November 30, 2015

Bits Bucket for November 30, 2015

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November 29, 2015

The Apogee Of The Market

A weekend topic on a housing bubble phenomenon coming to an end. The South China Morning Post. “The case of Xun Wang, a Vancouver-area consultant jailed for masterminding the biggest immigration fraud in Canadian history, is startling in scope. Wang, 46, who was sentenced on October 23 to seven years in prison, conducted his fraud on an almost industrial scale, as he helped rich Chinese clients maintain Canadian permanent-resident status and later obtain citizenship. Chinese passports both real and fake were shipped in bulk to the mainland, where professional forgers would doctor them to make it look like their owners had been present in Canada when they had actually been in China.”

“Wang would set up his clients in fake jobs at his firms, printing business cards for them and issuing pay slips - adding insult to injury, their fake salaries were so low his wealthy clients were able to file tax returns that allowed them to claim from Canadian coffers tax benefits intended for the working poor.”

“Yet the most significant aspect of Wang’s case is neither the scale of his operation, nor its sophistication and audacity. It is the motivation of his clients. Immigration fraud as the public typically understands it involves various schemes to allow unqualified people to live and work in Canada. Yet, bizarrely, Wang’s case involved clients willing to pay tens of thousands of dollars to AVOID living in Canada when they were perfectly entitled to do so, having already obtained permanent resident status.”

“Wang’s clients wanted to be able to maintain their PR status without actually living in the Great White North, since their jobs and businesses were back in China. And by faking their presence in Canada they would eventually be able to claim Canadian citizenship, with all the privileges it confers, including the right to live in Canada – eventually.”

“The concept is so common among some Chinese immigrant circles that there is a word for it: yiminjian, or ‘immigration jail’. The term refers to the period of compulsory Canadian residency (now, four years out of the previous six) which one must suffer before applying for citizenship. Think of a Canadian passport as the get-out-of-jail card. It needs to be emphasised that this mindset does not apply to all Chinese immigrants - only that subset for whom greater opportunities exist back in China (and only a subset of those). The problem isn’t about nationality or ethnicity - it’s about wealth and the commodification of immigration status.”

“A long-time Canadian immigration industry source with decades of involvement in Chinese immigration said ‘the biggest single category would clearly be the investor-class [husbands]‘. He was referring to the now-defunct Immigrant Investor Programme and the still-operational Quebec Immigrant Investor Programme. These schemes effectively put Canadian PR status up for sale, to anyone worth C$1.6 million and willing to hand over an C$800,000 ‘investment’, for a period of five years.”

“‘It illustrates the fact that many of these economic immigrants got their status through immigration fraud ab initio, from beginning to end,’ he said. ‘But this bigger fraud is not so easy to prove…it comes down to the question of intent. There are no documents [that can prove it]. But after 20 years of China being the main source of business immigrants, you’d think that the politicians would have noticed that the vast majority of these astronaut dads do not in fact reside in Canada. Most never had any intention of doing so. The goal is to get the wife and kids here.’”

“‘We’ve been relying on the dubious notion that an applicant’s net worth is one of the most reliable indicators when it comes to predicting the likelihood of a happy and successful transition to Canadian life. What does this say about us to people who are considering moving here?’ says Canada’s former ambassador to China, David Mulroney. ‘It certainly fails to give pride of place to the qualities and values that have always attracted people to Canada.’”

“The fallout from Wang’s fraud continues. Seven of his former employees have been charged; two are fugitives while five were due in court this month. As for the fate of Wang’s 1,200 clients, Judge Reg Harris ominously warned in sentencing: ‘I expect the immigration authorities will have to review the circumstances of all those concerned and it is quite likely that some persons will be removed from Canada.’”

The Cambridge News in the UK. “Nearly one in four of Cambridge’s ‘prime’ newly-built houses are being sold overseas. The new figures from property agents Savills have been branded ’shocking’ by the city council’s housing chief. The data for the housing market in Cambridge last year says international buyers account for 22 per cent of sales in the ‘prime’ secondhand market, and 24 per cent of ‘prime’ new builds. Other figures show the number of sales of homes worth more than £1 million has more than tripled in Cambridge over the past five years; nearly 30 per cent of buyers with Savills last year were investors, compared to just 9 per cent in 2012, and in the new-build market around 70 per cent of buyers in prime areas were investors in 2014.”

“This detailed data shows the extent to which government policies to promote home ownership as the only tenure worth having, whilst stopping us building social housing for affordable rents, is creating a vicious circle in Cambridge,’ said Cllr Kevin Price, the city council’s executive councillor for housing. ‘It’s shocking that 70 per cent of the new-build homes in some areas of the city are going to buy-to-let investors, and that almost a quarter of sales are now to overseas investors. We need the government to help us tackle this. Since investors’ pockets are deep it is not likely that this housing bubble will burst and prices fall, but that they will continue to compete and price residents out of the market.’”

