March 18, 2016

A Little Bit More Desperation In The Air

It’s Friday desk clearing time for this blogger. “In an event touted as the first of its kind in the Bay Area, six luxury homes said to be worth more than $85 million total, four of which are in Marin, are up for auction. The Belvedere property has been on the market for a total of 223 days. The property in Tiburon has been on the market 91 days, and the property in San Rafael has been on the market 179 days total. ‘For a property to be on the market a year, either there are issues with the property or it’s grossly overpriced,’ said Marcus Robinson, an agent with Coldwell Banker. ‘The only reason luxury properties go up for auction is they have a problem selling on the Multiple Listing Service because, generally, they are overpriced. I feel that sophisticated buyers will only purchase a luxury property at an auction if they can get a screaming deal.’”

“The buyer who set a Downtown Manhattan record when he paid $50.9 million for the penthouse condominium unit at Walker Tower is lowering his resale expectations after unsuccessfully trying to flip the apartment for $70 million. Neil Moffitt, CEO of Hakkasan Group, a London-based hospitality firm, has now slashed $15 million, or 21.4 percent, off of the asking price, bringing it to $55 million. The unit had been on the market with its $70 million price tag for close to a year. Moffitt has reportedly never lived there.”

“The price cut comes amid a wave of discounts in the ultra luxury Manhattan market. More than 60 homes or the 550 or so of the Manhattan homes with asking prices of at least $10 million had their prices cut by at least 5 percent in the past 60 days, according to StreetEasy. This rise in price cuts can be largely attributed to an uptick in the levels of high-end inventory on the market.”

“It took four hours for Chinese developer Greenland’s three-bedroom plus study penthouse to sell for $11 million when its Potts Point luxury apartment development, Omnia, was launched in November last year. So it is somewhat surprising that Frasers Property Australia has taken eight years to sell its last tri-level penthouse at its 56-level Lumiere apartment tower in the Sydney CBD. The 54th-floor apartment was sold to a Chinese buyer, who already owned a apartment in the building, for about the same as its initial listing price in 2008, $5.5 million.”

“In 2008, the penthouse was only a ‘warm shell’ or a mostly empty space. When it was sold in February, it was fully fitted out. Sydney housing prices started to fall in November 2015 after three boom years. While it was not a big loss, the penthouse apartment sold at little profit as it was empty with no rental income for the last eight years, said selling agent Greencliff chairman Stanley Quek.”

“With the steadily rising number of competitors in the residential property market, apartment rental and occupancy rates look to be on the decline with an increasingly saturated market, according to real estate experts. Knight Frank Cambodia’s most recent analysis of the apartment sector stated that there is no imminent threat of oversupply while ‘occupancy and rental prices are sure to be impacted by the sudden rise in condominium units. A sudden increase in the volume of units that will become available for rent starting from 2016 could potentially see occupancies drop’ in the high-end and mid-range segments, the report stated.”

“Dit Channa, CEO of Lucky Real Estate, explained the current market dynamics. ‘Since the market is still small but the number [of competitors] is escalating, more investors are investing in higher quality and offering better services to their apartments by having a pool, proper parking spaces, gym, etc,’ he said, noting that several older apartments have already lost about 30 to 40 per cent of their tenants.”

“The tale of two Canadian cities seems to have been turned on its head, with the unemployment rate in Calgary surpassing that of Windsor, Ont. In Alberta, licensed insolvency trustee Freida Richer has been getting busier and busier as laid-off workers exhaust severance packages and employment insurance. ‘Last year, we started to see that uptick in the number of filings and certainly in the number of phone calls we’ve been getting,’ said Richer. ‘The tone of my discussions with people now certainly, year-to-date, is that there’s a little bit more desperation in the air and frustration because they’re running out of money and they’re ending up having to default on payments.’”

“Home prices in Beijing, Shanghai and Shenzhen have surged by 20-30% since the Lunar New Year in February, according to state-controlled media. In Shenzhen, prices have increased by more than 70% over the past 12 months. ‘The makings of this rally started more than a year ago and have reached a tipping point,’ says Steven McCord, head of research for JLL North China. ‘Policies are looser than at any time in history in the last ten years, including the major policy rollbacks of 2009.’”

“Previous upswings were not driven by leverage, McCord explains. The norm was that people did not finance the maximum allowable level. They financed, on average, half of the cost – even if 70% or 80% was allowed. Therefore, mortgages did not play a role in driving up demand or prices. ‘Now, we believe there are more buyers using the maximum available leverage,’ he says. ‘For homebuyers, it is easier than ever to get mortgages.’”

“But more important, McCord adds, the downpayment itself is today often being financed through peer-to-peer lending channels. ‘This is not the norm yet, but it’s appearing and it makes us uncomfortable,’ he says. ‘This means some buyers are buying with zero down.’ In his view, peer-to-peer lenders are basically another form of high-interest ‘loan shark.’ Hong Kong Economic Journals recently reported that some 900 peer-to-peer lending platforms went belly up last year, three times the number in 2014. While some bankruptcies were due to poor management, many companies folded after the owner or operator took the money and disappeared.”

“Over the past few months, China has seen another boom in the real estate market—housing prices in Beijing, Shanghai and Shenzhen spiked again, on top of an already-dangerous housing bubble. This circumstance, as well as the natural political comedy of the Communist Party’s ‘Two Meetings’ in Beijing, caught attention of joke writers and commentators on the Internet this week.”

“Jokes of the Week: China’s silver-tongued realtors. Yesterday I received a call from a real estate agent. He asked: ‘Do you want to buy a new apartment? The price keeps surging. If you don’t buy now, you won’t be able to ever get it at the same price!’ I replied: ‘Sorry, but I already bought one.’”

“After several seconds of silence, he responded: ‘Well then, do you want to sell your apartment? We are seeing super high housing prices right now. If you don’t sell now, you may not ever be able to get these prices.’ As the agent seemed to be such a diligent professional, I felt obliged to tell him the truth: ‘To be honest, I am just a poor man, having neither money to buy an apartment nor an apartment to sell.’”

“Another several more seconds of silence passed, and he spoke again: ‘Tomorrow there will be a kickstart sales event for some newly-built apartments. I can pay you 200 yuan if you queue overnight outside the sales building, pretending to be a buyer. Interested?’”

Bits Bucket for March 18, 2016

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