October 24, 2016

As A Construction Boom Plays Out, Appetite Has Dimmed

A report from the Guardian in the UK. “A surge in the supply of rental properties on the books of letting agents is forcing landlords to peg back rent rises, according to an industry body. The proportion of landlords implementing increases fell to 24%, its lowest level this year, said the Association of Residential Letting Agents, while the number of unlet flats on agency books rose to the highest level for 18 months. David Cox, managing director of Arla, said: ‘This month’s findings paint a really positive picture for renters. The supply of rental stock has risen astronomically.’”

From Reuters. “High-end property developers in London are restricting the supply of homes to prevent further price falls by selling entire apartment blocks to funds for rental, according to agents and investment managers. Growing numbers of flats will come up for sale in coming years as a construction boom plays out, but appetite from individual buyers for British real estate has dimmed. Sales of unbuilt and completed projects are being struck at a 10-15 percent discount to their expected market values, industry consultants said, as housebuilders strip out the cost of marketing to individual buyers and taking debt to build the projects.”

“APG Asset Management, Europe’s largest pension fund manager, is in talks with developers who seem more open to deals as they contend with the risk of not being able to sell everything in the current climate,’ said Martijn Vos, APG’s senior real estate portfolio manager. ‘If the market remains as it currently is, I feel there will be more such deals to come,’ he said.”

The International Business Times. “The number of homes sold for £1m or more in England and Wales has collapsed by 62.5% in just two years as the property market feels the effects of tax hikes, global economic turmoil, and uncertainty surrounding the Brexit referendum. ‘There will be few tears shed for estate agents or their millionaire clients struggling to sell their homes but don’t put away the man-size too fast,’ said Henry Pryor, a buying agent. ‘In fact the problems affecting the top rungs of the housing ladder could and probably will infect the lower priced properties.’”

The Evening Standard. “Some of London’s luxury house developers are showering homebuyers with drastically more extravagant gifts in the wake of the Brexit vote. Amazon Property partner Chris Lanitis says: ‘If a purchaser bought an apartment from us and liked a particular piece of art which is bespoke to the apartment, then — depending on price — the piece would either be gifted as a moving-in present or, if the art work was one of the rarer and more valuable pieces, we would liaise with the art gallery to help arrange a preferential price for our purchaser.’”

“But methods to boost sales are not limited to art, says Michael Ferris, a director at JR Capital, which buys properties for Middle Eastern investors. He reveals that one of his Saudi Arabian clients was told that £200,000 of furniture from a showroom apartment would be thrown in if he bought one of the £2.5 million-plus flats in a new zone one scheme on the river. ‘This is because the development has a large supply of high-value unsold flats and is nearing practical completion,’ he explains.”

This Sense That’s Something’s About To Flip

A report from the Register Guard in Oregon. “The city of Eugene is reporting a 1,600-unit deficit in multifamily housing and is identifying policy changes that would create more capacity. Based on an analysis of actual development in Eugene, however, it appears that there is no deficit — instead, a surplus of capacity exists. I have been working with Lloyd Helikson, who has collected data on all the multifamily developments that have occurred since July 1, 2012 — the official start date of the 20-year planning time-frame for the Envision Eugene process. The remarkable findings show that actual development is greatly exceeding projections.”

“Five thousand, two hundred and five units of multifamily housing are already built or planned for the five-year period for which we have data (2012-17). Envision Eugene forecasts a need for a total of 6,797 units of multifamily housing in the entire 20-year planning period. Thus, we have already achieved 77 percent of the needed development, with 15 years left to go! Oddly, the city does not collect and report information on multifamily development in Eugene. In fact, the city’s permit reporting system is underreporting the number of dwelling units, with some large projects reporting zero dwelling units. During the past five years, it appears that the city may have reported 1,857 fewer multifamily dwelling units than have actually been built.”

The Daily Camera in Colorado. “The tide might be turning in Boulder’s crazy rental market, as vacancy rates hit highs not seen since the Great Recession and property managers say apartments are sitting empty through several price drops. Boulder’s vacancy rate (not including the university area) rose to 7.2 percent in the past three months in the city, according to the Apartment Association of Metro Denver. The last time it was that high was 2009. In fact it’s only been over 7 percent twice in the past decade: third quarter ’09 and today.”

“‘We’ve started noticing properties sitting longer than usual, and actually needing some lower rental rates in order to attract tenants,’ said Simon Heart, owner of All County Boulder Property Management. ‘We target to lease properties within 30 days, but within the last month or two, there are properties that have been sitting for 30-60 days that we’ve had to lower the rent several times’ to fill.”

“‘None of my clients have had more than a couple-day vacancy,” said Chrissy Smiley, who owns rental agency Smiley & Associates. But, like others in her industry, she did note having a ‘harder time’ renting properties that, in the past few years, would have been snapped up immediately. ‘I just feel there is some kind of sea change happening with the rental market,’ she said. ‘Part of it is that rents are going up and people’s incomes aren’t going up at the same rate. I get this sense that’s something’s about to flip.’”

The Crookston Times in Minnesota. “When the City of Crookston and CHEDA agreed to invest some dollars a bit more than two years ago on a comprehensive housing study of the community, more than one person around the city council and CHEDA board of directors table said it would be critical to not let the study, once completed, sit on a shelf and gather dust. Board member Lee Meier, who runs the Northwest Minnesota Multi-County Housing and Redevelopment Authority in Mentor, endorsed the strategy of not going immediately all-in on meeting the exact recommendation in the housing study for market rate rental units.”

“‘It’s not an exact science; just because it says 89 units doesn’t mean we need 90 actual units,’ Meier said. ‘Other communities around us have overbuilt recently due to perceived demand and now have some vacancies.’”

“‘We want to make sure landlords see good returns on their investment,’ added CHEDA Executive Director Craig Hoiseth. ‘We don’t want to push rents down too much.’”

WWNYTV on New York. “Three houses in the city of Watertown are set to be demolished. The former apartment buildings on the corner of Washington Street and East Flower Avenue will be torn down. The owner of the buildings, Hedy Cirrincione, says the over-saturated rental market in the city and the location of the buildings is why she is having them taken down.”