SBS News in Australia. “Stricter penalties for violations of laws governing ownership of residential real estate by non-resident foreign nationals will come into effect on December 1. A period of reduced penalties for overseas owners who suspect they are in breach of Australian laws, and report themselves to the government, expires on November 30. Melbourne-based property expert Michael Yardney said uptake of the offer has not been substantial. He doubts whether this or other measures being implemented by the government will effectively address the problem of overseas investors trying to bypass Australian property rules.”

“‘It hasn’t worked up until now. The whole system hasn’t worked. There hasn’t been enforcement,’ he told SBS World News. ‘Sure, the penalties are going to deter some people, but there are still ways around it. Foreign investors are now getting local family members to buy properties in their own names - people who are Australian residents - or they’re getting other locals to become directors of the companies owned by foreign nationals.’”

The Australian Financial Review. “Australia will have its biggest-ever day of auctions on Saturday - just as signs emerge that prices have started falling in the key markets of Sydney and Melbourne. ‘That will be a record day nationally – the biggest day of auctions ever in Australia,’ Domain senior economist Andrew Wilson said. ‘This is the apogee of the market.’”

“The dream housing run that has driven prices up 15.6 per cent per cent in Sydney and 12.8 per cent in Melbourne over the past 12 months is coming to an end. Joanne Sparke, who is auctioning a four-bedroom house in Lindfield on Sydney’s upper north shore, is one of the 1100-odd owners selling on Saturday. Ms Sparke had little say over timing of the sale - her mother’s September death prompted Ms Sparke, her brother and sister to sell the family home of 54 years. But she wants to do it quickly.”

“Ms Sparke said the weekend’s strong market could work for or against the sale of her Highfield Road house, being marketed by North Shore-based Savills Cordeau Marshall Gordon at a price of $1.5 million upwards. ‘They’re saying the market’s dropping, but there’s not a lot we can do about it,’ she said.”

“Gowan Stubbings, a director of Melbourne real estate agency Kay & Burton, faces the busiest day of his 15-year career. Mr Stubbings said all his properties were likely to sell. ‘The only reason they won’t sell is if vendors have got caught up in the excitement of the market and want too much,’ he said.”

The Wall Street Journal. “Capping a five-year real-estate binge, Chinese nationals surpassed Canadian snowbirds as the top foreign buyers of U.S. homes for the year that ended in March—the most recent annual data—scooping up everything from $500,000 condos in New Jersey to $3 million vacation homes in California to $13 million Manhattan condos. But in recent weeks, some Chinese buyers have started to pull back, scared off by China’s stock-market selloff, slowing economic growth, currency devaluation and tightened restrictions on capital outflows. On Friday, China’s benchmark stock index fell by 5.5%, its biggest daily slide since August, as Beijing authorities stepped up a crackdown on the securities industry.”

“Karen Xu, a Shanghai resident looking to invest in U.S. real estate, decided this spring to seek a Miami one-bedroom condominium in the $500,000-to-$750,000 price range. China’s economic slowdown has since changed her mind. ‘I don’t think I’ll be investing in the U.S. right now,’ said Ms. Xu, who works at an investment consulting firm. ‘Maybe I’ll wait another five years, or invest in China.’”

“‘We are ready to embrace a winter for Chinese buyers in the next one year, two years,’ said Daniel Chang, a New York City-based broker at Sotheby’s International Realty. Mr. Chang, who sells properties in the $2 million-to-$10 million range, said about half of the clients served by his team are Chinese. Christina Shaw, a Realtor with Re/Max Fine Homes in Newport Beach, Calif., said one client who gave her a budget of $10 million to buy two houses in the area was now looking to reduce his budget by about one-third.”

“Interest from Chinese buyers ‘went dark’ for several weeks after stocks becan their sharp fall, said Tom Mitchell, president and chief operating officer of Tri Pointe Group, a home builder in Irvine, Calif. China’s main stock index, the Shanghai Composite Index, is down 38% since its June peak. Foreign Chinese buyers make up about 30% of customers in a handful of the company’s developments in Orange County and the San Francisco area. Price increases there, he said, have prompted clients to ‘pause and think.’”

“Home builders also could feel the effects. The chief executive of Walnut, Calif.-based Shea Homes, Bert Selva, told investors this month that the company has seen a ’significant slowdown’ in Chinese buyers in Orange County. ‘That buyer is really drying up. To be honest, I don’t think that’s a bad thing, because I think there was a lot of frenzy driven by that, pushing up prices a bit,’ he said.”

