China: battle against real estate bubbles

The new boss of the Chinese bank regulator system assured that China wants to tackle property speculation and unregulated finance by clearing the regulatory “chaos” that has fueled the surge of an uncontrollable debt.

The bank’s primary mission should be to “support the real economy,” said Guo Shuqing, chairman of the China Banking Regulatory Authority (CBRA) for three days at a press conference.

“Commercial banks must tackle zombie companies, which are the origin of the problem, and actively explore ways to address debt problems,” he said.

During years, real estate speculation has led to a downward spiral of housing price surge, unplanned construction sites and empty houses in what is known as China’s “ghost cities”. In a 2015’s post, we were already talking about the Chinese housing bubble and its potential burst. 2 years later, the government regulations to cool down the property market seems to show positive results.

Online Real Estate Estimates Are Worthless If You Don’t Have a Good Agent!

home interior on sale day

Lately we have seen many real estate networks purchasing online estimation tools in order to offer a more comprehensive real estate offer to their visitors!

At first glance, one might say that the estimation tools are a success … I think the contrary, these acquisitions highlight the weaknesses of the model online estimation tools.

I do not know in detail the financial situations of the companies mentioned, but just a simple Google search to find that most online estimation tools have been trying to find new owners for 1 year now.

So, this acquisition raises a lot of questions about the model of online real estate estimation sites.

A model not that good …in my own opinion.

The economic model of real estate websites estimation problem from the beginning. Indeed, these sites have been very successful in generating leads for real estate projects, but do not really have managed to monetize or at least be strong enough to absorb the cash advance that follows.

Let me explain:

open home for sale

Open home for sale

The online estimation tools have a hit to identify real estate projects. Those owners who are not yet ready to sell learn about prices through online simulation. Any bet for estimated sites is to get the owner to follow until he will decide to sell his property.

Except that their model is based on the sharing of the commission, which is a problem! Indeed, a lead generated in January 2013, will perhaps decide to sell in October 2013 and the sale will take place in January 2014 … all the while the estimation website has spent money to acquire the lead, raise the lead … except that the return on investment comes only much later, if it happens one day …

Indeed, beyond the cash aspect, the real challenge is in transforming the lead mandate and sale. This is the crucial stage where the agent makes the difference. Except that this milestone, online estimation sites have until now decided to delegate to external partners (agents immo partners).

This is the weak point of all these sites of online real estate estimates and everyone has been aware of it for some time.

A win for real estate professionals

The model estimation websites takes a hit and the big winners are the networks that buy these websites. In addition to a team and a credit to those networks redeem a great tool to generate internal mandate. And we all know that whoever controls the stock control the market …

These acquisitions are ultimately a victory for realtors showing that make real estate is more than just assessing a price using an algorithm and must be behind the men to do the job!

I think Artemis (and these two officers networks) have a bright future ahead of them, because they just pay for a tool that has the ability to generate leads them a package which provide agents which they often lack: of mandates.

Find more about home prices in the US:


And you, what do you think of this?

How Drones Are Shifting the Game in Real Estate

aerial view of a residential area

The utilisation of drones provides a completely new way of showing off sprawling properties. Using drones in real estate is quickly gaining prominence in many countries around the world. Part of the reason for this development is the fact that drone photography is cheaper compared to the next inexpensive alternative — the use of helicopters. Furthermore, it is easier to implement regarding both planning and logistics.

Undeniably, drone technology provides a tremendous opportunity for businesses in real estate as well as the broader economy. With new models such as the drone DJI Phantom 4 coming to the market, realtors now have plenty of opportunities without having to go pro.

It Is All About the Magical Nature of Aerial Photography

gives you a great angle of vision on the lake behindCurrently, it is believed that most real estate agents are utilising drone without the formal approval of government agencies. A rich industry surely exists of some third parties that work with commercial clients to not only produce but also leverage drone photography.

For sure, using a drone to market residential and commercial real estate might still be in its infancy, at least in many countries. Nevertheless, industry observers are of the opinion that the utilisation of this technology as one of the most efficient competitive tools is almost on the verge of taking off. One of the obvious uses of UAS (unmanned aerial system) or drones is to come up with brand new ways to market properties.

