Oz Buzz #65: China – Serious Collapse Of Several Developers

December 11, 2021

“Always forgive your enemies; nothing annoys them so much.” ―Oscar Wilde

WATCH VIDEOS:

Oz Buzz 64 summary is now on youtube.com: 

Oz Buzz 65 summary:

PLEASE LET ME KNOW WHAT YOU THINK ABOUT ‘OZBUZZ ON VIDEO’ – WRITE TO: OZ@JUROCK.COM

INTERNATIONAL: 

• CHINA: SERIOUS COLLAPSE OF SEVERAL DEVELOPERS
• CHINA WILL CRASH THE WORLD MARKETS?
• POWELL NO LONGER USES THE WORD TRANSITORY…
• INFLATION OR DEFLATION?

USA

• US HOUSE PRICES UP 19.8 PERCENT
• US INFLATION 7%
• BUY A HOUSE WITH 3.5% DOWN

CANADA: OZZIE SAYS

• WHAT AN IDIOT! FIRES 900 OF HIS STAFF ON A ZOOM CALL
• THE NUMBERS, THE NUMBERS – NOVEMBER 2021, 2020, 2019, 2018
• VANCOUVER, WESTSIDE SURREY – HUGE SF HOME PRICE INCREASES
• SHIFT INTO CONDOS ACCELERATING IN THE VALLEY
• PROPERTY TAXES UP 31.5%

QUESTION BLITZ

• SPECULATION TAX MUST BE PAID EVEN IF STRATA FORBIDS RENTALS
• THE 7 DAY COOLING PERIOD IS A HUGE PROBLEM PENDING 
• PROPERTY TAXES UP 31.5% IN 4 YEARS IN VANCOUVER – THIS YEAR UP 6.35%
• WHAT’S A METAVERSE?
• MELT UP – NOW MELT DOWN?
• LEVERAGE
• STRESS TEST HARDENED? HELOC CHANGED? 

COMMENTS – YOU HAVE BEEN BUSY!

Again, thank you, thank you, but too many to answer. Join Ozzie on his Youtube.com life stream and pre-send him your questions.

INTERNATIONAL

Our ‘international news’ features only events that may have an impact on our real estate investments. We make no political statement – just share our opinion on facts that may be relevant to us, as real estate investors.

THIS BLACK SWAN HAS CHINESE WINGS?

Is the Black swan coming from China? Can China become the black swan crashing the world’s financial markets? Well, let’s see. If you can remember 30 years ago, Japan had an unbelievable stock market and real estate boom…in 1989.

In fact, the bit of land of the emperor castle in Tokyo was worth more than all of California!

How did they finance the crazy real estate market?

They created ‘new’ financial instruments:

• A 100-year mortgage
• A 2-generation mortgage (Dad paid and the son paid.)

The outcome – in hindsight – was predictable: The biggest crash in stocks and real estate. It was huge, final, and decisive. After 30 years Japan real estate still has not recovered.

Ok, Japan is not China…but…it is an eyebrow raiser. Japan’s population is shrinking, China is rising but think about it: Japan real estate values were 15 times it’s annual incomes. Now China’s are 50 times annual incomes!

As we pointed out in Ozbuzz 63, major (major!!) Chinese real estate corps are defaulting! Note: Bonds pay interest on a certain date, but when payments are not made, then you have a 30-day grace period and only THEN YOU ARE IN DEFAULT. It’s over, baby. On December 6 Evergrande was in default and Kaisa was trying to negotiate itself out of paying bonds that were in default since 2015(!). 

The 2015 bond payments (can kicked down multi roads) were supposed to be deferred till this year. Now, December 8 Kaisa stock stopped trading (It has to pay $3 billion next year to bond holders! Cannot pay $200 million now). Evergrande stock is down 82%. Big troubles. All stemming from the Chinese government “3 red lines”:

• a 70% ceiling on liabilities to assets, excluding advance proceeds from projects sold on contract,
• a 100% cap on net debt to equity,
• a cash to short-term borrowing ratio of at least one.

I’m not arguing with decision, Chinese developers were borrowing too much money, but it essentially stopped all borrowing…and developers are going broke.

Further 10 Chinese developers have defaulted since June. (Revisit Ozbuzz 63.)

