September 2, 2016

When Prices Do Not Represent Real Market Values

It’s Friday desk clearing time for this blogger. “Rental housing website Zumper announced that Seattle has fallen off its list of the country’s ten most expensive renter markets. Tanguy Le Louarn, head of digital marketing at Zumper, says that’s explained in part by luxury apartments in Seattle becoming more affordable for rich people. ‘This [is a] kind of mini correction that we’re seeing,’ Le Louarn says. ‘There’s so much rent price that people can stomach, so the high end luxury complex…cannot increase forever.’”

“Prospective buyers at one Upper East Side condo project are quietly being offered a 5 percent discount. Such tactics have become more common in Manhattan, where developers are coping with a luxury-condo glut and adjusting to a new reality after years of building to meet seemingly insatiable demand. ‘Right now, time is your enemy,’ said Jacky Teplitzky, a luxury broker with Douglas Elliman Real Estate. ‘The first question that people ask is how long has an apartment been on the market?’”

“It’s a turnabout from the boom days just a few years ago, when investors quickly plunked down record-shattering sums for homes still in the planning stages. The developers’ sales incentives will only go so far to help clear Manhattan’s ‘tremendous amount of overpriced inventory,’ said Donna Olshan, president of Olshan Realty. Ultimately, what’s needed are deeper price cuts across the luxury market, she said. ‘Things will sell, they’ll just sell at lower prices,’ she said. ‘You can’t sit out there forever trying to sell one apartment a month.’”

“August numbers released by the Calgary Real Estate Board shows the estimated price for a typical condo in the city was down to $274,900, with prices now down 7.1 per cent from a year ago. Inventories for condos have also climbed to near record highs for August. Realtor Jim Sparrow said many prospective buyers are waiting until they have more confidence that the price of oil and the economy are recovering. ‘They’re like most other buyers right now. They’re very hesitant to jump in the market when they don’t have more confidence,’ said Sparrow.”

“Indian urban land prices are finally beginning to follow the laws of economics. Indian investors have always believed that land values can only rise, but in the wake of the sustained weakness in residential property markets over the last two or three years, land prices in overheated markets like Delhi and Mumbai are actually beginning to fall. The old advice — ‘Buy land, for they ain’t making no more of it’ — can now be questioned.”

“It is no secret that builders, politicians and bureaucrats use their intervention powers to curtail land supplies to hold prices high even when there is no real demand. This is because the bulk of their benami wealth in held through land and properties. But the laws of economics have begun working. High prices invariably drive a supply deluge, and this is why land is beginning to fall.”

“The latest House Price Index published by the Kenya Bankers Association for the second quarter of 2016 is a reason to be sceptical about investing in real estate and the future of the property market in Kenya. Nairobi is the first area to feel the heat of the market. Investors in several neighbourhoods in the capital are feeling pressure from a slump in property prices and rentals as an obvious excess supply is creating new market conditions.”

“People seem not to understand what is going wrong. Everybody keeps saying that there is a huge deficit of houses. There is a need of 250,000 houses annually when only 50,000 are built. So, when supply does not meet demand then prices should keep going up! The reality is that the majority of houses that have been developed in Kenya over the last couple of years are not affordable to a majority of people. Market speculators using this ‘imaginary’ deficit of housing have been creating a possible non-existent demand, pushing initially the land prices up and then the property market.”

“The problem is that when the prices do not represent the real market values, then the possibility of a market downturn is very strong. Depending on the market dynamics, that could be translated to a price collapse.”

“With asking prices dropping 1.2% in the last month, London property owners are ‘panic selling’, says a top UK website. The impact of June’s UK Brexit vote had resulted in a downward spiral in the Greater London property market as sellers desperately look to cash in on years of house price growth in the capital, says Foreign buyers who purchased a property in London within the last 12-months are probably already in negative equity, says In terms of Euros, Greater London home prices have shown a dismal performance over the last year, with values dropping 11% since May and 17% since November last year.”

“Doug Shephard, Director at, says, ‘It is clear that the referendum result certainly unnerved many investors. We will be keeping a particularly close eye on the London market over the next month, watching whether or not the surge in new listings becomes a stampede. This would inevitably lead to a home price crash in the region and stress mortgage lenders to the limit or beyond. Property investors would be well advised to weather the storm and not join a suicidal rush to market.’”

“Hype about the risk of property settlement due to tougher bank restrictions is inflated, according to industry insiders who work with Chinese investors. The settlement crisis stems from Australian banks tightening loans to foreign income-earners – effectively drying out the funds Chinese buyers can access for settlement. However, Esther Yong, director of Chinese-language property portal ACProperty, believes there will be ‘a lot’ of crashed settlements coming up in the next few months.”

“‘Mainly because a lot of buyers were told that they are able to get finance when they first bought the property two years ago. These buyers would have had their funds and assets committed into other areas and might have difficulty moving the funds within such a short period of time,’ she said.”

“Some are so desperate that they have resorted to posting ads online to resell off-the-plan properties they had bought one to two years ago, with many in Bankstown, Burwood, Wentworth Point, Kellyville, Parramatta and Homebush West dangerously close to completion. ‘I’m currently handling several apartments which cannot be settled because of mortgage problems, the current owner is prepared to give up the deposit to resell, get in touch if you are interested in having a go at bottom-fishing,’ one agent posted on Tigtag, a popular Chinese-language online forum.”

“The market is now seven years into its recovery, meaning the clock is likely ticking for New York City real estate players. Rick Jones, head of the finance and real estate groups at the law firm Dechert, offered a perspective. ‘We’re deep into a grinding expansion,’ he said. ‘By normal standards, it’s at its end. We’re one black swan away from really seeing a recession occur.’”

“But it’s not just the luxury condo market that has industry players concerned. New York’s investment sales market has been in correction mode for about a year, with overall sales activity in Manhattan dropping by 22 percent to $22.7 billion in the first half of the year. Hotel revenues and retail rents are falling as well, and as office rents approach their pre-recession peaks, observers are starting to wonder how much runway is left before that segment starts to turn.”

“At this time last year, the market appeared to be firing on all cylinders. But under the surface, a more ominous reality was developing. Analysts say certain market segments have been cooling for some time, and the broader industry is only starting to take note now. ‘Really, it’s just in the last six months that the market’s acknowledged it,’ said Jonathan Miller, the president of the appraisal firm Miller Samuel. Anxious to get projects built as prices were escalating, developers have filled the market with too much inventory. In Manhattan alone, there are currently some 14,000 new development units in the pipeline, according to Miller. At the current absorption rate, that works out to about five years of excess inventory.”

“‘There’s an old saying in residential development,’ said Glenn Mueller, a professor of real estate and construction management at the University of Denver. ‘Carry kills.’”