90 seconds at 9 am: Sudden changes for Chinese housing

Dairy prices soft; NZ property a focus for rich Chinese; local China housing demand sinks; UK chooses hard Brexit; UST 10yr yield at 2.35%; oil stable, gold up; NZ$1 = 71.9 US¢, TWI-5 = 77.4

18th Jan 17, 7:32am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news of some pretty remarkable changes in Chinese housing markets in 2017.

Firstly, the overnight dairy auction brought little change in prices however. Overall the 22,030 tonnes sold went for prices that were +0.6% higher. The WMP price was -0.1% lower. These changes were less than the NZX derivatives market signaled. And worse, in NZD they represent a -2.9% fall from the previous auction. In fact, in NZD we are now down -7% since the start of 2017 which is not a good way to begin the year. In USD the 2017 drop is less, at -3.3%. The rising NZD isn't helping dairy industry returns.

A new Report from China shows that nearly half of all people with total assets worth more than NZ$2 mln consider overseas properties their most important means of investment. That's a group of more than 1.3 mln people, according to the data in the Report, but it is growing quickly, up more than +10% in a year. On average, this group has 2.3 overseas houses each, and almost 16% of them own at least four each. Over half of the properties they bought were to gain access to desired school districts for their children's education. "Hedging against risks" was the other main motivation. Of the top cities singled out in the study, Auckland and Wellington were #2 and #3 for overseas housing investment returns. Actually, Hamilton beat both in their all-city House Price Index growth ranking.

This may get a new boost because of some sudden and large falls in local Chinese housing markets. Following tougher house-buying rules, property sales in Beijing, Shanghai, Guangzhou and Shenzhen declined -22%, and -5% in the first week of 2017 alone. In a wider range of cities, transaction volumes slumped an eye-watering -84% from a month earlier, and there was no new land supply in first-tier cities, the data showed.

In the UK, their prime minister has set out details of a clean and clear exit from the EU. She has chosen an "all out" policy with the aim to be extracted by as soon as possible. Article 50 will be invoked by the end of March, apparently. There will be some severe consequences for both parties.

In New York, the UST 10yr yield is much lower today and now at 2.34%. This fall is sure to resonate in local wholesale interest rate markets. As the reality of the Trump Inauguration gets closer, markets are losing steam. Just how much the group of self-interested billionaires are in charge now is reflected in the Trump adviser Scarramucci doing personal deals with sanctioned Kremlin money funds in Davos. Its open season, with this group of insiders convinced laws no longer apply to them. It is a worrying development.

Oil prices are essentially unchanged today, now still at US$52.50 for the US benchmark, while the Brent benchmark is now just on US$55.50 a barrel.

The gold price is up another US$9 and is now at US$1,211/oz.

The New Zealand dollar has also risen overnight by almost 1c, now at 71.9 US¢ and approaching a two month high. On the cross rates it is firmer as well at 95.2 AU¢, and against the euro at 67.2 euro cents. The NZ TWI-5 index is at 77.4.

If you want to catch up with all the changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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45 Comments

by kiwimannz | 18th Jan 17, 7:49am 1484678960

Will national government still deny the role of Chinese buyer role in Auckland housing Market ( known to one and all). Does the new PM have the courage to not manipulate and bring correct non resident buyer data in public domain.

Wonder why media and so called experts/journalist are blind to the fact / lie of the government.

Nothing against anyone but is just do not like manipulators and liars.

by sharetrader | 18th Jan 17, 8:07am 1484680043

it matches what I get told by Chinese workmates about thousands of people wanting to come to NZ,
its time to stop the immigration Ponzi and the selling of our Homes to any NON citizens (I do not care which country they come from)
we have police over stretched not following up crime, doctors unable to cope, people unable to afford housing.
its time for a change kiwi citizens need to be first and foremost, time to look after our country and environment
bring on the election

by Ted Stanton | 18th Jan 17, 8:28am 1484681314

I'm loving this report which backs up the obvious. The Chinese are loving our housing market and come February the old stock sitting on the market will fly out the door.
My advice as I have said before get in there and buy! Ive changed my projections for the Auckland housing market to 15% plus in 2017.

by nymad | 18th Jan 17, 8:42am 1484682145

You remind of a premise from South Park...It's a good metaphor for so many interest.co.nz comments.
Cartman decides to start defecating out of his mouth and as the hype grows, everyone starts thinking it is an excellent idea. It's then backed by the surgeon general who is quoted as saying the method is much healthier than conventional defecation, "based on no evidence whatsoever".

by David Chaston | 18th Jan 17, 9:45am 1484685937

It is far from 'obvious'.