How and Why Drones are being Utilised in Real Estate

For professionals in real estate, drones boast some applications that could enhance different aspects of a business drastically. The use of this technology serves to improve and elevate the ability of real estate professionals to market property listings. Waterfront properties, listings with big acreage, and large properties are some kinds of features that are ideally suited for drone technology. Moreover, using drones is a more cost-efficient and faster method of getting high-quality aerial images compared to traditional methods.

Drones will most likely play a huge role in real estate services like property management, mapping, appraisals, roof inspections, as well as insurance inspections.

Making Drones Accessible

house shot from the entrance

So what is halting the extensive use of drones in real estate amongst realtors and brokers? The main reason that most professionals in real estate are not using UAS is the complicated nature or process of obtaining permission to use the technology. In the United States for example, the FAA continues to work on the integration of drones into the National Airspace System. The authorities do not allow wide-scale commercial utilisation of drones. However, the FAA has come up with some waiver process for businesses and individuals that are interested in utilizing drones for commercial purposes.

Uses of UAS in Real Estate Might Be More Than People Realize

To many people, drones are only popular or handy in military operations/applications. However, for real estate agents, drone photography might show prospective buyers an array of details that include:

  • Surveys
  • Property maps
  • LIDs (Local Improvement Districts) and civic developments that the property taxes of a buyer might contribute to
  • The surrounding and neighbourhood area, comprising of the proximity of a home to amenities
  • Whatever a drive home or children’s walk to their school looks like
  • Encompassing aerial views of an entire land or property
The Affordable Nature of Drones Elevated Imagery

great shots with drones in real estateA good number of real estate agents normally obtain elevated photography through utilising helicopters and aeroplanes — which is highly expensive. It can cost thousands of dollars per every flight. Additionally, it can limit the property numbers one affords to shoot. This is not the case with drones. In fact, UAS can hugely bring down the cost of shooting elevated imageries. Viable models usually begin at just a few hundreds of dollars. What is more, is that camera attachments are equally moderately priced? They enable users to handle their aerial footage on much more listings.

Based on the setup of your equipment, UAS can shoot video, stills, or even both. You can easily edit and share videos using several tools, without vast experience or expertise. All you need is your cool head and a steady hand. Hiring a professional pilot isn’t necessary. Simply put, using drones in real estate is highly affordable.

According to many realtors, currently, they might not be using video drones. Nevertheless, they plan on using them in future. In fact, the use of drones in real estate has a very bright future. There is no doubt about that.

Factors That Affect Property Valuations

decorating your bathroom for added value

If you are selling your home, you will want to achieve as high an asking price as possible, and may be wondering which factors influence property valuations. When you chose to use licensed property valuation services someone comes to value your home, there are many factors to take into consideration, and many aspects that they will be looking at to come up with an asking price.

Location

property with swimming poolOne of the top factors that affect the market value of a property is where it is located. A house that is located in a desirable area, perhaps on the seafront, close to a popular school or in a particularly affluent neighbourhood will be valued more highly than one in a less appealing part of town. There are other aspects of a location that affect asking price too, including local traffic problems, the tendency towards flooding or noise from nearby roads or rail lines.

Home Condition

Although a homeowner can do very little about the location of their property, they can influence the interior and exterior of their home. A home that is well presented, in a good state of repair, and nicely decorated will be valued more highly than one that needs a lot of work carried out. Recent upgrades also stand a homeowner in good stead of receiving a high valuation, which is why new kitchens and bathrooms are popular renovations.

Property Size

modern kitchensLarger homes are valued more highly than smaller ones, with the number of bedrooms and bathrooms being key. Homes that provide extra living space in the form of conservatories, studies or loft conversions will fare better when it comes to property valuation.

Features

A home’s individual characteristics and features have a considerable impact on property valuations. Period features that have cared for raise values, and added extras such as double glazing and underfloor heating also influence values. Storage space is an important factor, and even the type of heating system that has been installed affects asking price.

