May 14, 2017

They Almost Can’t Give It Away

A report from the Toronto Sun in Canada. “Bidding wars have slowed and traffic at open houses appears to be down across the GTA and Hamilton after the province introduced new measures to cool the red-hot real estate market. Tim Hudak, president of the Ontario Real Estate Association said he’s heard from hundreds of agents since the Liberal government introduced measures to cool the market on April 20. ‘The realtors I’ve heard from are telling me that there are fewer people in bidding wars,’ he said. ‘That’s not just in Toronto, but also other parts of the Golden Horseshoe, and there are fewer people coming to open houses.’”

From Bloomberg on the UK. “Jennifer Pickford, a 39-year-old owner of four London rental properties, is not only avoiding purchasing more — she’s considering selling the ones she has. She isn’t alone. ‘If I thought stamp duty was bad, the tax relief issue really was the nail in the coffin,’ Pickford, an accountant from Surrey, said in an interview. ‘It just makes the whole exercise unprofitable and pointless.’”

“‘Before, prices were rising fast enough to cover extra taxes and you could still make money,’ Spencer West, who owns two London properties, said in an interview. ‘Now, they have stagnated and there’s no profit to be made with mortgage repayments, repairs and extra taxes coming out.’ West said he may sell his rental properties and reinvest in his pension plan.”

The Malta Independent. “The last Census, carried out in 2011 – with results published in late 2014 – revealed that in the Maltese islands only 68.2 per cent of residential property is regularly occupied. The rest is either vacant (18.4 per cent or else used seasonally or for some secondary use (13.3 per cent). While all this built-up residential property is vacant or under-utilised, the building industry keeps building more – thereby adding to the glut. They call this progress and a significant contribution to the economy. Alternattiva Demokratika – the Green Party and the environment lobby in Malta has been vociferous about this over-development of the Maltese Islands. This state of affairs has been worsening, with neither the Labour Party nor the Nationalist Party giving a fig about the consequences.”

From CBC News on Japan. “Tucked away in his office in Japan’s most prestigious university, Hideki Koizumi is worried. The towering cranes dotting the Tokyo skyline outside his building suggest a booming city, but the decaying suburbs tell a different story. Dozens of condo buildings and hotels, and at least 45 skyscrapers are planned in central Tokyo in the coming three years, but the long-term view for the country’s housing market is depressingly flat.”

“Young people these days want to live in the centre of Tokyo and are fleeing the suburbs. Left behind are the elderly, who often struggle to maintain their homes. ‘And their physical situation will become worse. So if no one will live with them in the suburban areas, who will look after them?’ said Koizumi. Once the 2020 building boom triggered by the Tokyo Olympics is over, he warns, the problem will accelerate.”

“He says while prices for condos in the centre of Tokyo are now out of reach for many ordinary families, many more affordable ones are being sold in the city’s suburbs. The condo price difference is indeed huge. Central Tokyo apartments can sell for as much as roughly $120,000 per 3.3-square-metre block. In the suburbs, Noboru Takimoto, Tokyo’s senior manager of overseas residential sales at Jones Lang LaSalle K.K., says they’re selling for about a third of that.”

From TV New Zealand. “Chinese investors have shown a strong appetite for housing investments around the globe in recent years, including in cities like Sydney and Auckland. However Professor Chen Bo from Huazhong University of Science and Technology, who has advised the Chinese Government on trade and investment reforms, told 1NEWS Political Editor Corin Dann in Shanghai, that ‘what we are seeing now is the Chinese Government is not trying to facilitate investment abroad anymore like it was.’”

“Mr Chen believes over the last few years some Chinese investors have looked to real estate abroad, not because they look for profit opportunities in those countries, but because they are afraid that investment opportunities in China have gotten gloomy. But he says investment in property abroad is not considered to be healthy.”