What impressed me most with this data is that "wealthy Chinese" is defined at a NZ$2 mln level. Which I think is a lot lower than what most would have thought. Most will be at this lower level, and the numbers falling away quickly as the level goes higher.

Unless they have NZ income, they are not going to be able to borrow locally to buy (nor I would have thought would a China-based bank lend because the currency risk would be too large). So the only potential buyers from this Chinese cohort will be those who can pay cash. And it seems very unlikely they would use all or even a majority of their net worth to buy a NZ house. Probably would only risk 10%, maybe less. So that will make the cohort quite small. And then these people have a choice of 50+ markets. Even if NZ is higher in the preference stakes, that will be even fewer who target NZ.

Personally I think you are dreaming if you think you are going to make a lot of agent commission from this group. You will know in 8 weeks. If this is the case, you should be seeing the activity starting about now. Do you?

What I see is the unusual case of an Auckland market where sales volumes fell in December from the same month a year ago (lowest volume since 2011), and the median price fell for two months in a row in December (hasn't happened since we started collecting these records in 2001).

I think you have a view based on recovered memories from a few years ago. The recent regulation changes here (IRD numbers, LVRs, rising mortgage rate costs, etc) show it is wise to be very sceptical your senario will play out. I will be watching the data though.

by JetLiner | 18th Jan 17, 9:55am 1484686554

I think these are very good points. Ted appears to be basing his view on lagging indicators rather than leading ones.

by Zombie ponzi | 18th Jan 17, 11:46am 1484693180

David, you are using perfectly reasonable and logical arguments in response to a shrill real estate spruiker.

People like Ted bring down the standard of the comments section immensely, and many other websites would simply ban.

I don't say this because I disagree with Ted's comments, but because he uses this website as a podium to spread nonsense. His comments around "hardworking families with children not being able to sell their houses" are particularly grating.

by Zachary Smith | 18th Jan 17, 6:15pm 1484716535

I wonder about these figures. There may be quite a few individuals with net worth well above 2M NZD but less than 20M NZD as there are 89,000 over the 20M NZD figure.
I believe this wealth has to be in liquid assets to be counted toward HNW status so the family home is not part of the calculation. This is practically money people have to readily invest in something.

by Macadder | 18th Jan 17, 4:09pm 1484708948

What will you do if your prediction doesn't come to pass Ted; if residential sales really dry up in Auckland as they may well do, there will be a lot of agents pushed out of the industry in 2017-18. I don't know if you were around in 1988; I was, if feels a bit like that again. A tip, don't switch careers, to becoming a financial adviser.

by Ted Stanton | 18th Jan 17, 7:51am 1484679080

Chinese will buy up large in Auckland after Chinese new year February 3rd.
This report is very interesting and will add fuel to the housing market.

by MikeM | 18th Jan 17, 7:57am 1484679468

Is that so Auckland valuations can spike to 15x household earnings? We're all aiming for that aren't we Ted? A milestone to benefit all of society.

by Andrewj | 18th Jan 17, 8:23am 1484680994

It took a while, but the world are slowly coming to grips with the simple fact that the red-suzerains in Beijing are not the infallible leaders en route to a new superior economic model as they thought they were. All the craze that emanated from the spurious work of Joshua Cooper Ramo, which eventually led to works like “How China’s Authoritarian Model Will Dominate the Twenty-First Century,” are slowly catching up to reality. We never bought into it and our prediction for 2017 is that most of the pundits commenting on the red Dragon will realize how bad the situation in China really is. That being said, there were still Japan-bulls in the late 1990s that still believed Japan would eventually become the largest economy on the planet and dominate the world. If we are right, the heliocentric worldview China apparently is taking will quickly turn geocentric, just as it is about to do in the western world. Domestic problems will engulf the leadership in Beijing, and there will be less time to squabble over petty reefs in the South China Sea. The danger is obviously that the political establishment in China will be in dire need to distract the hordes of angry masses that are about to lose their life savings.
http://bawerk.net/2017/01/03/chinese-philosopher-kings-losing-their-yua…

by Cowpat | 18th Jan 17, 9:43am 1484685781

Ted, have you actually read the 'report'. What parts of the report are interesting, which takes its underlying ' data' from around 300 HNW Chinese individuals. I read somewhere that Martians will suddenly start buying up Gore with martian dollars.. New Zealand housing is a cult especially when its peering over the edge .

by murray86 | 18th Jan 17, 7:52am 1484679121

The National Government will decry the report on Chinese foreign property investment, as it goes against their policy of denying that there is an issue here.

