March 17, 2015

Many Investors Are Shocked At What Happened

Some housing bubble news from around the world. The New York Daily News, “Sellers of some of the city’s most expensive properties are dramatically slashing prices, even as developers keep trying to push the boundaries of the luxury market with pie-in-the-sky price tags of up to $175 million. ‘Million Dollar Listing New York’ star Fredrik Eklund and business partner John Gomes of Douglas Elliman are cutting the price on their ritziest listing — the stunning 7,061-square-foot penthouse at 11 N. Moore St. in Tribeca — by more than 25%. Initially, they were seeking $40 million. Now it can be yours for $29.95 million. ‘We made a decision to get real and sell it,’ Eklund said of his listing.”

“He and Gomes aren’t the only ones axing prices. The owner of the penthouse at the storied Pierre Hotel on the Upper East Side has cut the listing price on the unit by almost half, to $63 million. It’s not that these apartments aren’t top-notch — it’s simply that they’re overpriced. But those with boots on the ground, and listings currently on the market, say things are getting out of control.”

“‘It’s starting to get to the point where it’s nauseating to people. It’s like, ‘Why don’t you just put a number like $250 million on it if you’re going to be ridiculous?’ The numbers are meaningless,’ said Andrew Gerringer of the Marketing Directors, a new-development sales firm. ‘Unless your country is physically crumbling and you need to get your money out, or you’re getting ready to go to jail, I can’t think why you would put $175 million down for anything.’”

The Edmonton Journal in Canada. “With oil hovering around $50 US a barrel, the bounce is suddenly missing from Fort McMurray’s step. Housing prices are down, and the vacancy rate for rentals is way up. That would cause angst almost anywhere other than Fort McMurray, where fortunes rise and fall with the price of oil. ‘I know this almost sounds a little arrogant, but we have definitely been there and done that,’ Colin Hartigan, director of the local realtors association, says. ‘I think it’s not a question of if it will recover, but when. Is it three months, six months, or a year? That’s what people are concerned about.’”

“Thousands of contract workers in the oilpatch have been laid off, causing the vacancy rate for apartments to soar to 11.8 per cent, and the average cost of a single-family home to drop by $100,000 to $676,162. ‘We are seeing a bit of a decline, but you have to be cautious what you read into that,’ Hartigan says.”

Reuters on Australia. “Across the country, people like are falling victim to downsizing. Jobs, once plentiful and well paid, are scarce. Real estate prices in boom towns are sinking. Prices of iron ore and coal, the country’s two biggest export earners, have plunged during the last two years amid falling demand from China, in the wake of its economic slowdown. ‘For Lease’ signs are everywhere in West Perth, the headquarters of many mining, oil and gas companies.”

“The real estate market has also been hit in the coal country of Queensland, across the continent. ‘Owner will throw in a brand new car,’ read advertisements for houses in the coal-mining town of Moranbah. Such ploys were unheard of two years ago, when investors were snapping up property. But the bottom has fallen out of the Moranbah real estate market after coal prices slumped.”

“‘If you bought a property for $1 million, you’d be lucky to have it valued at $400,000,’ said John Wood of Moranbah Real Estate. ‘People are walking away.’” on Australia. “Driven by rocketing demand from Asia, coal and iron-ore insulated the country from the worst of the GFC, and temporarily turned Australia into the world’s largest exporter of coal. By 2012, oversupply of the commodity, coupled with Chinese efforts to diminish dependence on the most polluting of all fossil fuels saw coal prices start to head south.”

“Dysart made headlines in 2011 when the Real Estate Institute of Queensland reported it had the most expensive medium rent in the state at $1,200 per dwelling per week. But the market hit hard times in 2012. When another 240 jobs were cut at nearby Saraji coal mine last September, the market all but collapsed. Today, asking prices for three-bedroom homes in Dysart start at $150 a week.”

“Things aren’t much better in Moranbah, the basin’s largest mining town. Three years ago, old weatherboard homes in Moranbah fetched rents as high as $2,000 a week, their driveways flush with speedboats, race cars, dirt bikes and Harley Davidsons. Today many of those trophies of success and excess are parked on the nature strip on Moranbah’s main street — with telltale for-sale signs sticky taped to their windscreens. ‘In 2011 more than 200 properties changed hands in this town,’ says principal of AH Realty, Annemarie Haywood. ‘People were paying up to $1 million for houses that didn’t even have grass in the backyard. Now those investors are desperate to sell before the bank takes their properties. We have mortgagee sales every second week in Moranbah.’”

The New York Times on China. “As the real estate market in the United States was collapsing in the mid-2000s, Wall Street went in search of new terrain, and found it in China. All across the country, from Beijing to Shenzhen, sprawling housing developments and business districts were popping up, seemingly overnight. Real estate prices were soaring. Western banks, hedge funds, private equity firms and other investors wanted a piece of the action.”

“One of those firms, Credit Suisse, scoured the landscape and in 2007 discovered Kaisa, a relatively small property developer in Shenzhen. Then came the fall. The real estate market slumped, dragging down the rest of the Chinese economy. Developers, in particular, were under pressure, as foreign investment dried up. And in this market tumult, reports surfaced late last year that Kaisa’s chairman was being questioned in a corruption case. With little explanation, in December, Shenzhen authorities blocked Kaisa from selling homes at several major residential developments.”

“Kaisa is now pushing such bondholders to accept roughly 50 percent of the value of their holdings, or risk getting pennies on the dollar if the company goes bankrupt. ‘Many investors are shocked at what happened,’ says Neil McDonald, a lawyer in Hong Kong for Kirkland & Ellis, which is advising some of Kaisa’s bondholders. ‘It’s troubling that in a market as sophisticated as this, no one knew what was going on.’”

“Adding to the worries, Kaisa announced in February that its debt was valued at $10.4 billion, twice earlier projections. Several analysts said that it appeared the company had been borrowing through off-the-books affiliates, perhaps making its balance sheet look stronger than it was. ‘A lot of these Chinese developers are leveraged to the teeth,’ says Anne Stevenson-Yang, an analyst at J Capital Research.”

WHDH in Massachusetts. “A Mendon man appeared in Milford District Court after police responded to a fire and found him in a van with a suspicious device on his chest. David Cheschi was accused of prompting a bomb scare and keeping firefighters away from his burning Mendon home. Prosecutors charged David Cheschi with keeping firefighters away from the burning house. Police said he may have been facing foreclosure. They feared he set the fire and booby trapped the home.”

“Police and neighbors said Cheschi had mental health issues and feared losing his home. ‘He didn’t take care of it much because things that were going on, but I don’t think he wanted to give it away,’ said Megan Shaw.”

Bits Bucket for March 17, 2015

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