“Chinese residents began buying American homes in large numbers about five years ago, driven largely by growing wealth and a desire to safeguard savings against political instability, brokers and economists said. American homes looked like a bargain after the real-estate crash, drawing busloads of Chinese buyers to see properties in California and Manhattan. To many, it seemed ‘a gold mine everywhere,’ said Calvin Lo, a real-estate agent at Berkshire Hathaway HomeServices in Southern California.”

“Chinese individuals are limited to annual overseas investments equal to about $50,000. For years, Chinese have surpassed that limit, in part, by funneling money through relatives and employees. In recent months, the government has made it tougher to transfer money abroad, said real-estate brokers in both countries. ‘It’s like barbarians at the gate,’ said John Chang, a real-estate broker with Re/Max in New York City. Chinese families want to buy, he said, ‘but they just can’t get the money out.’”

Bits Bucket for November 29, 2015

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November 28, 2015

Bits Bucket for November 28, 2015

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November 27, 2015

Stuck In A Situation Of Their Own Making

It’s Friday desk clearing time for this blogger. “Developer Claudio Guincher is the head of Bellevue-based Continental Properties, which has been developing condos and apartments in the Puget Sound region for decades. Currently, the company is developing a 117-unit condo project, the Vik, in Ballard. At Vik, 88 units have sold over the last 18 months. Guincher said that’s not bad, but noted it doesn’t hold a candle to past sales volumes. Until now, sales have been ‘very tepid,’ said Guincher. ‘I still feel it’s a bit of a shallow market,’ he said.”

“Maryland had the highest foreclosure rate in the United States in October. A total of 5,126 properties in Maryland had a foreclosure in October, up 100 percent from September, said RealtyTrac. Maryland Association of Realtors president Bonnie Casper said that Maryland’s lengthy foreclosure process has an impact on the final figures. Maryland lags behind other states in dispatching foreclosures because the properties were so slowly processed through the courts, she said.”

“Casper said the good news is that home values have gone up, resulting in fewer short sales and foreclosures. But in some areas of the state foreclosures are still a problem. ‘There are a sprinkling of foreclosures in areas you wouldn’t expect,’ she said. Nancy Allen, president of the Pen-Mar Association of Realtors in Washington County, said to help homeowners alleviate bank repossessions, the business climate in the county needs to change. ‘We need to encourage businesses with higher paying jobs to locate to Washington County and offer incentives for those businesses to locate here over neighboring states,’ she said. ‘That is our solution in a nutshell.’”

“In February, we told you the city of West Palm Beach owns dozens of vacant lots and abandoned and boarded up houses with an assessed value of about $25 million dollars. We’ve learned the city of West Palm Beach is preparing a new plan to dispose of some of them. ‘What we really want to do is dispose of them. The city doesn’t want to be in the business of property management,’ said Armando Fana, director of the West Palm Beach Dept. of Housing and Community Development.”

“Fana says for the first time the city of West Palm Beach will literally give away some of these places to non-profit groups like Habitat for Humanity or the Lord’s Place, that will be required to put a house there within a set period of time. Some lots or abandoned houses will be sold to people who want to build their own house, or investors. Most empy lots will go for $5000 to $10,000. Some have thousands of dollars of liens on them that will have to be paid first. ‘Why do you think this is realistic, why would someone take one of these lots if they have to pay a huge lien?’ we asked Fana ‘Well, the ones that have liens, I think it is gonna be a real challenge. The city may have to look at other alternatives such as paying off part of the liens,’ Fana said.”

“It’s getting easier to find an apartment in Minot these days amid a slowdown in the oil industry. The city’s vacancy rate has risen from 4.9 percent in April to 10.8 percent in October, according to the Magic City Apartment Association. Magic City Apartment Association VP Justin Hammer said numerous units are coming into the market at the same time as a downturn in the oil industry. ‘That, obviously, takes time to absorb,’ he told the Minot Daily News.”

“Some property companies are even offering special deals to attract renters, like free rent for a month or free TVs. ‘It’s forcing us to focus on our customer service,’ Hammer said.”

“Canadians used to buy Arizona homes in record numbers, but not any more. Home sales to Canadians are down 50 percent this year. Valley real estate expert Diane Brennan, who is from Canada, said that many Canadians who currently own property have decided to sell and cash in on the exchange rate. Another problem is the price of oil. ‘Alberta is an oil-rich province in Canada,’ said Valley Realtor Laurie Lavine. ‘We’ve had many Albertans buying property, but that is when oil was $100 -$90 a barrel, but with it being at $40 right now, it’s meant a lot of layoffs and job uncertainty. People are holding off on making major purchases.’”

