April 20, 2016

Investors Remained Caught In Property Euphoria

The Wall Street Journal reports on the UK. “A major U.K. landlord warned Tuesday that the boom in global real estate is coming to an end. London-based Grosvenor Group said in its annual report that years of rising property values could be set to reverse. Grosvenor is continuing to ‘expect and plan for a slowdown, particularly in high-end commercial and residential property,’ Mr. Scarles said. Other historic landlords in Britain have also been preparing for a downturn.”

“In addition to high property values, ‘there is a risk that sustained low oil prices could lead to sovereign-wealth funds reducing investment in high-end commercial and residential property in London and elsewhere,’ he said. ‘All of this points to a correction in the near future,’ he said. Prices of luxury housing in these areas have fallen in the past year. ‘In the U.K., the top end of the residential market in London has passed its peak,’ said Mark Preston, Grosvenor’s chief executive, in the report.”

From Al-Arabiya on Dubai. “Dubai residential property prices fell 10 percent in the first three months of the year because of a strong dollar and as buyers had less cash to spend following the oil price slump, industry consultants JLL said. The Dubai real estate sector has softened since late 2014 after a three-year boom fed by an influx of cash from politically unstable Arab nations. But tougher borrowing regulations and higher transaction fees helped cool the market, with sales volumes slumping last year along with prices.”

“That trend has continued into 2016, JLL notes, estimating apartment and house prices fell by 10 and 11 percent in the first quarter year-on-year. Rents dropped 5 percent over the same period. On Monday, the chairman and founder of Emaar Properties , builder of the world’s tallest tower and Dubai’s biggest developer, revealed he was ‘really scared’ of market conditions coming into 2016.”

The Daily Nation on Kenya. “Housing in Nairobi is nearing ‘hyper supply’ in the real estate cycle after more than a decade of super growth, new reports indicate. It occurs when supply starts to exceed demand. Experts say the oversupply being witnessed is as a result of investors commencing construction without doing market research. ‘There is too much construction going on, a lot of it is by investors who are building without knowing what the market wants,’ said Mr James Hoddell, chief executive of Mentor Management Ltd.”

“‘People with money just decide to construct at the nearest available piece of land. The result is an oversupply in certain sub-sectors of the market,’ he added.”

The Straits Times in Singapore. “Prices of luxury homes are hitting new lows at several developments as owners offload properties amid plunging rents. An owner at Cairnhill Plaza is said to have sold his roughly 3,000 sq ft four-bedder for about $1,300 per sq ft (psf) - the lowest psf price recorded at the project since 2007. It is believed he was pressured to sell as his private bank did not want to handle an auction sale. A 678 sq ft studio apartment at The Sail @ Marina Bay went for $1,475 psf in late February, a price not seen at the project in over five years.”

“Some owners are selling due to business problems or job losses, experts noted. Others may fear the outlook could deteriorate further. While not all sellers would have lost money - The Sail @ Marina Bay was launched in 2004 at prices from about $900 psf, for example - more sellers are booking losses. Across the Core Central Region (CCR) - which includes the traditional prime Districts 9 to 11, the downtown core planning area and Sentosa Cove - 63 secondary market sales of condos lost money in the first quarter, according to SRX Property. This is up from 35 of such sales a year earlier and 60 in the fourth quarter last year.”

“At Orange Grove Residences, for example, all three transactions this year have each involved losses of close to $1 million.”

The International Business Times on China. “The names and the slogans are alluring: ‘In the city, on the mountain, villa life,’ says one. ‘Rain Valley — Zhuzhou’s first love-themed garden,’ proclaims another. ‘Luxury Bay,’ ‘Luxury Mansions,’ ‘Original French-style villas and row houses,’ the aspirational list continues. Yet in the city center, where most of the population still actually lives, the slogans on the advertising boards are more down-to-earth and suggest that all may not be quite so rosy in the garden of real estate, in this city in south-central China.”

“‘Buy one get one free!’ says an advertisement for units in a new commercial building. ‘Pay 1,000 yuan upfront to join our group-purchasing collective, and we’ll give you an extra room for just 1 yuan more!’ tempts another. And there are many others: ‘Free home electronics, no tax, free maintenance fund;’ ‘Free leisure balcony;’ ‘Cheaper price this month;’ ‘See two rooms become three rooms;’ ‘Buy an apartment and we’ll give you a free storefront for a year’ … the opportunities seem endless.”

“‘Zhuzhou has an inventory problem — there are a lot of empty places that are pretty hard to sell,’ sighs one middle-class citizen. ‘And the tendency has been for prices to fall.’ Some people are selling properties they bought in the last boom at a loss, according to one agent. ‘They bought as an investment, but now they need the money, so they have to sell,’ he says.”

The Sydney Morning Herald in Australia. “When one of Australia’s most renowned real estate spruikers​ teamed up with a bunch of investment bank spruikers​ to float the real estate agency on stock exchange there was always going to be a fair bet it would end up in tears. Those tears are now being shed by the investors in McGrath Ltd who pumped in $288 million to buy shares last December which are now worth $127 million. This high-profile real estate group McGrath Ltd has fallen victim to Australia’s deflating property bubble.”

“And those who took shares in the float have broken several of the cardinal rules of investing – including buying business rather than brand, and buying at the top rather than the bottom of the industry cycle. John McGrath took $37 million out of the float which got underway close to the pinnacle of the property bubble – even though there were some early signs that the heat could soon started seeping out of the property market. Banking industry regulators had already started to tighten bank lending parameters and the the first of the big four banks, Westpac, had edged up its interest rate.”

“But the broader sharemarket to a large part glossed over these early red flags and remained caught in property euphoria. And it wasn’t just any property cycle. It was one that saw prices move up by 50 per cent in three years. There was no room in the McGrath float price for a slowdown in the market, only for super success. And certainly nothing in the listing price to absorb ‘unforeseen’ deterioration in the property market.”