December 14, 2014

A Lot Of Profit Which Resulted In Unsold Stock

An international desk clearing post for the weekend, starting in California. “On a reality TV show about Bay Area real estate, he was Mr. Flip It. But now Todd Hill, of Los Gatos, stands accused in a lawsuit of defrauding his top investor of $6 million. The concerns stem from a civil lawsuit by Woodside developer Max Keech, who claims Hill defrauded him by siphoning off money meant to rehab old houses. Keech said they bought between 160 and 170 homes, many of which were foreclosed properties sold at sheriff’s sales. Hill, who still identifies himself on his Facebook page as an ‘actor and director,’ was one of the show’s stars. In its trailer, he’s seen on courthouse steps reaching out with a wad of bills. In another scene, he saunters up to a competing team looking at a house up for auction and says, ‘What are you doing here? You can’t afford this.’”

“In one shot, he seems to summarize the risks of house flipping in just a few words: ‘I don’t want to go broke.’”

“When George Brown went to sell his ninth floor condo in May, he expected to have a deal within 30 to 60 days. He finally sold it earlier this month. ‘I guess I’ve been in the business long enough to know sometimes things go and sometimes they don’t,’ he said. There was also an unusually high number of condos on the market, he said.”

“His case is an extreme example of the glut of homes on the market slowing sales, according to the ReMax Housing Market Outlook report. Larry Stewart, who is Brown’s agent and owner of the Saskatoon branch of ReMax, said the city ‘has serviced an amazing amount of land — almost too much, I think. There’s been a lot of profit in construction in the past five years.’ So much profit, in fact, that the roughly 200 small builders in the city have been putting up houses on spec, which has resulted in unsold stock.”

“Slashed prices on a large-scale apartment building project in Shenzhen by East Pacific Group, a leading developer in the city, are part of a growing trend to spur demand in China’s flagging realty market, according to Guangzhou’s Time Weekly. Prices for the project, one of the largest housing projects in the city in recent years, have dropped to 40,000 yuan/square meter (US$6,500)from the original 70,000 yuan/square meter (US$11,300). The reduced price is comparable to houses built 10 years ago in the neighborhood.”

“That a leading property developer and its chairman Huang Chubiao, long dubbed by Hong Kong media as the ‘Li Ka-shing of Shenzhen,’ would take such a step is a reflection of the market trend, said the report. Huang is again being picked apart by the news, under such names as the ‘realty king of Shenzhen’ for the huge amount of idle land the group owns in the city.”

“The construction industry has expressed fears over the Central Bank’s new loan-to-value and loan-to-income requirements. Strict new mortgage lending measures will play havoc with building at both ends - first by eliminating a huge tranche of buyers and second, by causing banks and private financiers to withdraw promised capital and finance for big schemes. First time buyers in Dublin will now have to save an average of €70,000 to buy a €350,000 home and most builders and their financiers believe this is too big an ask for young couples.”

“One source added: ‘In most cases, those schemes which have gone ahead have only just got funding by the skin of their teeth.’ The source said that if the measures went ahead ‘almost all’ multi-unit schemes currently being planned would be postponed or curtailed altogether.”

“As oil prices suffered more sickening blows this week, and iron ore and coal languish, only one force stands between Australia and a serious recession — Chinese investment in our residential property market. I’ve already looked at some of the local and global side effects of the oil slump, so today it’s appropriate to note that the Chinese boost to investment in real estate is a global phenomenon. Whether it be London, New York, Melbourne or Sydney, housing markets have never seen anything like the current rash of Chinese and Asian buying.”

“An enormous portion of the Chinese investment comes via new developments and the Chinese developers behind the big Sydney and Melbourne apartment projects appear to be working on an expected return of about half that required by their Australian counterparts. Accordingly, many Australian developers sell the land and approvals to the Chinese and let them go to the next stage. That’s why Chinese are dominating new developments, particularly in Melbourne where there is a high likelihood of major oversupply of one or and two bedroom apartments.”

“At the moment, some of the Chinese investors are planning a slowdown for the early months of 2015 but this will be temporary and they will be back with force. To put it simply, during the middle of the mining investment boom we did not need Chinese investment, but now we do.”

“Presented in snappy 12-to 15-minute segments, Ultra Rich Asian Girls puts a lens on Chelsea Jiang and three female contemporaries, as they swan about their adopted city. A recent episode saw them leave Vancouver for a sumptuous island cottage owned by one of the women’s family. The four women feasted on B.C. crab and argued over what to look for in a potential husband. Forget handsome but poor, declared Ms. Jiang. ‘Ugly rich guys can use their wealth to get plastic surgery and become handsome,’ she said. ‘Hot and rich.’”

“Politicians understand there’s an affordability crisis in Vancouver but most are loath to discuss the role of foreign capital, particularly from China. Ian Young, a reporter who is ethnically Chinese, moved to Vancouver five years ago, and writes frequently about the local housing market and the impact that mainland Chinese money has on the city. ‘It’s accepted, widely understood that mainland Chinese money is a driving force behind the Vancouver property market,’ says Mr. Young. ‘There’s a reluctance to discuss it’ outside of Chinese communities, he says, because people are afraid that if they do, they’ll be branded as ‘racist.’”

“The first time Chun Yang saw Tacoma, it reminded him of his hometown of Shanghai. Yang already has built a twin-tower hotel in his hometown. He wants Tacoma to be next. Congress approved the EB-5 program in 1990 to create jobs in America by encouraging foreign capital investment. Immigrants whose investment of $1 million leads to the creation of 10 direct full-time jobs can receive a permanent visa. At 10 jobs per investor, about 90 investors at the $500,000 level would be allowed. That would raise almost $45 million – about $11 million more than they’re required to have for the equity component, so it gives them a cushion. The calculations are about the same for the second phase of the project – the apartment/condo building – if Yang decides to build it after the hotel is done and financially stable.”

“The attractiveness of college outside China cannot be underestimated, said Michael Fowler of the World Trade Center Tacoma, and that’s where Tacoma shines. The hotel developer Yang’s son, Yiwen, will start attending UWT Tacoma in January. ‘There’s a very strong tie between academic pursuits and their children’ for foreign investors, Fowler said. College entrance exams in China are, in a word, hellish. ‘Rich kids are not necessarily the best test takers,’ he said. ‘Usually it’s the countryside folks who score highest on the tests because it’s their out. So coming to the U.S. is a good alternative for wealthy children and has good career opportunities as well. EB-5 is a way to get there.’”

Bits Bucket for December 14, 2014

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