“Canadians households have become so financially stretched and hooked on debt to get by that, in just the past year, more than a third of us have found ourselves covering expenses by running up credit lines or credit cards, or even selling off investments and hitting up family members for much-needed cash. That’s according to a new Manulife Bank survey, which also found that 14 per cent of those already stuck in a hole of debt have had to turn to more desperate measures in the past year — liquidating portions of their RRSPs or turning to high-interest payday lenders.”

“‘It does appear there are a lot of people living on the edge,’ said Rick Lunny, chief executive of Manulife Bank. The blame, he said, appears in part to belong to the high price of houses in Canada’s major markets, which is causing mortgage payments to take up an ever-larger piece of family income. And with the possibility of interest rate hikes, after years of historically cheap borrowing costs, there may soon be more people having to resort to more desperate measures. ‘It is concerning,’ Lunny said.”

“Sydney houses now cost 12 times the annual income, up from four times when Gough Whitlam was dismissed. As many first time buyers turn to the bank of mum and dad to top up their deposits, a new report ‘Parental guidance not recommended’ warns Australians are being caught up in a classic ‘Ponzi scheme.’ ‘In reality, many parents – the Baby Boomer cohort – are asset-rich but income-poor. The blunt fact is few parents have enough savings and other liquid assets on hand to meet their legal obligations without selling their home if their children default,’ the LF Economics report warns.”

“Sales of land for residential use in 40 major cities in China rose to 37.8 billion yuan last week, up 157 percent from the previous week, according to China Index Academy, a property research organization. Meanwhile, there remains great pressure to destock. China’s unsold homes hit a record 686.3 million square meters at the end of October, up 17.8 percent from a year earlier, official figures show. In first-tier cities, for every new home sold in October, there were nine unsold homes, and the ratio went up to 12.2 and 18.9 for second- and third-tier cities respectively, according to E-house China R&D Institute. ‘The oversupply in real estate is a structural problem, with most inventories built up in lower-tier cities,’ said Huang Bin, an analyst with property research center CRIC.”

“‘Right now the dialogue in the market is that China is the source of all of our problems and is harmful to your portfolio,’ says Mark Headley, chairman of the board of directors at Matthews Asia, a San Francisco-based Asia fund manager with around $23 billion in assets under management. ‘If you believe that, you’re not going to invest in China. And many people believe. It’s been steady outflow for our mutual funds for years now,’ Headley told FORBES. ‘There are a lot of problems in China…and it’s freaking people out.’”

“Here’s the latest fun house mirror trick being employed by some of the 22 provinces. Hurting for revenue on account off the economic slowdown, they are asking developers buy land now or it ‘won’t be available later.’ In short, they are selling land reserves to construction companies because they need cash, even though developers aren’t in any hurry to build.”

“Craig Botham, an emerging markets economist with Schroders in London, was in mainland China in late October, visiting private and state-owned factories, and talking with governments and investors. He says some of the local governments, hurting for money as local industry sales recoil, are forcing a now or never policy on developers in a sort of get-rich quick scheme that’s bound to backfire. ‘It’s at a point now where the state-owned enterprises are paying workers who aren’t doing anything,’ he says. ‘You go into the factories of some of these SOEs and nothing is going on. Others are producing more than they need.’”

“A wonkish TV show on Israel’s economy has struck a nerve. About one in eight Israelis tuned in to the three-part Silver Platter program, testimony to the depth of the discontent with the economy. The show’s main focus — the evils of concentrating too much financial power in a small number of hands — is a theme Israelis can warm to. What the show’s creators want to do is rekindle the activism that sent hundreds of thousands of Israelis into the streets in the summer of 2011, pressuring the government to bring down prices.”

“Omer Moav, an economics professor at the Interdisciplinary Center Herzliya near Tel Aviv, said the program was riddled with inaccuracies, including its suggestion that low interest rates were solely to blame for the surge in housing prices. ‘People are unhappy for good reasons, we have a government that basically does nothing,’ Moav said. ‘But blaming the housing bubble on the central bank is just not sound economics.’”

“There’s a lot of ‘Oh, snap’ and high-fiving on the internet about Janet Yellen’s comeback to Ralph Nader this week. Let’s remember here that Nader, whom I’ve encountered flying coach and eating a cold sandwich, has dedicated his life to defending ordinary consumers. Let’s also remember that Janet Yellen is in charge of an incredibly powerful, secretive government institution that used public money to protect super-wealthy U.S. bankers seven years ago while millions of Americans were ruined or beggared by the reckless pump-and-dump schemes Wall Street had been running.”

