Monday's Top 10 at 10: Livid landlords lash out at Housing NZ; China's ghost cities revealed; China's aircraft carrier; Spain's real pain to come; Dilberts

Here are my Top 10 links from around the Internet at 10 to 12 pm, brought to you in association with New Zealand Mint for your reading pleasure.

I welcome your additions and comments below, or please send suggestions for Tuesday's Top 10 at 10 via email to bernard.hickey@interest.co.nz.

I'll pop any surplus suggestions I get into the comment stream.

Dilbert made me laugh out loud and thank the almighty I don't work for a corporate any more.

1. Landlords livid - Rob Stock at the Sunday Star Times reports landlords who lease homes to Housing New Zealand are livid over low rents and poor supervision of properties.

Poor landlords.

It seems they thought they were on to a sure thing.

They buy a cheap house with borrowed money.

Then get the state to look after the messy bit of managing the tenants and ensuring the rent is paid, often with state money and accomodation supplements.

Then just sit back and wait for the capital gains.

However, things are not going to plan. The capital gains didn't come. Some may even be sitting on leveraged losses of not-much-equity.

Here's the detail.

So sad...

The landlords, many of whom acquired their properties in the build-to-let schemes that flourished in the housing boom, say Housing New Zealand (HNZ) is mismanaging their properties, paying them less than the market rents they expected, and are too often siding with destructive tenants.

Some of the landlords are so hot under the collar they say their treatment at the hands of HNZ, which is currently advertising for more landlords to lease their properties to it, amounts to state-perpetrated fraud, or a "hidden tax" on private landlords.

The revolt is being led by Auckland landlord Ian Crayton, who is building a protest group to back him in demanding Housing Minister Phil Heatley takes action, without which, he said, HNZ risks becoming a pariah to which no landlord would lease a house or flat.  

My favourite bit is how Housing NZ forgot to take all the email addresses off a group-wide email to landlords. The protest started when a grumpy landlord, Ian Crayton, hit 'reply-all' with a few choice comments.

Crayton began his revolt by simply hitting "reply to all" and sending a message asking if anyone else had had the problems he said he has. Dozens of responses from landlords flowed from that, he said, with landlords vowing to support his protest and calls for change.

In his email, Crayton complained that the rents landlords are getting from HNZ are artificially low and not the market rents they were supposed to receive. Further, there is no means of challenging reviews by a valuer they have lost confidence in. Another complaint is that, despite paying between 8% and 10% in property management fees, landlords feel HNZ represents the tenants, not the landlords.  

2. China's ghost cities - The Daily Mail reports on Google Satellite images showing dozens of empty new Chinese cities. HT Brett Roberts via Twitter.

These amazing satellite images show sprawling cities built in remote parts of China that have been left completely abandoned, sometimes years after their construction. Elaborate public buildings and open spaces are completely unused, with the exception of a few government vehicles near communist authority offices.

Some estimates put the number of empty homes at as many as 64 million, with up to 20 new cities being built every year in the country's vast swathes of free land. The photographs have emerged as a Chinese government think tank warns that the country's real estate bubble is getting worse, with property prices in major cities overvalued by as much as 70 per cent.  

3. The case for a Chinese collapse - Here Hedge Fundie Jim Chanos argues via this 25 page Powerpoint that China is vulnerable to collapse. There's some cracking charts. Fixed asset investment, for example, is now at 66% of GDP. Fiscal stimulus last year equaled 14% of GDP. Prices of rare teas have exploded.

Chanos points to more than a quarter of loans made by Local Government Financing Vehicles (LGFVs) are already designated as high risk by an official study. They are China's Sub Prime.

He points out 17% of office space in Beijing is now vacant and rents have fallen 26% after a building boom. HT Tony.

4. And its getting worse - Jim Chanos also tells Bloomberg in a more recent interview that the Chinese property boom has actually gotten worse in recent months despite the various regulatory and financial attempts to put the brakes on.

Home prices in 70 Chinese cities climbed 7.7 percent in November from a year earlier, even after the government suspended mortgages for third-home purchases and pledged to introduce a property tax. Sales volume jumped 14.5 percent.

“A lot of regulations in China, they are designed to be skirted,” Chanos said in an interview with Carol Massar and Matt Miller on Bloomberg Television’s Street Smart program. “The boom has continued to be unabated. It’s actually even picked up a little bit recently towards the end of year.”

Chanos, who was one of the first investors to foresee the 2001 collapse of Houston-based energy company Enron Corp., said some Chinese developers are getting more leveraged and are taking more money from international investors, providing opportunities for hedge funds. He didn’t name specific stocks. “They all look very interesting from a short-sellers perspective,” said Chanos, founder of Kynikos Associates LP.

“The western investor is the one who’s going to end up holding the real estate bag here.”  

