Category: Property Market

Trump hasn’t derailed Chinese homebuyers’ obsession

From South China Morning Post.

Donald Trump’s presidency won’t hurt the rising tide of Chinese investment into the United States – in fact, the level of cash may actually increase, according to Knight Frank.
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Trump’s shock election last week rattled markets around the world and analysts continue to disagree on what the Republican candidate’s victory means or how it will affect the US property market, the No 1 destination for Chinese capital. “The short answer is I am not worried about Trump’s impact on Chinese flows into America,” Knight Frank’s global capital markets head Peter MacColl told the Post during a visit to Hong Kong last week.

“Whilst he’s come out with a lot of rhetoric, what might be considered to be barmy ideas that might have an impact on the geopolitical scene globally, the American system of checks and balances through Congress, through all the advisory parties that any change has to go through, means any really radical things won’t happen overnight,” he said.

“I don’t think there will be a big downturn in the property market because of Trump, and if anything, there could be a bit of an upturn because of his policies towards business generation and self responsibility.”

In the short term, MacColl expects there to be a bit of “waiting in the wings and seeing what’s going to happen”.

“A bit of caution, a bit of a slowdown just in terms of making decisions – which is understandable – until maybe the new year when things start to pan out a bit.”

But MacColl said he didn’t see a lot of risk to mainland Chinese investors in the US from Trump’s presidency and expected the US to remain the favoured destination for Chinese capital.
There wasn’t just a pull factor, there was also a push factor, with Chinese investors keen to take their money out of the country as the yuan continued to be devalued, he said.

The total volume of Chinese outbound real estate investment between January and October is slightly down on the same period last year, according to Knight Frank research.

But not everyone was so positive. Jefferies equity analyst Mike Prew said the combination of a possible post-election Federal Reserve rate rise in December and rising bond yields compared with property yields could have an effect on the returns in the US’s $27 trillion residential market.

“Things could get messy for real estate,” he said.
He tipped Canadian residential markets of Toronto, Montreal and Vancouver to be the big property winners following the US election.

Simon Smith, head of research and consultancy for Savills, agreed that investors would stay cautious for the rest of this year and capital volumes might be more muted.

“The uncertainty continues to drive people to the United Kingdom,” he said, noting that Brexit had also worked out positively for the British property market thanks to the falling pound – something which hadn’t happened to the US dollar. “It looks like the UK remains a net beneficiary of what’s been happening.”

Trump’s indication that he would invest in infrastructure was judged as positive by investors, but question marks remain over the wider policy direction of his presidency.

“I don’t think the clouds have parted quite yet on Trump and what election promises he may or may not choose to enact. We’re still asking ourselves: is this soft Trump or hard Trump?”
New York real estate company CityRealty’s director of research Gabby Warshawer said it was difficult to predict the long-term implications of Trump’s presidency on New York property,
which was the top destination for Chinese capital investment in the first six months of this year.

“If the stock market were to be extremely unsettled for a long period of time, that would have a clear effect on real estate — for example, following the financial crisis in late 2008, it took more than three years for New York real estate prices and sales volume to bounce back,” she said in an emailed response to questions from the Post.

“That being said, analysts have not been predicting a protracted doomsday scenario for the markets following this election.”
She said it was unlikely there would be significant change in Chinese investment following the election as the buying spree had a lot to do with property market conditions in China.

“If there is significant turmoil and the United States is no longer considered as safe for real estate investments as it has been in recent years, then that would impact all international buyers,” Warshawer said.“The New York City real estate market is stable and exceptional enough that it is still generally seen as a safe long and medium-term investment by most buyers, regardless of campaign rhetoric.”

NSW Strata Law Changes Open New Possibilities For Apartment Owners

From Domain.

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Apartment owners may soon find themselves able to insert extra units into their blocks, create car parking below and add penthouses on top to bring in extra revenue and dramatically increase the value of their homes.

As a result of a little known “renewal” clause in imminent strata law changes coming into effect on November 30, it will be much easier for them to organise to redevelop their buildings themselves, in partnership with a developer, or to allow a developer to completely upgrade their blocks.