“What is important, and largely not discussed, is the point Nader was making: that ultra-low interest rates have hurt retirees and savers, not just in America, but in every Western nation that used cheap money to grease the financial system when it was about to seize up. Still, you’d think that it’s probably time, this many years after the frantic, frightening autumn of 2008, to consider whether the wealth transfer experiment should continue.”

“Especially, as Nader wrote so caustically, when banks, which borrow from the Fed for almost nothing, proceed to gouge U.S. students, who carry debt of $1.3 trillion, with rates of between six and nine per cent. Or when certain credit card companies and payday loan outfits effectively charge loan shark-level vig. But Yellen, and Bank of Canada governor Stephen Poloz, may now be stuck in a situation of their own making. Canadian and American consumers are now addicted to cheap money. A serious rise, a point or two, could puncture housing markets, especially in some Canadian cities, where low interest rates helped push prices into the ionosphere and beyond.”

“Hundreds of thousands of Canadian households are stretched, some so thin they’d be unable to cope with a rise of one per cent, let alone a return to normal levels. Stock markets, too, have floated upward on all that cheap money. There isn’t much doubt how they’d react to a spike in rates.”

Bits Bucket for November 27, 2015

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November 26, 2015

A Merry Christmas Made Possible By Federal Officials

A holiday theme, with a re-post of this article for context to the second: National Real Estate Investor, “Lenders will keep pouring money into apartment properties over the next two years, originating about the same volume of loans in 2016 and 2017—with slight increases—that they are likely to close in 2015, according to the latest Commercial/Multifamily Real Estate Finance Forecast from the Mortgage Bankers Association (MBA), an industry trade group. That’s still going to be a big change from the last few years, when business of lending on multifamily real estate didn’t just grow a little, but instead grew incredibly quickly. So far in 2015, lenders have increased the volume of apartment loans they made by well over 10 percent compared to the year before. In 2016, experts expect more moderate growth, with less frenetic competition to make deals.”

“Lenders will likely originate a total of $224 billion in permanent loans to multifamily properties in 2015, according to MBA. That’s a 15 percent increase from the $195 billion they lent in 2014, which in turn marked a 13 percent increase from $173 billion in multifamily originations in 2013. That year marked an 18 percent increase in originations from 2012. Lending volume can’t grow like that forever. The growth this year already caught most experts by surprise. ‘The volume in 2015 is higher than most people anticipated,’ says Jamie Woodwell, vice president for the research and economics group at MBA.”

“The Federal Reserve was expected to raise its benchmark interest rates earlier this year. Instead, federal officials continue to postpone raising rates. Their next chance will be in December. In the meantime, low interest rates support high property values, encourage potential investors to buy more assets and existing property owners to refinance. All these factors increase demand for financing. And lenders continue to be eager to lend on apartment properties.”

“The lenders growing the fastest in 2015 include banks and agency lenders, who make loans to apartment properties based on the programs set by Fannie Mae and Freddie Mac. They increased the amount of mortgage debt they have outstanding to commercial and apartment properties by $15 billion in the second quarter of 2015. Giant loans on large portfolios of apartment properties account for much of the growth. The federal officials who effectively govern Fannie Mae and Freddie Mac also made this growth possible. Halfway through the year, they tinkered with the limits on how much the agencies can lend, so that many loans to affordable and workforce housing properties don’t count towards the agencies’ caps on lending.”

“Lenders will keep busy over the next two years, keeping their volume of apartment lending at about the same level they maintain today. Lenders are expected to originate $225 billion in permanent loans on apartment properties in 2016, roughly the same as in 2015. They are expected to originate $227 billion in 2017, a tiny increase. Over the long term, the volume of loans lenders make should continue to gradually grow. ‘There is natural growth in the system,’ says Woodwell. ‘Over the long term, one does see property values increasing.’”

The Idaho Statesman. “Beth Stapleton, a single mother to her son, Carter, 2, is scrambling to find a new apartment after receiving notice to vacate Westwood Apartments. The new owner is kicking everybody out in order to renovate and increasing rent rates. She thinks there’s $150 to retrieve from a retirement fund. There might be a couple of hundred more in a health insurance flex account as part of the benefits she receives from her employer, Fred Meyer. Stapleton is more worried that she won’t find another apartment by Dec. 10, the deadline given by Verity Property Management for tenants to move out of the 43-unit Westwood Apartments.”

“In a letter sent with the 30-day notices to vacate, Verity President J. Steven Fender said the new owner of the apartments — Preece Lane LLC, according to state filings — plans to renovate the complex. Stapleton said she was told the rent for her unit will increase from $595 per month to $900. ‘I appreciate that the timing is poor with the holidays coming up but the new owner is being compelled by the lender to proceed with the refurbishing of all the units as quickly as possible.’ - Letter to tenants from Verity President J. Steven Fender.”