The scale of default is unbelievable

• Evergrande 1.5 million incomplete apartments that buyers have already paid for.
• Evergrande has 4 million employees…if it broke up 20 million people (or so) could be affected.
• Likely local Chinese bondholders will be held whole, as will the construction of the incomplete apartments (managed by local governments).
• However, offshore bond holders last in line to get money back. They also have NO recourse! 

Developers offer properties as real fire sales, but no one wants to buy the real estate. (Worse problem? Psychology. Chinese buyers believe real estate always goes up. When they see that it does not: Biiig problems.)

————————-

• China a House of cards?
• In ghost cities with a million condos but only 5000 Chinese people live there.
• The average Chinese family has 78 percent of their wealth tied up in RE. If they believe values drop… Demand will drop and values with it…resulting in loss of confidence.
• Developers took on massive debts.

What do China real estate woes mean to Canada?

If it affects the world financial system – it will seriously affect us (like 2008).

Otherwise, positive… More people will flee China with their money, and some will come here.

All investors: China is now uninvestable. YEP, DO NOT INVEST IN CHINA. (Re-read Ozbuzz 63/64. No more level playing field. Chinese stocks will leave exchanges in droves. Beijing makes them do it. Didi leaves Wall Street, and its investors are 50% worse off.)

Chinese developers are crashing around the world:

“Oceanside Chinese developer in San Francisco repossessed.
Debtholders seized Oceanwide Center, which has been plagued by failed sales, $1.6 billion of ballooning costs and more than $40 million of mechanic’s liens, after two of the firm’s subsidiaries missed payments on $321.5 million of notes.” 

INTERNATIONAL 

CHINA
Q: I just read your No. 63 issue. Your take on Chinese defaulting developers and their impact was unbelievable then, fact now. Further China’s anti cash stance. But while it disturbed me, the item on US banks reporting every transaction over $600 was scarier. Talk about wanting control over what every little guy or girl is doing. I thought we were going after the 1%.
A: Well, we have a China update in this issue. But please note on the item on US banks, this has been proposed by the Democrats. It is not law yet!

US: REAL ESTATE

Cities with housing prices in the US rose a whopping 19.6 percent. But there is no inflation, or? Looks like Mr. Powell no longer uses the word transitory. POWELL SUDDENLY HAWKISH? Let’s hope they ‘tighten slowly’. Now looks like early next year. Finally – CHOOSING TO FIGHT INFLATION ahead of stimulating economy?

Well, the biggest price increases were Phoenix, which was up 33% from a year ago, followed by Tampa, with a 28% gain, and Miami with a 25% increase.

(Remember Todd Smith todd@azperformancerealty.com) – the man who at Landrush last September 2020 forecast a 40% price increase in Phoenix. That’s why you must attend Land Rush!) Even the cities with the smallest annual price gains – Chicago, Minneapolis, and Washington DC – all saw prices rose by more than 10% from a year ago.

Important new (US) things

1. You can get a $625,000 mortgage with 3.5% down? Why is it important? Inflationary!
2. Well. Fannie/Freddie conforming loan limits are going to $647,200.00 effective January 1st. Then, FHA, not to be outdone, announced raising their loan limit from $356,360.00 to $420,680.00!  (Those are the highest increases ever!)
3. Weekly US jobless claims fall to 184,000, the lowest level in more than 50 years.
4. Inflation now running at 7% in the US! They finally admit it!

QUESTIONS, QUESTIONS

Q: Was Zillow wrong in buying houses? I bought into their program – made sense. Now selling at a loss doesn’t. Should they not keep their portfolio of houses?
A: They were not wrong with their idea. They were wrong to think pencil pushers from miles away can determine local real estate values. They overpaid. I remember in the 80ties we had a “purchase guaranteed trade program”. I was often maligned by my salespeople for being ‘stingy.’ (We evaluated using a cold eye process, offered 15% below market plus 7 percent commission had to be paid – also the people we bought from had to buy from us.) When markets reversed, some competitors lost their shirt. We did not. In fact, the 80ties killed the ‘homebuying or ‘trade in’ business” dead in BC.

