August 31, 2017

Eventually, There Are No Takers

A report from Forbes. “New high-rise residential construction has been among the hottest areas for real estate investors, particularly those from abroad, with high-end products accounting for 8o% of all new construction. Yet this is not an entirely high-end country, and these products, particularly the luxury high-rises in cities, largely depend on a small segment of the population that can afford such digs. No surprise, then, that we see reports of declining prices in areas as attractive as New York, Miami and San Francisco, where a weakening tech market is beginning to erode prices, much as occurred in the 2000 tech bust, John Burns Real Estate Consulting notes. There have been big jumps in the number of expired and withdrawn condo listings, particularly at the high end; last year, San Francisco saw a 128% spike in the number of withdrawn or expired listings for condos over $1.5 million.”

“Almost without exception, the most expensive areas are precisely those that have the most high-rise buildings: New York, San Francisco, Seattle and Miami. More to the point, these buildings don’t tend to be occupied by middle-class, much less working-class, families. And in many cases, these units are not people’s actual homes; in New York, as many as 60% of new luxury units are not primary residences, leaving many unoccupied at any given time.”

“Already, harder times for some traditional investors – Russians and Brazilians, for example – have hurt the Miami market, long attractive to overseas buyers. There is now three years’ worth of inventory of luxury high-rises there, with areas such as Edgewater, Midtown and the A&E District suffering an incredibly high inventory of seven and a half years.”

“In Downtown Los Angeles, according to local brokers, many of the new high-rise towers are marketed primarily in China. (LA claims to had the second-highest number of cranes, behind only Seattle.) These expensive units are far out of reach for the younger people who tend to inhabit the neighborhood, instead serving as what one executive called ‘vertical safe deposit boxes’ for people trying to get their money out of China. If the new crackdown on such investments is strongly enforced, this could leave a lot of expensive units without buyers. Prices have already softened, and with several new luxury buildings coming up, Downtown is likely to experience a glut.”

“Even in Manhattan, another market long dependent on foreign investment, projects are now stalled, including some once-hot properties in Midtown that are delaying their sales launches.”

From Mansion Global on New York. “An oversaturation of inventory was to blame for the drop in Manhattan’s luxury sales prices, according StreetEasy Senior Economist Grant Long. ‘[It’s] the only place where it’s relatively nice to be a buyer this summer,’ he told Mansion Global in an email. ‘Buyers looking for homes at a higher price point will likely continue to experience downward price pressure and more negotiating power in the coming months, as supply continues to outpace demand.’ Beyond the luxury market, Manhattan’s sales have stagnated, the report found, except at the bottom.”

The Union Tribune in California. “New home construction in San Diego County has picked up slightly but is still substantially down from the same time last year. The only place in Southern California with a similar reduction in building is Orange County, which has seen a 26.7 percent drop in permits in the first six months. San Diego County’s slowdown is mainly the result of a drop in multifamily permits (apartments and condos), which is likely because of an anticipated slow down in rent appreciation, said Gary London, real estate consultant.”

“‘We’re entering a less aggressive phase in terms of increasing rental rates,’ he said. ‘We’re reaching an apex. The cost of construction continues to go up and we can’t squeeze more rental revenue out of the market right now.’”

“There are other factors the building industry points to as reasons for a slowdown, such as lack of buildable land, community opposition to new projects, government barriers to new entitlements for residential building and a slowing market for luxury rentals and homes. ‘We’re running out of folks that can pull the mortgage on the high-end stuff,’ said Borre Winckel, CEO of the local Building Industry Association.”

From Greenwich Time in Connecticut. “Greenwich home sales declined slightly in July, according to Scott Durkin, Douglas Elliman’s chief operating officer. Luxury real estate broker Kevin Sneddon points to the difference between the average list price versus average sale price over the last year. Between August 2016 and 2017, the average list price was nearly $3 million while homes sold on average for around $1.8 million, he said. ‘That’s very powerful,’ he said. ‘There’s a lot of overpriced inventory in Greenwich and weakening in appreciation for old-world estates.’”

“Though it’s been a decade since the high-water mark of home prices, ‘Sellers are still pointing to pre-crash prices,’ Sneddon said. ‘My point is that we’re not going back there anytime soon.’”

“The Greenwich housing market will likely follow a similar trajectory to the Hamptons, Sneddon predicted. ‘There was a lot of product built in the 1970s and ‘80s and no one wanted those anymore,’ he said. ‘So prices cascaded down to where they got to land value and now everyone is buying them and knocking them down to put up new construction.’”

“Already, Greenwich homes are frequently bought by developers, and the trend will continue to grow, he said. ‘Eventually, there are no takers and the price will cascade down until they’re at tear-down price.’”

“Greenwich continues to be a buyers’ market, according to Sneddon, and it will probably take years to turn around given the amount of inventory on the market. ‘It takes a while to turn a big ship around,” Sneddon said.”

August 30, 2017

The Boom Has Created A Vast Oversupply

A report from Crain’s Chicago Business in Illinois. “The laws of economics dictate that growing demand drives prices up, but not if supply is rising by a greater amount. That’s exactly what’s happening in the downtown Chicago apartment market. Landlords are losing some of their leverage over tenants as a flood of new apartments washes over the downtown market, a historic surge in supply that’s more than offsetting rising demand. A key measure of apartment demand, absorption—the change in the number of occupied downtown units—tells another part of the story.”

“Absorption rose to a record 2,582 units last year, according to Appraisal Research. After a surprisingly strong second quarter of leasing, Appraisal Research Vice President Ron DeVries expects downtown absorption to hit 3,000 this year and 3,200 in both 2018 and 2019. Those are big numbers—9,400 units over three years—but the expected supply of new apartments—12,500 units—is even bigger, meaning the market could be out of balance for a while.”

“Several more buildings will open by the end of the year, and demand tends to taper off after Labor Day. That’s why DeVries expects some developers to start offering more deals on rent in the coming months. ‘There’s a lot of units still coming on line this year, and the prime leasing season is pretty much over,’ he said.”

The Norman Transcript in Oklahoma. “Despite increased evidence that new multifamily properties marketed toward students are rolling out too quickly for the demand, investors still love Norman apartments, according to Mike Buhl of Commercial Realty Resources Co. ‘I tie it back to interest rates, but I think investors are just convincing themselves that this makes good sense,’ Buhl said. ‘They’re going to put money into them, and then reposition them and raise rents. That looks good on paper, but I don’t think it’s a good time to do that in Norman.’”

“Buhl tracks the historical trend from fall 2008 when enrollment was 26,201, an increase of 1,736 students over the nine year period between 2008 and 2016. While student demand is constant, he said, the construction boom has created ‘a vast oversupply of student housing.’”

“Not counting construction of on-campus housing by OU, Buhl reported 3,195 student bedrooms added to the market since 2014. ‘Adding smaller duplex developments that include six to eight bedrooms each, along with the OU housing, and the number surpasses 4,000 new student bedrooms to the market,’ Buhl said in his mid-year report. ‘While it’s a tough time to be a student landlord in Norman, the effects of overbuilding the sector will have a broad impact. We’ve created an inventory of units that’s not going to be absorbed in the next two or three years, if you look at historical trends.’”

From Multi-Housing News on New York. “Aleksandra Scepanovic, co-founder and managing director of Ideal Properties Group, a Brooklyn-based real estate brokerage, recently took time to talk to MHN about the state of affairs of multifamily in Brooklyn. MHN: What have you seen so far in 2017 when it comes to multifamily investment opportunities in your area? Scepanovic: A glut of new Class A supply is causing a weakening in the rental apartment absorption rate, coupled with a steady supply of concessions.”

“MHN: What do you see as the trends in multifamily housing in your sector? What is on your radar? Scepanovic: Enduring rent concessions are wide-spread as the existing assets try to compete with the influx of new developments.”

“MHN: What’s your biggest piece of advice with today’s current market? Scepanovic: Analyze, analyze, analyze, and only then invest. If a project doesn’t pencil out, remember the old adage: ‘Some of the best deals are the ones you don’t make.’”

The Real Deal on New York. “The rise of foreign investment in Manhattan over the past few years has been a boon to the real estate industry. But as 2017 passes the mid-year mark, the trend’s flipside is increasingly becoming apparent. Back in November, Chinese capital was still king here, paying top dollar for the glitziest assets and telegraphing much more to come. Then Beijing took action, and things changed rapidly. The Chinese government began enacting a series of controls designed to curb capital outflows, particularly bets on what it deems risky investments.”

