Dark clouds over Hong Kong's property market as 'perfect storm' looms

Interesting article in the South China Morning Post titled, "Dark clouds over Hong Kong's property market as 'perfect storm' looms."

It seems real estate prices and sales have fallen significantly since the Chinese government instituted measures last year to cool the real estate sector. So much so that analysts are expecting more gloom in the months ahead.

Overall property sales plunged to a 23-year low last year, a development that has fuelled fears Hong Kong will repeat the major downward trends the colony has experienced in the past.

What's evolving is seen as the perfect storm: government curbs that crimp demand at a time of increasing supply combined with an imminent interest rate rise that threatens to set off a severe price correction.

A collapse in demand that saw overall property sales plunge to a 23-year low of 70,501 deals last year has fuelled fears of a repetition of major downward trends of the past.

Amid the continuing slide, which began when the government imposed a hefty increase in stamp duty in February last year, gloom-and-doom forecasts of prices plunging as much as 35 per cent in two years have emerged.

"There are strong similarities with the 1997 bubble, but the exceptionally low level of interest rates has encouraged homebuyers to borrow more in this cycle than in 1997. So the market is far more dependent on inter-generational transfer of equity, low supply and low interest rates," said Andrew Lawrence, the managing director of real estate equities research at Malaysian investment bank CIMB Securities.

Before 2009, about 75 per cent of property transactions required a mortgage, Lawrence said, but following a drop in mortgage rates, now at a historical low of about 2.2 per cent, nearly every property transaction had been mortgage-funded.

One of the most bearish property analysts in the city, Lawrence said home values could fall more than 50 per cent in a worst-case scenario if the government did not relax the higher stamp duties. 

The real estate collapse in 1997 had no floor because it was driven by economic contraction, which created a downward spiral.

A repeat of that today would have stunning repercussions.

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MAC-gate helps expose the myth of HAM (Hot Asian Money). Early stats show Chinese New Year a sales disaster

One of the side bonuses to the MAC-gate scandal has been the exposing of the myth of HAM as something that is going to keep our housing bubble afloat.

The media has been quick to identify the main reason for MAC's media lie - perpetuating the import of the Chinese property buyer.

From Friday's story in the South China Morning Post newspaper titled: Bogus buyers exposed in scam to boost property market in Vancouver - Deception aimed to create the impression that Chinese buyers are still flocking to buy into Vancouver's housing market, where prices are falling

The deception was intended to create the impression that Chinese buyers were still queuing up to buy into Vancouver's teetering real estate market, which has long been fuelled by money from China and is now rated as the second least-affordable city in the world, behind Hong Kong, according to the Demographia consultancy.

(Note: the google translation incorrectly translates the figure as a 7% drop. The news article does actually use the number 70%.  Not sure why google turns a 70 into a 7).

... to an article in yesterday's Globe and Mail newspaper titled: There’s scant evidence behind the myth about foreign buyers of Vancouver real estate.

While the stunt was roundly slammed, it also reignited a debate among real estate observers: Just how much truth is in the long-standing narrative that foreign money is driving the local market? Anecdotes abound about foreign investors scooping up Metro Vancouver real estate, driving up prices and creating anxiety among locals – a bogeyman haunting the dream of home ownership – but evidence to support such a claim is scant.

... the word it out.

Don't get it wrong, all rumours have some basis in fact and the myth of HAM is no different.

But the excessive manipulation of this myth has been a criticism of the online community for years.

Garth Turner has spoken about it lots beforeand railed against the deceptive media ploys that have been used:

As many people now know, Amanda is a young administrative marketing assistant at MAC Marketing Solutions in Vancouver, a company developers hire to flog condos to the rabble. She crossed the ethical line last week when the company tried to (once again) milk the incredibly lazy, gullible and bush-league Van television media...