A question here though - if the Government suddenly did wake up to demands from it's own population and act to curb foreign ownership of property, what would the Chinese Government's response be?, as they are effectively potentially indirect beneficiaries of this investment, despite their apparent concerns about the outflows of money from China?

by MikeM | 18th Jan 17, 7:55am 1484679306

Yes the Trojan horse of the oligarchs now emerging in the US is worrying indeed.

by sharetrader | 18th Jan 17, 8:04am 1484679841

Brexit will be telling for the EU, if it turns out GB benefits more with a host of countries lining up to do FTA.s without the downsides of Brussels telling you to take in more immigration than you want or need
who will be next?

by head_down_bum_up | 18th Jan 17, 11:53am 1484693627

That is a very big IF and one that could certainly go both ways.

by dtcarter | 18th Jan 17, 1:26pm 1484699213

Why would countries line up to do trade with UK pop 60mill but not line up to do same with EU pop 400mill?

Nz for instance is not dropping its FTA plans with EU even though it is keen on one with UK too.

by nymad | 18th Jan 17, 1:33pm 1484699583

Tarrifs and subsidies.
The EU loves them and has a broad range of commercial interests.
The Brits alone have a much narrower scope of production and higher proportionate demand for imported goods.

by dtcarter | 18th Jan 17, 1:33pm 1484699596

And dont forget 50% of uk exports go to the EU. Uk needs trade with EU. Uk motor industry is huge, but how long will ford gm nissan etc keep their operations in uk if they suddendly face import duties into Europe?

I dont see GM suddenly exporting UK cars to asia when it already has local production there.

by Andrewj | 18th Jan 17, 8:12am 1484680359

California milk producers,
Milk powder demand is solid, but inventories are growing. Europe’s mountain of powder continues to weigh,
both psychologically and monetarily. The European Commission received bids for 26.3 million pounds of the
skim milk powder (SMP) in its Intervention stockpile last week. It rejected all of them because they were “too far
from the prevailing market price and the minimum selling prices set at the previous tender.” The Commission is
trying to move older product without sending the wrong pricing signal to a market that is seeking fresher powder.
Each year, China is allowed to purchase up to 325 million pounds of milk powder from New Zealand at a low
tariff rate. Less than two weeks into the new year, China has reportedly exhausted its low-tariff allotment. This
likely signals a robust appetite from the world’s largest milk powder importer. On the other hand, Chinese
merchants are known for amassing goods and holding them in reserve. End users may have rushed to secure their share of the low-tariff product, which could stifle further imports until the hoard is used up.

http://www.farmersjournal.ie/commission-confirms-december-sale-of-smp-i…

by murray86 | 18th Jan 17, 8:14am 1484680466

On another issue Stuff have a interesting opinion piece on tax rates by John Minto here. I don't normally like John Minto as I feel his politics is often too selective, but that doesn't mean he isn't right at least some of the time. This article however is a debate that needs to occur.

by Zachary Smith | 18th Jan 17, 8:35am 1484681713

Interesting that report from China.

Canada - heat is not reduced

Canada's real estate market in 2017 will gradually slow down the heat, but the Canadian real estate market will not be dramatic fluctuations. The Canadian Real Estate Association (CREA) estimates that Vancouver's average house price will rise 2% in 2017, compared with 8% in Toronto.

Interesting to also note in the report that capital appreciation only drives 6% of the investment while giving the children a Western (English language mostly) education drives 23%.

by Andrewj | 18th Jan 17, 8:35am 1484681706

The problem in Canada is not going to come from China but will be caused by extreme debt levels

The combined debt of Canadian governments, companies and households reached $4.4 trillion in the first quarter, or 288 percent of gross domestic product, exceeding the same gauge for the U.S., the U.K. and Italy, according to the Bank for International Settlements.
https://www.bloomberg.com/news/articles/2016-10-24/canada-s-swelling-de…

http://www.theglobeandmail.com/report-on-business/rob-commentary/the-in…

by Kate | 18th Jan 17, 12:00pm 1484694012

And I suspect a Trump administration is going to be no friend to the northern neighbour.

by Cowpat | 18th Jan 17, 9:23am 1484684584

'Hosuing demand sinks' Sounds Chinese.

by David Chaston | 18th Jan 17, 9:48am 1484686094

Yes. fixed now. My error.

by JetLiner | 18th Jan 17, 10:04am 1484687055

A very interesting academic publication has just been put out about China's infamous "50c Party" (http://gking.harvard.edu/50c).

