April 27, 2012

You Can Buy Almost Anything, And You Will Not Lose

It’s Friday desk clearing time for this blogger. “As India’s real estate industry is still in a recovering state, industry experts think it is the right time for consumers to go for their dream homes before the prices shoot up. Property expert Sai Chand Talluri says that 2.5K units arrive in Hyderabad market every year and real estate companies are managing to sell half of them and the rest are carried forward to next year. ‘Even though the overall absorption rate is slow real estate market is active for completed projects as there is limited supply, said Rajalakshmi Raghavan, GM-Marketing Vasathi Housing. She conforms that not only first home buyers, but also second home buyers are also adding to the market. ‘Stock markets are unstable and gold prices are rising day by day, so people keep an eye on real estate since this the opportunity which gives more returns’ said Sai Chand Talluri.”

“For Shen Dongjun, the 22-hectare chateau in Bordeaux seemed a priceless investment and a natural addition to his new wine business, rather than being just an expensive holiday home. Shen is part of a new wave of Chinese investors who are snapping up wine estates across the world. ‘Wine is not part of the traditional drinking culture in China, and as such many buyers, who haven’t been in the wine industry, may find it hard to operate the wineries,’ says Duan Changqing, director of the grape and wine research center at the China Agricultural University. ‘But it is fine if they are just buying the properties for fun.’”

“The bankruptcy of Hangzhou Glory Real Estate, a comparatively small homebuilder focused on the high-end residential market in Hangzhou, raised concerns over the health of China’s property sector. ‘Developers’ financial position has rung an alarm in the industry,’ says Alan Chiang, head of residential properties, Greater China in his April property report. ‘For the top 30 publicly-listed developers in China, 22 have recorded a negative cash flow as at the fourth quarter of 2011. In addition, 13 developers’ debt ratio has gone up to or over 70 percent. Unsold inventory turnover rate skyrocketed to an average of 1,667 days,’ he adds.”

“Since gaining popularity as a tourist destination, China’s Hainan island has seen a boom in property development projects. And developers continue to be optimistic of the property market despite falling prices and the high number of vacant units. Currently, about 60 to 80 per cent of these units are vacant. Tiley Real Estate marketing director Ji Cheng, said: ‘In Hainan, seaside property is increasingly scarce. In Hainan, our customers are generally second, third or even fourth time and above buyers.’”

“Experts don’t believe there will be repeat of the 1990s property bubble, even though up to 80 per cent of units remain vacant. CEIBS Lujiazui International Finance Research Centre deputy director Gary Liu said: ‘There is real estate bubble all over China so if you compare Hainan to other parts of China, the bubble would not be so serious.’”

“Russian citizens bought real estate worth $245 million in Australia last year, Australia’s Foreign Investment Review Board said. Russians ranked sixteenth in a list of buyers of Australian property last year, the board said in its report. The top three buyer nations are U.K. citizens in first place, spending $4.6 billion, the Chinese in second with $4.09 billion and U.S. citizens third with property purchases worth $3.4 billion.”

“Non-residents of Australia purchased property worth of total $41.513 billion last year, double the figure for 2010.”

“While renters are queuing up and offering bribes to secure a home, there are as many as 48,000 dwellings unoccupied across the state, according to analyst BIS Shrapnel. Some properties were reserved as holiday homes or undergoing renovations, however many owners were living overseas or sitting on the property while they waited for prices to rise following a record-long recession, BIS Shrapnel managing director Robert Mellor said. While property prices in Perth and across WA have fallen on average 8 per cent since March, 2010, REIWA says the downturn is levelling out.”

“‘There was huge growth in holiday homes in the late 90s to the middle of the [first decade of the] 2000s,’ Mr Mellor said. ‘Low interest rates really encouraged that and baby boomers [gained] higher wealth status and decided to buy a holiday home.’”

“Tamara Treleaven was 16 and working part-time in a music store when she started saving for a house deposit. Now 28, she owns three investment properties worth $830,000, two of them jointly with her husband. She aims to be a property millionaire by the age of 30 and financially independent by 40, even though she works part-time at home helping administer her husband’s gym and as a paid mentor for young investors. ‘The whole idea is we’ve got time in the market, so we’re not planning on selling. The little ups and downs, the property cycles, don’t concern us because we have the long-term view,’ she said.”

“Financial adviser Daniel Brammall said he liked their approach in deciding to build wealth, but they were in danger of having no plan B if either became sick or jobless, if the property market plummeted or if negative gearing was banned. ‘Their plan A appears to be like Monopoly - the winner owns the most property. [But] very few lives run uninterrupted without a hiccup.”’

“Greg Hoy, reporter: Negative growth in Australian home values in recent years has seen hordes of Australians drawn to the American Dream - riding the strong Australian dollar into the US housing market, which in large areas has remained depressed since a huge housing bubble and glut of subprime properties helped trigger to global financial crisis. Jeremy Laws, investor: You can buy almost anything in a larger city, and you will not lose, and you will kill the returns you will get in Australia.”

