Home Mortgage

Home Mortgage is a loan given by a bank, mortgage company or other financial institution for the purchase of a primary or investment residence. In a home mortgage, the owner of the property (the borrower) transfers the title to the lender on the condition that the title will be transferred back to the owner once the payment has been made and other terms of the mortgage have been met.

A home mortgage will have either a fixed or floating interest rate, which is paid monthly along with a contribution to the principal loan amount. As the homeowner pays down the principal over time, the interest is calculated on a smaller base so that future mortgage payments apply more towards principal reduction as opposed to just paying the interest charges. In order to estimate the total cost of your monthly mortgage payments, it’s beneficial to use an online mortgage calculator.

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Home mortgages allow a much broader group of citizens the chance to own real estate, as the entire sum of the house doesn’t have to be provided up front. But because the lender actually holds the title for as long as the mortgage is in effect, they have the right to foreclose the home (sell it on the open market) if the borrower can’t make the payments.

A home mortgage is one of the most common forms of debt, and it is also one of the most advised. Mortgage loans come with lower interest rates than almost any other kind of debt an individual consumer can find.

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Home mortgages range from 10 to 30 years and the two main types of home mortgage loans are fixed rate and adjustable rate. In a fixed-rate mortgage, the interest rate and the periodic payment are generally the same each period. In an adjustable-rate home mortgage, the interest rate and periodic payment vary. Interest rates on adjustable-rate home mortgages are generally lower than fixed-rate home mortgages because the borrower bears the risk of an increase in interest rates.

To obtain a mortgage, the person seeking the loan must submit an application and information about his or her financial history to a lender, which is done to show the lender that the borrower is capable of repaying the loan. Sometimes, borrowers look to a mortgage broker for help in choosing a lender. When the borrower and the lender agree on the terms of the home mortgage, the lender puts a lien on the home as collateral for the loan. This means that if the borrower defaults on the mortgage, the lender may take possession of the house, which is called foreclosure.

Investopedia

South Africa: Affordable Housing – City of Cape Town and Developers At Crossroads

Politicians, civil servants and people in Cape Town’s property industry are at a crossroads. The next few months will tell who is committed to building an inclusive and spatially just city.

A black majority live on the densely populated urban periphery, in townships, as backyarders or in informal settlements, while the wealthy continue to live in low density mostly white suburbs in well-located areas.

Over the last year, Ndifuna Ukwazi has been objecting to exclusive and unaffordable private developments across the City of Cape Town. Our concern, shared by many, is that this pattern of spatial planning has negative long-term fiscal, social, environmental and political costs and is ultimately detrimental to the sustainability of the Western Cape economy. In effect, this pattern replicates the apartheid city.

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For example, to buy an average one-bedroom apartment selling for R1,250,000, a household would have to pay at least R12,270 per month in bond repayments. To pay this a household would need to earn a minimum monthly income of at least R36,800, assuming that the bond repayment is no more than one third of income on a bond.

Most poor and working class families are between three and five people in the household, so even if the family can afford to buy a one-bedroom property they may not be able to fit. So to measure access we need to be able to determine how many household can both afford and fit. Our estimate is that a maximum of four people could fit into a one-bedroom home comfortably.

Based on 2011 Census data, only 118,133 of all households living in the city, or 11% could both afford and fit into a one-bedroom property. If we break the number of households down by race, the results are staggering: Black African households who can both afford and fit represent only 1% of all households in the city; likewise Coloured households represent 2.2%; Indian households represent 0.3%; and White households represent 7.3%. It demonstrates the extraordinary exclusion of the majority of residents from the housing market, which is most acutely felt by black (Black Arican, Coloured and Indian) households.

The basis for Ndifuna Ukwazi’s objections is the Spatial Planning Land Use Management Act of 2013 (SPLUMA), which establishes a set of compulsory principles applicable in every land use decision. These principles are spatial justice, spatial sustainability, and spatial efficiency.

The principle of spatial justice, in particular, is consistent with the Constitution’s transformative aspirations. It aims to address spatial imbalances by improving access to land. Land use decisions must address the colonial and apartheid era dispossession and exclusion of black people, and provide new opportunities today.