5. The problem of rising interest rates - With all this debt embedded in the developed and developing economies, what happens when interest rates increase? The Bank of England reckons more than 7 million British homeowners are at risk if interest rates rise..., the Telegraph reports. HT Hugh

Many risk becoming so-called “mortgage prisoners” – trapped in their homes, unable to move, because of the cost of borrowing. At the height of the credit crisis in 2007, there were 11.4 million outstanding mortgages, according to the Council of Mortgage Lenders.

Less than half of these – approximately five million – were on a floating rate, such as a tracker mortgage or a lender’s SVR. Almost seven million borrowers – or 57 per cent – had a fixed rate deal. But many of these initial deals are coming to an end.

6. 'We want carriers too' - The Daily Mail reports China has quietly started building its first aircraft carrier just as Britain gets ready to scrap its last carrier. Aircraft carriers are the only true way to project military power beyond your borders. Only America has them in significant numbers at the moment.

China will challenge America’s naval supremacy in the Pacific. Its first aircraft carrier may already be under construction, diplomats believe, after an official government report said China wants to be ‘a great naval power’.

The report confirmed that the aircraft carrier plan had been approved last year and said Beijing viewed naval supremacy as ‘China’s historic task for the entire 21st Century’.  

7. Is this why online retailers are growing so fast? - There's a good old debate brewing in Australia about the ability of people to buy things GST-free up to a limit of A$1,000. Retailers there are getting mighty grumpy about it, the Sydney Morning Herald reports.

Is it happening here? There's a lot to save now it's up to 15%.

Retailers have complained the tax loophole and lack of customs duty prevents them from competing with foreign online shops, prompting a government inquiry into shopping.

Assistant Treasurer Bill Shorten said yesterday the threshold would stay but the government would crack down on those rorting the system.

''Rather than make on-the-run decisions about taxes or indeed other aspects of the retail industry, let's have a long-overdue unprecedented discussion and analysis [of] what is going to be the future of the retail industry in Australia,'' he said.

Retail giants such as Myer and Harvey Norman, who have campaigned vigorously against the threshold, say untaxed online sales will drive smaller retailers to the wall. They have flagged setting up websites to ship goods directly from China to local consumers. Among other issues, the Productivity Commission inquiry will examine the $1000 GST-free threshold for imported goods, the growth in online shopping and its effect on Australia's $242 billion retail sector.

An Access Economics report showed Australians spent up to A$24 billion buying goods online last year, with about 50 per cent spent with overseas outlets. Online represents about 3 per cent of total sales.  

8. A little help from their friends - Bloomberg reports the Reserve Bank of Australia has agreed to provide liquidity support to the big banks there (which means our big banks)  so they can meet new Basel III rules. The facility sounds a lot like the one the Reserve Bank of New Zealand set up to tide the big banks over here in early 2009.

The Reserve Bank of Australia will provide secured facilities to cover any gaps between lenders’ liquid assets and global regulators’ requirements, according to an e-mailed statement from the RBA and the Australian Prudential Regulation Authority today.

Banks will pay a yet-to-be-determined fee and put up assets eligible for repurchase transactions with the RBA as collateral to access the standby funds, it said.

“The regulator has created an alternative liquid asset,” Sally Auld, a Sydney-based interest rate strategist at JPMorgan Chase & Co., said in a note to clients. “The fee is essentially a payment for the right to access the government (RBA) balance sheet in times of stress.” Handy eh? Is this New Zealand's get out of jail free card? It worked in October 2008.  

9. The real pain in Spain is yet to come - JP Morgan points out (via FTAlphaville) that the real pain for the peripheral European economies doesn't really kick in until 2013 when a lot of their debt rolls over onto much, much higher rates.

That's the problem with a debt spiral...it's always the higher interest rates that get you in the end.

Along with the primary surplus and the nominal GDP growth paths, the evolution of debt as a share of GDP depends crucially on the rate at which sovereigns can borrow. The relevant interest rate for debt dynamics is not the current market rate, however, but the average rate paid on debt.

Average borrowing rates as of 2010 are well below market rates, with a 4.5% rate in Greece, 4.6% in Ireland, 3.8% in Portugal, and 3.5% in Spain.

However, given the large gross funding needs of these countries—from both rolling over maturing debt and new issuance to fund large current deficits—these average rates would converge to market rates fairly quickly in the absence of subsidized liquidity support. If these sovereigns were forced back into capital markets from 2013, average borrowing rates would begin to move up sharply.

This is our baseline scenario, with average borrowing rates rising by 2015 to over 9% in Greece, over 8% in Ireland, and just under 7% in Portugal and Spain.  

10. Totally Colbert Nation - Mr Colbert gets hold of a Goldman Sachs credit card. They're in trouble now.