A report from the Wall Street Journal on China. “Financial stress at an upmarket developer is rattling Chinese families who paid big deposits for unbuilt homes—showing the risks in presales, one of the sector’s favorite funding tools in China. Problems are emerging at Tahoe Group, which has slowed or stopped development on projects across China in recent months, and the company has fallen behind on bond payments. Some buyers also fear if they stop paying their mortgages on those loans for unbuilt homes they may be blacklisted under China’s ‘social-credit’ system, potentially leading to restrictions on travel, jobs and education.”
“‘We invested the savings of a whole family for a few decades to buy a house,’ said Franklin Yan, a financial researcher. ‘Now we may never get it, and our kids might be blocked from schools if we cannot afford the mortgage. Is this fair?’”
“Mr. Yan said in 2018 he agreed to pay 2.5 million yuan, or about $361,000, for a Tahoe apartment in Taiyuan, a city about 250 miles southwest of Beijing. Mr. Yan, who paid about one-third as a deposit, said progress slowed last year and halted entirely in March.”
“‘The problem is that there are many developers that are increasingly reliant upon preconstruction sales for financing,’ said Logan Wright, Hong Kong-based director at research firm Rhodium Group. ‘So if sales decline sharply, you could see more developers without enough financing to deliver completed homes to those who have already purchased them.’ By forcing developers to cut spending and raise cash with new sales, which then went to meet existing obligations, the government’s deleveraging campaign ‘created some Ponzi-like features,’ in the market, Mr. Wright said.”
“Maggie Wang, a founder of a skin-care startup in Beijing, paid a 10 million yuan ($1.4 million) deposit in July 2019 to cover most of the cost of a high-end flat developed by Tahoe. She said she liked Tahoe’s plans for elegant gardens in the development, and the flat’s layout. Along with other home buyers, Ms. Wang wrote to Beijing authorities in July pleading for help. ‘We are so weak,’ the open letter said. A worker at the site told The Wall Street Journal he hadn’t been paid since February, and about one-third of the construction crew had left.”
The Globe and Mail on China. “Yang Jun can’t see much cause for optimism, no matter where he looks. Dalingshan town in Dongguan, the southern manufacturing hub, once called itself ‘Asia’s furniture products base.’ Now, Mr. Yang can count seven or eight furniture-makers that did well last year, but have declared bankruptcy in 2020.”
“China’s front lines of manufacturing have become its front lines of pain, much of it borne by workers. Mr. Yang’s own factory floor has little of its previous vitality. Last year, he employed 30 people. He’s now down to a dozen. For those people he hasn’t laid off, he has slashed pay. Gone are monthly salaries, replaced by payment per completed piece. ‘The best way to describe our performance this year is ‘money-losing,’ he says.”
“At Xiangxing Precision Hardware Mould Processing Factory, ‘we’ve lost so much money,’ worker Luo Sheng said. ‘Many factories are on the verge of bankruptcy. Cutting wages is normal – and let’s not even talk about salaries. Many people will lose their jobs, because there’s nothing for them to do.’”
The Canadian Press. “The economic uncertainty wrought by the COVID-19 pandemic has turned Toronto’s rental market upside down, industry insiders said. Power once wielded exclusively by landlords has been passed to their would-be tenants, giving renters the chance to negotiate lower prices — and bigger perks. The market has been flooded with rental units previously used as AirBnBs or occupied by people who have since moved in with parents or friends to save money, said Geordie Dent, executive director of the Federation of Metro Tenants’ Associations.”
“‘You’re hearing this kind of across the board. A lot of people are moving into units that are semi-furnished and looked like they were ready to go as an AirBnB,’ Dent said. ‘The other area where I think you might see some increasing supplies (is) from student housing.’”