To date, the City of Cape Town has not implemented their statutory obligations. This means a core legislative principle that should be at the heart of all planning approvals has not been realised practically in land use management on individual applications.

Both the City and the Municipal Planning Tribunal (MPT) are mandated to redress spatial imbalances and empowered to impose conditions that mitigate against exclusionary developments. One way to do this would be for the City to ask for a fair and proportional contribution from developers towards affordable housing. To date, both city planners and the MPT have refused to do this, arguing mainly that there is a lack of policy guidelines.

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Internationally, cities have passed inclusionary housing policies to secure a fair and proportionate contribution towards affordable housing on-site (in the development), off-site (on well-located state owned land), or as a fee in lieu in exchange for the value unlocked through the granting of land use rights.

To address this, Mayoral Committee Member for Transport and Urban Development (TDA), Brett Herron, has committed to bringing a policy to Council as a matter of urgency. Last week, the City’s Mayoral Committee approved a concept document on inclusionary housing, which now opens the way for engagement.

While the TDA is in the process of drafting policy, it is not certain. Some politicians and officials seem adamant to shut down the inclusive agenda that the TDA has embarked on in the belief that a policy would be damaging to the property and development industry. This would be a mistake.

A good inclusionary housing policy would, in fact, stimulate density and new development in well-located areas and along transport corridors. This could be done by creating a density overlay zone in the current by-law, which would grant additional rights as an incentive in exchange for affordable housing. Developers would be able to build higher and denser as long as this is more inclusive.

This would only work if the inclusionary housing policy was responsive to the ebbs and flows of the property market and across different areas. A blanket percentage would not work. So, for example, in areas where the value of land is high and the market is hot, the contribution would be higher. In areas which are well-located but have less hot markets, the City could increase the incentive but reduce the contribution.

An inclusionary housing policy should not be punitive, and the contribution could be paid for through any additional profits, efficiencies in the planning application system, and the ability to negotiate down land costs.

An effective inclusionary housing policy would dovetail with and help to unlock the City’s significant stock of smaller parcels of land for social housing that it is unable to develop itself due to the small economies of scale. Inclusionary housing, could be the very mechanism that is needed to advance inclusive transport orientated development.

It is clear that a change in the by-law and a policy is needed urgently to create certainty and manage the significant risks that must be navigated in the current economic environment. Further delays from the Mayoral Committee and within Council present the greatest risk to the industry.

Policy would be preferable but it is not required for the City and MPT to impose conditions to secure affordable housing.

It is up to developers to justify how their development complies with principles of spatial justice, and why a condition for affordable housing should not be imposed.

In a ruling on an appeal to the development application for Zero2One skyscraper, Mayor Patricia De Lille, after seeking the opinion of senior counsel, confirmed that the City and the MPT can impose conditions for the contribution of affordable housing in private developments without having a City policy in place.

According to the mayor’s ruling, a condition for a fair and proportionate contribution towards affordable housing in a private development can be imposed if three requirements from section 100 of the City of Cape Town’s current Municipal Planning By-Law are met, namely, the condition must be: 1) objective; 2) reasonable; and 3) “arise from the proposed use of the land”.

If it is undisputed that a development is spatially unjust, and the City and MPT has the power to fix the problem, neither the developer nor the City or MPT can ignore the problem. Approving a spatially unjust application with no reasonable justification or attempts to fix the problem is unlawful. This opens up the decision to be reviewed in the courts.

Depending on how you view the situation, this poses a choice for developers: Wait for policy to be passed, which will provide more clarity for what is expected from developers; or preempt policy and possible delays by submitting applications which include a fair and proportionate contribution of affordable housing now.

There are four good criteria to think about when considering whether a housing project in the private sector advances spatial justice. It must promote equal opportunity to black households, be truly affordable based on income, be well-located and use the right mechanism to ensure it is retained in perpetuity (which means it stays affordable in the long term).

There is now an opportunity for developers to make sure that an inclusionary housing policy works for them not against them, to explore ways to build affordable housing feasibly, and to contribute towards an inclusive, efficient and sustainable property developments that bring both economic and social returns for the industry and our city for generations to come.