Local House Prices

A real estate property valuer will also take into account the selling price of other local properties that are similar to your own, and take into account the demand for the area before finalising a market value for your home.

Is the Chinese real estate bubble about to burst?

realestateshanghaibubble

Last week, the national Bureau of statistics announced that the real estate prices dropped in 70 major Chinese cities. On average, between February 2014 and February 2015, prices fell by 5.7%.

According to the Shanghai daily newspaper, several private surveys revealed that during the year, sales dropped by 11% in 48 cities across the country. In the first two months of the year, the government land sales collapsed by 36.2%.

In short, people no longer buy from property developers who consequently stopped purchasing land to the government. In a country where real estate accounts for 20% of the GDP and where housing is the main source of savings, this price drop could have a real impact on the world’s first economy.

In 2013, a study conducted by economist Gan Li showed that 65% of the savings of Chinese households were dedicated to real estate. In early 2014, M. Li said: “the current housing stock is enough for every household to own a home. However, each year we build approximately 15 million new houses and apartments. The Chinese real estate bubble will burst. But no one knows when.”

Property developers are highly indebted

Although the Chinese real estate crisis recalls the early days of the subprime crisis, there are notable differences. The Chinese usually buy their homes with cash and try to avoid getting into debt as much as they can. They have much less pressure to sell, unlike the Americans during the subprime crisis, who must pay off significant interests in addition to the capital.

On the other hand, the Chinese real estate bubble is probably bigger and not everything depends on the consumer. The debt burden of the Chinese consumers represented 23% of the GDP at the end of 2013, mostly for mortgage loans.

The prices of real estate in Chinese cities such as Shanghai or Beijing have been multiplied by 40% since 2009. HSBC compared the total value of residential housing to GDP and discovered that China had exceeded the level reached by the Japan in 1990, just before the bubble burst and the collapse of the real estate market.

At that time, residential real estate in Japan was worth 3.7 times its GDP. Hong Kong, which was 3 in 1997, and the United States about 1.7 in 2006 were pale in comparison.

The investigation of the Research Centre on Chinese household spending is quite instructive: in Chinese urban areas, more than one home out of five is vacant, with 49 million units sold, but vacant, and 3.5 million homes unsold. The proportion of apartments for rent in Shanghai, Beijing or Guangzhou is about 1 to 1000.

“Chinese property developers are mainly responsible for this real estate bubble”, said economist Richard Vague. According to him, “China has simply produced and built too much, thanks to over-investment in steel and cement companies. China has amassed the largest accumulation of bad debts in history.”

At the moment, the Chinese private debt is about 211% of the GDP. It is almost the same level observed before the bubble burst in Japan and a large part of this debt is based on real estate.

According to Richard Vague, “China could currently have from 1.75 to $ 3.5 trillion worth of toxic loans – a figure well above the $ 1.5 trillion of capital available to the entire Chinese banking system.”

Evergrande to be the first affected

As was the case with the US subprime in 2008, the housing bubble has greatly weakened some of the top property companies in China.

On 17 March, Evergrande Real Estate Group, one of the largest Chinese developers, obtained a $ 16 billion funding from large public banks as a rescue plan.

The $ 4.1 billion injected into Countrywide Financial by Bank of America in early 2008 seem very small in comparison. One can only hope that losses will not multiply in the same way as it did with Countrywide.

According to documents provided by the company in June 2014, Evergrande’s equity amounted to $ 15.74 billion. Therefore, without the $ 16 billion rescue plan, the company would have gone bankrupt.

Rumours claimed that Evergrande was unable to pay off its debt with one of its main construction contractors which stopped all activity afterwards. Analysts were speculating that to stay afloat, the company would sell all of its assets to 55% prior to the rescue plan.

As with Countrywide and Bank of America, Chinese banks have managed to plug the gaps, because property developers and construction companies are intertwined in a Ponzi scheme. If a chain link does not pay, the following will default.

The Chinese banking system and by extension, the Chinese regime, are both at the end of the chain. They are too big to fail and too big to consider a rescue.

© Graydon Manor