The Landed Newsletter No. 12, October 2016

Welcome!

Landed Newsletter No. 12 looks at China's growing property bubble, the collision of real estate and politics in Hong Kong, Canada's market-cooling moves, pollution problems in Tokyo and Okinawa and much more.

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The Landed Newsletter highlights news and resources that you can use to make better real estate decisions, whether you are buying, renting or investing. With a focus on Asia and the Pacific Rim, The Landed Newsletter covers trends, legal and environmental developments and technology.

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Market News

Australia

Queensland has passed legislation tightening regulations for the installation and maintenance of smoke detectors in residential buildings.

Since May, Australia has forced the sale of 16 properties purchased by foreigners without government permission. Seven of the transactions involved buyers from China.

Canada

The federal government introduced a package of measures to cool Canada's property market, including the end of a "principal residence" tax deduction for nonresident buyers. The announcement also included new reporting requirements for the sale of a principal residence for all vendors claiming that exemption.

Following the introduction of a 15% tax on foreign buyers, the value of home sales in Vancouver fell 30% in August, to C$2.1 billion (US$1.6 billion), down from C$3.1 billion in August 2015. Sales involving foreign buyers were 0.9% between August 2 and August 31, down from 13.2% between June 10 and August 1. However, the South China Morning Post’s Hongcouver blog suggests the decline might be deeper than the reported numbers.

Vancouver is planning to introduce a vacant home tax in 2017. The tax would range from 0.5% to 2% of the home’s value and target 10,800 empty dwellings in the city. Experts are skeptical about the effectiveness of the tax, which will rely on homeowners to self-report the status of their dwelling. Meanwhile, Vancouver Mayor Gregor Robertson thinks the 2% tax might be too low. Toronto is rumored to be considering a similar tax.

The Canada Revenue Agency launched an investigation into real estate speculators in British Columbia who are alleged to have engaged in tax evasion and fraud. The investigation follows complaints that tips from whistle-blowers were ignored because agency staff were concerned that they would appear racist.

Canada's anti-money laundering agency found “significant” or “very significant” deficiencies at nearly 500 real estate firms. Canadian anti-money laundering and anti-terrorist financing laws require companies identify their clients, keep records and report large cash deals and other suspicious transactions to Fintrac, which did not name the violating companies.

China

Property prices in China continued to soar in September:

> The Beijing municipal authorities increased the minimum down payment for home purchases from 20% to 35%. For purchases of second homes the minimum is now 50%, while buyers of luxury apartments will need 70%.

> After rising 76% since 2015, property prices in Shenzhen are second only to those in San Jose, California, according to a report by Longview economics.

> High prices in Shenzhen saw developers selling 6-square-meter apartments for RMB880,000 (US$132,000) each. However, city authorities canceled the transactions because the sales were based on false information and the apartments had been illegally converted.

> Speculative activity spread from Tier 1 cities to inland destinations like Changsha, where prices jumped 30% since July.

Authorities detained 70 protesters in Wukan, a Guangdong town that was the site of riots about illegal land-grabs. In addition to mass arrests, news reports claimed Hong Kong journalists had been detained and beaten.

Hong Kong

Hong Kong’s housing prices grew 2%, month-on-month, in August and are now 6% below the peak set in September 2015. August marked the fifth consecutive month of price increases.

Secretary for Development Paul Chan Mo-po attempted to allay fears that Hong Kong land leases would be altered dramatically when the “one country two systems” arrangement ends in 2047. Without a commitment from Beijing on this issue, Chan's reassurances are unlikely to convince many people.

Hong Kong Chief Executive Leung Chun-ying took responsibility for the partial suspension of a housing project in Wang Chau, Yuen Long, amid allegations that the Hong Kong government colluded with the Heung Yee Kuk, a rural statutory body. The project, which was cut from 17,000 to 4,000 homes, has become a major embarrassment for Leung and his administration.

In an unrelated case, a firm with ties to Leung was alleged to have made false supporting statements in an application to build homes in Discovery Bay.

Hong Kong’s Ombudsman slammed the Lands Department’s passive approach to enforcement, which has allowed people to illegally use government land for up to 20 years at no cost.

In the midst of a crackdown on illegal users of industrial buildings, the Hong Kong government declined to reveal the number of people living illegally in these structures. At the same time, a non-governmental organization claimed the crackdown could leave thousands of people homeless. If you are thinking of living in an industrial building in Hong Kong, read this article (PDF) from the September 15, 2016, edition of Square Foot.

The Town Planning Board rejected an application by Kerry Warehouse to convert a 15-story industrial building into a private columbarium. Hong Kong has a surplus of industrial buildings, a growing shortage of space to store the cremated remains of its citizens and a powerful not-in-my-backyard (NIMBY) sentiment when it comes to the funeral industry.