By Jonty Clogger and Jared Rossouw

Barclays and UK government plan £1bn housing fund

Bank chairman John McFarlane says fund will address ‘vital need’ for new homes

Barclays and the UK government have revealed plans for a £1bn fund to help property developers meet what the bank’s chairman calls a “vital need” for new homes, including social housing and retirement homes.

The UK bank will commit £875m to a new Housing Delivery Fund, alongside £125m from Homes England, the government’s national housing agency. Small and medium-sized house builders and developers will be able to take loans of between £5m and £100m to fund their projects, with a loan-to-value ratio of up to 70%.

The goal is to diversify the housing market, Barclays said in its statement on the fund, adding that almost two-thirds of homes are currently built by just 10 companies. The fund will be open to existing Barclays clients as well as new customers and will prioritise builders of social housing, retirement homes and homes for private rental.

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The interest rate of the loans was not disclosed, but Barclays said they would be “competitively priced”.

Barclays chairman John McFarlane said: “There is a vital need to build more good quality homes across the country. This £1bn fund is about helping to do exactly that by showing firms in the business of house building that the right finance is available for projects that help meet this urgent need.”

James Brokenshire, the housing secretary, said: “This is a fantastic opportunity to not only get more homes built but also promote new and innovative approaches to construction and design that exist across the housing market.”

Then-housing secretary Sajid Javid launched Homes England in January as the successor to the Homes and Communities Agency.

The government has set a target of delivering an average of 300,000 a year by the mid-2020s. Its housing white paper, published in February 2017, described the UK’s housing market as “broken”.

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In her foreword to that paper, Prime Minister Theresa May wrote that the government’s goal is to “fix this broken market so that housing is more affordable and people have the security they need to plan for the future”.

May went on: “The starting point is to build more homes. This will slow the rise in housing costs so that more ordinary working families can afford to buy a home and it will also bring the cost of renting down.”

She added that diversifying the housebuilding market would involve “opening it up to smaller builders and those who embrace innovative and efficient methods”.

Tim Burke 

48-hour ‘bamboo bungalow’ plan launched to tackle housing shortage in Nigeria

The Nigerian state of Lagos has announced a plan to address its shortfall of 2 million homes by building “48-hour bungalows” out of bamboo, a versatile and abundant resource in Nigeria.

Promoting the idea, the state’s commissioner for housing, Gbolahan Lawal, said the technology has already been trialled in the western coastal town of Badagry and would soon be extended to the north-eastern settlement of Imota.

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“We want to see how to go into the manufacturing of homes. We want to make it seamless and produce about 100 units in a month,” he is quoted as saying by local media.

He said his commission had already hired three companies for the initiative, one of which was already on site, and that a training programme had begun to ensure there were enough workers to carry it out.

Lagos State needs another 2 million homes to adequately house its population (Abd Ahmeed/Creative Commons)

The commission hopes to set up manufacturing businesses to feed into the scheme, providing tiles, electronics and meters for water and electricity.

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In terms of the main building materials, Mr Lawal said that experiments with clay and wood had ended and that the preferred material in future would be bamboo owing to its low price and relative abundance.

Alongside the technological development, the government has spent the past 14 months drafting a housing policy to regulate the state housing ministry.

Lagos’ housing difficulty form a small part of Nigeria’s overall problem. Reliable figures are hard to come by, but a survey in 2012 estimated that the country lacked 17 million homes, and a report at the end of August suggested that could since have risen to 25 million units, indicating that a large proportion of Nigeria’s 186 million people are affected.

GCR

Seoul’s revitalisation of youth housing

Youth population continues to flow into Seoul as the capital offers education, wealth, and higher-wage jobs. According to the Korean Statistical Information Service, new residents moving into Seoul totalled 15,000 to 26,000 people annually over the last six years with the trend expected to continue for the foreseeable future. Despite new apartments and villas constantly being introduced, “affordable housing” remains a distant dream for young people with the high rental rates of Seoul.

At a glance:

  • Seoul’s youth population is on the rise
  • This trend looks set to continue in the future
  • Affordable housing is increasingly hard to find
  • The government has introduced the 2030 Youth Housing program
  • This should increase centrally located affordable accommodation
  • Investors are seeing issues with the initiative’s constraints which may need to be rectified

The government has announced a youth housing program, “2030 Youth Housing”, to alleviate this problem. The project sets to revitalise youth housing (‘2030’ refers to the people in their 20s and 30s) by providing quality residences with access to subway stations for young people – college students, recent graduates, and newlyweds.