“Mr Chen gives the example of an individual wanting to study in New Zealand or send remittance to relatives in New Zealand. He says where previously they could wire 50 thousand dollars US without application. Now he says ‘for any amount over 10 thousand dollars US you need to fill out a bunch of documents saying exactly what you are trying to do, which makes you feel very cumbersome.’ He says this is one of the signals from the government that it wants to tighten capital out flows ‘no matter whether it is a firm or individual.’”

The Guardian on Australia. “The calls to financial counsellors began about 18 months ago. Middle-aged, middle-class homeowners in Western Australia who had shifted their retirement nest egg from superannuation to property were suddenly unable to pay their mortgage. It typically started with an investment property, often in the Pilbara mining towns of Karratha, Port Hedland and Newman. Purchased for $750,000 in 2012, when the market was near its peak, the property was now worth $300,000 and falling. The rental return, which had been $1,600 a week, had fallen to $370. Not enough to cover repayments.”

“Then came the kicker: the massive mining projects whose construction had fuelled the biggest economic boom WA had ever seen were now completed and required considerably fewer employees. Property prices in the Pilbara’s two largest towns, Karratha and Port Hedland, have fallen 65% in the past five years. Newman, an inland town supported by BHP’s Mount Whaleback iron ore mine about 1,186km northeast of Perth, dropped 82% from a median house price of $850,000 in 2012 to $153,000 in 2016.”

“If property owners didn’t get out before the bubble burst, the president of the Real Estate Institute of Western Australia, Hayden Groves, said, ‘they almost can’t give it away. And when that’s all dried up they’ve sort of put everything on the line – their businesses, their family homes – and when that’s all dried up and they haven’t been able to sell the asset the bank’s come knocking and they’ve lost the lot. The speculators who take a punt on making a mint and if they don’t see it coming don’t get out, well, I think they’ve only got themselves to blame.’”

“The Midland Information Debt and Legal Advocacy Service is located in the middle of that mortgage belt. It has been ‘inundated’ in the past 12 months by people made redundant in the mining downturn who can’t make their repayments, its general manager, Justine Clarke, said. A number of those people also have an investment property, intended to fund their retirement, secured against their family home. They now face retirement with nothing, Clarke said.”

“One client was already retired and living frugally off the pension, living in a home that she owned outright. She was encouraged to borrow against her house to purchase several investment properties in a mining town during the boom, Clarke said, and had lost them one by one before losing her home. ‘Generally what’s happened is they have used the equity in their home to purchase the investment property,’ Gemma Mitchell, principal solicitor for the Consumer Credit Legal Service WA, told Guardian Australia. ‘So once the investment property goes into arrears or into negative equity, that has an effect on their homes.’”

The Glut Of Rentals Will Be Felt In The Wallet, Of Course

A report from the Los Angeles Daily News in California. “If you’re in the market for an apartment, there may be some relief ahead after months of through-the-roof rents. ‘L.A. is going against the current for a change, with rent prices relatively stable and signs of an even better year ahead for local renters,’ said Amalia Otet, communications specialist at RentCafe, which also shows rental units that are available on the market. ‘Demand for apartment living continues to be strong in the city but supply is finally catching up and tempering rents in the process.’”

The Reflector in North Carolina. “The Greenville City Council on Thursday ignored loud objections and obvious signs that the city’s student housing market is saturated when it voted unanimously for a zoning change that will allow for a new 656-bed development on Charles Boulevard. Fred Pierce of Pierce Education Properties said student housing here was at 92 percent occupancy in the 2016-17 Academic Year. The 92 percent figure likely is a conservative estimate considering the state of The Captain’s Quarters, a 1,700-bed complex north of the river.”

“Richard Hart, a principal with ChainBridge Capital, said in another letter to the council on Wednesday that 1,450 beds at the complex were empty this year. The thought of massive vacant apartment complexes worries people. Thousands read Friday’s story about the vote in the paper, on and through social media. One Facebook commenter said ‘I am so disappointed and feel like I need to put my condo on the market sooner rather than later.’”