“When The Real Deal took an in-depth look at the issue in May, brokers channeled their supernatural optimism and said they don’t see it having a big impact on New York. It’s getting harder to defend that stance now. This month, Morgan Stanley reported that Chinese overseas real estate investment could fall by 84 percent this year. And Chinese regulators formalized capital controls, vowing to no longer tolerate ‘irrational’ investment overseas, particularly in real estate.”

“The problem is that several big overseas investors retreating from New York would no longer just be a hiccup — it could shake the market to the core. Foreign buyers often bid top dollar for trophy assets, setting new benchmarks for pricing. It may not be a coincidence that the spread between the average cap rate of prime Manhattan properties and the 10-year Treasury yield (an imperfect but useful indicator of how overpriced a market is) is far lower now than it was in 2012 or 2013 (see chart, courtesy of RCA).”

“‘I don’t think you can ignore what’s going on globally,’ said Savills Studley’s Heidi Learner. ‘It’s not just true for commercial real estate.’”

August 29, 2017

Speculative Activity Is Being Squeezed Out

A report from the Financial Times on Canada. “Officials at major Canadian banks are issuing assurances of the strength of their mortgage portfolios, in spite of strict government curbs on housing transactions, and dropping prices in big cities, as well as a slowdown in transactions. However, with prices dropping and Canadians largely over-leveraged for their homes, David Madana of Toronto’s Capital Economics noted, ‘Everyone agrees it’s a bubble; now the question is, how it ends.’”

From Reuters. “The sharp reversal in Toronto’s home prices has thrown Canada’s biggest property market into chaos, with scores of buyers suddenly short of money and desperate to get out of deals that looked good just a few months ago. Much of that turmoil is not just down to those who bid at the peak and now wanted to get out of a deal, but also to lenders tightening credit and property appraisers lowering their valuations.”

“‘The big issue is with financing,’ said John Pasalis, president of the Realosophy real estate brokerage in Toronto. Pasalis gave an example of a buyer who expected a C$1 million ($800,000) loan from the bank only to have it cut to C$850,000 days before the deal was set to close. ‘All of a sudden you have to come up with an extra 150 grand,’ Pasalis said. He estimated that up to 5 percent of deals were at risk now, something unheard of a year ago.”

From CBC News. “Whether or not Toronto is in a housing bubble — and whether or not it’s already burst — is a hot topic in the city. But one economist says we’ve definitely popped that bubble, which could make things a bit easier for would-be buyers in the months ahead. Doug Porter, chief economist and managing director of BMO Financial Group, shared his thoughts on the city’s real estate market on CBC’s Metro Morning.”

“Metro Morning: ‘Some people were not convinced there was a housing bubble. Why do you believe there was?’ Doug Porter: ‘For those who aren’t convinced, I’m not sure what it would take to convince them. By any traditional definition, we were in the grips of a full-on bubble earlier this year. Anyone who bought near the peak probably has a bit of buyer’s remorse now.’”

From Better Dwelling. “Toronto is seeing the largest decline in sales to new listings in the country, as sales struggle to keep up with the city’s huge inventory growth. Toronto is coming off of a low for inventory, so numbers are expected to grow. Growth this quickly however, with stagnating sales may soften prices. Over the next few months, expect the market to find better footing, as people play the game of price discovery.”

The Financial Post. “Demand for housing could be cut anywhere from five to 10 per cent because of tougher qualification rules being considered by Ottawa, according to a report by Toronto-Dominion Bank out Monday. The report from Beata Caranci, chief economist with the bank and Diana Petramala, also an economist, takes aim at a proposal from the Office of the Superintendent of Financial Institutions. While buyers may be hoping rising interest rates could trigger a crash, those first-time buyers ‘may be holding their breath for a while’ because prices are likely only going to reset back to the levels of where they were before a year of exorbitant gains, the report concludes.”

“‘Listings shot up in the GTA following the policy measures not because homeowners suddenly became incapable of affording their homes but because speculative activity is being squeezed out,’ they wrote.”

August 28, 2017

Attacking Motherhood And Apple Pie

A report from the Los Angeles Times in California. “For decades, the ability to deduct the interest on a home mortgage has been one of the most untouchable sacred cows of the tax code. It is particularly revered in Los Angeles and other areas with high real estate prices, where the annual tax savings can be the difference between being able to afford a house or continuing to rent. Now, Republicans crafting legislation to overhaul the federal tax system and cut rates are considering placing new limits on the home mortgage interest deduction. And thousands of Californians could feel the pain.”

“The move comes as GOP lawmakers and Trump administration officials already have proposed killing another break — the deductibility of state and local taxes — that benefits California residents more than those in any other state. The housing industry strongly opposes efforts to place new restrictions on the deduction, arguing that would lead to lower housing prices because there would be less of a financial incentive to buy instead of rent. At the same time, Democrats from California and other states with high housing prices are gearing up to fight any change.”

“‘I think that harming the ability for Americans to own their home is like attacking motherhood and apple pie,’ said Rep. Judy Chu (D-Monterey Park), whose district includes Pasadena and much of the San Gabriel Valley. ‘I represent a district with homes that are very high-cost, so they have even more reason to be concerned about it,’ Chu said.”

“Diane Yentel, president of the National Low Income Housing Coalition, which advocates for more affordable housing, said the ability to deduct interest on mortgages as large as $1 million means the provision benefits mostly upper-income households. ‘We’re paying about $10.5 billion a year to subsidize the homes of some of the wealthiest people in the world at the same time that we have hundreds of thousands of people with no homes at all,’ she said.”

The Northport Patch. “Three senior executives at a Long Island mortgage lender were arrested for their role in committing a $8.9 million fraud, according to the U.S. Attorney’s Office. Edward E. Bohm, 39, of Nissequogue, Edward J. Sypher, Jr., 40, of Scarsdale and Matthew T. Voss, 42, of Norhtport, all senior executives at Vanguard Funding, LLC (Vanguard), were charged with conspiracy to commit wire and bank fraud by using millions of dollars in warehouse loans for Vanguard to fund mortgages, according to the U.S. Attorney.”

“The trio misused the loans to pay personal expenses and compensation, as well as to repay earlier fraudulently obtained loans, the U.S. Attorney said. Between August 2016 and March 2017, Voss, Vanguard’s COO, Sypher, the CFO, and Bohm, the president of sales, engaged in a scheme in which they obtained warehouse loans, or short-term loans, for the company by falsely representing that Vanguard would use the proceeds of those loans to fund mortgages or mortgage refinancing for clients, the U.S. Attorney said. ‘At the end of the day, the s— we did wasn’t to the public,’ Bohm said in part, according to the complaint.”

“‘As alleged, the defendants – executives of a mortgage lender – defrauded banks into lending them money by stating that the money would fund new mortgages or refinance existing ones,’ Acting United States Attorney Bridget Rohde said. ‘We will continue to address dishonesty in the mortgage industry whether the victims are financial institutions, investors, or homeowners, as it ultimately hurts all of us as a community.’”

The Ambler Gazette in Pennsylvania. “A Blue Bell man was indicted Aug. 23 for carrying out an alleged scheme to defraud the federal government by providing inflated appraisals of properties seeking to obtain Home Equity Conversion Mortgages. Eugene Peter Kenworthy Jr., 50, was indicted on charges of wire fraud, false statements for the purpose of influencing the Federal Housing Administration, aggravated identity theft, and failure to file a tax return, according to the U.S. Attorney’s Office.”

“HECM loans, commonly referred to as reverse mortgages, are insured by the Federal Housing Authority, the indictment states. When a borrower, or estate, sells a property on which an HECM loan was taken, if the proceeds of the sale are insufficient to repay the loan, the FHA pays the lender the deficit. Kenworthy allegedly inflated the appraisals of properties for which he submitted reports to certify the HECM loans, resulting in the payment of more than $3 million by the FHA to cover loans that went into default. The charges against him grew out of a grand jury investigation, according to the indictment.”

“From 2010 to 2016, Kenworthy appraised approximately 714 properties, which were the subject of applications for reverse mortgages, using the electronic signatures of five certified real estate appraisers, without their knowledge, to certify 294 appraisal reports he wrote for the HECM loans, the indictment says. He used his own signature to certify the other 420 appraisal reports he wrote, it says.”

“Kenworthy wrote most of the appraisals for one mortgage broker, which paid him, or his appraisal company, approximately $450 per appraisal, the indictment says. In some of the appraisal reports he wrote for the reverse mortgages, he falsely inflated valuations for the properties, which, in turn, fraudulently inflated the loan amount, it says. Numerous properties he wrote appraisal reports for went into foreclosure, the indictment says.”

