Monday, 12 September 2016

Towards the bursting of the Auckland housing bubble

Gotta come to a city near you - I hope.

Australia 6 weeks from a housing collapse, US report warns
Sydney could be particularly impacted by a housing collapse. Photo / Getty Images

12 September, 2016

Australia has roughly "six weeks" to prevent a housing market collapse caused by the banks' crackdown on foreign investor lending, a US defence think tank has warned.

In an article titled "Australia Risks Strategic Setback From a Significant Foreign Direct Investment Drop Due to Changes in Bank Policies", the Washington-based International Strategic Studies Association warns that Australia "may be entering a significant phase of its economic-strategic development".

It argues "changes in local banking policies" could see foreign direct investment in the property sector "decline markedly". "This will profoundly impact the Australian government's ability to fund major programs in the defence and civil sectors," it said.
The article is contained in the ISSA's latest Global Information System newsletter, described as a "strategic intelligence service for use only by governments".
"The Royal Australian Navy's submarine acquisition program, budgeted at $50 billion, may be the first major defence casualty," the article said.
"However, the government itself seems unaware that the anticipatory caution on the part of Australian banks may accelerate a decline in the Australian economy."
ISSA president, West Australian-born Gregory Copley, told the "banks' caution is precipitating the market collapse".

"We estimate that Australia has about six weeks or so to turn this situation around, otherwise there would be a massive hit on property valuations and the building trades," he said.

"The urgency is, I believe, based on the fact that this is about how long it will take for the banks' policies to start switching off a lot of existing and planned contracts for Australian properties.
"The banks clearly believe Australian real estate values will decline, so they are attempting to avoid that risk. They've learned from the US collapse that seizing real estate collateral is a no-win scenario when the volume is great and the market slow.
"In so doing, they precipitate the market collapse but are less exposed to it."
It comes after Australia's richest man, billionaire property developer Harry Triguboff, warned that a "very significant" number of Chinese buyers were now failing to settle their off-the-plan units and urgent action was needed.
Triguboff, founder of Australia's biggest apartment builder Meriton, warned the real risk was looming in the new wave of developments. As apartment price growth stalls or goes backwards, the risk of buyers walking away from their deposits grows.
It will likely also have a broader impact of depressing housing prices across the whole economy. It is a kneejerk response to fraud concerns.
Earlier, broker CLSA predicted a looming apartment "crisis" that would be kicked off by a wave of defaults forcing smaller developers into receivership, pushing down prices and potentially causing wider contagion that could lead to a recession.
The ISSA described moves by Australian banks from July this year to restrict or even withdraw funding to foreign property investors as "almost cartel-like policies".
"The policies, now in place by all major Australian banks, were instituted in anticipation of an economic downturn internationally and domestically, but which, in fact, actually trigger or exacerbate such a downturn," the article said.
The piece quotes a "leading Australian property source" warning that by cutting off the foreign buyer sector completely, "it is much more likely to be a self-fulfilling prophesy by depressing demand, creating oversupply and putting downward pressure on prices, thereby creating paper losses at the settlement date which would tempt buyers to walk away".
What the banks were trying to do with the tightening of apartment lending, particularly to foreigners, was make sure that if people were having trouble offshore they didn't end up in the Australian banking system.
NAB chief economist Alan Oster
"It will likely also have a broader impact of depressing housing prices across the whole economy. It is a kneejerk response to fraud concerns," the source was quoted as saying.
"To my understanding the fraudulent activity has been linked mainly to one significant group, which has historically managed about 3000 sales into Australia each year.
src="" alt="Foreign buyers make up around 20 per cent of off-the-plan purchases in Australia. Photo / Getty" style="margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 16px; vertical-align: baseline; transition-property: color, background-color, border-color, opacity; -webkit-transition-property: color, background-color, border-color, opacity; transition-duration: 0.2s; -webkit-transition-duration: 0.2s; max-width: inherit; background: transparent;"Foreign buyers make up around 20 per cent of off-the-plan purchases in Australia. Photo / GettyForeign buyers make up around 20 per cent of off-the-plan purchases in Australia. Photo / Getty
"And notwithstanding the doctoring of supporting documentation, the actual settlement rates had remained high. That one property group needs to be taken to task, not the whole industry."
NAB chief economist Alan Oster described the ISSA's prediction of an imminent collapse as "garbage", adding that the CLSA report was "very poor analysis".
"One of the big problems of apartments is most of them, we don't know who's funding them," he said. "If the big banks don't know who's funding them, then the bottom line is, basically the main risk is somewhere else.
"What the banks were trying to do with the tightening of apartment lending, particularly to foreigners, was make sure that if people were having trouble offshore they didn't end up in the Australian banking system."
According to NAB's surveys of property developers, foreign buyers make up around 20 per cent of off-the-plan purchases, but that figure is "significantly higher" in Sydney and Melbourne CBDs.
Oster said the issue of settlement risk was "probably further down the track" in 2017-18. "The idea that the banks, who might own 20 to 30 per cent max of these apartments, will somehow crash the market is silly," he said.
"To get any sort of problem you've really got to have something going wrong in China and then everybody selling their apartments at the same time. If they do that then it's not an Australian problem, that's a global problem."
It's worth remembering there is still a lot of money out there searching for a home or somewhere to invest.
ANZ economist Daniel Gradwell
ANZ economist Daniel Gradwell said while there was "definitely" a risk of rising defaults, "from our discussions with developers in the industry we are feeling a little bit like 'where there's a will there's a way'".
"There is still an incredible amount of demand coming from these Chinese buyers," he said. "If they're not getting finance from the major banks, it seems there are other options out there including non-bank financing.
"It's worth remembering there is still a lot of money out there searching for a home or somewhere to invest."
Commonwealth Bank said concerns about a peaking in the residential construction cycle "look overdone" and it wasn't expecting any "significant contraction" until late 2017 and early 2018.
"A renewed lift in lending to build dwellings and good growth in lending to buy vacant blocks of land point to an extended top in new construction," a Commonwealth Bank spokesman said.
"Rising lending for alterations and additions means renovations could make a significant contribution to economic growth.
"New construction activity is running ahead of demographically driven demand. The stockpile of unmet demand that built up during the earlier period of underbuild is eroding rapidly.
"CBA estimates of the apartment construction pipeline point to a significant lift in supply that will ultimately weigh on new construction. That point still seems some way off."
Westpac declined to comment.

