Snapshot on world property, week to 29 January 2012 - propbd

[muppet]

Snapshot on world property, week to 29 January 2012

This snapshot’s primary focus is on investment, but only one story (the SEB funds) fits into that category this week. The rest are all over the place – affordability, whether Australia’s in a housing bubble or not, where to retire (a story aimed at the US, but check one part of the world high on the list that might surprise you), scientific research, urban renewal for corporate purposes.....

If you want to come back to a story link later, you can check them for the next month or so on the External links page in the top navigation bar of the website, under 123 World property.

Contents:

Best places in the world to retire
Housing bubble trouble: separating facts from fiction
The Atlantic Cities’ take on Demographia survey
Still a way to go to resolve US housing crisis
Reconstituted wetlands just aren’t the same
At the heart of Casino Central, Zappo chief takes up an urban challenge
SEB institutional funds aim for €2.4 billion of Asian property investment
Latest from RICS internationally


Links and more at

http://www.propbd.co.nz/afa.asp?idWebPage=8338&idBobDeyProperty_Articles=17212&SID=540667994

[eri]

thanks for posting that muppet

i only quickly scanned bobD's report and missed some of the good stuff there

this bit worth exploring

Two types of return tempt house buyers: owning a property valued by the market at a higher price than it was purchased for (capital gain), and increases in the rental income (yield).

Property owners hope that they will make a substantial capital gain when they sell, and that rental income can overtake costs over the long run.

Data from the ATO tells an interesting story. On aggregate, net real rental income has resulted in continuing losses starting at $966 million in 2000, and peaking at $8.8 billion in 2008. Rental income has not exceeded interest costs since 2000, let alone met the costs of maintenance, rates, agent fees, and property tax.

No rational investor knowingly purchases an asset that yields a negative return. Investors are sacrificing cash flow to build assets and realise eventual capital gains.

The problem with this state of affairs was explained long ago by the late economist Hyman Minsky, who showed state capitalist economies cyclically generated crises due to the interaction of financial markets with the productive economy. Minsky’s analysis revolved around describing three stages of financing.

Hedge finance: income flows from an asset is sufficient to pay down both principal and interest on the debt financing asset purchases. Prices are based upon fundamentals.

Speculative finance: income flows cover only interest, not principal, requiring debt to be continually rolled over. Asset owners may experience financial stress, but it is not widespread, and fundamentals are in kept largely in check.

The final stage is Ponzi finance: income flows cover neither principal nor interest charges. Owners are completely reliant on escalating sale prices (capital gains) to make a profit and meet the cost of the debt. Prices are completely delinked from fundamentals at this stage, resulting in the dreaded bubble.

The tipping point comes when the household sector is so overloaded with debt there exist no more ‘greater fools’ willing to commit to a lifetime of debt serfdom to purchase property.

With few buyers and many sellers, prices stagnate then rapidly fall as assets are unloaded en masse onto the market. With demand falling in the housing sector, coupled to an inevitable increase in unemployment, a vicious deflationary spiral occurs. Economy activity grinds to a halt.