“This opens up so many possibilities for apartment owners,” says Sydney apartment owner and businesswoman Catherine Lezer, who is also a director of the independent not-for-profit Strata Community Australia.

“It’s about proactively managing the value of your apartment asset. Before, it was difficult to organise and to finance. Now both are possible.”

The new legislation includes a clause that allows just 75 per cent of owners in a building – in place of the current 100 per cent – to vote to make sweeping changes. Since it’s rare that every owner will ever agree to anything, this amendment is seen as potentially revolutionising the apartment world.

Already, there’s been a number of inquiries from buildings to financiers Lannock Strata Finance about taking out loans to pay for ambitious, and possibly hugely profitable, redevelopment plans, particularly for older crumbling small buildings in the eastern suburbs, inner west and lower north shore.

More relaxed height restrictions and floor space ratios, coupled with vastly improved building techniques, will allow more homes to be built in the same footprint or on sites where higher, larger blocks would today be allowed in what’s now being seen as a redevelopment bonanza for apartment-dwellers.

Australian Property Just One of Many Markets Of Interest To Foreign Investors

Globalisation has opened up property markets around the world, with cashed up investors from China in the market snapping up overseas homes at an accelerating pace. They’re also venturing further afield than ever before, spreading beyond the likes of Sydney and Vancouver to lower-priced markets including Houston, Thailand’s Pattaya Beach and Malaysia’s Johor Bahru; according to Bloomberg.

If they were anywhere else in Beijing, the five young women in cowboy hats and matching red, white, and blue costumes would look wildly out of place.

 

But here at the city’s biggest international property fair — a frenetic gathering of brokers, developers and other real estate professionals all jockeying for the attention of Chinese buyers — the quintet of wannabe Texans fits right in. As they promote Houston townhouses (“Yours for as little as $350,000!”), a Portugal contingent touts its Golden Visa program and the Australian delegation lures passersby with stuffed kangaroos.

Welcome to ground zero for the world’s largest cross-border residential property boom. Motivated by a weakening yuan, surging domestic housing costs and the desire to secure offshore footholds, Chinese citizens are snapping up overseas homes at an accelerating pace. They’re also venturing further afield than ever before, spreading beyond the likes of Sydney and Vancouver to lower-priced markets including Houston, Thailand’s Pattaya Beach and Malaysia’s Johor Bahru.

The buying spree has defied Chinese government efforts to restrict capital outflows and shows little sign of slowing after an estimated $15 billion of overseas real estate purchases in the first half. For cities in the cross-hairs, the challenge is to balance the economic benefits of Chinese demand against the risk that rising home prices spur a public backlash.

“The Chinese have managed to accumulate very large amounts of wealth, and the opportunities to deploy that capital in their own market are somewhat restricted,” said Richard Barkham, the London-based chief global economist at CBRE Group Inc., the world’s largest commercial property brokerage. “China has more than a billion people. Personally, I think we have just seen a trickle.”

While a dearth of government statistics makes it difficult to gain a comprehensive view of cross-border real estate investments, most industry projections point to a surge in Chinese purchases. Ping An Haofang, an online real estate platform owned by China’s second-largest insurer, says its $15 billion first-half estimate, derived from market data, nearly matches the figure for all of 2015.

Fang Holdings Ltd., the country’s most popular property website, predicts overseas buying on its system will increase 130 percent this year, while transactions through September at Shenzhen World Union Properties Consultancy Inc., China’s largest broker for new-home sales, were already 50 percent above last year’s level. The country overtook Canada as the largest source of residential purchases in America last year after an estimated $93 billion of buying from 2010 to 2015, according to a May report by the Asia Society and Rosen Consulting Group.

 It adds up to the world’s biggest-ever wave of overseas residential property investment, according to Susan Wachter, a professor at the University of Pennsylvania’s Wharton School who specializes in real estate markets. While Japan had a similar boom in the 1980s, it was mainly focused on commercial buildings, Wachter said.

Today’s Chinese buyers have a long list of reasons to flock overseas. The yuan’s slump is eroding their purchasing power, while returns on local financial assets — including stocks, bonds and wealth-management products — are shrinking as the $11 trillion economy slows.

