The Problem Is The Market Always Goes Down
CBC News reports from Canada. “The population of Grande Cache was 4,319 in 2011 according to the latest census but has reduced significantly in the past two years after nearly a third of the town’s jobs were lost. Housing values have dropped by nearly half in the last year. Coun. Shawn Moulun’s home was appraised at $282,000 this year but he predicts it will be worth $140,000 by the end of the year. Though Moulun has lived in Grande Cache his whole life he is thinking about leaving. ‘I’ve always loved Grande Cache but because of the outlook right now… yeah I would like to get out because my kids are turning college age too,’ he said. ‘But there’s no way to get out.’”
“So for now, he’ll stay. ‘I would love to sell my house because of the way Grande Cache is right now, but there’s no way I’m going to lose my $140,000. So I’m going to stick it out for the long haul here, until hopefully the coal mine returns.’”
The Guardian on the UK. “Flatpack furniture, stamp duty payments and three years of free tube travel are among the sweeteners being offered to buyers of luxury flats in London as developers scramble to revive a waning market. Jonathan Hopper, the managing director of Garrington, which finds homes for wealthy clients, said it had ‘been a few years in the making, but luxury property developers are now in the midst of a perfect storm.’”
“‘The challenges are particularly acute in the new build sector, with global economic turbulence curtailing demand from the overseas buyers who for years inflated the market in the mistaken belief that any luxury property with a London postcode would automatically turn to gold,’ Hopper said. ‘With so many luxury developments now being built, there’s suddenly a danger of oversupply – and some developers fear being left with unsold stock on their hands. As a result, there are some incredible offers out there and the dynamic has shifted firmly to a buyer’s, rather than a seller’s, market.’”
The West Australian. “Perth renters are demanding landlords cut rents and buy new furniture to woo them as the number of properties on the market hits an all-time high. Emboldened by a flood of new rental stock and WA’s slowing economy, agents say renters who would have queued for a property two years ago are now negotiating for a better deal or threatening to walk away. The speed of the market shift, particularly at the more expensive end of the market, has caught some landlords by surprise.”
“Corporate City leasing consultant Luke Lee said the market was at its weakest since 2008-09 in the wake of the global financial crisis. He said some renters were asking agents to drop prices to compete with similar properties advertised for less. A two-bedroom apartment that would have been rented for $1200 a week four years ago or $1000 two years ago now had agents ‘desperately trying to rent one for $650.’”
“REIWA president Hayden Groves said 10,800 properties on the rental market was ‘unprecedented.’ He said tenants had caught on and were bargaining for better deals, particularly if they saw apartments in their complex advertised for less than they were paying. ‘As soon as their leases come up they’re asking for a rent reduction and the smart landlords are taking it,’ he said.”
The Property Observer. “Australia’s richest man, Meriton boss Harry Triguboff, has slammed the NSW government for its plans to impose higher taxes on foreign buyers of residential property. ‘It is very bad. Without the Chinese nothing would ever get built,’ Mr Triguboff told The Australian Financial Review. ‘Never mind the bullsh– stories, sales volumes have already dropped and prices are coming down steadily. The Chinese buyers are already disappearing. This is not a joke. Chinese real estate agents are already sacking staff,’ he advised.”
“Mr Triguboff labelled the new taxes ‘very dangerous,’ coming as they did on top of moves by the banks to tighten up lending to foreign buyers. He also urged caution in light of the decline of the mining sector. ‘We have nothing else except real estate. We have to be very careful,’ Mr Triguboff told the AFR.”
From Shanghai Daily on Hong Kong. “Home foreclosures in Hong Kong have been rising and are likely to pick up pace as more owners default on high-interest loans from unregulated lenders in a weak economy, according to specialists in distressed property. For a city that relies on property-related businesses for about a fifth of its economy, any major distress in the apartment market would be a body blow. Buyers have in recent years got around the bank rules by taking out loans from these other sources and borrowing up to 90 or 95 percent of the value of the property. In some cases, they are even being offered the chance to borrow over 100 percent of the value.”
“That is fine when prices are rising but it doesn’t take much of a decline to put these borrowers underwater — which has been happening as the Hong Kong economy has struggled and home prices have dropped 11 percent from a September 2015 high. The situation is made worse by the repeated use of apartments for collateral in other unregulated transactions, including loans for stock trading. ‘More people (are) using their properties as collateral,’ said AA Property Services Managing Director Tsang Kit-chun, who auctions foreclosed properties. ‘Those who suffer a loss from the stock market are unable to pay back the mortgages.’”
From Eastday. “Real estate may be the most highly regulated and taxed asset class in the US and is considerably more regulated and taxed than in China, which can be challenging even to the most sophisticated and experienced investor, Alan Pomerantz, a senior counsel with Pillsbury Winthrop Shaw Pittman LLP, recently told a panel on Chinese investment in US real estate in San Francisco.”
“‘One of the barriers to entry in doing business in the United States for Chinese investors is failure to understand the nature of the laws of the United States when things turn not so good,’ he said. ‘The problem is the market always goes down, it always has and it will again,’ said Pomerantz. ‘When it goes down what happens in China is banks and borrowers sit down and talk about it. In the United States, not only do they not do that, the law prohibits them from doing that.’”
“‘Chinese people do not use lawyers the way US people use lawyers,’ he added. ‘We’d like to say that in China the negotiation starts after the deal is signed; in the US, it’s exactly the opposite.’ It would be a ‘big, big surprise’ for Chinese investors and their US partners, US construction companies and US banks if they were not aware of when there’s a hiccup in the real estate market, Pomerantz said.”
“When making decisions, Chinese investors tend to rely on trust, according to Zhengyu Huang, chairman and founder of ImmCaptial, a Chinese immigration capital service firm. When asked why they made the investment, the Chinese investors would say ’someone I trust invested there and told me to invest,’ he said.”
“‘I’ve seen a lot of deals. I’ve never seen a projection that didn’t make money, but not every deal makes money,’ said Pomerantz. ‘It’s easy to give your money to somebody to buy something. The barrier is how to make money and how when things don’t turn out exactly the way the projection shows, which is almost always the case.’”