“The Westwood situation resembles that of Glenbrook Apartments, located near the intersection of Cassia Street and Curtis Road. There, new owners Mark and Caran Daly of Eagle bought the complex as an investment. They planned to renovate and increase rent rates by more than 40 percent. Their decision forced nearly 400 tenants, most of whom were refugees, to scramble for housing. The property manager — Verity — issued 30-day notices to vacate to tenants of the complex’s 112 units. Most if not all requests for concessions to help tenants find new housing were denied, advocacy groups told the Statesman. Requests included extending the move-out deadline, returning deposits early or waiving deposit reductions for damage that would be replaced during renovation.”

“Preece Lane LLC bought the Westwood complex for an undisclosed price in August. The registered agent, Fender, filed to create a limited liability corporation. The filing with the Idaho secretary of state lists Steven Jackson and Cristine Clark, both real estate agents with Realty Executives in Vista, Calif., as members or managers of the company. Calls to Jackson, Clark and Verity were not returned. Verity has not staffed the Westwood office since the 30-day notices were delivered.”

“Bruce Ferrin, 59 has lived at Westwood for five years, including the last four with partner Nancy Summers, 62. Ferrin, who is disabled from a foot injury, lives on disability payments. Ferrin, who takes oxygen and suffers from respiratory problems, lives on Social Security. Ferrin said they must wait for payments before applying for apartments, tightening their window to find a rental by Dec. 10. ‘We’re trying to find a place before we’re kicked out,’ he said. ‘We took down the Christmas tree. Merry Christmas.’”

Bits Bucket for November 26, 2015

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November 25, 2015

Some Figure Prices May Be Nearing Their Peak

A report from Bisnow. “The other real estate sectors may have picked up this year in North Texas, but, make no mistake, multifamily was still the darling of commercial real estate for 2015. Many deals are seeing several types of buyers competing for the same assets, and private investors and midsized companies are stepping up into bigger deals with the money they’ve made over the last few years. They’re taking that equity, buying bigger deals, upgrading their portfolios and taking advantage of the economies of scale, says Marcus & Millichap national multi-housing group senior director Al Silva. NOI growth has contributed more to appreciation in this market (especially Class-B and C space) than low rates have. Al’s marketing Villa Bonita, a Class-C apartment complex in Dallas. Between 2012 and 2015, that property went from an NOI of $530k/year to $900k/year, a 67% increase.”

“Al tells us there are still real value-add opportunities out there, they’re just harder to find. The market is not overpriced across the board, he says; just don’t expect the same frenzied growth forever. No one is building any new B and C apartments, and the rent growth is sustained across DFW, Al says. Just a couple of years ago, not everyone was convinced that major rent growth was sustainable here; now, everyone knows it and that has helped drive down cap rates. As a result, DFW is beginning to look more like gateway and coastal markets with investors expecting appreciation and rent growth.”

The Dallas Morning News in Texas. “The number of homes for sale in North Texas has inched up for the first time in more than two years. Agents sold 8,138 single-family homes in October in the more than two dozen counties included in the North Texas numbers. In October, 20,254 preowned single-family homes were listed for sale with real estate agents, according to data from the Real Estate Center at Texas A&M University and the North Texas Real Estate Information Systems.”

“Dr. James Gaines, chief economist with the Real Estate Center, said homeowners who are having houses built might also be putting their current homes on the market. ‘Some figure that prices may be nearing their peak and want to cash out,’ he said.”

The Daily Journal of Commerce in Washington. “Seattle’s rental market seems to be softening a bit as all those new units under construction start to have an impact. Billy Pettit, senior VP at Pillar Properties, said he’s seeing signs that demand is slowing down. Market analysts are still reporting 95 to 97 percent occupancy rates for Seattle properties, he said, ‘but when we call (the properties) they’re more like 92 to 94 percent on the high end.’

“Pettit was part of a panel discussing multifamily trends in the Puget Sound area. ‘The next 12 months will be really telling,’ said fellow panelist Chris Rossman, VP at Wolff Co. ‘We’ll see how deep demand really is.’”

“Panelists said there’s one product we won’t see much of anytime soon from local developers: condos. Claudio Guincher, president of Continental Properties, said he’s sold 88 of the 117 condos in Vik, a complex in Ballard that will be done in January. Guincher said he chose to do condos because Ballard was ‘awash with apartments.’ The units have been selling for $550 a foot, he said, and demand has been shallow. ‘Young workers don’t want to get bogged down with a condo if they switch jobs,’ Guincher said.”