Of course, this is not the first time. In 2011 you might recall Cam Good, head of The Key – another house-flogging, Van-based professional pumping outfit – hiring a yellow helicopter to ferry around “Chinese investors” with three TV crews stuffed into the back of the chopper. The intentional buzzing of defenceless places like White Rock was intended to goose the myth of HAM – Hot Asian Money – and feed the meme that legions of oriental Donald Trumps were about to gobble up the region, pricing the locals out forever.

But as this blog pointed out days after Global and CBC ran their yellow peril stories, the Chinese dudes were actually Canadian realtors from the burbs, posing as rich vultures from Guangdong. Mr. Good’s company also tried to pass off an employee as a consumer in a weird scheme that brought the Groupon concept to selling condos.

And there have been many condo marketing ploys besides these. How about the fake condo sale line ups to create the media and buying frenzy?  As Turner notes:

People (Asians, preferably) were offered money, plus lawn chairs, portable heaters, food and porta-potties to camp out in from of a sales centre for 24 hours prior to opening. TV news crews were invited to come and witness the spontaneous news event and the stories they ran begat longer lines, people being the lemmings they are.

Turner originally covered this story in Feb, 2011 and we followed up on February 17, 2011 (with citations from numerous craigslist ads by VREAA).

The selling period associated with Chinese New Year (CNY) for 2013 is now coming to an end and statistics are proving the fabricated hype is once again just that: a fabrication.

The dedicated contributors to the comments section of Vancouver Condo Info show us the reality.

In the supposed HAM hotbed of Richmond there are 399 homes on the market with an asking price of over $1.4 million. That's a MOI (months of inventory) of 28 months!  There are 65 homes on the market asking over $2.4 million.  Only 15 such homes have sold in the past 12 months meaning there is a stunning 52 MOI!

Contributor VMD shares with us this translated Chinese news article revealing that there has been a 70% Drop in Home Sales Since Chinese New Year.

Contrary to what the condo marketers were telling us, there actually was no rush of buyers coming into the market this Spring. The CNY sales period has been a disaster.

As Garth Turner observes, there have been lots of high-end houses bought by people who made their money in Mainland China, and that will continue. But many of the realtor shenanigans portrayed in our local media as 'news' are nothing more that the work of shrewd marketers out to create anxiety and competition amongst local buyers.

This time one of those marketers got caught.

In the coming weeks it's crucial that the governing bodies that oversee the integrity of the real estate industry take severe and strong action to ensure these "dishonest tactics" aren't used again.

The people of Vancouver deserve nothing less.

(hat tip: yvr2zhr, VHB, VMD, VREA, Vancouver Condo Info)

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MAC Marketing scandal makes headlines in Hong Kong

Locally, the MAC Marketing Solutions scandal has dealt the real estate industry a black eye.

And now the story is gaining attention overseas.

In Hong Kong, the South China Morning Post is out with this story: Bogus buyers exposed in scam to boost property market in Vancouver - Deception aimed to create the impression that Chinese buyers are still flocking to buy into Vancouver's housing market, where prices are falling

A senior executive at a Vancouver marketing firm was forced to resign after employees of the company were caught posing as the daughters of rich Chinese property buyers in interviews with TV reporters.

The deception was intended to create the impression that Chinese buyers were still queuing up to buy into Vancouver's teetering real estate market, which has long been fuelled by money from China and is now rated as the second least-affordable city in the world, behind Hong Kong, according to the Demographia consultancy.

(hat tip: southseacompany)

For BC's real estate industry it's a black eye they just don't need right now. The Hong Kong paper is even reporting earlier events of media manipulation and fake Asian buyers:

It's not the first time that spurious reports about buyers from China have been used to hype the Vancouver property market. In one incident in 2011, a local marketer tipped off TV reporters that a group of property buyers from China were taking helicopter tours of the region to spot potential purchases. It was later revealed that the "Chinese investors" in the report were in fact Vancouver real estate agents of Asian descent.

Combine this with confirmation that Vancouver's housing bubble is in the process of deflating:

The average price of a detached house in the core district of Vancouver West topped out at C$2.25 million (HK$17.13 million) last May. It has since fallen by more than 11 per cent.

And the impact on the industry is incalculable.

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