The Palm Beach Post in Florida. “After a scorching June, Palm Beach County’s housing market cooled a bit in July. Housing statistics continued to send mixed signals. The houses that did sell moved briskly, needing a median of just 37 days to go under contract. That was down from 43 days a year ago. Meanwhile, sellers of entry-level houses command strong interest in their properties. The typical home priced at $200,000 to $250,000 found a buyer in just 23 days. ‘Those still are flying off the shelf, but not everything is,’ said Jackie Ellis, owner of Keller Williams Realty offices in Boynton Beach and Boca Raton.”

“Homes priced at more than $1 million needed 113 days to sell. The July slowdown — which came despite low mortgage rates and a strong job market in Palm Beach County — was a bit of a head-scratcher. Typically June and July are the busiest months of the year for house sales, as families try to get settled in before school starts. ‘Usually this is our big summer season,’ Ellis said.”

“Realtors see a slight uptick in choices for buyers. The inventory of active listings rose 7,086, up 1.9 percent from a year ago. ‘The recent statistics indicate signs of a more balanced market, which includes a slight increase in inventory. This is something we have not seen in a while,’ said Jeffrey Levine, first vice president of the Realtors of the Palm Beaches and Greater Fort Lauderdale.”

The Aspen Daily News in Colorado. “With the current economic expansion in its eighth year, are there early warning signs that the real estate market, particularly for high-end luxury homes, may be in for a correction? This economic expansion is one of the longest on record. Since the Great Recession bottomed in 2009, luxury real estate around the world has experienced a phenomenal increase in value, setting all-time records for volume, price per square foot and overall size of transactions. We’ve experienced this in Aspen as prices are again at record levels.”

“By studying patterns prior to past real estate downturns, we might see signs that are replaying in the current market. Leading up to the Great Recession, the country experienced seven years of economic growth after the crash and recession of the early 2000s. Real estate markets that don’t fare well in a downturn have one thing in common; there is generally no constraint on supply leading up to the point where the demand ceases. This led to a huge inventory overhang as the market slowed. The supply and demand equation took over when the demand side of the equation slowed dramatically and real estate prices plummeted.”

“In the current Aspen luxury home market are we starting to see a similar pattern? There have been roughly 27 sales of luxury homes in the Aspen-Snowmass market over $10 million in value in the past 18 months. Of those sales roughly eight were spec homes delivered to the market in 2016 and the first half of 2017. Currently, about 120 homes priced over $10 million are listed for sale of which about 29 are new spec homes.”

“If we stopped delivering new homes to the market right now and absorption continues at its current pace, it could take three or more years for all new spec homes to be sold and four-plus years for all homes listed over $10 million to be sold. If for some unforeseen reason, the absorption rate was to decline dramatically like it did in 2008-2009, those time frames could easily double. That could lead to significant downward pressure on prices at least for the over- $10 million segment of the market.”

From The Real Deal on New York. “For some who’ve opted to sell, the results have been grim — particularly in buildings that debuted at the top of the cycle. Financial losses have spanned the borough and have spared few. Leonardo DiCaprio, for example, paid $10 million in 2014 for a unit in Delos at 66 East 11th Street — a green condo with ‘wellness’ amenities like purified air, posture-supportive flooring and Vitamin C-infused showers — only to resell it for $8 million late last year.”

“And the list goes on. Two owners at One57 TRData LogoTINY — Nigerian oil magnate Kola Aluko and business executive Sheri Izadpanah — are facing foreclosure. Even 15 Central Park West, the so-called Limestone Jesus, which has been largely immune from losses, hasn’t been unscathed. Late last year, an owner who bought a three-bedroom under the name Westside RE Properties LLC sold for $20.6 million, about $3 million less than the 2012 purchase price.”

“Compass’s Leonard Steinberg, who brokered the Charles Street deal, said while it may seem nonsensical for wealthy owners to sell for a loss, in some cases it makes more economic sense than holding on to a property. ‘When you pay an extreme price in an extreme market and you don’t hold on to that property for a long time, you can hit the market when it’s not extreme,’ he said. ‘You have to be patient. For some people, taking a loss is better than having to pay debt service.’”

August 27, 2017

Wake Up And Smell The Dirty Money

A report from the Real Deal. “When Treasury officials rolled out a plan last year to unmask anonymous buyers of luxury real estate, a key criticism was that it excluded deals involving wire transfers — a gaping loophole large enough to drive a truck through, some said. By closing that loophole this week, regulators hope to tighten the noose around bad actors trying to launder money through pricey property. But there’s more.”

“The Treasury Department’s financial crimes unit, FinCEN, also hinted at its eventual plan to apply LLC disclosure rules to deals nationwide by broadening the rule to Hawaii, an increasingly important market for Chinese and Russian buyers, sources said. And it signaled its intent to expand the net to commercial real estate deals in the near future, according to sources who cited the fine print of an eight-page advisory published by FinCEN on Aug. 22. Money laundering in commercial real estate has largely flown under the radar but may present an even greater threat than laundering in the residential market, as The Real Deal explored in an investigation last year.”

“In the meantime, FinCEN gave the LLC disclosure rule more teeth when it added wire transfers to a rule requiring title companies to disclose the buyers of luxury real estate who purchase using an LLC or corporate entity. ‘Most transactions, including ‘all-cash transactions,’ include a wire transfer somewhere in the process,’ said Aaron Shmulewitz of Belkin Burden Wenig & Goldman LLP. Closing off the loophole ‘will bring into the statute a very large number of the transactions that have been exempt for the last year-and-a-half.’”

From CNBC. “The Treasury Department said that 30 percent of high-end real estate deals that were subject under a new watchdog program involved people who had been targeted by the government for ’suspicious activity’ and potential money laundering. Treasury this week expanded and extended a program targeting luxury real estate deals in New York, Miami, Los Angeles and other big markets to prevent the use of real estate for money-laundering by overseas buyers. The program was designed to prevent buyers from using shell company’s or LLC’s to hide the identities of the real buyers.”

“Analysts say the biggest impact could be in Miami and southern Florida, which has been suffering from a glut of new high-end condos and has relied heavily on buyers from Latin America — some of whom have come under scrutiny for corruption or money laundering. ‘This could have a chilling affect,’ said Nela Richardson, chief economist for Redfin. ‘That very high end of the market is the most vulnerable to these issues. If a lot of foreign buyers were parking their money in high-end real estate and that much of it is tainted, this rule will have an impact.’”

The Miami Herald in Florida. “Wake up and smell the dirty money. That’s the message federal regulators are sending to the real estate industry in Miami and other high-priced housing markets. The rules, previously so limited in scope that they applied only to a few hundred deals, will now cover every big-ticket cash transaction by shell companies in seven major markets. They are the South Florida counties of Miami-Dade, Broward and Palm Beach; all five boroughs of New York City; San Antonio, Texas; Honolulu (included in the order for the first time); and Los Angeles, San Diego and San Francisco.”

“‘This is going to gather much more information,’ said Andrew Ittleman, a South Florida attorney who specializes in anti-money-laundering laws.”

“The federal decree comes at a bad time for Miami real estate. Overbuilding and a slump in foreign buyers are hurting sales. The average sales price for luxury condo units in Miami Beach fell 21 percent year-over-year in the second quarter of 2017, according to a report from brokerage Douglas Elliman. Two-thirds of those sales were cash.”

“The rules kick in at different price points depending on the market. In South Florida, they apply to shell companies buying homes for $1 million or more with cash. ‘This will help a market that has long neglected the amount of criminal activity taking place in the condo sector,’ said Jack McCabe, a South Florida real estate analyst.”

“The degree to which suspect money fuels Miami’s luxe real estate market is debated. But real estate crops up in case after case involving illicit funds. The flood of cash has helped raise home prices far beyond what most locals can afford. As part of FinCEN’s latest push, the agency has told real estate industry professionals they should be on the lookout for suspicious activity from their clients. Warning signs of bad behavior include clients willing to blindly overpay or lose money on a deal; the purchase of properties with ‘no regard’ for their condition or location; funding that far exceeds a client’s known wealth; and clients asking for unwarranted secrecy or for records to be altered.”

