June 24, 2016

The Problems Of Having A High Proportion Of Investors

It’s Friday desk clearing time for this blogger. “San Francisco Realtor Brendon Kearney said there is some weakening in the San Francisco market. ‘It’s definitely not as hot as usual’ for this time of year, he said. ‘I have had buyers pay 30 percent over asking to get the condo they wanted. I have had condos sitting 20 days on the market with no activity.’ As for those micromarkets, ‘we are definitely seeing softening in the $3 million-plus market,’ said Kearney, who is with Vanguard Properties. A home in that price range that used to take 14 days to sell is now taking 28 to 35 days, often after price reductions. Kearney said there is less demand for homes that need cosmetic fixing and for condos in and near the South of Market area. ‘They are not moving as fast as they were at the price point we would expect. It’s a very first-time home-buyer market, a very tech-driven market. With a shift in VC funding, we are seeing less activity there.’”

“Patrick Carlisle, chief market analyst with Paragon Real Estate Group noted ‘a significant shift in Bay Area employment numbers.’ He said that employment in San Francisco, San Mateo, Alameda and Contra Costa counties fell between December and May by a total of 5,000 jobs. This is the first time since 2009 that employment in these counties declined in the first five months of the year. ‘Changes in employment figures, up or down, typically affect the rental market relatively quickly and dramatically — more so than the real-estate purchase market — and that certainly appears to be the case in San Francisco, where softening demand and rents have been widely reported,’ Carlisle wrote.”

“The housing market has slowed down from and its 2015 rush, and according to some analysts, it’s sellers that are responsible. B.E.A.R., the real estate trade association which covers the Bonita Springs and Estero areas, reported that sales have dropped by 13 percent over the past year, and an 18 percent drop in pending sales. ‘Sellers have not yet come to understand the shift in the market,’ stated D. Michael Burke, 2016 B.E.A.R. President. ‘This shift requires lowering prices to real market value to generate sales activity, but many sellers have not realized this yet.’”

“A year ago, the area had just nine weeks’ worth of inventory on hand. Today, that’s nearly doubled. As many sellers see dollar signs in the sold listings around them and just into the market, realtors are struggling to get buyers to bite on prices they believe are too high. In its report, B.E.A.R. reported that open house activity has slowed to a near halt, ‘as they know that the most powerful marketing is useless if the price is not marketable.’”

“A mid-year report from the Greater Houston Partnership indicates apartment occupancy is at about 90 percent. Rates below 90 tip the balance in favor of renters, and occupancy is expected to fall into the mid-80’s. This is as developers are adding 25,000 more units over the next two years. ‘Job growth was, I guess in 2014 it was around 100,000 jobs and all of a sudden in 2015 it fell off the table,’ said Bruce McClenney with ApartmentData.com. ‘We got caught in a development stage and the job growth kind of ran out on us. So there’s more supply than demand right now, which would be a definition of overbuild.’”

“The inventory of single-family homes for rent has increased over the past year, and especially in the past 30 to 60 days. The market is forcing property owners to absorb increased property taxes and insurance costs. ‘So we definitely have a pressure on the rent from the market, and the pressure is to keep the rent — it must stay low, despite the fact that the taxes have gone up and insurance rates have gone up as well,’ said Wojciech Kic with ManageRentHouses.com. ‘Property owners have to absorb the difference between what the expectations were, perhaps, and where the market is today.’”

“The highest number of contracts this year were signed last week at $4 million and above in Manhattan — but only after many sellers agreed to hefty price cuts. According to Olshan Realty’s weekly snapshot of Manhattan’s luxury market, this was only achieved after desperate sellers, whose properties were languishing on the market, were forced to cut prices by an average of 11% from the original asking price amid a glut of luxury homes for sale. The average property was on the market for a lengthy 311 days.”

“‘The luxury market is bloated and choking with a lot of over-priced inventory, but once sellers capitulate and adjust to realistic price levels, the market moves. Not coincidentally, the May and June weeks that showed the strongest activity of the year were also those that saw prices slashed,’ said Donnan Olshan, president at Olshan.”

“A troubling trend has been gaining traction in one of the country’s most overheated residential real estate markets: condo developers in Vancouver privately offering their most affordable units to particular realtors as well as family and friends, prior to the sale dates of these units, thus revealed The Globe and Mail reporter Kathy Tomlinson. ‘I think we are being deceived,’ realtor Steve Saretsky argued, going on to say that most of the buyers who are granted exclusive access to these insider trades are speculators that do not plan on residing in the purchased units. ‘I think it’s giving local people a false hope – that if we keep building and building and building, it’s going to help them to find a home.’”

