July 13, 2017

If you were to read only one thing…

WSJ – China’s Bid to Curb Its Booming Housing Market Has Only Made It Hotter – Lingling Wei and Dominique Fong 7/12

  • “The more China tries to rein in its roaring housing market, the more obsessed people get about buying.”
  • “With each new policy intended to restrict home purchases, buyers are piling in. Stressed about the prospect of being left behind, many are borrowing heavily, believing prices will continue to rise despite the restrictions and will soar if the government has to lift restrictions to spur economic growth.”
  • “Another article of faith is that the Communist Party won’t allow housing prices to collapse. ‘The government will spare no effort to make sure there are no big swings in the property market,’ says Ni Pengfei, a housing expert at the Chinese Academy of Social Sciences, a government think tank.”
  • “The desperate home buyers are exposing Beijing’s inability to control a housing market it has been relying on for economic growth. A decade ago, the real-estate sector, including construction and home furnishings, accounted for about 10% of China’s gross domestic product, according to Moody’s Investors Service . It now accounts for almost one-third, reflecting both a dearth of other investment options and the petering out of manufacturing growth.”
  • “At one time, low levels of household debt reassured government officials and economists that a property slump wouldn’t trigger a wider financial crisis. But the property-buying binge has changed that equation. Long-term household loans, mostly mortgages, now account for one-third of all new bank loans. Household debt stands at more than 42% of GDP, according to Moody’s. That ratio has grown 9 percentage points in three years and now surpasses levels in China’s emerging-market peers including Brazil, Mexico, Turkey and Russia. In the U.S., that ratio hit about 85% during the housing crisis.”
  • “Policy makers want to prevent the property bubble from getting worse, worried that any collapse could send defaults cascading through the banking system, infecting the overall economy perhaps for years to come. On the other hand, they are concerned that an investment slowdown could hamper growth. Economists already are warning that the recent property controls are starting to cause developers to scale back on new projects, potentially denting growth later this year.”
  • “Chinese government data show that prices across 70 Chinese cities were 9.7% higher in May than a year earlier, a larger year-over-year increase than the 9.3% last September, when the current round of housing controls were instituted.”
  • “At the end of last year, real estate accounted for 68.8% of China’s household assets, Moody’s says. In the U.S., it is less than 60%.”
  • “Mr. Ni, the housing expert at the Chinese Academy of Social Sciences, estimates that as much as 50% of China’s home sales today are for investment, a situation that worries the Communist Party leadership.”
  • “Nonetheless, the government has stopped short of imposing a property tax, which would discourage people from buying homes as an investment and leaving them empty by making it more expensive to own a home. Beijing has shown little political will to force a move that would raise costs for already stretched homeowners.”

Perspective

WSJ – Daily Shot: Data Is Beautiful – 5% of US physicians prescribe 60% of opioids 7/12

WSJ – Daily Shot: WEF – Time for trash to degrade in water 7/12

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Markets Are Right More Often Than You Think – Ben Carlson 7/12

  • “Investors are constantly questioning whether the market is wrong. It would be far more helpful if more investors also questioned whether they are wrong about the markets.”

Real Estate

WSJ – Startups Help Landlords Turn Apartments Into Hotel Rooms – Laura Kusisto 7/11

  • “A handful of startups are betting they can help apartment-building owners convert empty units into hotel rooms, a controversial practice that could help landlords generate more revenue.”
  • “The services are sprouting up just as the red-hot U.S. apartment market is beginning to cool.”
  • “In all, there are roughly 29 million apartment units in the U.S., according to the National Multifamily Housing Council. Nearly 800,000 new units have been built since the beginning of 2014, according to CoStar Group Inc.”
  • “But the vacancy rate for apartments in downtown markets rose to 8.1% in the first quarter from 6.8% a year ago, according to CoStar. Some 45% of buildings completed in the first quarter of 2016 were more than 10% vacant after a year, compared with 38% for those built in the first quarter of 2015, suggesting properties are taking longer to lease.”
  • “The startups, which are expected to typically operate eight to 16 months in a building, see potential in helping the developers of those buildings wring revenue out of units that aren’t yet leased.”
  • “These new services aim to get around an issue that Airbnb has been confronted with: Historically, landlords have been reluctant to allow tenants to rent out units because they didn’t receive any of the revenue. Most apartment leases forbid tenants from subletting units without permission.”
  • “Airbnb has been trying to recruit owners of big apartment buildings, which represent a crucial growth opportunity for the company because the sleek modern buildings with doormen, fitness centers and contemporary finishes are likely to appeal to business travelers.”

Environment / Science

NYT – An Iceberg the Size of Delaware Just Broke Off a Major Antarctic Ice Shelf – Jugal Patel and Justin Gillis 7/12

Health / Medicine

NYT – F.D.A Panel Recommends Approval for Gene-Altering Leukemia Treatment – Denise Grady 7/12

Europe

WSJ – Daily Shot: Moody’s Investors Service – Real GDP (select European countries) 7/12

South America

NYT – Ex-President of Brazil Sentenced to Nearly 10 Years in Prison for Corruption – Ernesto Londono 7/12

  • And that just happened…
  • “The case against Mr. da Silva, who raised Brazil’s profile on the world stage as president from 2003 to 2010, stemmed from charges that he and his wife illegally received about $1.1 million in improvements and expenses for a beachfront apartment from a construction company.”
  • “Mr. da Silva can appeal the conviction, but the ruling could deliver a serious blow to his plans for a political comeback. He had been widely considered a leading contender in next year’s presidential election.”

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