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Number of young population moved into Seoul:

Picture1_27Oct2017.png

The project has drawn keen interest from investors, as the government will provide development benefits, including increasing the floor area ratio of private land near subway stations, tax reductions and a streamlined process for government applications.

However, many experts believe there is difficulty for investors to enter the rental housing business as the minimum land area requirement for such an upgrade for a ‘Semi-Residential Area’ is 500 square metres, and 1,000 square metres for ‘Commercial Area’. Since many lots near-subway station areas are usually less than 200 square metres, investors must obtain at least five agreements with landlords, which is unrealistic.

The project would require a developer to charge 60-80 percent of market rental rates within each subway station area for at least the first couple of years. After this period, as demand near subway station area is robust, property owners would raise the rent of this new supply to market rates. However, this incentive will disable normal market rental forces as the new supply together with regulated rents will ensure the area’s rent for the near future with limited growth potential.

Although it is good that the government is actively trying to solve the housing problem in Korea, a number of key points need to be rectified as pointed out by critics. Authorities will need to reduce the land size requirement and provide rental housing with a relatively lower level of rent by broadening the distance of the subway station areas as rental levels are high.

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So far, 44 sites (or 16,681 households) in Seoul have been selected for the initiative. As the provision of affordable housing is top priority for the new government, JLL believes this project would lead Seoul to rise to conquer the housing challenge for Seoul’s young generation.

For more information about the South Korea residential property market or to discuss the 2030 Youth Housing program phone research analyst Leo Nam from JLL Korea via the contact details below.

JLL

Cohousing: Driving housing innovation by changing the way we live

A shared desire to live more communally could encourage greater housing diversity, according to Adam Haddow. Here, he looks to student housing, “build-to-rent” models, and the new WeLive project in the USA for cues on how to conjure an alternative, more versatile Australian housing market.

Cohousing is defined by the Cohousing Association of the United States as “an intentional community of private homes clustered around shared space” – where the dwellings themselves are much the same as any other and the shared space constitutes anything from a common room to a kitchen, laundry or recreational area. Less obvious in this description is the essential ingredient – intent. That which turns a simple group of dwellings into cohousing is the desire to share not only part of your physical space but part of your daily activities. Sharing may encompass simple things, such as tools and lawnmowers, or more complex things, such as caring for the young and elderly. Often an important element involves meals – it is not uncommon for cohousing projects to host weekly dinners where each of the residents has a role.

Cohousing is housing supported by an ongoing management structure that facilitates a connected community – to a certain extent, imagine a small country town with an active and well-funded council. There are virtually no edges to what can be considered cohousing from a typology perspective, the only constant being a desire by the inhabitants to live more communally. Emotionally, cohousing could be understood as the dense, inner-city version of the 70s suburban cul-de-sac. In my memory the great suburban cul-de-sac experiments existed when everyone’s backyards, swimming pools, swings or BMX jumps were shared. It seemed as if parents made personal investments in their backyard environs with a view to what else was within walking distance for their kids. Cohousing is perhaps just the urban cousin.

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While this type of housing is able to accommodate both bottom-up and top-down procurement processes, it is not a housing form that has gained much ground in Australia. I would suggest this is partly because we don’t have funding, governance or taxation systems in place to support developer involvement and partly because land costs (inflated due to the housing crisis) prohibit the participation of community-based organizations.

The flood of new private sector student housing offerings is an example of the delivery of cohousing. The days of getting together with your mates to sign a lease with the elderly owner of a terrace house seem to be long gone, mostly as a result of the abandonment of the traditional student suburbs by the students themselves, who rejected their parents’ idea of suburban nirvana to live closer to the action. The free market economy came into play and private student cohousing projects have popped up to fill the void – a top-down development model owned and managed by investors. The benefit to the student of this new model is a high level of flexibility and amenity coupled with a low level of risk. So could the model of cohousing leveraged to provide student housing offer a solution for broader housing challenges of supply and affordability?

