March 29, 2017

People Have Been Paying Tomorrow’s Prices

A report from Bloomberg on the UK. “The number of London properties listed on Airbnb almost doubled in a year to 50,000 at the end of 2016, according to broker Jones Lang LaSalle Inc. A record 35,000 new high-end London properties — enough to cover Hyde Park twice — are planned in the coming decade, 40 percent more than in 2014, consulting firm Arcadis NV said in April. Sales of London homes under construction in 2016 dropped to their lowest in four years, leaving developers with a record inventory of unsold properties, after tax increases dented demand for high-end homes.”

“‘Demand in the long-let market has not been very strong after the Brexit vote, but property owners need to maintain their profit,’ said Gao Xiang, president of JC International Property, a broker that specializes in Chinese and Japanese investors in London. ‘The price-to-rent ratio is far less than investors expect. The tax changes for smaller investors have had a real effect — in some cases they are looking at loss-making properties.’”

The Saudi Gazette. “Small businesses that emerged during the previous economic boom have been struggling to stay afloat, forcing many owners to make the most difficult decision any business owner has to make: Close permanently or stay open and continue to lose money. According to a report in Al-Riyadh daily, an increasing number of business owners are choosing to cut their losses and permanently close shop, a trend that has pushed commercial rent prices down by around 30 percent.”

“Real estate agent Abdullah Habib said that the closure of small business offices overshadowed the level of rents, something that indicates a remarkable drop in rent prices. ‘The real estate rental market is experiencing a severe recession since the beginning of the year in anticipation of a future that looks bleak at the moment,’ he said.”

From Arabian Business. “While rents in Dubai mostly held their ground, values came down noticeably in Abu Dhabi in February. The greatest downward movement was observed in rental rates of studio units, with average rent recorded at AED44,000, down from the January average of AED48,000. said: ‘Considering the global headwinds most economies are braving, and the effect on liquidity as a result of the ongoing oil price crunch, the performance of real estate markets in the two main cities of UAE appears satisfactory. While many regional realty markets remain in a nosedive.’”

From Japan News. “Are financial institutions trying to make an easy profit by providing loans to consumers who are easier to finance? The Financial Services Agency has launched a survey on so-called card and apartment loan services, which banks have been providing to a ballooning number of customers. Banks are apparently willing to extend loans to individual customers, from which they can expect high profits, in a bid to compensate for declines in profit under the policy of negative interest rates.”

“However, excessive financing with a focus on near-term profits could eventually have banks facing a new risk of irrecoverable loans. Under apartment loan services, borrowers are supposed to repay their loans with the rents they will receive. The scheme will work as long as borrowers can secure occupants for their apartments, but they could fall behind their repayment schedule if they face an increasing number of vacant rooms. Concerns over the risk of vacant rooms are particularly strong for apartments built in local cities, which are facing population declines faster than ever.”

“At a January meeting of branch heads, the Bank of Japan issued a warning, saying, ‘There are concerns that the vacancy rate is increasing while rents are falling in less-attracting properties, among other assets.’”

From CNBC on China. “China faces the risk of youth disenchantment as property prices rise beyond their reach, a renowned Chinese economist said. ‘In a regular country, wealth should be concentrated in the financial markets, not fixed assets,’ said Renmin University of China Vice President Wu Xiaoqiu at a media interview at the Boao Forum in the province of Hainan.”

“He highlighted the risks from the current property bubble in China, such as negative asset values if prices tank. More importantly, the social risks that come from the property bubble in the form of youth disenchantment with not being to afford a home will be damaging, he said. ‘If young people lose hope, the economy will suffer, as housing is a necessity,’ he said.”

From Domain News in Australia. “More than 50 per cent of new apartments bought and re-sold in the five years to 2016 in Melbourne sold at a loss, an analysis by BIS Oxford Economics of all apartments bought and sold since 2011 shows. In Melbourne, Carlton, West Melbourne and Docklands were the worst performing localities for off-the-plan apartments with 10 or more sales, with losses of up to 7.44 per cent.”

“It’s all down to timing and location and those approaching settlement in Sydney risked coming up short if a valuation did not stack up, said Edwin Almeida, director of Sydney-based real estate agency Just Think Real Estate. ‘For the last three years at least, people have been paying tomorrow’s prices when buying off the plan,’ Mr Almeida said.”

“He blamed the exuberance of the market, inflated commissions and poor-quality construction for the poor results. If off-the-plan properties fall in value or were bought for more than their worth, the buyer will need to find a bigger deposit to cover what the bank won’t lend to them. One seller who recently approached him was the purchaser of two off the plan apartments in Dulwich Hill. He’d bought the two-bedroom apartments for $950,000 each over a year ago and now faces the difficulty of settling. ‘He’ll end up selling at a loss if he sells,’ he said.”