Chinese real estate, meanwhile, has grown increasingly out of reach after a speculative boom sent domestic home prices to all-time highs. Residential property values in Shenzhen, Beijing and Shanghai all jumped more than 30 percent in the year through September, according to the National Bureau of Statistics.

“Properties in Shanghai are ridiculously expensive,” Chen Feng, 38, said as he evaluated prospects at a property fair in Shanghai in September, lured by television commercials for the event the night before. “With the amount of money it takes to buy a small apartment here, I can buy a building of apartments in many places in the world.”

That line of reasoning is nothing new, of course. Sydney, Vancouver, Hong Kong, London and a handful of other cities have long been popular destinations for Chinese buyers.

The difference now is that those traditional hotspots are starting to lose their appeal, due to soaring prices and new measures to deter an influx of overseas money. In Hong Kong, the government enacted a 30 percent tax on foreign property owners this month after Chinese demand pushed home values toward record highs.

The risk of similar measures in other cities can’t be ruled out as politicians including Donald Trump, the U.S. president-elect, tap into local discontent over rising living costs, according to CBRE Group’s Barkham.

Ocean Views

Chinese buyers have responded by branching out to cheaper cities. In the U.S., they’re increasingly searching for properties in Houston, Orlando and Seattle, which displaced San Francisco in the first quarter as the third-most viewed U.S. market on Juwai.com, a Chinese search engine for offshore real estate.

At the national level, countries in Southeast Asia have grown more popular. Juwai.com’s queries on Thailand are surging at a 72 percent annual rate, helping it surpass Britain as one of the top five most-targeted destinations worldwide earlier this year.

In Pattaya Beach, Chinese investors have snapped up 20 percent of the luxury condos on offer from Kingdom Property Co. over the past year. The properties offer Gulf of Thailand views for as little as $120,000, or less than a quarter of what buyers would pay for a typical apartment in central Shanghai, according to Han Bing, a 30-year-old anchor in Chinese television shows who doubles as a sales agent for the Bangkok-based developer.

“It’s a cool bargain for a retirement plan,” Han said.

Capital Controls

In the Malaysian state of Johor, across the Northern border of Singapore, major Chinese builders including Country Garden Holdings Co., Greenland Holdings Corp. and Guangzhou R&F Properties Co. are all developing new projects. Country Garden agents handed out fliers for the firm’s $37 billion Forest City development at the Beijing property fair in September, advertising permanent property rights, zero inheritance taxes, long-term residence visas and high-quality hospitals.

One challenge for Chinese investors is getting money out of a country that caps individuals’ foreign-currency purchases at $50,000 a year. While that limit hasn’t always been strictly enforced, the yuan’s slump is prompting policy makers to clamp down. This year, they’ve banned the use of friends’ currency quotas, curbed on the cross-border activities of underground banks and asked lenders to reduce foreign-exchange sales.Still, alternative routes abound. Many business owners finance their homes through offshore trading companies, while some Chinese developers allow clients to pay for overseas units in yuan. Foreign-currency mortgages also play a role, helping to fund more than 80 percent of China’s international property purchases, according to an estimate by Fang Holdings based on user searches and surveys.

Planning Ahead

“Where there’s a will, there’s a way,” said David Ley, a professor at the University of British Columbia who wrote a book on the flood of wealthy migrants from east Asia in the 1980s and 1990s.

This year’s purchases could be just be the tip of the iceberg. Chinese holdings of global real estate, including commercial properties, will probably swell to $220 billion by 2020 from $80 billion in 2015, according to Juwai.com.

As the first generation born after China’s opening in the late 1970s approaches middle age, many of them want an overseas base for family members to travel, study and work. Chinese parents with children at foreign schools have been a major source of demand, accounting for an estimated 45 percent of cross-border buying, according to Fang Holdings.

Zha Liangliang, a 31-year-old owner of commercial wheat farms in China’s eastern Jiangsu province, said he purchased a $587,000 apartment in Sydney in August and plans to add five more before sending his children to high school in Australia. He’s flying to the country this month to view homes and farmland, hoping to buy before the yuan weakens any further.