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Imagine that the average two- bedroom apartment in Australia is seventy- five square metres and the average occupation of a two-bedroom apartment is two people – sometimes friends, sometimes lovers, sometimes a parent and a child. Each of these groups has different spatial needs. The friends need more privacy, with split bedrooms and separate bathrooms, but hardly use the living and dining room during the week – they’re too busy at work building their careers or living in the city with dinners and movie dates.

The lovers really only use the second bedroom when a relative or friend occasionally comes to stay or when they work from home once a month – the rest of the time it’s the additional robe space they crave. The parent and child could really do with a bit more living space at the expense of a much smaller second bedroom – what five-year-old needs a room that fits a king-size bed anyway? Then imagine this. Instead of each group getting the same apartment, they each get one a little more tailored, and this tailoring comes about by reducing the space within their apartment walls – pushing it down to fifty square metres, and investing some of the difference, say ten square metres per apartment, into common space.

This then enables an awesome play space for kids that is continually observed, a visitors’ apartment you can book for guests, a meals area with a commercial kitchen so you can live out your MasterChef ambitions or just a really great laundry so you never have to buy a bloody washing machine again! But where does the additional fifteen square metres per apartment we saved go? This saving goes towards the overall management of the building and residents, so that there is always someone there to accept your Amazon purchase or organize the washing machine repairer – without you ever knowing that it broke in the first place.

This is the latest cohousing model popping up in the United States, with one such example called WeLive. It’s a kind of student housing for adults, complete with a doorperson, a concierge, a cleaner and the occasional yoga instructor.

Our industry has been awash over the last few months with ideas about the potential of cohousing projects. The name being used is “build-to-rent,” but in essence it’s the same thing. There are developers jumping in headfirst and there are others who are cautiously optimistic, waiting for the right economic conditions.

Either way, build-to-rent looks to become a player in the rental market. Build-to-rent is in direct contrast to our national preoccupation with build-to-sell, which has fuelled the property market over the past decade, with particular help from specific tax incentives. Build-to-rent takes a longer-term view on housing, with institutional investors such as industry super funds or private equity stumping up the dollars and ultimately owning and operating the asset. It’s not such a bad idea – if you own the building you’re probably going to be more interested in the longevity of both the product and the community, which has the potential to deliver better buildings and to enable more active, engaged and happy residents.

This model is also perhaps evidence that as a society we are changing, that a significant number of us, given the right building, location and management structure, would be happy to rent. WeLive comes to you from the owners of coworking company WeWork and is based on a similar plan – provide high-quality housing with all of the “add-ons” that cohousing relies on to build a community, along with a heavy overlay of management. On a recent visit to the New York WeLive, I was seduced by the quirky apartments, the generous communal spaces and the opportunity to meet and connect with people in a city not renowned for its friendliness.

While we are only scratching the surface of cohousing in this country, and indeed it will take time for it to make any real dent in the housing market, it is an interesting model that has the scope to influence the way we live and to provide an alternative living environment. Our current housing choices are much like the Australia of the 50s – it makes us long for a great espresso. Thankfully, we are maturing and as a result getting more options. In my mind diversity is key – the more the better. Perhaps one day our housing choices might match our multiculturalism.

Adam Haddow

China’s President Xi pledges $60 BILLION for Africa’s development over the next three years

Don’t call it colonialism: African leaders welcome China’s $60BILLION investment and President Xi tells conference ‘there are no strings’ – despite warnings Beijing is burying continent’s countries in debt to control them

  • Development aid was announced at a two-day China-Africa Cooperation summit
  • Xi said the investments on the continent have ‘no political strings attached’ 
  • Beijing has been increasingly criticised over its debt-heavy projects overseas 

Africa’s leaders have denied that a Chinese investment package is ‘a new form of colonialism’ after Xi Jinping pledged $60 billion worth of funding to several nations on Monday.

Xi told African leaders at a summit that China’s investments on the continent have ‘no political strings attached’, even as Beijing is increasingly criticised over its debt-heavy projects abroad.

Following Xi’s pledge, South African President Cyril Ramaphosa delivered a stinging rebuttal to criticism of China’s development aid in Africa.