The Chinese government has long been suspected of hiring as many as 2,000,000 people to surreptitiously insert huge numbers of pseudonymous and other deceptive writings into the stream of real social media posts, as if they were the genuine opinions of ordinary people. Many academics, and most journalists and activists, claim that these so-called "50c party" posts vociferously argue for the government's side in political and policy debates. As we show, this is also true of the vast majority of posts openly accused on social media of being 50c. Yet, almost no systematic empirical evidence exists for this claim, or, more importantly, for the Chinese regime's strategic objective in pursuing this activity. In the first large scale empirical analysis of this operation, we show how to identify the secretive authors of these posts, the posts written by them, and their content. We estimate that the government fabricates and posts about 448 million social media comments a year. In contrast to prior claims, we show that the Chinese regime's strategy is to avoid arguing with skeptics of the party and the government, and to not even discuss controversial issues. We infer that the goal of this massive secretive operation is instead to regularly distract the public and change the subject, as most of the these posts involve cheerleading for China, the revolutionary history of the Communist Party, or other symbols of the regime. We discuss how these results fit with what is known about the Chinese censorship program, and suggest how they may change our broader theoretical understanding of "common knowledge" and information control in authoritarian regimes.

Forth-three pages, but worth reading, especially as we are seeing more of this type of opinion influencing in many international media which discuss China (e.g. just read the comments section in The Diplomat or Financial Times on any article to do with China and you can see what I mean).

by Stephen Hulme | 18th Jan 17, 10:12am 1484687540

In New York, the UST 10yr yield is much lower today and now at 2.34%. This fall is sure to resonate in local wholesale interest rate markets. As the reality of the Trump Inauguration gets closer, markets are losing steam.

Could other realities have caught traders' attention.

The global economic growth in 2016 was at its slowest pace since the Great Recession of 2009, a report by the United Nations revealed, projecting a slim growth in the upcoming years.

Slight improvement in the global economic output is expected in 2017 following last year’s growth of 2.2 percent, the lowest since the recent world-wide recession, according to the report issued on Tuesday.

"In 2016, growth in the world gross product and world trade slowed to 2.2 percent and 1.2 percent respectively, marking their slowest pace of expansion since the Great Recession of 2009," the report stated. Read more

A tepid economic story that will surely struggle to raise bond yield premiums aimed at discounting missed growth opportunities for those underwriting them.

by Boatman | 18th Jan 17, 11:03am 1484690615

Re China and local NZ Housing , we have not handled this well at at , in fact I give it a "Not Achieved"

Who are we trying to fool ?

Why dont we allow Non-residents to buy new builds only as is the case elsewhere ?

This way we know that the investment is good for us , it creates work , adds to GDP and adds to our GST take .

Trading in secondhand houses does not of the above , it simply artificially inflates prices , causes market distortions , excludes ordinary Kiwis from home ownership and places the Banks at risk of 'overlending " on cold , leaky shacks

We have likely damaged the Auckland housing market irreparably through what can only be described as policy failure

by Yvil | 18th Jan 17, 2:30pm 1484703028

Well said Boatman, I hoe the government listens to you

by PocketAces | 19th Jan 17, 7:41am 1484764869

New builds only, either for sale, or one kept for personal use, no foreign landlording and even more emphatically not a single cent of public money to go into the hands of foreign landlords in the form of accommodation top ups, not one single cent!

by Didge | 18th Jan 17, 11:51am 1484693481

http://topdocumentaryfilms.com/chinese-bubble/ "The country's current economic model has only deepened the imbalance between the rich and the poor. Early on in the film, we meet Li Jie, a young taxi driver who transports many of Beijing's richest inhabitants. Sadly, Jie feels that the Chinese dream they epitomize will forever remain out of his reach. The driver works himself ragged, but he can't afford even the most rudimentary life of comfort. He exposes a new custom among the area's rich; they buy up new apartments and leave them vacant until the market rises and they can maximize their profits. Angered by an inability to afford his own suitable housing, the driver pulls his taxi to the side of the road and snaps photos of these empty properties. These pictures almost serve as his form of forensic evidence."

by CJ099 | 18th Jan 17, 12:07pm 1484694458

Yes and then there are the less wealthy citizens who turn to 'Shadow Banking' to fund their overseas property and children's education needs. But they're now cracking down on this in a major way since it causes so many debt issues for their economy.

