Shanghai consides levying annual property tax on 2nd homes -- This is important!

This is big folks. 
Up until now there has not been any sort of annual property tax on housing so there was no annual cost (beyond a loan) to owning a home.  IF this proposal becomes law I predict a massive change in the perception of housing in China as well as a large number of 2nd (and 3rd, 4th, 5th?) homes behind dumped on the market.

May 12 - China Daily

Shanghai will reveal the details of its tightening real estate policies as early as the end of this month, including its long-debated property-ownership tax on multiple homes, Shanghai Securities News reported today.

The property ownership tax is a tax on property based on its ownership and is usually charged yearly based on the estimated value or rental income of the property. In China, the tax currently targets only commercial properties.
In the draft plan, Shanghai will say that multiple residential properties owned by one household will be regarded as commercial properties, and thus subject to property ownership tax, the paper reported.

[edit: It looks like this will not happen, look at a more recent post of mine for the details.  ]

Another update on China housing -- price and transaction volume falling

The Chinese government continues clamping down on housing rules and regulations.  If the final new article in this post is accurate the results are quite impressive.

May 6 - China Daily

Chinese developer Evergrande Real Estate Group on Thursday started to offer a 15 percent discount on prices of its 40 property projects across the country to promote sales amid government tightening measures to cool down the red-hot sector, Shanghai Securities News reported.

May 5 - China Daily

Average daily transactions of completed apartments in Beijing dropped to two units during the three-day holiday, down 96 percent year-on-year, and that of homes yet to be constructed fell 35 percent to 205 units, according to Beijing Real Estate Transaction website. Compared with April, the transaction volume decreased more than 80 percent.

May 7 - Imarketnews

BEIJING (MNI) - China's housing market is reeling from a government effort designed to clamp down on rampant speculation and surging house prices, with potential buyers running to the sidelines as the level of uncertainty rises.
The sales center for C-King Towers should have been teeming with life last Sunday, with potential buyers cramming the room to snap up units in the mid-to-high end residential development on the north side of Beijing's Third Ring Road. That would certainly have been the case before the middle of last month.
But on Sunday it was a virtual ghost town; two receptionists chatted above the hum of the rap music being pumped into the room to entice non-existent buyers. Rows of tables draped in brown velvet, which should have been the setting for dealmaking, stood unoccupied.

And finally, after volume slows to a stop prices start falling:
May 11 - China Daily

According to Yahao Real Estate, a Beijing-based property brokerage firm, the city's residential housing cost averaged 16,898 yuan per square meter from May 3 to 9, fell 9.60 percent from a week earlier and declined 31.43 percent from the week ( April 4 to 11) before the policy has been taken, the newspaper said.

While this is only 'anecdotal' evidence on a certain level it certainly is powerful reading if accurate.  As my previous posts have alluded to the Chinese government wants to clamp down on housing speculation.  Considering their capabilities it is going to happen.  Whether in an elegant or destructive manner is yet to be determined. 

I'm starting to watch rebar and wire rod prices in China.  I'll give you an update once I have enough data.

Delinquent home loan update -- Still grinding higher

The percentage of delinquent home loans appears to be close to finally cresting.  Well, hopefully. 

There are some lags to the data and while the growth of seriously delinquent loans at Fannie Mae are slowing down the bad inventory is moving into foreclosure (and then back onto the market)

I'll be a little less pessimestic about the housing business and home prices after both of these graphs start moving downwards.

ht Paper Economy

ht Calculated Risk

More on Strategic Defaults

The blogosphere has been discussing strategic defaults for a while now.  It appears the concept is hitting the major media outlets now which will only increase the percentage of strategic defaulters out there.


Watch CBS News Videos Online

(ht Creditwritedowns)

As I have mentioned before this may be one reason consumer spending appears higher than it 'should be'

We're from the IMF and we are here to help you.