“In some suburbs across Australia almost all the homes are investment properties, including some of Sydney and Melbourne’s inner-most property hotspots, new research shows. ‘While investors have generally derived strong capital gains from their properties over recent years, growth in rental income has been comparatively soft. Investment is currently ensuring that there is ample rental accommodation and subsequently easing rental price pressures,’ said CoreLogic head of research Tim Lawless. Many of the areas with high proportions of investors are ‘renter’s, rather than landlord’s, markets,’ he said.”

“One of the problems of having a high proportion of investors in one area is more volatility in the market, said BIS Shrapnel senior manager of residential Angie Zigomanis​. ‘Investment properties are a discretionary purchase to some extent, and if times got harder they’re the properties that would be the first to go,’ Mr Zigomanis said. ‘It’s a risky proposition if you are forced to sell at the wrong time.’”

“For the past two years, Swadeep Sharma was on the lookout for a house in Noida. Last year, he zeroed-in on a house, in one of the newly-completed projects on the Noida Expressway. However, he was unable come up with the finance for the house that cost Rs 5,600 per sq ft. After sorting out his funding issues, he recently went to the same location, anticipating that he would need to shell out more money. He was surprised to find that an apartment in the same society, was now available at Rs 4,800 per sq ft.”

“‘Initially, I thought that it was a distress sale. On further examination, I realised that this was the prevalent rate in the locality. However, none of the developers in the region had reduced their prices. The first owner revealed that he had bought the house, when it was launched six years ago, at Rs 3,000 per sq ft,’ Sharma explained. The price of the property that Sharma had seen, had appreciated by 60% over six years, indicating that property was not the best investment instrument, in this case.”

“Moreover, the decrease in prices in the secondary market, by 10% to 20%, suggests that developers will have to keep waiting for buyers. Requesting anonymity, a Ghaziabad-based developer admits that transactions in the secondary market, indicate a sharp correction. In spite of this, he maintains that developers cannot reduce prices, due to high input and overhead costs and blames retail investors, for ruining the market. ‘Today, we are paying the price for selling our inventory to investors. They don’t have the patience to wait. Reports of price corrections are making them nervous and they are resorting to what can be described as distress sales,’ the developer explains.”

“Hong Kong property prices have plummeted in recent months as a consequence of weaker demand, with values dropping by an average of 11% since late last year. Many property developers in Hong Kong are now offering significant price reductions to help offload a high volume of new build housing stock in the city. Wheelock Properties recently sold a luxury home in Hong Kong’s exclusive Peak neighbourhood for around £73m which was 25% lower than estimates by some analysts. ‘I am very surprised [at the sale price],’ said Danny Leung at Centaline Property Agency.”

“Whether you are a buy-to-let landlord or a private residential owner, you may well feel as though there is a pressing need to sell your house in the current climate. Most recently, we have witnessed the collapse of Scotland’s very own property boom town: Aberdeen. After seven years of relentless growth, the average price of property in Aberdeen has fallen to £186,200. This represents quite a decline, especially for a location that up until recently was renowned as the energy capital of Europe.”

“At the peak of its growth, Aberdeen boasted more millionaires per 100,000 residents than London, which underlines just how far the town has fallen in the last two years. To make matters worse it is now officially ranked as the least attractive location for property investors with a score of -40. Given the size of London and the level of inflated growth that has defined the market during the last 18 months, and economic collapse could cause values to plummet and leave thousands in significant debt.”

“Almost immediately, you can see the similarities between Aberdeen and London and the portents for the capital. While the former towns’ decline was triggered by the decline of a specific industry, London could be even harder hit by a widespread economic collapse in 2016.”

“A few weeks ago we published a piece on the global property bubble – its causes and its consequences. This week has brought news of another one of its symptoms: two Australian states have announced that they are toin an attempt to deal with fast-rising house prices (there has been a wave of Chinese money hitting the market over the last few years).”

“New South Wales is to have a new stamp duty of 4% for foreign buyers and Queensland is to have one of 3%. New South Wales is also planning to charge a 0.75% land value tax on real estate investors. The news comes hot on the heels of a government decision earlier in the year to block the sale of S Kidman & Co, a company that holds nearly 1% of Australia’s land mass (25 million acres and 2.5% of its agricultural land), to a consortium of Chinese buyers on the basis that the sale would not be in the national interest.”

“The problem here is obvious – the latest wave of globalisation has made money movement international. But politics is still (quite rightly) pretty local. That means that politicians feel obliged to come up with local solutions to block the perceived problems of globalisation – and that those solutions are often (rightly or wrongly) protectionist.”