BBC article: 'Gangster grannies' and China's shadow banking world.
http://www.bbc.com/news/business-37114643

by rastus1 | 18th Jan 17, 12:05pm 1484694318

Unlike Aucklanders, farmers are not tough enough to live in garages or sheds....

"The government is offering to sell temporary accommodation units to earthquake-hit farmers for $25,000"

http://www.stuff.co.nz/business/farming/88522661/cheap-homes-for-quakeh…

by two otherguys | 18th Jan 17, 12:48pm 1484696910

China scuttlebutt
A group of 1.3 million people with net worth of +$2mil have invested in 3 million houses overseas

That group on average each own 2.3 off-shore properties

16% of the same group own 4 off-shore properties each

by Small Kev | 18th Jan 17, 1:12pm 1484698367

Wait til the Chinese New Year finishes in early February and everyone back from their holidays. That's when people will start looking at houses again. The Chinese don't care about the "tiny" capital gains in nz, good life style and education for children is what they are willing to pay for. And believe it or not, nz is still value for money if compare to China.

by Ted Stanton | 18th Jan 17, 1:43pm 1484700227

Well said, also Chinese like big newish houses like in Albany and Flatbush.
Five bedroom homes 300sqm are desirable not poky cold standard 90sqm 3 bed bungalows.

by 2bobmillionaire | 18th Jan 17, 1:38pm 1484699882

why wouldnt they buy in auckland?auckland is getting more attractive to chinese every day,you can live in a suburb where you are the majority ethnic group,shop in chinese owned shops,watch chinese channels on your smart TV, and visit your chinese doctor,bank and even have a chinese MP.maybe pop down to the beach and try to find the last living mollusc before anybody else does.

by mvgsmf | 18th Jan 17, 2:02pm 1484701359

@2bobmillionaire - it's true!

I live on the North Shore of Auckland and often my wife and I find ourselves a "minority" in the supermarket aisle, the doctors office, the gas station..the street...and pretty soon at current rate the neighbourhood...

Mass migration on this level, into one city does not promote assimilation and neighbourly goodwill...

by Zachary Smith | 18th Jan 17, 2:30pm 1484703051

Watch out, you will have DBFTA getting all disturbed if you go any further with this.You can't go around assimilating people, it's not nice. Even suggesting that they learn English is a step too far! And being happy that they are not assimilating is promoting exclusion. You can never win.

by Didge | 18th Jan 17, 3:05pm 1484705137

Its far too late to worry. New Zealand has lost the plot regarding migration.

by Macadder | 18th Jan 17, 5:14pm 1484712865

2Bob, perhaps there should be a multi choice test on marine life that needs to be passed before NZ residency is granted. The first question for example could be along the lines of: A photo of 12 snapper just line caught (with a tape measure in the picture) showing 4 (undersize) and 8 larger fish:
Your options are: 1: Keep the lot for eating. 2: Keep the smallest 4 for bait, eat the rest. 3: Keep them all but gift the biggest 1 to the ranger with small "fee". 4: Keep them all as you were fishing in the marine reserve anyway and the catch elsewhere is terrible. 5: return the smallest 5 to the sea as you were fishing in a marine reserve anyway.
Answers. A. All of the above; B. 2 only; C. 1,3 and 4; D. 2 and 5; E. None of the above

by 2bobmillionaire | 18th Jan 17, 10:13pm 1484730812

we failed the test,the IQ test by re-electing the govt that lets it happen.the devastation of our shellfish started before the chinese influx,you could get a feed of tuatua all along some beaches in the north,then commercial fishing hoovered up all the snapper,paddlecrab population increased(no snapper to eat them)and they reduced the shellfish,paddlecrabs got bigger and so became commercial and subject in turn to plunder.

by 2bobmillionaire | 18th Jan 17, 4:13pm 1484709222

homeowners scattering north from auckland have finally lifted some of the provinces house values,by buying lifestyle properties within an hours drive for half the price of auckland,the folks they buy from are the ones with the problem,they have to go even further out beyond the pale to get a bargain and find after the little town of lights it is lights out till you get to whangarei.