Ramaphosa defended China’s involvement, saying that the meeting ‘refutes the view that a new colonialism is taking hold in Africa as our detractors would have us believe’.

Rwandan President Paul Kagame, current chairman of the African Union, also rallied behind China’s involvement in Africa.

‘Africa is not a zero sum game. Our growing ties with China do not come at anyone’s expense,’ he told the summit.

Xi offered the funding at the start of a two-day China-Africa summit that focused on his cherished Belt and Road initiative. The money – to be spent over the next three years – comes on top of US$60 billion Beijing offered in 2015.

The figure includes US$15 billion in grants, interest-free loans and concessional loans, US$20 billion in credit lines, US$10 billion for ‘development financing’ and US$5 billion to buy imports from Africa.

In addition, Xi said China will encourage companies to invest at least US$10 billion in Africa over the next three years.

The massive scheme is aimed at improving Chinese access to foreign markets and resources, and boosting Beijing’s influence abroad.

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It has already seen China loan billions of dollars to countries in Asia and Africa for roads, railways, ports and other major infrastructure projects.

But critics warn that the Chinese leader’s pet project is burying some countries under massive debt.

‘China’s investment in Africa comes with no political strings attached,’ Xi told a high-level dialogue with African leaders and business representatives ahead of the summit.

‘China’s cooperation with Africa is clearly targeted at the major bottlenecks to development. Resources for our cooperation are not to be spent on any vanity projects, but in places where they count the most.’

But Xi admitted there was a need to look at the commercial viability of projects and make sure preparations are made to lower investment risks and make cooperation ‘more sustainable’.

Belt and Road, Xi said, ‘is not a scheme to form an exclusive club or bloc against others. Rather it is about greater openness, sharing and mutual benefit.’

Later, at the start of the Forum on China-Africa Cooperation (FOCAC), Xi announced US$60 billion in funds for eight initiatives over the next three years, in areas ranging from industrial promotion, infrastructure construction and scholarships for young Africans.

He added that Africa’s least developed, heavily indebted and poor countries will be exempt from debt they have incurred in the form of interest-free Chinese loans due to mature by the end of 2018.

A study by the Center for Global Development, a US think-tank, found ‘serious concerns’ about the sustainability of sovereign debt in eight Asian, European and African countries receiving Belt and Road funds.

During a visit to China last month, Malaysian prime minister Mahathir Mohamed warned against ‘a new version of colonialism,’ as he cancelled a series of Chinese-backed infrastructure projects worth US$22 billion.

Ahead of FOCAC, Rwandan President Paul Kagame, currently the chair of the African Union, also dismissed the concerns, telling the official Xinhua news agency talk of ‘debt traps’ were attempts to discourage African-Chinese interactions.

At the last three-yearly gathering in Johannesburg in 2015, Xi announced US$60 billion of assistance and loans for Africa.

Nations across Africa are hoping that China’s enthusiasm for infrastructure investment will help promote industrialisation on the continent.

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Nigerian President Muhammadu Buhari will oversee the signing of a telecommunication infrastructure deal backed by a US$328-million loan facility from China’s Exim bank during his visit, his office said.

Xi said Belt and Road complies with international norms, and China ‘welcomes the participation of other capable and willing countries for mutually beneficial third-party cooperation’.

China has provided aid to Africa since the Cold War, but Beijing’s presence in the region has grown exponentially with its emergence as a global trading power.

Chinese state-owned companies have aggressively pursued large investments in Africa, whose vast resources have helped fuel China’s transformation into an economic powerhouse.

While relations between China and African nations are broadly positive, concerns have intensified about the impact of some of China’s deals in the region.

Djibouti has become heavily dependent on Chinese financing after China opened its first overseas military base in the Horn of Africa country last year, a powerful signal of the continent’s strategic importance to Beijing.

Locals in other countries have complained about the practice of using Chinese labour for building projects and what are perceived as sweetheart deals for Chinese companies.

The concerns are likely to grow as countries in other parts of the world — especially Southeast Asia — begin to question whether Chinese aid comes at too high a price.

‘Time has come for African leaders to critically interrogate their relationship with China,’ an editorial in Kenya’s Daily Nation said Monday.