From NBC News. “The five-bedroom house in New York’s Long Island suburbs — listed for nearly $1.3 million — boasts a southern exposure and proximity to a country club. But here’s what’s more interesting: The seller, a Chinese national named Sun Sidong, has been linked by American security experts to a network of Chinese companies under Treasury sanctions for helping companies and individuals who support North Korea’s nuclear and ballistic missile programs. Sun’s Great Neck house is an example of how the alleged sanction-busting networks can stretch around the globe, even to the luxe suburbs of Long Island.”

“‘The fact that you have somebody who’s engaged in trade that is potentially not just sanctioned, but dangerous, and that individual then invests in real estate in the United States reflects that there are holes in the system,’ NBC News National Security Analyst Juan Zarate said.

“Sun, whose U.S. company operates out of a New York City address he does not own, bought the Great Neck property near the country club for $1.1 million in December 2016. The house is already on the market again. Sun’s U.S. real estate broker told NBC News that’s because Sun ‘doesn’t want to do business here.’”

From The Guardian on Nigeria. “A Nigerian court confiscated four large housing complexes worth $7 million from a former oil minister accused of corruption on Tuesday as fraud investigators continue to claw back her fortune. Lagos high court judge Abdulaziz Anka ordered former petroleum minister Diezani Alison-Madueke to hand over the developments located across Nigeria that were found to have been purchased with suspect cash.”

“Nigeria’s anti-graft Economic and Financial Crimes Commission (EFCC) argued in court that Alison-Madueke, along with her cousin Donald Chidi Amamgbo, had made the purchases through front companies. During a search of Amamgbo’s property, investigators also found documents indicating that he owned some 18 companies and property in Britain and the USA — as well as Nigeria. He told officers that he had registered the corporations in order to hold property on Alison-Madueke’s behalf, the court heard. Amamgbo also revealed that Alison-Madueke had made mortgage payments worth more than $3.3 million (2.8 million euros) in cash.”

“The first female president of the global oil cartel OPEC — who was one of Africa’s most prominent female politicians — has always denied the allegations, which involve billions of dollars syphoned from oil deals and state accounts. The ruling followed an application by the EFCC which earlier this month successfully confiscated a $37-million luxury apartment complex from the former official. Alison-Madueke is currently on police bail in London after being arrested in connection with a British probe into international corruption and money laundering.”

From Netral News on Indonesia. “Deputy Eradication of National Narcotics Agency (BNN) Inspector General of Police Arman Depari confirmed in tracking the assets resulted from drug transactions it is not easy. The agency also encountered several obstacles. The obstacles in tracing the asset resulted from drug transactions, Arman explained, are changes of places, so the officers only find traces only. ‘For example in the form of property, then as if [dealers] have an import and export business and foreign money changers and in the form of deposits,’ said Arman.”

“A total of six non-bank foreign exchange business activities (KUPVA) or money changers are indicated to be an intermediary channeling of funds for drug abuse business with a value of nearly IDR4 trillion($280 million). Of those six KUPVA, four businesses do not have permission, while two other businesses misappropriate permission from BI. The dollar proceeds then are transferred to an overseas account through banking.”

“‘Another obstacle is that there is no response from foreign banks to the funds transferred abroad via those banks. There are 11 foreign countries indicated, while the one who responds is only one country, that is, Japan,’ he said. Some countries that do not respond, among them, are China, America and the Netherlands.”

The Sydney Morning Herald in Australia. “A quarter of Chinese buying property overseas leave their apartments vacant and the majority pay for their purchase with cash, a survey of mainland Chinese customers by investment bank UBS shows. Another 25 per cent of overseas property owners use their home on a temporary basis, suggesting about half of the overseas properties owned by mainland Chinese were not fully utilised, the bi-annual survey suggests.”

“The rush of offshore buyers - who are limited to purchasing newly built property - has also sparked an apartment boom in east coast cities. Up to 25,500 apartments will be completed in Sydney this year, with a further 16,700 in Melbourne and 10,600 in Brisbane, analysts Charter Keck Cramer estimate. Under pressure to show foreign-ownership rules are working, the Australian government has also cracked down on the established housing market.”

“The survey, conducted with Chinese consumers bi-annually, includes questions about buying intentions and purchasing habits overseas. The top five international preferred investment destinations were Hong Kong, Singapore, Japan, Canada and Sydney. The survey follows news this week of China officially putting the brakes on businesses speculating in overseas property development, as they were ‘not the real economy’ and could harm China’s financial interests by increasing capital outflows.”

The Vancouver Sun in Canada. “The B.C. Civil Forfeiture Office is attempting to seize a $5 million, 13,000 square-foot mansion in rural Richmond that was allegedly used for illegal gambling, money laundering, kidnapping and blood-soaked assaults. The sprawling eight bedroom and 11-bathroom property — built on two-acres of Richmond agricultural land reserve — is also at the centre of an anti-gang investigation. ‘This is a large and complex investigation,’ said Sgt. Brenda Winpenny, of B.C.’s Combined Forces Special Enforcement Unit. ‘We anticipate charges and arrests.’”

“A civil forfeiture action filed June 29 in B.C. Supreme Court alleges that defendant Wen Feng, a woman whose listed address is an expensive property in Aurora, a suburb north of Toronto, bought the Richmond property at 8880 Sidaway Road in October 2015. According to B.C. Assessment Authority records the sale price was $4.4 million. But she wasn’t the real owner, and ‘acted as a nominee or ‘owner of convenience,’ the claim states. The other named defendant, Lap San Peter Pang, is Wen Feng’s brother and ‘the beneficial or ‘true’ owner of the property,’ the claim alleges.”

“The claim also alleges the property ‘is an instrument and proceeds of unlawful activity,’ and ‘has been used to engage in crimes,’ including ‘laundering the proceeds of unlawful activity.’”

“It was in December 2015 that the B.C. Lottery Corporation was informed the mansion was operating as an illegal casino, the B.C. Civil Forfeiture Office claim alleges. In April 2016, Richmond RCMP entered the mansion in response to an anonymous call, the claim states, ‘that someone was being held hostage at gunpoint inside the residence.’ Police found gaming tables and 15 people involved in gambling, a large amount of casino chips, playing cards, a money counter, and ‘an elaborate video surveillance system,’ mounted above the gambling tables, the claim alleges.”

“Next, in May 2017, police responded to reports of a person admitted to Richmond General Hospital who had been stabbed at the property, the claim alleges. Inside the mansion police found ‘25 individuals, dancing and drinking’ and ‘blood soaked paper towels in a kitchen garbage can.’”

“The claim states that the defendant Pang told police he was the resident and caretaker of the mansion, which contained hundreds of liquor bottles but no personal items that one would expect to find in a home. Pang was living in only one room equipped with a small hotplate, according to police. Next, on June 13, 2017, a person was admitted to Richmond hospital ‘with a broken arm, broken nose, and other injuries after being kidnapped, forcibly confined and assaulted with a metal bar or pipe,’ at the property on the previous day ‘by Mr. Pang and others,’ the claim states.”

“In a response filed Aug. 10, Wen Feng says she bought the ‘recently built, luxurious mansion of over 13,000 square feet’ as an investment, and ’sourced the down payment’ using a line of credit secured against her personal home, the sale proceeds of a Toronto condo, a loan from a friend, and a mortgage from the Bank of Nova Scotia. The property is now listed for sale at just under $6 million ($1 million over its assessed value).”

August 26, 2017

Increasingly Exposed To Cyclical Risk And Massive Oversupply

A report from National Real Estate Investor. “The U.S. apartment completion volume across the country’s 100 largest metros has accelerated to more than 80,000 units per quarter in 2017, up from around 60,000 units a quarter in the previous couple years. That aggressive new supply tally is creating a more competitive leasing environment for top-of-the-market product, especially in urban core settings where so many communities are coming on the market within blocks of each other. Atlanta and Dallas are markets that could drop out of the ’solid performer’ category for urban core properties relatively quickly. The cities are absorbing product additions at breakneck speed. However, construction has gotten so aggressive that rent growth is showing signs of stalling.”

“Rents have been essentially flat for a while now in a big block of downtowns, including the urban cores in Charlotte, N.C., Los Angeles, Miami, San Antonio, Texas, San Diego, San Francisco, San Jose and Washington, D.C. Let’s also put Manhattan and Brooklyn in this category. Downtown Los Angeles is still not an especially well-established marketplace, and it has struggled to absorb new supply totaling more than 7,000 units over the past three years. With ongoing construction at 8,000 or so units, a brief period of sizable rent cuts is looking like a possibility.”