For some investors, it’s never too early to pull the trigger. Richard Baumert, a partner at Millennium Partners Boston, tells the story of a 33-year-old Chinese man who purchased a luxury home for his future children in August, convinced they’re destined to attend one of the city’s prestigious universities.

The buyer shelled out $2.4 million for the property, Baumert said, unfazed by the fact that he’s single and it could be two decades before he has kids old enough for college.

Returns From Property Are Varied, But Positive

CoreLogic’s latest blog post discussed property returns across the cities, including using gross rental returns. However, these are gross yields, not taking into account the debt burden and servicing costs.  The picture changes when do you.

CoreLogic’s conclusion is that investors still have headroom and total returns are picking-up outside of Sydney and Melbourne.

Sydney & Melbourne have seen much stronger total returns than other capital cities over recent years. Recent data indicates returns in Hobart & Canberra are closing in on Sydney & Melbourne thanks to higher yields & accelerating capital growth.

The CoreLogic Home Value Index was released last week and it showed that combined capital city home values rose by 7.5% over the year to October 2016.  The most interesting recent development has been the accelerating annual growth trend evident within Sydney and Melbourne.  While the change in values is important, it only tells part of the story with the total return also an important figure to focus on.

Annual change in capital city home values,
to October 2016

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While the home value index looks at changes in values, the CoreLogic Accumulation Index factors in the change in values over the year along with rental returns. As a result, the Index provides an indication of the total returns from residential property.

When you factor in gross rental returns, the total returns from residential property are actually positive across all capital cities.  This is despite values declining in both Perth and Darwin.  The total returns index also shows that Sydney and Melbourne are not quite so far out in front.  The strong value growth in these two cities is offset by record low yields.  Meanwhile, more moderate but accelerating value growth in Hobart and Canberra along with higher rental returns are resulting in total returns in these two cities closing the gap with Sydney and Melbourne.

Total returns from residential property,
12 months to October 2016

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Looking at cumulative value growth over the five years to October 2016, Sydney and Melbourne stand head and shoulders above all other capital cities.   Over the five years to October 2016 Sydney home values have increased by 62.3% and Melbourne home values are 38.1% higher.  No other capital city has recorded cumulative growth of at least 20% over the past five years.

Total change in capital city home values,
5 years to October 2016

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Total returns over the past five years indicate the property asset class has performed much better than if you just look at headline value growth.  Although Sydney and Melbourne have still recorded the strongest total returns over the past five years, returns in the other capital cities are much stronger once you factor in the rental return performance.

Total returns from residential property,
five year to October 2016

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The strong value growth in Sydney and Melbourne over recent years has been a key driver of demand from the investment segment.  Over the past year, total returns have begun to accelerate in Hobart and Canberra.  Although value growth in these two cities has not been as strong as in Sydney and Melbourne, the superior rental returns are resulting in stronger total returns.

With Sydney and Melbourne having seen much greater value growth than all other capital cities over recent years and rental returns pushing to lower level, the total returns on offer in Hobart and Canberra are likely to remain attractive for investors.  Particularly those investors looking for opportunities outside of the two largest capital cities.

Preliminary clearance rate remains strong at 77.5 per cent

CoreLogic says the combined capital city preliminary clearance rate increased this week, up from last week’s final of 73.6 per cent to 77.5 per cent, with auction volumes also showing an increasing trend over the week. There were 2,843 auctions held across the combined capital cities, up from last week’s 2,517. However, auction volumes continue to track lower than the corresponding period last year when 3,274 auctions were reported with a lower rate of clearance (62.3 per cent). The two largest auction markets, Melbourne and Sydney, continue to skew the capital city weighted average higher, with both cities consistently recording an auction clearance rate higher than 70 per cent throughout Spring, despite a substantial reduction in the number of auctions compared with last year. Late November and early December have historically shown the highest number of auctions. As the number of auctions trends higher over the coming weeks, the larger stock levels will provide a timely test of the auction markets strength.