A Hong Kong judge sentenced the owner of an engineering company to 35 months in jail for his role in a HK$260 million (US$33 million) bid-rigging case for renovations at the Garden Vista complex in Sha Tin.

Indonesia

Jakarta resumed work on a 24-kilometer sea wall that is intended to prevent the city from sinking below sea level. The project, which includes the creation of 17 artificial islands modeled on Singapore’s Sentosa Island, was halted because of a dispute over permits.

Japan

Commercial land prices in Japan recorded an annual increase for the first time in nine years, climbing 0.005% as of July 1. Residential land prices slid 0.8% on a nationwide basis. Second- and third-tier cities—including Fukuoka, Hiroshima and Kutchan in Hokkaido—saw strong growth as it became more expensive to buy land in Tokyo.

The Japanese government decided to scrap the experimental Monju nuclear reactor. More than ¥1 trillion (US$10 billion) was spent on the controversial prototype reactor, which has experienced several accidents.

Tokyo Governor Yuriko Koike postponed—from November until February—the relocation of the Tsukiji fish market to a new location that was formerly the site of a gas plant. There have been allegations that the heavily polluted site was not fully remediated and is leaking contaminated groundwater. Separately, a panel appointed by Koike recommended that the construction of three new facilities for the 2020 Olympics be scrapped.

Japan has a record 65,692 citizens who are 100 or more years old, 88% of whom are women. Shimane has the largest number of centenarians and Saitama the fewest. Japan also has 541,000 shut-ins aged between 15 and 39 who avoid social contact. That’s 150,000 fewer hikikomori than in the last survey, which was conducted in 2010.

The U.S. military has refused to release a report on environmental contamination at Camp Kinser, a 2.7-square-kilometer supply base near Naha, Okinawa, that will be returned to civilian use. The report, which is the subject of a Freedom of Information Act request, is believed to confirm the presence of hazardous materials, including heavy metals, insecticides and organic solvents.

A court ruled Okinawa Governor Takeshi Onaga’s attempt to block the move of U.S. Marine Corps Air Station Futenma to Henoko was illegal. The relocation of the station is supported by the central government but opposed by many Okinawans.

Singapore

Singapore property prices have fallen for the 12th consecutive quarter, the longest losing streak since records were first published in 1975.

The Singapore Land Authority (SLA) is considering a move to a paperless property transaction system, where all titles would be stored in digital form at the SLA. From June 2017, Singapore banks will store the titles for mortgaged properties in digital form with the SLA. Previously, banks kept hard copies of titles.

Trends and Ideas

Airbnb

Hosts in the United States who report the added income they derive from Airbnb are having difficulty refinancing their homes, because banks are using the rental income to classify the home as an investment property, not a residence. Loans for investment properties are considered to be more risky than those for residences.

Vancouver proposed tough new regulations on short-term Airbnb rentals. The new rules would only allow people to rent space in their primary residence, not the whole dwelling. Owners would be required to have a business license (and include the license number on rental listings) and pay a tax similar to the one paid by hotels.

Artificial intelligence

Stanford University has assembled a panel of academic and industrial thinkers to forecast how artificial intelligence could affect life in a typical North American city in 2030. The panel’s 28,000-word report covers transportation, home/service robots, health care, education, entertainment, low-resource communities, public safety and employment. A summary is available here.

Bubble cities

Vancouver, Sydney and Hong Kong are among the top six cities in danger of having a housing bubble according to a new report by Swiss bank UBS. Tokyo was rated “overvalued” in the survey, while Singapore was fairly priced.

Fragility and development

Brazil’s Igarape Institute has an interactive map showing the fragility of more than 2,000 cities around the world. The map includes a fragility index based on crime, economics and environmental factors. Similarly, The Lancet has published a national development index based on the incidence of suicide, war, traffic accidents, disease, etc. Asia Pacific countries do well in the survey, with Singapore at No. 2, Australia (10), Brunei (21), Japan (27) and New Zealand (30).

Overseas misadventures

The South China Morning Post ran a feature about Hong Kong investors being ripped off when they buy overseas property. Unsurprisingly, most of their problems could have been prevented with a little research and due diligence.

Solar power

Tesla Motors plans to introduce a combination solar power, battery storage and electric-vehicle charging system in the United States at the end of October.

Treehouses

The Economist looks at the use of wood in the construction of high-rise buildings, including a proposed 40-story residential tower in Stockholm.

Landed News

New video

The video of my July 27, 2016, presentation to the Japan-America Real Estate Coalition Office (JARECO) in Tokyo is now on line. A transcript of the presentation—which is about foreigners buying property in Japan—is here.

Conferences

A big “thank you” to the organizers of MIPIM Japan and the PERE Japan Forum for inviting me to moderate panel discussions in September.

Christopher Dillon moderates a panel discussion at MIPIM Japan

Christopher Dillon moderates a panel discussion at the PERE Japan Forum

Landed Newsletter No. 12 was published on October 4, 2016.