“Effective rents in downtown Portland, Ore. have been gradually drifting downward throughout the past year, and Denver’s urban core has been losing pricing power throughout 2017. Furthermore, Central Portland occupancy of about 94 percent is off roughly 300 basis points from the level recorded a couple years ago, and downtown Denver’s occupancy rate of about 91 percent is down even more drastically.”

“Houston’s urban core apartments are really taking a beating. Annual rent cuts are right around the 5 percent mark downtown, and similar or deeper losses are occurring in other urbanized zones like the Medical District, Greenway/Upper Kirby, Greater Heights/Washington Avenue and the Galleria/uptown area. Furthermore, most of these neighborhoods have been suffering rent loss since late 2015 or early 2016. About half of the 21,800 apartments currently under construction in metro Houston are on the way in the more urbanized submarkets, including some 4,200 units specifically in downtown.”

From Bisnow. “There remains a large disparity between the luxury apartments being constructed and the working-class Americans in need of affordable apartments. This divide is driving companies and renters from expensive core markets with inflated rents like San Francisco and New York to more financially manageable areas, and the migration is not going unnoticed by investors. As for the top sell markets, it may come as no surprise that the country’s leading metros like New York and San Francisco are experiencing a shift in renting power as landlords increasingly offer concessions and perks to lure residents and remain competitive. According to Ten-X research, the five top sell markets for multifamily investors are New York City, San Francisco, San Jose, Washington, D.C., and Oakland.”

“Healthy absorption continues to power the sector forward despite expectations of record new deliveries hitting the market later this year. Yardi Matrix predicts multifamily supply will peak this year, with 360,000 new units expected to come online in Q3 and Q4. ‘While many large metro areas are increasingly exposed to both cyclical risk and massive oversupply, the overall market is being sustained by significant societal shifts that is driving strong, sustained demand,’ Ten-X Chief Economist Peter Muoio said in a statement. ‘As long as gainfully employed millennials and other Americans continue to choose renting over homeownership, a majority of multifamily investors can be confident that rents will continue to rise.’”

The Philadelphia Inquirer in Pennsylvania. “Developer Carl Dranoff is planning 28 stories of luxury condos at Broad and Pine Streets, instead of the hotel-and-apartment hybrid he previously had in mind for the site, as Center City heads toward a likely near-term glut of both rental housing and hotel guest rooms. Tony Biddle, regional leader for CBRE Hotels, said central Philadelphia hotel rooms are being booked at an ever-swifter pace. But Biddle said that won’t be enough to absorb all the new supply in the near term, which could encourage other developers with hotel projects on their drawing boards to join Dranoff in revising those plans.”

“Developers are ‘taking note of the anticipated supply growth that we will have here over the next couple years,’ he said.”

The Dickinson Press in North Dakota. “Are apartments and commercial properties taking on an unfair tax burden in Dickinson? Carlos Royal, owner of roughly 300 apartment units in Dickinson, certainly thinks so. Even as Dickinson’s oil boom continued to pump along in 2013, Royal believes that the apartment market was already beginning to crash. Developers ‘basically overbuilt the market,’ Royal said. ‘The apartment boom started to show signs of a bust in 2013.’”

“He also believes that he won’t be the only one giving the city trouble over this issue and pointed to recent similar lawsuits filed by Menard’s and Sierra Ridge Apartment Homes’, both in Dickinson, as evidence of a more systemic issue. ‘I think you are going to find that there is going to be a whole flood’ of commercial property owners complaining to the city about overvaluation, Royal said.”

From Curbed Miami in Florida. “Miami rents are dipping across many popular neighborhoods, according to the latest report by Zumper. While rent in the city itself still remains expensive—the median one-bedroom apartment price of $1800 ranks 9th in the country—a year-over-year decrease is noticeable in coveted core areas like Brickell (-2.3%), Downtown (-6%), and Edgewater (-8%), but the reductions are especially prevalent in South Beach, where rents along West Avenue and the city’s center have dropped 10 percent and 15 percent, respectively.”

“Reasons why rents have slipped in the aforementioned areas could not only be due to an oversaturated supply but that Miami renters simply want out. Apartment List recently surveyed 24,000 renters across the country and found that 76 percent of renters in South Florida ‘planned to settle in a new city.’ This was 12 percent higher than the national average.”

From Real Estate Weekly on New York. “It may be the busiest time of the year in the New York City rental market, but according to the latest market reports, renters have the upper hand. According to a report from Citi Habitats, while average rents declined in July as compared to the previous month, the vacancy rate increased. ‘Any time the vacancy rate kicks up one month from another in the summer season, that’s something that always intrigues me because it’s the busiest time of the year,’ said Citi Habitats president Gary Malin. ‘Historically, you’d think vacancy would go down because in the summer people are moving here. You just wouldn’t expect it to rise, but given the way the market’s been operating over the last year, it’s pretty much par for the course.’”

“Malin called the rental market ‘very price-sensitive,’ and that while landlords are looking to achieve high prices — and many do — renters will find other neighborhoods where they can get the same amenities and proximity to Manhattan for less. ‘They have an idea in their head that they can go to other locations and get value,’ said Malin of renters.”

August 24, 2017

Sorting Through The Wreckage The Madness Caused

It’s Friday desk clearing time for this blogger. “Denver’s housing market has been red hot for the past few years. But as indicated by the presence of a ‘Price Reduced’ sign on a home in a sought-after part of Centennial, this situation may finally be about to change. Janene Russeau of Madison & Company, who’s handling the house — it was originally priced at $639,000, but is currently going for $599,000 — feels that ‘it’s turning a little bit more into a buyer’s market, as opposed to a seller’s market.’ Already, she says, ‘houses are definitely staying on the market a little bit longer.’”

“Homes sales in Cedar Park and Leander decreased 0.8 percent year-over-year in July, and the median price of a sold home fell 4.5 percent to $291,273, according to the July 2017 Central Texas Housing Market Report. ‘In years past, the high demand of the summer selling season has further constrained inventory levels and further pushed up home prices,’ said Brandy Guthrie, president of the Austin Board of Realtors. ‘This year has been different, with steady gains in sales volume as well as listings and inventory throughout the summer.’”

“A Miami real-estate analyst sheds light on the wonderfully stupid way South Florida operates: For the past handful of years, condo prices in the area have been criminally high, so condo developers have laid waste to any undeveloped piece of land they could find, stacking buildings into the sky regardless of whether anyone would buy them. Now they’ve finally built so many they can’t possibly sell all the multimillion-dollar condos.”

“‘It is worth noting this report only tracks those Sunny Isles Beach condos formally listed for sale,’ Peter Zalewski’s Condo Vultures realty firm wrote. ‘The report does not factor in the nearly 47,550 new condo units currently in the development pipeline east of Interstate 95 in the tri-county South Florida region.’ By 2020, Miami-Dade will have a truly remarkable glut of properties to sell, and Zalewski’s report suggests we really didn’t need many of them in the first place.”

“The property bubble in Malaysia is set to burst, but the government must resist the temptation to intervene and allow market forces to coordinate supply and demand, says a think tank. In an interview with FMT, the Institute for Democracy and Economic Affairs’ senior fellow, Carmelo Ferlito explained the two ‘economic dynamics’ which have resulted in the current property situation in the country, where the prices of homes are beyond the reach of most and the oversupply of such homes, has led to many being left unsold.”

“‘Malaysia is undoubtedly experiencing a housing bubble and the unsold properties are a natural consequence of this bubble,’ Ferlito said. The number of unsold properties was a sign that the property bubble may have reached its final stage and that the property market was close to crashing. ‘But the property market crashing can be seen positively if we’re looking at the goal of reducing housing prices. In a situation where there is over-supply and high prices, we should let supply and demand do its job and let the market affect prices to the levels they should be.’”

“Expensive property markets, soaring levels of household debt and predatory lending practices have come under fire with experts warning thousands of households are on the verge of mortgage stress. Australia now has the second highest housing debt in the world, after Switzerland, and almost twice that of the US. Another expert who expressed concerns about household debt was Jonathan Tepper – founder of London-based research house Variant Perception, known for his bearish views on the housing market. ‘The dream run is about to end. Price to income ratios are very high,’ Mr Tepper said. ‘Anyone with a pulse could essentially get a mortgage.’”

“Sizzling property prices, a groaning debt load, wealthy tourists and tycoons willing to slap down eye-popping sums for art: China is starting to look like Japan before its economic bubble burst in the early 90s. ‘What’s scary is that people in China are thinking, ‘China is special, so we are OK.’ That’s exactly how people felt in Japan during the bubble era,’ said Kokichiro Mio, senior economist at NLI Research Institute.”