Vegas Inc. in Nevada. “Las Vegas builders sold the fewest homes and pulled the fewest permits in months in October, a new report shows. And while business this year remains above 2014 levels, one analyst doesn’t expect ‘any notable improvement’ in demand next year. Builders also pulled 556 new-home permits last month, a ‘disappointing’ sum and the lowest monthly tally since January, Home Builders Research founder Dennis Smith wrote.”

“Smith noted that Las Vegas’ housing market faces a number of roadblocks, including stagnant incomes and high rates of underwater homeowners. These and other issues ’seem to be hanging around like an unwanted house guest,’ Smith wrote.”

The Wall Street Journal. “The prolonged slump in crude prices is rippling beyond the oil industry into areas of the North American economy that, until recently, had managed to avoid the worst of the downturn. Signs of that distress are spreading throughout once-booming oil-producing regions across North America. Sales of single-family homes in Houston fell 10% on the year in October, the first double-digit decline this year, according to the local association of real-estate agents. Restaurants in Texas and the Southwest have experienced a drop in revenue and customer traffic, industry tracker Black Box Intelligence said in a recent report.”

“The slowdown is being felt acutely by towns in western North Dakota, the heart of the Bakken formation. Newly built apartment complexes and hotels in the regional hub of Williston stand half-empty, victims of disappearing oil field work crews. Williston rents have fallen by half from their peak in 2013, according to a survey by a local apartment management association.”

“John Sessions, who co-owns a real-estate developer called Bakken Housing Co., said his Eagle Crest multifamily apartment complex in Williston opened in February, but is still at 65% capacity. ‘Two years ago, it’d have been full up in two months,’ he said. ‘Back then, you could write a business plan with premium rents more akin to Seattle or parts of New York City due to the dearth of housing and seemingly endless flow of inbound potential employees in the oil patch.’”

KGW Portland in Oregon. “The stars of an HGTV show are coming to Oregon next week, but they’re not coming to film. They will be here for a seminar to teach people how to flip houses for a big profit. Tarek and Christina El Moussa, of the show Flip or Flop, remodel run-down homes in California, and sell them for big profits. Their traveling seminar has been advertising on Facebook and Instagram saying you can ‘…learn how to flip houses in the Portland area for a profit without using your own funds.’”

“Scrolling through the hundreds of comments on a sponsored Instagram post, most go like this: ‘Stay out of Portland!! You’re preying on low income families and marketing to out of state buyers that are pushing locals out. You are not welcome!!’”

“There are six stops for this seminar from November 30 through December 5. It will make stops in Eugene, Salem, Portland, Vancouver and Longview. Some people on social media promise to picket the locations.”

Bits Bucket for November 25, 2015

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November 24, 2015

Entering The Ponzi Stage

A report from Business Insider. “Quietly, over the last three months, Sotheby’s auction house has seen its stock lose one-quarter of its value. This is, in large part, due to its high-end clients. Something is about to happen to them. The polite way to say it is that — as Sotheby’s CEO Tad Smith put it earlier this month — they are about to get more ‘discerning.’ The frank way to say it is that they’re about to get walloped by this year’s choppy markets.Yes, we’re seeing record-breaking sales for some items, but if you look below that tier the picture isn’t so great. ‘The Modigliani sold last week for $170 million, but we’re seeing second-tier artists and second-tier works by the best artists starting to slide down in price,’ billionaire hedge fund manager and art collector Ken Griffin said in a CNBC interview.”

“For years, some have said that we are in the midst of an asset bubble spurred on by the Federal Reserve’s low-interest-rate policy. ‘When you keep the price of money at zero, all sorts of silly things start to happen,’ said Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management at a Bloomberg conference.”

The Press and Journal in Scotland. “The number of homes sold in the Aberdeen area has fallen in the last six months due to the effects of the oil price crash, new figures have show. A report by property firm Savills shows that the number of house sales in the Aberdeen area fell by 23%, while homes selling above the £400,000 mark dropped 44% between May to September 2015, based on the prior year. In the third quarter of the year compared to the same period the year before, homes over £400,000 saw their values drop 9%.”

“Faisal Choudhry, Savills’ head of residential research Scotland, said this had to be taken in context of the stellar rise in residential values in recent years. ‘Looking at the ten year average for the overall residential market, values are 24% higher in Aberdeen and 19% higher in Aberdeenshire, compared to 11% for Scotland as a whole,’ he said. The property group said it expects ‘further adjustment’ next year as the oil price is expected to remain subdued.”

The National Post in Canada. “The slumping oilpatch in Alberta continues to take its toll on the Fort McMurray housing market, as the average MLS sale price of a home in that northern community plunged by more than $117,000 in October. Data obtained from the Canadian Real Estate Association indicates that the average sale price for the month of $468,199 was down 20 per cent from $585,438 in October 2014. Sales also plunged by 41 per cent to 85 from 144 a year ago.”

