October 26, 2016

The Market Is Just Saturated

A report from the Dallas Morning News in Texas. “Prospects for the 2017 U.S. commercial property still market look good, to hear the majority of real estate folks tell it. Certainly Dallas is in the biggest building boom it’s seen in almost three decades. But a lot of the industry’s executives are looking over their shoulders, fretting about everything from rising interest rates to a flood of capital coming into the U.S. property sector. ‘There is maybe a little more caution in the market,’ Andrew Warren, head of research for Pricewaterhouse Coopers, said Wednesday at a Dallas meeting of the Urban Land Institute, the country’s largest commercial real estate organization.”

“Some of the worries for the development business Warren red-flagged included rising construction costs, the potential for higher finance costs and affordability concerns for the housing markets in many U.S. cities, including Dallas. The increase in players in the business and the flood of money coming into the markets are also causing some heartburn for commercial builders and investors.”

“Commercial property transaction totals, which were the highest since the Great Recession in 2015, are expected to decline slightly this year and more in 2017 and 2018, according to a ULI forecast. ‘Transactions are down this year so far — still at a very strong level but not as great as we had last year,’ said Dr. Ken Rosen of the University of California at Berkley. ‘The consensus is the rate of increase in prices is going to slow dramatically.’”

The Miami Herald in Florida. “First came Porsche. Then Armani, Fendi and Missoni. Now Aston Martin is the latest luxury brand to gun for a piece of South Florida’s condo market. The British car maker announced Wednesday that it will partner with wealthy Argentine developers on a 66-story condo tower called the Aston Martin Residences at the mouth of the Miami River in downtown Miami. The licensing deal marks the auto company’s first venture into real estate.”

“In today’s struggling luxury market, Miami developers are more likely to cancel condo projects than unveil them. A strong dollar and weak global economy have starved the region of foreign buyers. But Argentina’s Coto family, which paid a record $125 million two years ago for the vacant waterfront land next to the Epic Hotel, says it has enough horsepower to get the 390-unit project going.”

“The big question: Will Miami’s luxury market have come back to life by the time the Cotos start selling units? ‘The market is in great turmoil right now,’ said Jack McCabe, a South Florida real estate analyst. ‘Many countries that have been feeder markets for South Florida are in recession, especially in Latin America. The developers are starting a sales campaign at a very difficult time for global economies.’”

“In mainland Miami, average sales prices for luxury condos plummeted 29 percent year-over-year in the third quarter of 2016, according to a report from brokerage Douglas Elliman. The number of luxury condo sales fell by a quarter. And units languished on the market for an average of 129 days, compared to 52 days last year. Banks and other lenders have taken note.”

“‘There’s been a slowdown in construction financing, not just in Miami, but in other major markets,’ said Jonathan Miller, a housing analyst who authored the report. ‘This has been a four- or five-year development boom that’s occurred across the United States. I think some lenders are realizing that and taking a breath.’”

The Wall Street Journal on New York. “A three-bedroom unit on the 62nd floor of One57, a newly built condominium towering over New York City’s Central Park, has sold for $23.5 million, or 25% under its original sale price of $31.7 million.”

“According to Noble Black of Douglas Elliman Real Estate, who had the listing with colleague Emily Sertic, the apartment was first listed for roughly $41 million with another firm in 2014, almost immediately after the seller closed on the purchase from builder Extell Development. It has since seen several price reductions, and was most recently asking $25 million. The seller’s identity is shielded by the entity Escape From New York LLC.”

“The buyer is Chinese billionaire Liu Yiqian, according to Jeremy Hu of Compass, who represented him in the transaction. An investor who lives primarily in Shanghai, Mr. Liu is known for his large art purchases. The sellers never officially moved in to the apartment, deciding to put it on the market instead, Mr. Black said. They had planned to move in, he said, but their circumstances changed during the lengthy period between contract signing and closing, and the apartment was too small.”

“Mr. Liu feels he got ‘a good price’” on the condo, Mr. Hu added, noting that the high-end real estate market has faltered in recent months. At 1,004-feet high, One57 made headlines when a penthouse closed for $100.5 million in late 2014, setting a new record for New York City apartment sales. But with the high-end Manhattan market now much softer, a number of the 94 original units are still for sale, and Extell in March reduced its projected sellout value of the tower to $2.56 billion, a markdown of $162 million from its 2013 projections.”

The Union Tribune in California. “Prices grew modestly in San Diego County’s housing market in August, capping a slow summer, said the S&P CoreLogic Case-Shiller Indices. Adjusted for seasonal variation, the regional index of home prices was 5.8 percent higher in August compared to a year ago. However, compared to July, the market appreciated by .21 percent, or an annual rate of just 2.5 percent, continuing a pattern that began in June. Most of the year’s price increases came early in the year, beginning with an annual rate of growth of 12.9 percent in January. The housing markets of Los Angeles and Orange counties followed a similar path.”