“‘In some small ways, the madness continues.’ That’s the view from Durham Region, where real estate agent Shawn Lackie sees sellers who are deluded about the current real estate mood in the Greater Toronto Area and surrounding towns. They’re pushing for lofty sale prices that are no longer realistic. In most cases, he’s setting an asking price around the estimated market value with no deadline for reviewing offers. Other agents in the area are still trying to generate bidding wars with asking prices as low as $1, but he thinks such tactics aren’t luring buyers at the moment.”

“At the same time, lawyers are still sorting through the wreckage the madness in the spring caused, he says. Many buyers need an extension to the closing date, while some deals are not closing at all. Some sellers are being pressed to agree to a discount to the sale price that was originally agreed upon. ‘Abatement seems to be the word of the day.’”

“Economic experts are raising concerns over the province’s financial reliance on B.C.’s booming real estate market and the new government’s promise to try and cool the market down. Tsur Somerville, a professor of economics at the University of British Columbia is concerned that during the most recent provincial election campaign the B.C. NDP promised to cool the hot housing market.”

“‘If you slow down the real estate industry, because it’s an overly large part of our economy, you’re going to have some repercussions,’ said Somerville. ‘It’s not a healthy situation to be that dependant on real estate, so the adjustment is going to be a little bit painful no matter what happens.’”

August 23, 2017

Aspirational Pricing Is On The Wane

A report from the Orange County Register in California. “No money down. Three words that unnerve many real estate observers who wince at ugly memories of risky loans and the mortgage-making disaster of the previous decade. Lending industry logic suggests the more money any borrower puts into a loan the more likely they’ll make the house payments. So why is Orange County’s Credit Union offering to finance homebuyers who put zero down?”

“Carlos Miramontez, the vice president for mortgage lending, says zero-down financing targets the house hunter with good credit history and a steady job but lacks the funds for a down payment. Often, it’s the classic first-time buyer. Yes, Miramontez knows non-traditional lending like no-money-down mortgages helped create last decade’s housing bubble. But he also notes that many of the loan styles used in that risk-taking era were actually historically solid mortgage options … but only when prudently used by lender and borrower alike.”

“‘We’re looking at sensible and responsible products that help solve affordability challenges,’ he said.”

The Houston Chronicle in Texas. “The Houston Association of Realtors last week announced its August home sales report, which reveals Houston’s hot housing market is starting to balance itself out, with some areas demonstrating sales slow downs. ‘Overall, the Houston housing market had a strong July, although we are seeing slower sales in some outlying areas like The Woodlands and Cypress,’ HAR Chair Cindy Hamann said in a prepared statement. ‘That is why we always emphasize that real estate is local. The combination of moderating pricing and growing inventory should make conditions even more appealing for prospective home buyers.’”

From Metrostudy. “Dallas remains the top new home market in the country, with builders starting 31,049 homes in the twelve months ending in 2Q17. With the median new home price in DFW at $320,600, new homebuyers are stretched to the limit of what they can afford. While resale home prices continue to increase, new home prices are stagnant, as compared to 2016.”

“‘The increase in second quarter closings reflects stronger sales during the first quarter than the end of 2016; however, many builders and communities have hit a price ceiling,’ says Paige Shipp, Director of Metrostudy’s Dallas-Ft Worth market. ‘With the median new home price in DFW at $320,600, new homebuyers are stretched to the limit of what they can afford. While resale home prices continue to increase, new home prices are stagnant, as compared to 2016. In an effort to spur sales, some builders are either reducing prices or minimizing price increases all while costs, including land, labor and materials, march higher. The difference in median price between a new home and resale home in DFW decreased to 30.7% from a high of 48.6% in 2015.’”

The Idaho Business Review. “Ada County home prices took a breather in July, but median home prices in Canyon County hit a new record high at $185,750, according to Boise Regional Realtors. Ada County median prices in July settled at $271,000, a slight dip from the June record high of $273,950. So far, no year has seen its highest prices after August – but 2017 for the first time had record highs in February and May before they were eclipsed by the existing record in June, according the Intermountain Multiple Listing Service data.”

“‘It’s kind of a freak of nature,’ Woyak and Company Realty owner Cindy Woyak said of the February record prices. ‘It’s probably because we had more cash buyers than we’ve had otherwise.’”

“Since early 2016, the same pattern has been in play: low supply of homes, increasing prices and no slow-down in the number of homebuyers willing to pay those prices. ‘The data is clear — demand is up, inventory is down, and this is impacting home prices,’ BRR President Katrina Wehr. Wehr said. ‘That is the difference in our market today versus the market ten years ago when speculation was driving home prices.’”

From 27 East in New York. “As summer winds down and the final sales numbers for the first half of 2017 are crunched, The Press asks Hamptons real estate industry experts to offer their insights into the state of the market and the indicators they watch to predict future performance. How does the mood of the Hamptons housing market differ from last summer?”

“Kenneth Smallwood: I think sellers are starting to acknowledge that the market is soft and that home price and condition do matter to sellers. Buyers in this market do not want to feel they are overpaying. If a home is priced too high, it can sit for a year or more unless the price is reduced. If you are selling your home, and you have not received any offers after 60 to 90 days—your home is overpriced.”

“Are most listing prices seen right now aspirational or on target? Paul Brennan: Aspirational. The sales that you see transferring are sellers who read the market and understood that prices in most markets are not appreciating.”

“Kenneth Smallwood: Aspirational pricing is on the wane. You see many listings in the $10 million-to-$70 million range slashing their asking prices.”

“Philip O’Connell: The asking prices are, for the most part, aspirational.”

“Judi Desiderio: This is specific to the market and the price range: Certain segments of the market are way off—crazy listing prices, sometimes driven by brokers, sometimes misguided sellers.”

August 22, 2017

Speculators Who Bit Off More Than They Could Chew

A report from the Globe and Mail in Canada. “In the midtown Toronto areas of Leaside and Davisville, the real estate market has been bouncing between optimism and despair like a yo-yo. Patrick Rocca, a real estate agent with Bosley Real Estate Ltd., has concentrated much of his business on the tree-lined streets radiating out from Bayview and Eglinton Avenues. But even in those stalwart family neighbourhoods, real estate deals can be hard to put together these days, says Mr. Rocca, who has been shocked by the market’s swings. ‘You knew something was going to happen. It was mind-boggling. It was scary,’ he says of the market’s unfettered rise in the spring and the Ontario government’s moves to tame it. ‘I knew something was going to happen – I just didn’t know how quickly it was going to stop.’”

“A house that might have sold for $1.5-million in the fall of 2016 could have fetched $1.8-million in February. Now, it’s back to $1.5-million. ‘The sellers are still thinking March prices; the buyers are still thinking there’s downside.’”

“John Pasalis, president of Realosophy Realty Inc., says sales in the first half of August in the Greater Toronto Area fell 42 per cent from the same period last year. Again, the drop in freehold properties was more severe, with a 46-per-cent fall compared with a 34-per-cent decline for condos. Mr. Rocca is coaching sellers to be more clear-eyed by showing them the figures from recent sales. ‘They missed the boat. It’s been difficult. They should have sold in March, but they didn’t.’”

“Prices were escalating at an annual pace above 30 per cent before the Ontario government introduced policies designed to cool the market. One of those moves, a non-resident speculation tax, adds a 15-per-cent levy on real estate purchases by foreign buyers. ‘I think the foreign tax really hit our area,’ Mr. Rocca says. Mr. Rocca sold one house in February that had 11 competing buyers show up at the table. ‘Everyone was foreign,’ he says.”

The Daily Telegraph in Australia. “There are nascent signs Chinese foreign buyers have toned down their enthusiastic buying of Sydney property. Beijing has narrowed the window for capital outflows to Australia. At the same time, Australian banks have tightened lending criteria to mainland China investors due to APRA regulatory requirements, and in some cases won’t lend to foreign investors at all. This week Chinese local and international estate agents reported a sharp drop-off in sales over the last six weeks as new property taxes took effect after the NSW state budget.”

“Dr Nellie Liang, who was in Sydney recently to share her views on financial stability with the Reserve Bank of Australia, said a ‘trigger’ could be a reversal in international capital flows. ‘When you have the outsiders buying properties, if the outside money pulls out and prices fall, there’s innocent bystanders who took on debt and end up under water, which could lead to defaults,’ Dr Laing, a senior fellow at the Brookings Institution in Washington, said.”

