August 16, 2016

Desperate To Ensure Investments Don’t Lead To Losses

A report from China Daily. “Yao Lisha, 38, lives with her family at a villa in suburban Shanghai, and has invested in Australian properties. Now, she is desperate to ensure her investments do not lead to losses. She runs a trading company with her husband in Shanghai. In 2014, she was persuaded by a friend to buy an 88-square-meter apartment in Brisbane, Queensland. Just 10 percent of the full amount of A$615,000 ($461,954) was down payment plus A$30,000 went towards stamp duty.”

“She took a home loan from a local lender and started repaying interest every month, hoping it would all come good eventually as possession of the flat was expected to be followed by steady rent. She received possesion alright in late 2015, but by then, the local policy had changed, stipulating that overseas homebuyers needed to repay both principal and interest at the same time.”

“She spent more than a month trying to rent out the flat for A$480 per week (that is, A$1,920 per month) while the monthly loan repayment was about A$2,300. Worse, on top of that, the housing complex’s montly maintenance fees was 3,000 yuan ($452). That was not all. The property did not appreciate in value. Now, Yao is thinking of holding it for five to ten more years till resale prices recover. ‘Buying this (Brisbane) apartment was a mistake. I didn’t consider the risk of government policy change and the unexpected slump in the property rental market,’ said Yao.”

“Thankfully for her, another investment Down Under produced a better experience. The A$1.55-million, 160-square-meter penthouse in Sydney she bought in 2014, whose possession she is yet to receive, is faring better in the market already. Now valued around A$1.7 million, it will be ready only in 2018. But Yao has already received a few offers from potential buyers after her real estate agent posted an online classifieds ad. Its value is expected to further increase in the next two years.”

“Yao is keen to sell after receiving possession because a tighter local policy prevents overseas property buyers from taking loans from local banks. She wants to cut her costs and, maybe, even make some profit. She had made the 10 percent down payment and paid A$70,000 towards earnest money deposit. ‘Australian cities like Sydney are worthy of investment but local policies are restricting overseas buyers, especially Chinese,’ said Yao. She has decided not to invest anymore in overseas properties.”

“But not so Su Jianning, 55. In 2013, he bought a 300-square-meter house in Los Angeles County, California, for $750,000. He is confident of making a tidy profit. Since he is not a U.S. permanent resident, he had to make full down payment. Local banks’ home loans were not for overseas buyers. His annual property tax has been $8,500, home insurance premium $1,000 and maintenance expenses $5,000, but the monthly rent of $4,000 covers the expenses.”

“‘The current value is about $800,000 but it is expected to remain there as the market isn’t as good as it was estimated. The value was supposed to double well before by 2018,’ said Su.”

From CBC News in Canada. “After completing her degree at the University of Saskatchewan last spring, Chinese student Jing Li decided to put down permanent roots in Canada. Jing, 29, obtained a work permit, moved to the Vancouver area and made an offer on a townhouse in Langley, B.C., in mid-July. Jing cobbled together a 10 per cent deposit on the $560,000 property by borrowing from her parents in China. She said they in turn borrowed money from friends and family.”

“But last month, 12 days after Jing signed the purchase contract, the B.C. government threw a wrench in Jing’s Canadian dream when it levied a 15 per cent property transfer tax on foreign real estate buyers in the Vancouver area. Jing is not a permanent resident in Canada, so the tax adds $84,000 to the home’s cost, something she’s certain she can’t afford. But if she backs out of the deal, she would lose her deposit of about $56,000. ‘Now, I can’t go forward and also can’t go back.’”

“Her mother cried when Jing called her parents in China to tell them about the tax. They had no more money to lend her. Staying in Canada was Jing’s idea, and now she feels guilty. ‘I think this is my fault,’ she said in halting English. ‘If I don’t want to study, work and live in Canada, this disaster would not happen to my family.’”

Too Expensive To Rent And There Are Too Many

A report from USA Today. “Apartment building owners are struggling to rent many of the luxury units that have flooded downtowns across the country in recent years even as a relative shortage of multifamily homes in the suburbs has driven up rents. The downtown building frenzy has been well-publicized as developers cater to Millennials, among other age groups, who have streamed into revitalized cities to be closer to amenities, nightlife and a car-free lifestyle. According to real estate research firm CoStar, however, builders may be putting up too many apartments — most of which are at the high end of the market — in the urban hubs and not enough in outlying areas.”

“Over the past four years, the vacancy rate in downtowns and adjacent districts has climbed from 3.4% to about 5.5%, CoStar figures show. Although new apartment complexes typically take some time to lease up, many units have been sitting empty longer than normal. Nationally, new apartments had an average 52% vacancy rate when they opened in the first quarter of 2013, and the rate for those dwellings fell to about 11% within 18 months.”

“By contrast, new units opening in the first quarter of 2015 had a 72% vacancy rate that declined to 18% over a similar period. The higher vacancies were driven by luxury buildings in central business districts, says CoStar Chief Economist Hans Nordby.”

“The city-suburb split is playing out in metro areas across the country but it’s particularly acute in large cities such as Los Angeles, Washington and Chicago. In Los Angeles, about 5,500 apartments have opened downtown the past 3 ½ years, with typical rents of about $6,500 a month, and the district’s overall vacancy rate has climbed from 4.5% to 9.9%, according to CoStar data. Niko Deleon, owner of Niko LA Leasing in Los Angeles, says most high-end downtown buildings have been forced to offer amenities such as free rent for up to six weeks.”

“‘These new flashy, splashy downtown buildings — they have a vacancy problem,’ Nordby says. ‘They are too expensive to rent’ and there are too many of them. At the same time, he says, ‘There’s not much supply of new apartments in the suburbs.’”