The Columbia Tribune on Missouri. “Cut-rate student housing and a job fair for displaced University of Missouri employees are among the first signs of how budget cuts and declining enrollment will impact Columbia. Landlords eager to lease bedrooms before the semester ended last week were offering gift cards of up to $1,000 or rent reductions worth the same or more to lure renters. They are getting squeezed from two directions – the number of upperclassmen allowed to live off campus will drop by about 1,400 and new buildings a few steps from campus will add almost 700 units to the market.”

“The offers are intended to match or beat the deals other landlords are offering, said Alexander Phillips, CEO of TwinRock Partners. But the company can only cut rates for so long, he added. ‘How strong the school and state will be will determine whether or not we are happy with our investment,’ he said. ‘If they don’t get their act together and drive up enrollment again, we will be licking our wounds.’”

The Tampa Bay Times in Florida. “When Brian Davison announced plans to build up to 78 new condos in downtown St. Petersburg, he revealed another surprise: His company, EquiAlt, plans to ’self-finance’ the project. That could be a smart move. Both nationally and in the Tampa Bay area, businesses are finding it harder to get money from banks these days. Just in the past two weeks, ‘I’ve seen more banks pull back and tread more lightly,’ said Robert Stern, a Tampa real estate attorney whose clients include lenders as well as business borrowers. ‘I have seen local deals not close, or get declined or blow up because of the difficulty of financing.’”

“In Tampa Bay, apartment developers are among those likely to feel the loan squeeze. Thousands of new upscale apartment units have been built since the recession, especially in Tampa and downtown St. Petersburg. And while the bay area has enjoyed strong job growth, incomes have not kept pace so the demand for rentals as high as $3,900 a month could start to wane. Davison said his Tampa company always intended to use private financing rather than commercial lenders to build its downtown St. Petersburg condos. ‘All my co-business people that I’ve seen at cocktail parties in the last year are having difficulties,’ he said. ‘The banks are flat out not lending on something where the cash is not flowing right now.’”

From Bisnow on New York. “Concessions are increasingly becoming the norm in apartments all over New York City, but it is not doing much to stem the tide of the softening market. The impact is being felt more by higher-value assets, another troubling sign. Doorman buildings in Manhattan, which make up about 50% of the multifamily market, had a 3% drop in median rent, the biggest decrease in five years.”

The Cooperator on New York. “Downtown Brooklyn’s housing boom isn’t letting up – but how much new residential construction is too much? ‘It’s like everywhere you turn there’s a new building,’ says Suzanne DeBrango, an agent at Halstead in Boerum Hill. ‘If you travel down Atlantic, you can’t make right turns at all, there’s so much construction. Brooklyn is becoming Manhattan.’ Most of the developments are luxury rentals, DeBrango says, while a small number are condos.”

“In recent months, three new towers have opened – and according to the New York Times, all are facing challenges leasing. The glut of rentals is pushing prices down and forcing landlords to offer freebies and perks, from free months on 12-month leases to no-fee rentals. According to rental listings on StreetEasy, out of 233 apartments for rent in Downtown Brooklyn, 186 are no-fee. And where will the effect of the glut of rentals be felt? In the wallet, of course. DeBrango says it took almost a year to find a renter for a one-bedroom parlor floor rental in a brownstone building with outdoor space in Boerum Hill. The apartment used to rent for $3,000 and the price has since dropped to $2,500. ”

The Fairfax County Times in Virginia. “On the surface, The Cosmopolitan at Reston Town Center appears to perfectly fit its description of a luxury apartment building. However, some tenants say life at The Cosmopolitan does not quite live up to its initial promise. ‘You go on the tour to move in here and…it seems fabulous,’ said Ann Marie Booher, a tenant and board member of the building’s recently formed Tenant Association. ‘…I felt like within three months of living here, a lot of it was just flashy show, and they didn’t live up to that.’”

“‘The in-house management, they want so badly to do whatever they can, but they are very limited,’ Booher said. ‘For me, it seems like it goes back to the character of the parent company and how much they want to penny pinch every little thing.’”