“Twenty per cent moves in house prices isn’t crazy any more, Dr Laing even suggested. ‘China is such a big economy now, and they have links to other countries, including to Australia and Canada through the housing markets, that people need to be thinking about.’”

“Sydney has enjoyed a stellar run with Chinese purchases, but a 50 per cent sales outcome at last weekend’s major Sydney CBD off the plan offering was the lowest take-up in many years. And there are still record numbers of new apartments approved and likely to come onto the market. Hopefully the cooling trend in Chinese buying interest is more a pause rather than a conclusion.”

The Guardian in the UK. “China’s largest commercial property company has pulled out of a £470m purchase of Nine Elms Square in south-west London after pressure from regulators in Beijing over its overseas investments. A joint venture between St Modwen Properties and construction firm Vinci had exchanged contracts to sell the 4-hectare (10-acre) site, previously home to the New Covent Garden flower market, to Dalian Wanda’s Hong Kong division in June.”

“Beijing issued rules last Friday to limit overseas investment in property, hotels, entertainment, sports clubs and the film industry, and threatened to blacklist firms that violated those rules. This could put an end to Chinese firms’ recent spending spree in the UK. Chinese investors have spent a record £4bn on commercial property in the City of London and the West End so far this year, according to data from real estate firm CBRE.”

“The downturn in the London luxury housing market amid a glut of new properties coming on to the market made Nine Elms Square a risky investment for Wanda. It is still building the £700m One Nine Elms twin-tower complex nearby. The Malaysian developers of the nearby Battersea power station redevelopment have also been hit by the slump in sales at the top end of the market, and are scaling back plans for luxury homes.”

From Free Malaysia Today. “It is better for homeowners struggling to repay their housing loans to sell off their properties and avoid bankruptcy, says a property expert. Ernest Cheong said in doing so, a property owner avoids ending up with the bank foreclosing property if he defaults on payments and worse, declaring him bankrupt if outstanding loan amounts remain unpaid.”

“Commenting on recent remarks by a think tank that Malaysia’s property bubble was set to burst, Cheong said the situation was bleak for property speculators and genuine house buyers who overestimated their ability to afford properties worth more than RM800,000 between 2010 and 2015.”

“‘I believe those who purchased properties under RM500,000 will be okay. But for those who bought properties closer to the RM1 million mark, it might be a bit too late for them to get themselves out of a sticky situation. Say, for instance, you bought a RM800,000 condominium in 2014/2015, when the property market was at its peak. If you took a RM700,000 loan for 30 years, the monthly repayment is RM3,500 a month,’ he said.”

“To repay a RM3,500 loan a month, a person’s household income would need to surpass the RM10,000 mark at least. ‘But as we know, salaries haven’t increased at the same rate as the rising cost of living.’”

“He said speculators or home buyers who bit off more than they could chew a few years ago, should now look for an exit strategy, especially given that property prices are plummeting while the cost of living is increasing. ‘My advice is that if you feel you are unable to sustain your monthly housing loan repayments, try to sell it even if you end up making a loss, which is highly likely.’

“Cheong said since 2016, property prices have been dropping and on average, in the Klang Valley, property prices have dropped by around 30%. If you took a RM700,000 loan for a RM800,000 property, for the first three years, you’re only paying the interest. You still owe the bank the RM700,000 principal amount. So, if you can get an offer for RM800,000, you should consider yourself lucky given the drop in property prices.’”

“Cheong added that if a homeowner fell behind their loan repayments for three months, they’ll get a foreclosure notice from the bank. From that point on, if they try to sell their house themselves or if the bank forecloses it, it could take up to 18 months before the property is actually disposed of by auction.”

“‘You could even end up losing large amounts of money as you would have to pay various fees such as auctioneer’s fees and legal costs from the auction price which may be significantly lower than the market price. If you bit off more than you can chew, take this experience as a lesson. It’s okay to cut your losses and start again. There’s nothing wrong with selling your home and renting a house. It’s better than being declared bankrupt.’”

August 21, 2017

The Scale Is Beginning To Tip

A report from the East Valley Tribune in Arizona. “Demand for rental apartment housing is on the rise in the East Valley and the rest of the metro region, buoyed by an increased desire for high-end apartments. Even older high-end apartment complexes are attracting investors because of the growing market interest. Despite the boom in class A apartments throughout the Valley, the industry is likely not at risk for a bust.”

“‘I do not think that there is the risk of a bubble in the apartment market,’ Mark Stapp, Fred E. Taylor professor of real estate at W.P. Carey School of Business at Arizona State University, said via email. ‘If anything, this is going to continue to be a tight market both for home sales and for rentals.’”

“‘The larger point about Maricopa County that is important to know and understand is that there are not many new (affordable) units at all,’ said Erika Poethig, Urban Institute fellow and director of urban policy initiatives. ‘They are either being upgraded to higher-end units or being demolished and replaced by high-end product.’”

“Quite simply, there is more money in producing luxury apartments. There is plenty of available capital for developers seeking to meet that demand brought by the boomers and young professionals with high incomes who are increasingly flocking to rentals. The same is not true for affordable housing. ‘It does not pencil out to build rental housing for lower-income Americans, because the developers cannot get the lower-cost capital (to build) housing at the rents that people (with low incomes) can afford,’ Poethig said.”

From the Boston Real Estate Times in Massachusetts. “Average Boston apartment rents declined in July for the first time this year, according to Axiometrics. ‘Job growth is exceptional for the market at 2.8% in June, so the demand for apartments is there,’ said Jay Denton, vice president of analytics for Axiometrics. ‘Occupancy is high at around 96%, but the amount of new supply coming to the market this year (7,545 units) increases competition for renters.’”

The Waco Tribune in Texas. “Baylor University leaders set a lofty goal 15 years ago of housing half the school’s students on campus by 2012. Though the benchmark hasn’t been met, school officials still see value in keeping students close. Jeff Doyle, dean for student learning and engagement, said Baylor officials don’t see unaffiliated off-campus apartment complexes as competition, partly because university housing offers a ‘different product’ with fewer amenities. ‘The (off-campus complexes) are competing mainly with each other,’ he said. ‘In my opinion, they slightly overbuilt. I don’t want them to fail, but they’ve built way more beds than Baylor has grown.’”

From Bisnow on Texas. “Austin does not rank among the markets with the biggest multifamily rent percentage increases, according to Abodo. Abodo’s Sam Radbil, an Austin native and Austin condo owner, does not have to run the numbers to see the Austin multifamily market changing. He lives through the trends not necessarily reflected in Abodo numbers. He sees the scale in the rental market beginning to tip from a landlord’s market to a renter’s market.”

“When Radbil first bought his condo on Congress in 2010, it commanded $1K a month in rent. Since then, Austin became the nation’s crane capital, and rent steadily rose to $1,500 a month. Now Radbil, who currently lives in Chicago, is finding it hard to get that $1,500, given the new projects that have come online. ‘Supply and demand is evening out,’ Radbil said. ‘Five years ago, a landlord could have asked $1,600 and the renter would take it. They had no choice. All the leverage was with the landlord,’ Radbil said. ‘There’s not so much of that anymore.’”

From The Inlander in Washington. “In the tussle between the landlord and tenant, a low vacancy rate hands extraordinary power to the landlord. One Zillow sale listing this spring even referred to a ‘fixer upper’ West Central duplex rental with long-term tenants as a ‘cash cow,’ advertising that ‘repair and maintenance can be deferred’ because of the ‘extremely low vacancy’ rate.”

“The good news? The fact that it’s so much easier to make money on rental units right now is driving developers to finally build a lot more of them. More than 1,900 apartment units were built in Spokane County in 2015 and 2016, according to a tally from Valbridge Property Advisors. That number is only growing. As of this April, more than 2,100 new units are permitted and under construction — and nearly 2,200 more have been proposed.”

“That’s what’s supposed to happen: There’s a high demand for a product, that product gets expensive, and so investors climb over themselves to offer more of it. Eventually, that drives down prices.”

From Fox 5 Vegas in Nevada. “Hundreds of University of Nevada, Las Vegas students found out over the summer that the apartment complex they were supposed to live at this upcoming fall semester wasn’t even finished being built yet. Student Nick Hull said he was excited to live at The Degree apartment complex on UNLV’s campus but started to get worried earlier this year that the project wasn’t going well. ‘I lived on campus last year in the dorms. I was always going past the building,’ he said. ‘You could see it wasn’t going up.’”