Agent denies wrongdoing after West Auckland home sold three times in one day
The house at 168 Hepburn Rd sold three times in one day - netting an $80,000 profit.

11 September, 2016

The former owner of an Auckland house that changed hands several times over a period of weeks has filed an official complaint against her agent - but the real estate agent believes he has nothing to worry about.

The two-bedroom West Auckland property at 168 Hepburn Rd was sold multiple times, with the same settlement date in July last year.

Speculators cashed in on nearly $80,000 profit for the house that had belonged to Justine McCall's mother, who had passed away.

Auckland, Ray White real estate agent, Aaron Drever said the offer presented to his client was the best possible price for the vendor.

McCall enlisted Ray White agent Aaron Drever to sell the home for her.

She confirmed she has made a complaint with Real Estate Agents Authority (REAA) but not want to comment while it was being investigated.

The two bedroom property's former owner has laid a complaint over the original sale.

Drever directed questions to his spokesman Matthew Bloomfield, who said Drever had sought separate legal opinions and was not concerned about the REAA complaint.

The offer presented to the client was the best possible price for the vendor, he said - and $10,000 more than the upper range of the appraisal.

The sale and purchase agreement signed by McCall and a property lawyer acting for her, contained specific clauses noting the property hadn't been exposed to the market and the house was a 'do-up', he said.

Property documents show the first sale of the property on April 23 was for $450,000 when Sirroco Limited agreed to buy from McCall, with a settlement date of July 6, 2015.

Sirroco had purchased it to add a bedroom and resell as a three-bedroom house.

However, it realised that the cost to add the extra bedroom was too high, so asked Drever to relist the property, Bloomfield said.

Drever went on holiday and another Ray White agent took over the selling, he said.

The following sale was on May 20, 2015 for $515,000 when The Property Lifestyle Limited agreed to buy from Sirroco Limited, with a settlement date of July 6, 2015.

The third sale recorded on May 22, 2015 for $529,000, when Magill Family Property Limited agreed to buy it from The Property Lifestyle Limited, with a settlement date of July 6, 2015.

On April 11 2016 Magill Family Property Limited sold it for $549,000 to Nicola Rothwell and Mathew John Powell.

CoreLogic NZ senior research analyst Nick Goodall said although the contemporaneous sales transactions were not illegal, full disclosure was required.

They were not that common, especially more than twice on the same day, but given the strength of the Auckland market with short term capital gains, it was likely they would occur more often, he said.

"We have previously looked into flipping where properties are held for a short term, say less than 6 or 12 months, and while instances of this have increased recently, it's not at the same level as we saw in the last boom period leading into the 2007 peak."

He believed about eight per cent of sales in Auckland were currently held for less than a year, and during 2007 it was closer to 12 per cent.

It appears that the Vancouver housing market has slammed shut.

Which is hardly a surprise: virtually everyone saw it coming, the only question was when. Eilers says he’s been warning of a real estate slow-down for at least a year due to the region’s unsustainable and unsupportable prices. West Vancouver, where he does a large part of his business, had a benchmark detached home price of almost $3.4 million in July according to the Real Estate Board of Greater Vancouver.

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