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No Trump Auction Fallout

The preliminary results from Domain show auction clearance momentum continued today. Clearances nationally hit 77% on a higher listing than last week. This time, last year on slightly higher listings the score was 61.7%. Sydney achieved 80.4%, the highest win rate, but Melbourne listed 1,106 properties, the highest nationally. The news from the US did not scare the horses!

domain-12-11-16-1Brisbane cleared 59% of 159 scheduled auctions, Adelaide 69% of 83 listed and Canberra 70% of 72 scheduled auctions.

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Auction Results Still Hot (Again)

CoreLogic says auction markets continue their strong run with the weighted preliminary clearance rate holding well above 70% for the 15th week running.

Auction activity has continued to rise through in the final month of spring, however the number of auctions remains well below the highs recorded a year ago. The preliminary clearance rate was 77.5 per cent across 2,490 reported auction results. This is higher than last week’s final clearance rate of 74.4 per cent, with auction volumes increasing compared to the 2,253 Capital city auctions reported last week. Over the corresponding week last year, auctions volumes were significantly higher with 2,947 auctions reported and a 61.4 per cent clearance rate. The high rate of clearance is evident in the distinct markets, where Melbourne reported an 80.5 per cent clearance rate, up from the previous weeks 77.5 per cent, also Sydney (82.1 per cent) and Canberra (79.5 per cent) producing high clearance rates week-on-week reporting above 80 and 70 per cent respectively, four weeks in a row.

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Auction Momentum Higher This Week

Today’s provisional auction clearance results from Domain continue their run of high clearance rates.  The national clearance rate is 75.6%, compared with 72.9% last week, and 59.8% last year. Melbourne achieved 79%, higher than last week, and last year. Overall volumes are down on a year ago, but higher than last week.

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Brisbane achieved 53% on 151 listings, Adelaide 66% on 90 listings and Canberra 64% on 79 listed.

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Property Sentiment Rising, But … Says NAB

The NAB Residential Property Index improved to +15 from +3 in Q3, with sentiment rising in all states except SA/NT. NSW leads the states at +53 (up from +23) and Victoria improved notably to +40 (up from +23).

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“The NAB Residential Property Survey continues to show significant variances in sentiment between the states, with the eastern seaboard still leading the charge and negative sentiment in mining-led states, particularly in WA which remained at a survey low -67 ” NAB Chief Economist Alan Oster said.

“Overall confidence has also waned slightly with the Index expected to remain unchanged in 2017, but falling to +30 points (from +39) in two years’ time.”

Looking forward, property professionals on average are expecting national house prices over the next 12 months to strengthen 1.3% and 1.4% in two years’ time.

But while their expectations for price growth in Victoria, NSW and SA/NT were revised up, they were cut back in Queensland and are expected to continue falling in WA.

Property professionals identified employment security as the biggest constraint on buyers of existing property in Australia.

During Q3, the overall market share of foreign buyers in new and established property markets fell to their lowest levels since 2012, with foreign buyers less prominent in Victoria, NSW and Queensland.

NAB’s forecasts on residential prices

NAB Group Economics has also revised its national house price forecasts for 2016 upwards to 7.9% (from 5.1%). Unit price forecasts were also revised up, to 5.2% for 2016.

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“We have revised our price forecasts upwards in response to a sharp rise in the six-month annualised growth in dwelling prices, particularly in Sydney and Melbourne,” Mr Oster said.

“The RBA’s recent interest rate cuts have been a major source of support, while investor credit has also picked up again. On the supply side, there also appears to be a number of factors at play with auction and sales volumes down compared to a year ago.

“As we have said for some time, there is considerable uncertainty over the outlook for dwelling prices. We are expecting a more subdued environment from late-2017 as supply conditions become less favourable.

“However, we continue to hold the view that residential property prices are unlikely to experience a severe price ‘correction’ without a trigger that leaves unemployment or interest rates sharply higher – which we are not anticipating.”

Foreign Buyers

The influence of foreign buyers in Australian property markets continued to lessen according to surveyed property professionals, suggesting that tighter conditions imposed on foreign buyers is still having an impact.
In Q3, foreign buyers accounted for 10.2% of all new property purchases (10.4% in Q2) – the lowest level since mid-2012. In established markets, their share fell to 6.4% (7.2% in Q2) – its lowest level since Q4 2012.