“Hoy: Queensland policeman Alan Wilkie pinned his and wife Jillian’s retirement hopes, and $300,000, on assurances given by Jason Paris of US Properties. The Wilkies bought an LLC title to a foreclosed house and townhouse in Las Vegas, which never delivered the rental returns assured by Jason Paris, and can’t be resold for anything near the price paid. Wilkie: It looks like the retirement plans are shot to pieces. I will probably have to work until I’m 100.”

“Figures from the National Association of Realtors show that China has become the No 2 international investor in US properties in terms of buyers at 9 percent, after Canada’s 23 percent. International buyers prefer properties in metropolises such as New York, Los Angeles, San Francisco and Miami, brokers say. For instance, Brazilians tend to congregate in South Florida, while Chinese customers seek properties in the Bay Area.”

“New York City’s priciest borough is another favorite for Chinese buyers, says Kathy Tsao, chairwoman of the Asian Real Estate Association of America. ‘Many of my customers are purchasing properties because their children will be attending school in the city. Most of them are attending Ivy League schools on the East Coast. So a property in Manhattan is an ideal situation for them.’”

“Chinese buyers tend to prefer paying cash rather than taking out mortgages, says Hiroko Akutsu Lee, a New York broker. She once saw a Chinese customer buy a house on Long Island with $1.2 million in cash. ‘Twenty years ago, Japanese came to buy properties. But after the burst of the real estate bubble in Japan, their enthusiasm in properties subsided,’ Lee says.”

“The maximum debt service ratio that Canada Mortgage and Housing Corporation will insure is 44 per cent of gross monthly income. As long as you’re shopping for a home, not buying a house as a speculative investment, it’s always a good time to buy, said mortgage broker Chris Pughe. ‘Personally, I believe that the only way to create a net worth for yourself is to buy property,’ Pughe said. ‘If you’re thinking about it, you should certainly get off the couch and do it. As long as you love the place you’re in, even if the market goes down, as long as you can pay the monthly payments, you can stay there until the market comes back.’”

“Canada has been held up as a ‘miracle’ economy that escaped the worst of the GFC. But any Kiwi looking at its present performance will be reminded of NZ a few years ago when we had a mirage of booming housing and consumption. Canadian real estate has surged in sympathy with other markets and a regime of low interest rates. But a central driver is Canada Mortgage and Housing Corp.”

“It is a huge, crown corporation fully backed by the Government. Until 1999 it had quite tough requirements, including a 10% deposit. Since then it has insured mortgages without limit, without deposits, with amortization of 40 years and the possibility of paying interest only for the first ten years. In 2011 homes became ATM’s, and the average homeowner had only 34% equity in their home, a fall from 55% only 4 years ago. Canadians have pulled $220 bln out of their homes in revolving home equity lines of credit (HELOCs): on a per capita basis, this is about three times as much as the Americans borrowed at the peak of their boom.”

“Vancouver is being driven partly by massive buying from Chinese investors and residents. My guess is that Chinese buying is very significant on the margin, especially for expensive properties in western suburbs where the median price is C$2 million. Vancouver is the world’s second most unaffordable city (after Hong Kong). It’s median price in 2010 was C$602,000 which is 9.5 times the median household income of C$63,100.”

“A recent study by the Bank of Montreal found that 4 out of 10 borrowers stated they could not repay their loan if interest rates rose slightly. Canadian investment in residential investment is now just over 7% of GDP: every time in history when this level is reached there is a crash within 2-3 years.”

“After six years in a condo, Madison resident Jessica Ramirez Torres is ready for a bigger home, but the market isn’t cooperating. She tried to sell the renovated, 900-square-foot unit for more than eight months, at less than $100,000. Almost nobody showed any interest, and the one offer she did get was ‘way below’ what she was asking, she said. So Torres, 32, like a number of hard-pressed but determined home sellers tired of being stymied by the housing slump — at least in terms of desired price — pivoted over to Plan B and decided to become a temporary landlord.”

“For the next year or two, she will take advantage of a hot rental market to pay the mortgage, while moving back home to save more money for a down payment on the house she wants to buy with her boyfriend. She thinks it’s likely the housing market will be better then, and she’ll be able to sell her condo without taking a big financial hit. Even so, she said, the decision wasn’t easy to make. ‘We didn’t want to be landlords at all,’ she said.”

“By the time a foreclosed home goes on sale, it’s near the end of the process. But the Sarasota Association of Realtors reports that only 15% of March sales came from either foreclosures or short sales. So the increase in foreclosures that RealtyTrac reports – 36% more for March this year than March 2011 – seems to point to homes going into foreclosure for the first time. ‘From then on you have at least a year or more – sometimes up to six years before the properties can actually become available for sale,’ says real estate attorney Anne Weintraub.”

“So why are homes just now going into foreclosure, more than four years after the housing market began to crash? One reason: the robo-signing scandal slowed foreclosures way down, but did not stop them. ‘A pregnant pause, but unfortunately the baby’s coming,’ Weintraub says. ‘We are going to have a lot on the market, I’m sure.’”

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