December 19, 2016

The Normal Stuff That Happens In A Boom-Bust Collapse

A report from the Vietnam Bridge. “According to Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, a real estate bubble may be seen next year. Vo said that a property bubble usually happens when all financial sources are focussed solely on the real estate market, which pushes the price up by 30 to 40 per cent, and when more than half the buyers are speculators. ‘The real estate market bubble did not happen in 2016, but I expect the market will bubble in 2017. Therefore, the local authorities should have different solutions to deal with it when the prices of real estate increase and large numbers of units are in stockpile,’ Vo said.”

“Meanwhile, economist Dinh The Hien predicted the feared downturn for the end of 2017. ‘Around 40,000 units will be launched in 2017 and 2018. This figure will create oversupply and cause a price downturn,’ Hien said. In the last quarter of 2016, the Ho Chi Minh City Real Estate Association reported on an oversupply of high-end units in the market. The country now has more than 4,000 projects which will provide more than three million units. Many investors and buyers have used loans to buy their properties, and plan to re-sell to the market.”

From Focus Taiwan. “A significant decline in residential and commercial transactions has forced a wave of real estate broker closures in Taipei, the Taipei Association of Real Estate Brokers said. According to a forecast by the association, transactions of homes, shops and offices in Taipei — the most closely watched property market in Taiwan — for 2016 could fall 29.5 percent from a year earlier to only 21,078 units. The estimated figure for 2016 also represents an almost 70 percent drop from a peak in 2006.”

“Kuo Tzu-li, head of the association, said that the worst has yet to come, noting that many real estate brokers are still struggling and might also have to close.”

The Chinchilla News in Australia. “The end of the boom bit hard in all towns around the Surat Basin, but in Miles especially. Miles and Districts Chamber of Commerce president John Hoffmann recalled that where once there was a lack of housing and accommodation and rents were up around the $2000/week mark, suddenly, 18 months ago, the boom ended. ‘It was like the light was turned off,’ he said. ‘Suddenly there were empty houses everywhere, no rents, and the banks classified Taroom through to Chinchilla as mining towns and began refusing housing loans - all the normal stuff that seems to happen in a boom-bust collapse.’”

The Evening Standard on the UK. “Camden, Kensington & Chelsea and Islington were the biggest casualties in the worst December for the London housing market for six years, property website Rightmove said. More expensive inner London areas were worst hit as asking prices in the capital fell an overall 4.3% to £616,160 on average, according to its latest index. High stamp duty and Brexit uncertainty has hobbled the market in central London, with asking prices in Camden dropping 15% in a single month to below £1 million. Well-heeled Kensington fell nearly 10% while Islington saw a near-7% fall.”

“Rightmove analyst Miles Shipside said: ‘Buyers are being put off the really big-ticket purchases at the moment compared to previous transaction volumes, and while sterling’s depreciation has helped to make things more attractive, the pressing need to purchase because of rising prices has disappeared. We therefore predict further price falls.’”

Oversupply May Be A Reality

A report from the Dorchester Reporter in Massachusetts. “The owner and developer of a 27-unit condominium building nearing completion on River Street near Mattapan Square last week asked for the community’s blessing to change it from condominiums to rental apartments, citing financial pressures and a changing market that he says are working against homeownership sales. At a Boston Planning and Development Agency (BPDA) meeting, Joseph Taylor said that the project was his most ambitious endeavor, as he already owns and manages several smaller multi-family dwellings in Boston and Quincy. Consultant Mike Foley said the financing had become unworkable at condominium prices. The market will not support a condo project of this size, he said, adding that only four condo sales had closed in the last year in the entire Mattapan neighborhood, with another six under agreement.”

“When Taylor secured short-term financing for the building, beginning what would ultimately amount to a $4 million investment in the property, outlooks for development were ‘optimistic,’ Foley said. Now, however, ‘based on today’s market, it just isn’t feasible the sell out this building,’ Foley said. Some of those in attendance questioned the wisdom of Taylor’s financial decisions, with some saying they were annoyed by advertisements for renting the apartments before the change officially took place. Foley said the rental outreach was to gauge interest and mollify the bank, which would foreclose on the property if it cannot reasonably turn a profit.”

The Orlando Sentinel in Florida. “Orlando’s real estate industry emphasized two things as it summed up recent market conditions for a slow time of year: prices are up and so are interest rates. But both prices and sales volume slid from October to November, which is typical for that time of year. ‘I think the market has slowed down some,’ said Rustina Gibson, broker of Re/Max Vantage LLC in Lake Nona. ‘It could be because of the holidays. It’s turning back into a buyers’ market for anything over $250,000.’”

“Gibson said she has seen builders’ inventory of new homes increase in southeast Orlando and they are offering higher commissions to real estate agents to help drive sales.”

The Coloradoan. “Kiersten and John Guerrero and their four children, ages 2 to 9, are celebrating in their new home — a four-bedroom, two-bath house on nearly a half-acre lot in Wellington. The first-time home buyers financed their $258,000 purchase with a Rural Development Loan through the U.S. Department of Agriculture. It restricted them to houses outside Fort Collins and Loveland city limits, so they looked in Timnath, Wellington and Laporte. Timnath’s prices ‘were a little ridiculous,’ and Laporte had no inventory, Guerrero said. They found a 43-year-old home in Wellington for $258,000.”

“The Guerreros, who make about $30,000 a year, could not have afforded Fort Collins’ median home price of $375,000. She works for Larimer County, he is a stay-at-home dad. Fort Collins Housing Authority pays part of their $1,200-a-month mortgage so they are not paying more than 30 percent of their income on housing. ‘We have to keep everything pretty tight, but it’s doable,’ she said.”

“Todd Spiller of Spiller Realty Services said rising interest rates and a flood of new apartments in the development pipeline might ease vacancy rates and push rents down. That could force some investors out of the market, which could lessen competition, especially at the lower price points, he said. But with every interest rate hike, ‘you lose a few buyers,’ he said. ‘Eventually that will erode that bottom end.’”

From Bisnow. “The main decision-maker for lending millions of dollars to commercial real estate firms at one of the country’s largest banks says apartment oversupply may be a reality in some parts of the country. SunTrust Bank’s Kathy Farrell—just named head of CRE this summer—tells us multifamily developers could very well be getting ahead of themselves, particularly in some areas of Washington, DC, Nashville, Charlotte and even SunTrust’s home turf of Atlanta.”

“‘Do we think there are pockets of potential oversupply in market-rate multifamily? Possibly,’ she says. ‘So we’re paying attention to that.’ And that means SunTrust—regularly ranked among the 20 largest banks in the US with nearly $200B in assets—will pull back even more on construction loans for apartments next year. SunTrust isn’t alone in its caution. Earlier this week, Wells Fargo SVP Melissa Frawley (center)—also based out of Atlanta—says her bank’s multifamily construction financing was down by 65% from the previous year, and that she was closely watching the next wave of apartment deliveries hitting the area.”