“Doug Porter, chief economist with BMO Capital Markets, said there are many — mostly oil-driven — cities that have softened markedly. ‘The renewed sag in oil in recent months looks to have triggered a renewed weakening in housing markets across much of Alberta and Saskatchewan. Six of the 25 major markets reported double-digit declines in sales last month, and four of those were in these two provinces,’ he said.”

AFP on Brazil. “Brazilian Monica de Oliveira thought she’d forever left behind those days of worrying about getting her daughter new clothes. Biting recession in the world’s seventh biggest economy is starting to undermine the country’s widely lauded progress in dragging some 40 million people out of poverty, starting in 2003. De Oliveira knows what it’s like to be one of them and now she’s afraid her family is sliding back. She and her husband had a combined monthly salary of about $500 working as security guards in Caieiras, near Sao Paulo, and both have been laid off.”

“One by one their little luxuries have disappeared. Family outings on the weekend are over, the dream of a new car and bigger house is on hold. Even interest payments on debts are no longer feasible. She’s far from alone. ‘Soon there will be no new clothes for my daughters. We won’t go to the circus, we won’t go out to McDonalds,’ de Oliveira, 36, said. ‘I wanted to pay for them to study, to give them a better life.’”

From Perth Now in Australia. “Perth rental vacancies have risen 64 per cent in 12 months, according to a report. Property analysts SQM Research said the figure was based on a total of 7507 vacancies in October this year compared to 4567 vacancies at the same time last year. Asking rents were also down 6.4 per cent for houses and 8.4 per cent for units in the past 12 months, the company found. Perth is second behind Darwin for a challenged rental market, with their vacancy rate rising 75 per cent in the 12 months and their asking rents falling 20.5 per cent.”

“‘Clearly, vacancies have been soaring in Perth and Darwin, while our east coast capital cities have generally been stable,’ the SQM report found. ‘This is just one indicator on how the mining downturn has effected the economy. Clearly, not everywhere has been effected, but those cities and townships that do have exposure have been hit hard.’”

The South China Morning Post on Hong Kong. “Hong Kong’s home rents fell 1.8 per cent month on month in October, the biggest monthly decline in four years, a private study shows. The worst performer was City One Sha Tin, where average rents fell of 4.5 per cent month on month to HK$36.20 per square foot. ‘It is the biggest monthly decline in four years,’ said Wong Leung-sing, head of research at Centaline Property Agency, citing an increase in supply as a reason.”

“Rents have also been softening in popular housing estates such as Taikoo Shing. ‘The average rent once hit more than HK$42 per square foot when the market peaked in the second quarter, now it’s down to the HK$39.60 level,’ said Kenneth Chiu, sales manager at Centaline’s Taikoo Shing branch. ‘The average rent a few months ago was HK$26,000 a month. Now you can rent one at between HK$23,000 and HK$24,000.’”

From Bloomberg on China. “Chinese borrowers are taking on record amounts of debt to repay interest on their existing obligations. The amount of loans, bonds and shadow finance arranged to cover interest payments will probably rise 5 percent this year to a record 7.6 trillion yuan ($1.2 trillion), according to Beijing-based Hua Chuang Securities Co. Dubbed ‘Ponzi finance’ by Hyman Minsky, the use of borrowed funds to repay interest was seen by the late U.S. economist as an unsustainable form of credit growth that could precipitate financial crises.”

“‘Some Chinese firms have entered the Ponzi stage because return on investment has come down very fast,’ said Shi Lei, the Beijing-based head of fixed-income research at Ping An Securities Co., a unit of the nation’s second biggest insurance company. ‘As a result, leverage will be rising and zombie companies increasing.’”

“China Shanshui Cement Group Ltd. became the latest company to default on yuan-denominated domestic notes last week as overcapacity in the industry hurt profits and a shareholder dispute stymied financing. State-owned steelmaker Sinosteel Co., which pushed back an interest payment on a bond last month, postponed it again this week.”

“The amount of bad debt among Chinese banks rose 10 percent in the third quarter from the previous three months to 1.2 trillion yuan, about the size of New Zealand’s economy. Total debt at listed companies has climbed to 141 percent of common equity, based on a market-capitalization weighted average, the highest level in three years. Defaults will probably keep rising as profits fail to keep up with interest expenses at some Chinese borrowers, according to Zhou Hao, a senior economist at Commerzbank AG in Singapore. ‘We will see more defaults and rising bad loans in the financial system,’ Zhou said.”

Bits Bucket for November 24, 2015

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