Q: Dear Ozzie. Just a shoutout to you! You were right, right, right! I mean RIGHT! Today, inflation in the US was reported at 7%. You predicted it and forever, man! My dad loved you and he quoted your newsletter to me – when I was trying to cash in before the collapse (2010) – which never happened. We didn’t sell – stayed the course and today we are millionaires. Thank you!
A: No thank you for sharing. Letters like this make my day every time! Interesting that you mention 2010. That was the year another famous naysayer Harry Dent published his book “The depression of 2010.”

Q: Ozzie after the melt-up there will be a melt down. That’s a fact. Not just people that you quote say it, but respected forecasters like David Rosenberg.
A: First, nowhere ever do I say that I do not respect Dent, Kiyosaki etc…,etc. I value people that state their opinion. I also respect Rosenberg. The problem is that “Forecasting is never easy, particularly when it is about the future!”
Just try and find what any forecaster has said for the last 10 years (not what they claim to have said) … then decide and make your OWN decision, because really no one really knows! Mr. Rosenberg, who I respect has had a negative bend for a long long-time. Perhaps, eventually he will be right on economy, stagflation etc. Harry Dent will be right (after 15 years being wrong) eventually sometime. You and I however live in today. I have been writing about inflation in 4 books, been quoted in 7 and in 39 issues I stated in my newsletter that we live in the world’s most unreported inflation of all time.

Q: YOU SEEM TO DISLIKE CRYPTO. I LIKE THE LEVERAGE I GET.
A: Leverage can be good and also very bad. I wonder how people feel that bought Bitcoin at $64,800 and saw it crash to $42,000 (40% decline) in 2 weeks. Leverage killed them! Killed! It wiped out 2 trillion dollars – all of them ‘the little guy’ with a ‘10for’.
Millennials talk “a 5 bagger”, or “5x” or a “5for” 

BUT I have argued for years FOR “leverage”. It is the unreported secret of the small real estate investor. Real Estate can give you a ‘5for’ a ‘10for’! Imagine you bought that $500,000 (average US) house with 5% down. Or $25,000 and the house went up by 20%
The house you paid $500,000 for – is now up 20% – its $600,000.
But your down payment of $25,000 has now risen by $100,000 – a “ 5for” leverage on $500,000! Some US DPs are as low as 3.5%!
The difference in crypto. When it’s gone its gone! If your house price adjusts temporarily, it recovers – because of relentless inflation.

Q: Ozzie, what is a Meta Verse. I know Facebook changed its name, but what is it?
A: Wikipedia: “The metaverse is a hypothesized iteration of the Internet, supporting persistent online 3-D virtual environments through conventional personal computing, as well as virtual and augmented reality headsets.
Metaverses, in some limited form, have already been implemented in video games such as Second Life. Some iterations of the metaverse involve integration between virtual and physical spaces. Current metaverse development is centered on addressing the technological limitations with virtual and augmented reality devices.”

Major Point: We talked about it several years ago that augmented reality would take over the world…while we still have not yet gotten used to virtual reality. Put on some of those headphones and find an augmented reality game. It will blow you away…But that’s where your kids will live. Facebook wants to be on the head of the curve.

OZZIE SAYS

WHAT AN IDIOT! FIRES 900 OF HIS STAFF ON A ZOOM CALL …
While he was transferring his company better.com – into a SPAC and underwriting done by Softbank for $1.5 billion in early December (yeah, we are doing great), follows it up with firing 900 people (oh, yeah, we are doing poor) online – in front of the whole world. Watch it here…oh and don’t invest in better.com!

https://globalnews.ca/news/8431813/us-ceo-fires-employees-three-minute-zoom-call/

“Why join the Navy if you can be a pirate?” –Steve Jobs

CANADA

Vancouver Property taxes increase by 6.35%

Despite repeated motions in the last two years to try to keep the average property tax increase at five per cent or below, the $1.7 billion city budget passed has an increase of 6.35 per cent.

That works out to $72 for the average condo in the city or $178 for the average home, not including parts of the property tax bill not under municipal control.

“The stark reality is we are just going ka-Ching, ka-ching, ka-ching, ka-ching, and taking it not out of the one per cent, but of the middle-class people that are trying to afford to continue living in this city,” said councillor Colleen Hardwick at one point. “I’m choked as I continue to see us add more and more. It was bad enough that we were looking at five per cent.”