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In new property markets, foreign buyers were less prominent in the key states. In VIC, their market share fell to 15% in Q3. This followed a sharp jump in foreign buying activity in Q2 to 21.7% of sales ahead of an increase in the stamp duty surcharge on foreign buyers of Victorian property.

Foreign buyers were also less influential in NSW, where they accounted for just 8% of total demand – the lowest level since Q1 2012.

In QLD, their market share of sales fell to 10.5% (11.2% in Q2). In WA, foreign buyers lifted their market share to 6.6% (3.9% in Q2), which may suggest they are seeing greater value as prices fall.

About 240 property professionals participated in the Q3 survey.

RBA FOI On Australian Metro Apartment Vacancy Rates Highlights Risks

The RBA has release an FOI response relating to documents created since 1 July 2015 containing information on Australian metropolitan apartment vacancy rates.

They say that a first look at the data indicates that the large additions to supply may be weighing on the apartment markets in inner-city Brisbane and  Melbourne. It also highlights the strength of current conditions in the Sydney apartment market, whereas Perth and areas heavily exposed to the mining industry are experiencing some weakness in housing markets

The substantial volume of apartment construction currently taking place across Australia has been concentrated in Sydney, Melbourne and Brisbane. The large amount of expected apartment completions over the coming years has led to concerns around potential oversupply, particularly in the inner-city areas of Brisbane and Melbourne. By number, these 3 city’s CBDs are forecast to have the largest amount of apartment completions over the coming two years As a share of the existing stock, the new forecast supply in Brisbane CBD will increase the dwelling stock in that area by 25 per cent. Adjacent areas to the Brisbane CBD, such as Brisbane Inner – North, and Holland Park – Yeronga are also forecast to have substantial increases in supply.

In Melbourne, the total number of new units is estimated at over 16 000 over the next two years, well above the forecast increase in other areas and as in Brisbane, neighbouring areas such as Port Phillip are also expected to have large numbers of new units.

Liaison suggests developers will increasingly offer rental guarantees as apartment supply increases (as a way of securing investor sales) and will be quick to adjust rents in response to vacancies. This raises the risk that a ‘flight to quality’ will translate to the broader apartment market over time through softer demand for older low quality, low amenity apartments.

In Sydney, the areas forecast to have large numbers of new units are more geographically dispersed and the proportional increase to the dwelling stock is generally smaller than for Melbourne and Brisbane. The dataset provides information about market conditions at a more granular level. For example, CBD apartment market conditions differ markedly across cities; the weakness in the Perth economy has led to sizeable declines in apartment values and rents as well as elevated vacancy rates, Brisbane and Melbourne’s apartment market conditions are subdued, while Sydney’s remains strong.

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For Greater Sydney, expected apartment completions are higher than in the other capital cities. But oversupply is less of a concern, because this expected supply forms a lower share of the dwelling stock and is relatively spread out across the inner and middle suburbs. For those areas within Sydney forecast to experience larger increases in supply relative to the existing dwelling stock, (such as Strathfield – Burwood – Ashfield, Parramatta, Ryde – Hunters Hill and Auburn), there is little sign that oversupply concerns are weighing on these areas, with both value and rental growth remaining relatively strong However, in Melbourne and Brisbane, value growth in areas with the largest amount of expected completions (such as Melbourne City and Brisbane Inner) is relatively weak.

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In Darwin, the housing market faces major headwinds as population growth slows. Contacts reported that high-density housing is oversupplied after years of strong building activity, which has led to falls in rents and prices and a rise in vacancy rates. High-rise construction has fallen significantly and building companies have had to adapt by rapidly shedding staff.

Apartment vacancy rates are already the highest of any capital city and residential rents have fallen considerably “white collar” workers – such as in engineering and design – do rent apartments. These highly-paid workers are either leaving now or have already left, which could partially explain the high vacancy rates already in Darwin. The decrease in accommodation costs resulted in Darwin’s CPI growth falling to around 0 per cent in year-ended terms in June 2016.