Before the PIIGS (Portugal, Italy, Ireland, Greece, Spain) of Europe breathe a deep sigh of relief as their funding problems are 'fixed' there's a few items to mention:

Assuming the money arrives you still have to deal with the IMF which has a usual gameplan of:

• Devalue the currency
• Raise taxes
• Cut government spending

Item 1 is out the door as countries use the Euro
Raising taxes and cutting government spending is not a mix that encourages GDP growth.  Consider that when making your investments.   Don't forget that during this period of IMF induced austerity debt / GDP levels will continue to rise.  This is the mother of all 'kicking the cans down the road'.

The wad of money (nearly a $US Trillion!) will be used to allow countries to roll their debts, not stimulus.  The French banks are breathing a deep sigh of relief right now.  Everyone else should rethink what this all means.

Here's a video with my favorite hedge fund agitator explaining the situation.  This interview occured before the announcement but it still holds true.



(ht Zerohedge)

Well that was exciting. What's next?

I'm certain you already know by now but the markets took a serious hammering today.  While some are claiming a trade error took us down nearly 1000 points on the Dow before recovering the proximal causes of this recent selloff are still with us:

Greece is on a slow downward spiral towards default or a very severe recession / depression.  After the most recent bailout announcement the markets calmed down for one day before continuing to de-risk.  The contagion has spread and now Spain, Portugal and Italy are possibly next.  Who and when is next I don't know.

China continues tightening and is determined to stamp out rising property prices.  I have some more information that I intended to post on this but I've been a bit busy.  Fortunately I was finishing up de-risking a few portfolios yesterday.

The Fed's purchase of mortgage backed securities ended March 31 so from now on the money supply will start to contract.  The Fed is effectively tightening right now.

The home buyer tax credit deadline ended a few days ago so the housing bounce is over with.

Bank lending continues to contract for both households and small companies.

I've gone over these items before but the Greek situation started the ball rolling downhill.  Until several of the above items are resolved what happened today was not a 'one time event'.

Some more China property news -- Speculation at a turning point?

I'm not talking about Greece for now as the situation is so fluid and even if they get IMF/Euroland funding it is going to still be a nasty long haul for the Greeks . . . . On to China.

A good article regarding property speculation occurring in the 'boonies' of China, not only the main cities. From Chovanec:

I’ve heard experts insist that it’s purely a top-tier phenomenon, but the evidence of my eyes and ears tells me that similar market dynamics have taking hold all across China . . .
Note several familiar trends I’ve been mentioning all along: people buying multiple apartments they have no intention of occupying; up-front cash purchases; funds channeled into real estate due to lack of investment alternatives; a property market that far outstrips the local economy in size and energy; reliance on construction as a job-generator; and buyer psychology approaching obsession.

The recent clampdown on property speculation appears to have already tamped down prices and reduced the enthusiasm of some buyers.  From Chinadaily:

As new policies released by the Chinese government are effectively cooling down the real estate market, a rush to return purchased properties are emerging in many major cities, mainly led by speculators, the National Business Daily reported on Thursday.

Finally something that is a bit more opaque but possibly as powerful.  The state's rhetoric against property hoarding and speculation by officials (corruption) appears to be heating up.  This is much harder to determine as I'm not an expert China watcher. As such I don't know how important this is but reading the tea leaves it may be part of a larger strategy. From BusinessInsider:

In the commentary, entitled “To Solve The Populace’s Housing Difficulties We Must Root Out Self-Enrichment By The Powerful”, the author attacks corruption as the root cause of the failure to provide enough affordable, subsidized housing. And without a massive increase in the supply of affordable, subsidized housing, the government will not succeed in cooling down housing-related tensions that now threaten social stability. . .
The central government has staked a huge amount of credibility on cooling the real estate market and resolving housing difficulties for the masses. Skeptics will rightly say that Beijing has tried this before, several times, and never successfully reined in the web of interests and corruption that distort China’s real estate market. This time I think will be different, as the central government likely believes that housing related issues are the biggest threat to social stability in China.

 
If China decides to institute an annual property tax, like we have in America, the rush to the exits will be massive.  Until then it will be hard to precisely determine if / when the top is in.