“William Blake, a landlord and member of the Ontario Landlords Association, said he hopes this serves as a wake-up call to absentee landlords. ‘It’s the amateur landlords who thought, ‘Oh, it’s just an investment. I don’t have to work at all. I just put people in and collect the rent.’ These are the people who are going to be having a hard time during this period.’”
The Pledge Times. “Vantaa, Finland studio prices have fallen by more than 15 percent since last year. In the Helsinki Metropolitan Area, Hypo Bank highlights the exceptional drop in its new housing review. The same has recently been seen in the recession of the 1990s. HS has previously said that in Kivistö, Vantaa, for example quantities of unsold dwellings have sometimes been great. There is an oversupply of small apartments in some places. Small homes in particular have been crushed by investors in recent years, who were pushed aside from the market for at least a moment by the interest rate crisis.”
From Cyprus Property News. “Developers fear they will be left with a large glut of unsold luxury apartments on the market as interest from foreign investors wanes due to COVID-19 restrictions. Built to suit the needs of foreign investors eyeing a Cyprus passport, and beyond the pocket of local buyers, these luxury apartments will soon start piling up, as applications filed from investors has dropped to less than a third of previous years.”
The Malaysian Star. “The government’s plan to impose a vacancy tax on developers to resolve Malaysia’s unsold units have been shot down by property consultants, the view being the tax will not solve the overhang but will instead raise prices. All three consultants say Housing and Local Government Minister Zuraida Kamaruddin should look at other ways to resolve the issue of unsold units that go into billions of ringgit.”
“VPC Alliance Malaysia managing director James Wong pointed out that many housing developers built without proper market and financial feasibility studies, resulting in wrong products, pricing and location of their projects. ‘Secondly, there are 10 local authorities in the Klang Valley. Each approves housing developments without knowing what the others had approved. This has resulted in too many condo and serviced apartments being built too close to each other with insufficient effective demand,’ Wong said.”
“Michael Kok, presiding over PEPS, asked: ‘What exactly is the objective of this tax? If it is (to compel developer to lower prices), it is quite draconian. If it is to deter overbuilding, obviously this is a bad idea. It is akin to closing the stable door after the horse has bolted.’”
The Sydney Morning Herald in Australia. “Drop the word ‘bloodbath’ into your media release and you can pretty much guarantee headlines across the land. But is it true? Is a 27 per cent step-down from the biggest building boom in Sydney’s boom-bust history really a bloodbath? Or is it a long-needed correction, an opportunity to take stock and rethink?”
“Admittedly, most of the papers that ran this week’s ‘Builders warn of looming housing bloodbath’ headline hail from a single stable with a discernible agenda. But their shared premise, which governments routinely support, makes the construction industry some beneficent overlord whose current jitters constitute such imminent danger to us all as to justify billions of dollars in public up-prop.”
“Indeed, Master Builders Association chief executive Denita Wawn seemed to think it perfectly reasonable, this week, to demand $5.1 billion public dollars in special building industry favours to avoid a ‘bloodbath’ now that ‘private sector investment is evaporating.’ But why? The Australian construction industry is surely among the most ruthless, arrogant and self-concerned industries anywhere this side of the law (a line it has been known to straddle).”
“Public benefit? Pah. Developers have to be dragged to it kicking and screaming and, usually, they’re not, which is why our public realm has all the delight and variety of a prison exercise yard. Yet at first sight of their own blood these same schoolyard bullies drop into self-pity, demanding a head pat from nanny and a kiss better. Billions, please, boo hoo.”
“Somehow no one sees the contradiction here. On one side, our development fraternity is so virile, so fabulously tumescent, so eager to perform that the rules should be stretched to accommodate, max lubrication applied. On the other, that same fraternity is so limp it requires the viagra of public moneys to perform at all.”
“And somehow both arguments lead, from opposite directions, straight to the need for public help in ignoring the public good; wildly accelerated planning approvals, public lands, public cash. But again, why? Why wouldn’t we recognise that evaporating interest is a sign of glut, aka bad investment?”