African leaders, ‘should use the summit to ask tough questions. What are the benefits in this relationship? Is China unfairly exploiting Africa like the others before it?’

KELSEY CHENG and GEORGE MARTIN

China struggles to heed Xi’s call to develop rental housing

China’s drive to develop a well-functioning rental housing market as an antidote to sky-high property prices is foundering, as rental agencies resort to debt-fuelled expansion amid weak profitability.

President Xi Jinping’s frequent refrain that “houses are for living in, not for speculation” has been seen as a call to increase the supply of rental housing and discourage investors from holding flats empty. Beijing, Shanghai and Shenzhen are among the world’s most expensive places as measured by the ratio of house price to median income.

At the country’s yearly economic planning meeting in December, leaders pledged to promote rental housing and “support the development of professional and institutional housing rental enterprises”. But that effort is off to a bumpy start.

Since the beginning of 2017, at least eight operators of long-term rental housing have failed, according to the China Real Estate Information Corporation, a research group, and analysts say a sustainable business model for rental housing remains elusive. “I don’t advise you to do long-term rental apartments,” Pan Shiyi, chairman of Soho China, a major property developer, told a forum in August. “It’s a lossmaking business.” Mr Pan estimated that buying flats would require bank loans with an interest rate of at least 5-6 per cent, while rental yields were only 1 per cent.

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This month, Dwell You, an operator based in the prosperous east coastal city of Hangzhou, announced on August 20 that it was ceasing operations, leaving 1,700 tenants and their landlords scrambling. Dwell You and other rental operators obtained “rental loans” in tenants’ names from banks or online lenders, sometimes without their knowledge. The tenant’s monthly “rent” payments were, in fact, loan repayments. “If I knew it was a rental loan, I would never have signed the contract.

After all, it will affect my credit score,” said Lei Wenqi, a 24-year-old product manager at an internet company in Beijing who rented a flat from Danke, an operator with rental properties in nine cities. “Since the loan is applied in my name, why is the money not given to me but given to Danke directly?” asked Mr Lei. Operators received a year of rent from the loan, while paying landlords only monthly.

This maturity mismatch allowed the operators to use the excess cash to seek new rental flats and expand their business. And because tenants, not landlords, were paying loan interest, this growth capital was essentially free for the operators. Danke raised $100m in February from a consortium of Chinese and foreign VC groups including the Asia private equity arm of German media group Bertelsmann.

Danke did not answer a request for comment. “This shows yet again that as soon as rental apartments groups verge into finance, it creates all kinds of new problems,” said Yan Yuejin, research director of E-House China R&D Institute in Shanghai.  Despite doubts over profitability, venture capital has flooded into the sector on expectations of policy support and growth. China’s rental market housed 190m people last year and generated Rmb1.3tn ($190bn) in revenue.

Those figures will rise to 270m people and Rmb4.2tn by 2030, according to Oriental Securities. Financial regulators are also working on policies to encourage the creation of real estate investment trusts — portfolios of rental property that trade like a stock. Tax breaks for such structures would increase their profitability.  “Right now everyone is rushing to scale up by gobbling up housing resources.

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The logic of the industry is ‘whoever rules housing inventories rules heaven and earth’,” said Hu Jinghui, chairman of the China Alliance of Real Estate Agencies, an industry association. “A lot of companies have very high costs, but they’re more focused on impressing VCs than serving customers.”

Financial Times

What Will Lower Housing Prices?

In late 2017, Congress and the President wanted to make the $1.5 trillion plus cuts in corporate and other taxes not look so big. So they raised taxes for some people by drastically limiting the deductions for state and local property and income taxes (SALT), capping the deductability of mortgage interest, and increasing the standard deduction (which makes itemizing less valuable).

Of course, these tax hikes affect people with houses and mortgages, especially those living in states with high real estate and income taxes.  Before this change, they could write off those SALT taxes when they paid federal income tax. The National Association of Realtors (NAR) led the scare, predicting house values would generally fall, and especially in California, New York, Massachusetts, and New Jersey.

But housing prices generally have not fallen.  In the first half of 2018, the Federal Housing Finance Agency’s house price index rose by 3.8 percent.  Even in California, housing demand is strong.  The chief economist for the Relators  said, “We thought there would be some impact…but the market is saying, so far, there is not an impact.”