Choke indeed! Look at the last few years. Until about 2016 increases were below 2% – 2.5%

Major Point: After 2017 – 4%/ 4.5% /5%, 7%  , 5%. Now 6.325% = 31.5% increase since 2017, yet rent increases are allowed only to be 1.5%. You have not seen anything yet. Inflation will drive everything higher and taxes first.

“I can resist everything except temptation.” ―Oscar Wilde

QUESTIONS, QUESTIONS

Q: I missed your thought starter last 2 issues. Did you run out?
A: Back today. There is a secret in today’s card!

Q: I GET A LOT OF CALLS. IT IS VERY ANNOYING. SO-CALLED SURVEYS, UNBELIEVABLE THREATS AND/OR SILENCE. YES, IT IS NOT A REAL ESTATE QUESTION…BUT HELP!
A: Yes, not real estate. But very annoying. Should you answer them? Don’t. Unknown calls are not harmless. The best way not to get scammed (or even threatened) over the phone is to not pick up those calls. Some of these calls just want an answer to see that the number is active – and THEN you really get peppered with calls.
Some of them want to hear your voice and get you to say “yes”. And then use your name with the word yes – to order something. If you answer don’t say anything. The robots are set up to wait for an answer for a few seconds.
Personally, all the threats should be followed up by authorities and the bastards thrown in jail.

Q: I heard that even if my Strata councillors do not allow rentals, I have to pay the Speculation tax. That can’t be true?
A: Unfortunate and unbelievably true. If a BC resident purchased a strata property prior to 2018 but were not allowed to rent it out, they qualified for the SVT exemption – 2018 and 2021 – but they will have to pay the tax for 2022 if the unit remains unoccupied. Go to BREAC website here: https://www.bcrea.bc.ca/advocacy/deal-with-strata-properties-learn-more-about-the-expiring-speculation-and-vacancy-tax-exemption-for-strata-owners/

Q: What is the cooling off period?
A: The BC Government announced it will bring a “cooling off period” residential resale properties (also new) in the spring. Announced without details (consultation with the public or real estate sector?). So, in future anyone can make a subject free offer and for 7 days the owner does not know whether he has sold or not, because buyers can cancel the deal on the 7th day. He then sells it again has to wait 7 days…etc…,etc. Worse, the buyer goes and ties up 6 properties and walks on all of them. But let’s wait for final details before we scream louder.

Q: My realtor has magic. He can find out what houses are worth.
A: He has magic because he makes you believe he has magic. Go to https://www.bcassessment.ca/ type in ANY address in BC and you will get assessments and comparable sales (mid December to mid January) yourself.

Q: Ozzie on Livestream was fun. But it’s gone. Are you still on and what eve?
A: Yes, must be a subscriber to YouTube.com/jurockvideo aaaand click on the bell to be notified!

Q: AGAIN, INTEREST RATES, INTEREST RATES
A: Our superintendent Routledge last week talked about the incoming implementation of new capital requirements for banks under the Basel III protocol and told us to “stay tuned” for the outcome of the OSFI annual review of the minimum qualifying rate (more widely known as the mortgage stress test) in the coming weeks. So, expect it to be higher!

Routledge also expressed caution in his speech about the use of home equity lines of credit (HELOCs) that are being combined with mortgages.

HELOCs allow homeowners to borrow up to 65 per cent of the value of their home. When combined with a mortgage, that limit rises to 80 per cent.

Routledge said the combined structures make it more challenging to track risk in lenders’ loan books.
Expect it to be reduced, tightened, or forbidden.

I actually do NOT disagree with him on it. The HELOC is a huge sword hanging over everyone’s head. It’s a piggy bank , it is overused and when rates rise (and our Govt stated on Dec 7. that they will in April)…become a big surprise to households. Re-visit our piece on Wells Fargo Bank when all of a sudden it cancelled 10,000 credit lines.

CANADA REAL ESTATE

TORONTO

New sales record and the average selling price also reached a new all-time high.
New listings were down substantially compared to last year for all market segments – same as in Vancouver.

The silly benchmark price was up by 28.3 per cent year-over-year.

