published December data.

Wednesday, January 5, 2011

Vancouver December 2010 Home Sales and Prices Down

December 2010
Real estate market stable at year-end

New listings (-21% Year on year, -44% month on month)
sales (-24% Year on year and month on month)
prices on all types (up 2.7% year on year, -0.39% month on month)
prices on detached (up 4% year on year, -0.2% month on month)

Detached price index is down 2.5% from the peak in April 2010.

The biggest stunner is the drop in listings. Anecdotal data suggests sellers are holding off the market in hopes of a vibrant spring.

Tuesday, January 4, 2011

Total BC Assessment Surpasses $1 Trillion

2011 Assessment Roll Information

The Richmond (Chinese for "Rich Man") area of Vancouver led the charge with a gain of 17.14%.
Vancouver overall up 13.9%

Interesting that farm and managed forest land are down, in some areas, significantly (Peace River is -23%).

Some contextual data on that $1 trillion . . .

GDP of BC (2009) is $191 billion
Total income $157 billion (that's reported income, obvs)
Disposable income per capita $28,000
Total BC population 4.4 million.
1.9 million properties in BC
2.32 residents per property
$65,000 disposable income per property
GDP per capita $44,000 (CAN)

That strikes me as a precipitously high Total Valuation to GDP ratio: 5.2

For a ratio comparison, the total value of the U.S. housing stock is $16.5 Trillion with a GDP of $14.6 trillion.
For a Total Valuation to GDP ratio of 0.88
Also for comparison: GDP per capita of $48,000 (US)

Where is the economic activity to support BC's valuations?

Asian Investors Still Interested in Australian Real Estate

10-15% of sales in recent property launches in Sydney were to Asian buyers, according to the article.

Australia beckons for Asian investors
With Sydney and Melbourne commanding already high prices – an inner-city one-bedroom home in Sydney currently commands up to A$750,000 ($984,000) – analysts expect market focus to shift to other cities where demand and prices are lower.

To ward off the threat of asset bubbles, Australian policy-makers raised interest rates to 4.75 per cent last month. But analysts say this will not put off Asian investors. Singaporeans, for example, can finance their Australian properties with loans pegged to a lower interest rate of about 1.5 to 2 per cent.

China Property Tax May Be Delayed

According to SouFun Holdings Ltd, 82 of 100 Chinese cities' prices rose nearly another 1% Nov to Dec.

China to Delay Property Tax After Government Disputes, Century Weekly Says
China may delay a property tax following disputes among government departments, the Century Weekly magazine reported, citing an unnamed person close to the Ministry of Finance and state tax bureau. Real estate stocks climbed the most in two weeks.

China has pledged to speed up testing the property taxes to curb foreign capital and cool home prices. Some analysts expected Shanghai to begin a trial at the start of 2011, the Oriental Morning Post reported today

Chinese developer stocks surged on the news/rumors.

Sunday, January 2, 2011

Canadian Taxpayers and CMHC, How Much Are They on the Hook For?

Canadian Residential Mortgage Markets: Boring But Effective?
Mortgage insurance plays a big role in the Canadian mortgage market. Federally-regulated deposit-taking institutions, including all the chartered banks, can only hold “high ratio” loans (i.e., those with loan-to-value (LTV) ratios greater than 80 percent since April 20, 2007, up from 75 percent) if they are insured against default. Hence about 45 percent of all chartered bank-held mortgages are insured. Also, all of the mortgages that back NHA MBSs must be insured. The dominant mortgage insurer is government-guaranteed CMHC, accounting for about 70 percent of all outstanding insurance. Two private insurers, American International Group and Genworth Financial, account for almost all of the rest. Since 1988, the federal government has been providing a 90 percent guarantee to private insurers.

A VERY rough calculation

45% of mortgages are insured
75% are insured by cmhc
$1 trillion total mortgage debt

$338 billion cmhc insured mortgages

by definition all are less than %30 down

estimate 15% current equity (totally pulled out of the air) for this pool
assume 40% drop in prices
cmhc will have to cover gap of

$84 billion
(plus approximately 50k per house processed)

To an American, that sounds like a drop in the bucket.
Canada: 1.6 trillion gdp
so the CMHC bailout would be ~5% of gdp

Saturday, January 1, 2011

China May be Reaching Over-Supply in the First Quarters of 2011

China's Premier Acts to Avert Housing Bubble
Compounding Wen's dilemma is that about 1.2 billion square meters (about 13 billion square feet) of residential property space now under construction will hit the market in the coming few months.

That is about 45 percent more than the total sold so far this year, enough to tip the market into relative over-supply, Reuters reports.
They are Liu Shiqing and Xu Shengli of Essence Securities in Beijing.

"Under the impact of the macro policies, shares in developers face high risks in the next two quarters," they said in a note to clients.