“Chris Thornberg, economist and founding partner of Beacon Economics, said the Southern California market was being dragged down by high-end homes. ‘That market is just saturated. There’s too much coming online and not enough well-heeled people to grab all of them,’ he said. ‘Everything suggest these units are sitting on the market longer and longer.’”

Compared To The Peak Of The Madness

A report from Global News in Canada. “Some sellers are cashing out of Canada’s hot housing markets as property values soar to new heights — while others may have already missed their chance. There are a few factors at play. First, there was the introduction of B.C.’s new 15 per cent tax on foreign buyers, which prompted a rapid slowdown in sales. Then in October, new federal mortgage rules were announced and quickly implemented, intended to stabilize the country’s housing market. The changes are leaving some homeowners on edge in Vancouver. ‘Some (sellers) are fearful,’ said James Garbutt, a realtor in the Vancouver area. ‘When you compare it to the peak of the madness in April, we’re off — for certain products — by about 20 per cent.’”

The Evening Standard in the UK. “Homeowners looking to sell up in the most expensive areas of central London are cutting record six-figure sums off asking prices in the wake of the Brexit vote, according to figures. In the ‘golden triangle’ of postcodes around Kensington, Knightsbridge and Mayfair an average of £171,321 is now being slashed from asking prices, up from £150,120 in the three months before the June 23 poll.”

“One three-bedroom, ground-floor flat on Belgravia’s Eaton Square went on the market in January with Hamptons International for £6.35 million. This month, it was repriced at £5.995 million. Similarly, a two-bedroom flat at Hanway Gardens, a new building in Fitzrovia, was on the market for £1.7 million at the time of the Brexit vote with Fraser & Co. Its price was cut in July to £1.6 million and again this month to £1.55 million.”

The Property Report on Dubai. “Dubai’s apartment market continues to make quarterly slides alongside the global oil price slump, data from UAE-based property portal Bayut.com recently showed. One-bed apartment rents suffered the greatest drop among all bed categories, with average prices decreasing 8 percent from AED100,000 (USD27,200) in the second quarter to AED92,000 (USD25,000) in the third quarter. The first seven months of 2016 saw a 30-percent slash on real estate sales values in Dubai, according to the Dubai Land Department.”

“To some local property developers however, the emirate’s property market is in its bottoming-out phase. ‘I think the worst is over,’ Nakheel PJSC Chairman Ali Rashid Lootah told Bloomberg recently. ‘Dubai is growing, we are seeing signs of more inquiries – serious inquiries – and I think that’s a sign of recovery. The market is maturing, we are seeing more serious, cautious investors, not speculators.’”

The News Minute on India. “Infrastructure company Marg ProperTies, wholly owned and subsidiary of MARG Ltd is in the news for the wrong reasons. Around 4000 customers who had invested in their properties are yet to receive apartments promised to them. ‘We filed a complaint -along with documentary proof- with the Central Bureau of Investigation, the Chennai Crime Branch, the Chief Minister’s Complaint Cell and the Commissioner’s Office, but we are yet to hear from them,’ says Ravishankar -an investor- while speaking to The News Minute.”

“Ravishankar invested in an apartment costing Rs. 42 lakhs and has already paid an amount of Rs. 35 lakhs, by availing a home loan from Axis Bank. He blames the bank too for not verifying the construction/sale agreement before transferring the said amount to the builders. According to him, only 30% of the project is complete, with only the exteriors in place.”

“‘Does this mean they don’t have funds to complete the project? Who will buy the rest of the apartments now?’ asked a customer who did not want to be identified.”

“The Brindavan Project in Sriperumbudur in Kancheepuram district on the other hand, has not even started. It was supposed to have been completed by 2013. The company website boasts of 1848 apartments (with 2 & 3 BHK) spread over 16.5 acres. ‘I invested in this project back in 2010 and have already paid about Rs. 10 lakhs for the apartment. No environmental clearance has been obtained the company has taken loans. If I had known then, I would never have invested in this project,’ shares advocate Hari.”

“Just like Hari, almost 600 people have bought apartments and paid 50-60% of the sale cost. ‘Only the Navratna project has been completed till date, while only the foundation has been laid for Aayush. Construction has not even begun for Four Seasons. At Maha Utsav, you are greeted by the sight of pillars,’ fumes Rajesh, an investor in the Maha Utsav and Ayush projects.”

“He paid Rs 3.5 lakhs for the Maha Utsav project and Rs. 2 lakhs for Ayush. ‘I paid the money in 2010. Around 3000 people have invested money in the Swarnabhoomi project, but only 450 have got their apartments,’ he adds. Even after filing a police complaint at the Thoraipakkam police station in July 2015 -he says- the police have not taken any action against the builders. A protest too was organized in Chennai by enraged customers and a case was also filed in the Consumer Court last year. ‘There are no judges appointed to the Consumer Court and our case has not come up for hearing till now,’ Rajesh sounds frustrated.”

“Rajesh alleged that he was being threatened by the Marg Group for repeatedly asking them to return the money he had paid for the apartments.”