But don’t tax deductions affect housing values? Generally, economists would not expect the change in the tax deductibility to have a major impact on house prices because several other factors have larger effects on home values than government tax breaks. Of course, those tax breaks can be a factor in buying a home or willingness to bid up the price–they just aren’t the biggest factor.

Let’s look at the big picture. We might want to say good riddance to special deductions for owning a home. Mortgage deductions and other tax subsidies for home ownership may in fact be bad policy.  They tell society that the government wants you to own a single-family house. But home ownership could be bad for you financially and inefficient for the larger economy.  Not only is renting a perfectly decent decision but housing tax breaks may steer too much investment capital into housing debt and away from productive investments and diversified household portfolios.

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Harvard economist Edward Glaeser has argued that tax subsidies and related policies result in “the government…essentially bribing Americans to live in suburban, detached homes.”  And the 2007 financial and economic crash was caused in significant part by too much housing debt, especially for lower and middle income households.  That rise in debt, amplified significantly by risky Wall Street financial manipulation, ended up putting the entire economy at risk.

So why aren’t the loss of the SALT deductions for some taxpayers and the mortgage deduction cap suppressing housing prices?

First, the tax bill also contained a large increase in the standard deduction, which is a significant gain for most households.  Using the standard deduction means less itemizing overall, so the value of the mortgage and tax deductions fell for many taxpayers.  Relatively few taxpayers will be deducting their state and local property taxes so they are untouched–in fact, they are probably a bit better off.  So they may want to buy a house, pushing up demand and keeping prices high.  Only high tax payers in states with both high income and property taxes may feel a pinch from losing the SALT and mortgage deductions.

Second, housing prices are what economists describe as “sticky downwards.”  Homeowners are notoriously prone to overvalue their house and reluctant to lower the asking price until faced with continuing bad news – and, of course, no offers.

Third, buyers, especially higher-income consumers, are wealthier because of the legislation’s other windfall tax breaks, especially lower rates. And they feel wealthier because of the run-up in the stock market.  The psychological effect of both may be bidding up the price of the better houses they want to buy.

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Does this mean we shouldn’t worry about house prices?  No.  Prices could fall as the Federal Reserve continues to raise interest rates, although some fear that could tip the economy into recession which of course would lower house prices.  And there are some signs of weakness in housing markets.  For example, new private housing starts have barely reached the levels of just before the 2007 economic collapse.  There seems to be some slowing of price increases in places where the tax bill has its largest negative impacts. And slow income growth for many American households means that buying a house is moving beyond their reach.  A recent report concluded that in twenty large metropolitan areas, middle-class families are increasingly unable to afford a house.

Like many other aspects of today’s economy, we may see housing prices favoring the rich over the middle class and below. House prices for higher income families may be rising, which might in turn nudge more and more middle-class families with stagnant incomes out of the housing market and also put upward pressure on rents.  If that megatrend continues, it may swamp whatever effects the tax legislation is having and housing prices will fall.

Teresa Ghilarducci

A new U.S. city tops the list as hottest housing market

Las Vegas is the hottest housing market in the country.

The monthly Case-Shiller home price index released on Tuesday showed Las Vegas overtook Seattle to become the hottest housing market in the nation.

Las Vegas had a 13 percent increase in single-family home prices in June compared to last year.

“Population and employment growth often drive homes prices,” David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, said in a release. “Las Vegas is among the fastest growing U.S. cities based on both employment and population, with its unemployment rate dropping below the national average in the last year.”

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Seattle, which was dethroned, saw a 12.8 percent increase, according to The Seattle Times.

“The Case-Shiller numbers don’t reflect the full scope of the slowdown yet: Partially because it includes a three-month moving average through June (things have cooled even more since then), and also because it reflects the entire metro area,” according to The Seattle Times.

Meanwhile, San Francisco, which landed as the third-highest price gain, saw a 10.7 percent increase, according to King5 News.

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Before the recent turn of events, Seattle topped the country for 21 months straight, which was the second-longest streak in the report’s 31-year history.

Portland, Oregon, topped the list for 23 months in the early ‘90s.

Herb Scribner

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