The average selling price for all home types combined was $1,163,323 – up by 21.7 per cent compared to November 2020.

This is the closest Toronto has ever come to the “all-average” price of all properties.

Vancouver: $1,211,200 +16.0%

CALGARY: With $468 million in sales – not counting the $1.2-billion Bow office tower purchase that has yet to close – in Q3 2021, Calgary is on track to top $2 billion in commercial and industrial real estate sales this year, according to Altus Group. Time to look at Calgary?!

THE NUMBERS, THE NUMBERS

November 2021, 2020, 2019 and 2018
A detailed look at Vancouver, Westside, and Fraser Valley

Vancouver had a crazy fall. November was no exception.

Vancouver

Sales of SF homes were down by -07%!

SF home prices still up by a whopping 25% (!!) Up by $600,000 since 2019!

SF Listing and condominium active listings are both down by 26% and 03% respectively!

Last month new listings were down 30%. November only by 3%. Change happening?

Sales of Condos were up by just 2%, condominium prices up by 14%.

Condo Active listings down by 46% and new listings also UP(!) by 03%.

Vancouver Major Point: New listings coming in line with previous years. Westside SF price now well over $4 million. (I predicted in 1998, that the price in Vancouver to be $5 million in 2023. The price in 1998? $278,000!)

MAJOR POINT: 

November SF sales continue down sharply by 23% over 2020 but still up over 2019, 2018. 

SF Prices are still up an unbelievable 35%. At the same time Surrey SF Active listings are down by a whopping 41% again.

Condominium sales are up by 44% (WOW), the average condominium price is up a strong 27% (WOW) but active listings rose by 2%!

Ozzie’s other websites for you to play in: FREE 

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Your thoughts – AS ALWAYS – are most welcome. WRITE QUESTIONS HERE: INFO@JUROCK.COM and put Oz Buzz in the subject line. I try to answer ALL questions, but not all will be featured here.

I attract the essence of that to which
I give thought
What I want, I attract
I will be clear about what I want
I focus on what I want

I will grow into my future best

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Please note that any response to any email or any invitation to any meeting is accepted on the understanding that “Jurock Real Estate Insider (JREI)”, “Oz Buzz (OB)”, “JCIR (JC)” as the case may be, are not responsible for any result or results of any action or actions taken in reliance upon any information contained in this posting or meeting, nor for any errors contained therein or presented thereat or omissions in relation thereto. 
It is further understood that the said OB or JREI, or JCIR as the case may be, do not, pursuant to this posting, purport to render legal, accounting, tax, financial, planning, or other professional advice. The said OB and JREI and JCIR may or may not own properties discussed at meetings or receive or not receive referral fees at any meeting you may attend as a result of this posting or invitation. The said OB and JREI and JCIR, as the case may be, hereby disclaim all and any, liability to any person, whether a purchaser of any offering, a reader of any offering, or, otherwise, arising in respect of this postings and of the consequences of anything done or purported to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of these postings. If you respond to any posting OB or JREI and JCIR or attend any meeting from and by said companies, we fully expect that you get independent legal/tax/investment/mortgage advice as the case may be. 

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Please note that any response to any email or any invitation to any meeting is accepted on the understanding that “Jurock Real Estate Insider (JREI)”, “OzBuzz (OB)”, “JCIR (JC)” as the case may be, are not responsible for any result or results of any action or actions taken in reliance upon any information contained in this posting or meeting, nor for any errors contained therein or presented thereat or omissions in relation thereto. It is further understood that the said OB or JREI, or JCIR as the case may be, do not, pursuant to this posting, purport to render legal, accounting, tax, financial, planning, or other professional advice. The said OB and JREI and JCIR may or may not own properties discussed at meetings or receive or not receive referral fees at any meeting you may attend as a result of this posting or invitation. The said OB and JREI and JCIR, as the case may be, hereby disclaim all and any, liability to any person, whether a purchaser of any offering, a reader of any offering, or, otherwise, arising in respect of this postings and of the consequences of anything done or purported to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of these postings. If you respond to any posting OB or JREI and JCIR or attend any meeting from and by said companies, we fully expect that you get independent legal/tax/investment/mortgage advice as the case may be.