“So far, The Degree doesn’t look anything close to the renderings posted online of the what the finished product is supposed to look like. Students said they couldn’t wait to hang out in the luxurious pool and live so close to their classes. Some of them said they left positive ‘five star’ reviews online because of a promotion. Others said they were required to leave fake reviews.”

“‘I used to work there,’ Maya Dendy wrote on Facebook. ‘We had to write reviews to get ppl excited about it… the layout was nice tho.’ ‘I worked at another asset campus housing place and we swapped reviews,’ Christian Kelly wrote. ‘So it was a fake review,’ he said. ‘Isn’t that kind of shady?’”

“At least five people told FOX5 that their positive review was fake. Many others, who still work for Asset Campus Housing, refused to respond. ‘The Degree of excitement I get from The Degree is unreal,’ Jacob Kiker wrote in his review, despite listing on Facebook that he works as a leasing agent at a different property owned by Asset Campus Housing.”

August 20, 2017

The Goal Is To Inflate Asset Prices

A weekend topic starting with MarketWatch by Caroline Baum. “It wasn’t long ago that the Federal Reserve resorted to the word ‘conundrum’ to explain the inexplicable. For example, as the Fed raised its benchmark rate from 1% in 2004 to 5.25% in 2006, long-term interest rates barely budged. Former Fed Chairman Alan Greenspan decided it was a conundrum, given that the short-term rate, current and expected, is a key determinant of the long-term rate. Greenspan’s successor, Ben Bernanke, took a stab at the conundrum, blaming a ‘global savings glut’ for the stability of long-term rates during the 2004-2006 tightening cycle.”

“Conundrums are a thing of the past. Nowadays, Fed Chairwoman Janet Yellen has an explanation — an excuse, really — for almost anything, from the atypical behavior of asset prices to inconsistencies in economic relationships. Every month, it’s something else. Maybe the answer lies within. The tendency to dismiss consistently soft inflation readings must be contagious because private-sector economists have taken the bait. In the post mortems on the July consumer price index, released on Friday, one economist attributed the 0.1% increase to ‘volatile’ hotel rates. (Why is the volatility always to the downside?) Another referred to the biggest decline in two decades in lodging away from home (-4.2%) as an ‘anomaly.’ The excuses — and synonyms — are wearing thin.”

“When the Fed expands its balance sheet through asset purchases, it has no control over where that newly created money will go: toward the purchase of goods and services; or into financial assets, such as stocks, junk bonds or housing. Because asset prices aren’t part of official inflation measures, and because identifying an asset bubble is beyond their scope, central bankers eschew using monetary policy to respond to them.”

“Of course, every bubble exhibits unique characteristics and features newfangled instruments (think collateralized debt obligations and CDO-squareds). But they all have a few things in common, as William White, the former head of the BIS’ Monetary and Economic Department says: leverage, speculation and declining credit standards. If the goal of monetary policy, as described by Bernanke, is to inflate asset prices, it might behoove the Fed to explore an antidote for moderating them. Asset bubbles, when they burst, can be destabilizing. Ergo, central bankers should care about asset bubbles and explore ways to lean into them in order to minimize the lasting consequences a crash can impose on the real economy.”

From the Seattle PI in Washington. “In Seattle, the housing market is a topic of conversation that almost can’t be avoided. For several years, real estate prices and rents have been rising fast. Bidding wars and tales of being pushed out as rents soar have become the norm. Issues of equity and access to housing aside, fears have cropped up in some circles that the market — which has been hot across the nation — might be headed for another correction like that of the Great Recession. In other words, some have worried that it’s a bubble.”

“Such rumors are definitely circulating, and becoming easier to believe, especially after looking at median prices that increased 18.6 percent year over year in King County, according to the Northwest Multiple Listing Service’s (NWMLS) latest monthly report. That 18.6 percent represents a jump of more than $100,000 — to a median price of $658,000 — from July 2016 to July 2017.”

“Some level of ‘market correction’ is likely to come, said George Moorhead, one of NWMLS’s directors and a broker at Bentley Properties. He did have some concerns about practices making it easier to buy a home for those with low credit scores or existing debt.”

The Union Tribune in California. “Virtually every Californian can attest to the increased cost of living we have seen in recent years. Since 2000, the median rent in the San Diego region has spiked by 36 percent. However, the median household income for renters has risen just 4 percent. Our lowest-income earners spend nearly 70 percent of their income on housing.”

“The problem on its surface is supply-and-demand economics: We’re simply not building enough housing. What is being built is disproportionately for high-income residents. In fact, we’re meeting 128 percent of the demand for luxury housing but only 18 percent of the demand for middle-income housing and 22 percent for low-income. This is the real problem.”

The American Statesman in Texas. “Austin-area home sales and prices continued on their upward trend in July, with both showing increases over the same month last year, the Austin Board of Realtors said. Within the city of Austin, sales declined 2.5 percent year-over-year, with 832 sales, while the median price rose 7.2 percent, to $369,900. On the supply side, housing inventory levels posted strong gains last month, increasing to 3.2 months of supply, the board said. Despite the increase, the market remains undersupplied, said Brandy Guthrie, the board’s president.”

“Guthrie said strong homebuilding activity, particularly in Williamson and Hays counties, is boosting inventories. ‘In years past, the high demand of the summer selling season has further constrained inventory levels and further pushed up home prices,’ Guthrie said. ‘This year has been different, with steady gains in sales volume as well as listings and inventory throughout the summer. During a month when housing inventory should reach its lowest point of the year, housing inventory across the Central Texas region is at its highest point since fall 2012.’”

The Sun Sentinel in Florida. “Cash deals are by no means dead, but they aren’t dominating the South Florida housing market the way they once did. Sales without mortgages are happening less frequently as investors flee and traditional buyers gain easier access to financing, industry observers say. ‘The market has dramatically shifted,’ said Mike Pappas, president of Keyes Co. in Miami. ‘Cash drove the market in the bottom-feeding and opportunistic times, but today we have a real market with real buyers, and they need mortgages.’”

“In many cases, buyers are wealthy enough that they don’t require mortgages, but they’re choosing to get financing anyway because they can put their money to better use elsewhere, said Stephen B. McWilliam, president of Florida State Realty Group in Fort Lauderdale. ‘You make a lot more when you leverage your money with a mortgage,’ he said.”

From Investment News. “An estimated 7 million to 10 million homes were lost to foreclosure during the housing collapse, and that surge has largely ended. Forclosure filings peaked at 2.87 million in 2010, according to RealtyTrac. They fell to 933,045 in 2016. But the effects of the crisis linger. ‘I do have a couple of clients with little to no equity in their homes, which makes dragging that debt and those payments into retirement a drag on other assets and cash flows,’ said Matt Chancey, an Orlando financial planner.”

“Others say they have clients with real estate investments that still haunt them. Steve Branton, a financial planner with Mosaic Partners in San Franciso, notes that housing prices there have recovered. ‘But I do have clients who bought vacation homes in Nevada which, after the housing collapse, became public or affordable housing. That investment will never recover,’ he said.”

“And others are simply disappointed with the returns from their homes, which is often the largest chunk of Americans’ savings. ‘Most people today don’t understand why their house is worth only slightly more than it was 12 years ago,’ said Ray Ferrara, CEO of ProVise Management Group. ‘The good news is that prices have mostly recovered, but there has really been little appreciation from where prices were at the peak.’”

August 19, 2017

Not Enforcing Topic A On The Lips Of Every Politician

A weekend topic starting with the Los Angeles Times in California. “On any summer weekend, Venice Beach is the ultimate urban beach carnival. But unlike other tourist spots Venice is still primarily a residential neighborhood. Because of that, Venice has become an epicenter of Los Angeles’ struggle over short-term rentals, what you might call the Airbnb Problem. Over the course of four hours, I visited half a dozen buildings on or very close to the Boardwalk that have been converted, without permits, from long-term rental apartments to short-term rentals, or — yes — let’s call them what they really are: hotels.”

“InsideAirbnb is a website that tracks how Airbnb impacts city rental stock. It estimates that at least 76% of Airbnb rentals in Venice (or 1,582 out of 2,085 listings) are entire homes or apartments, which means, essentially, that those units have been removed from the rental market at a moment when the city’s housing shortage is Topic A on the lips of every politician.”

From ABC 7 Chicago in Illinois. “Despite Chicago’s ordinance limiting the use of Airbnb, some South Loop condo owners said their building has been inundated with people using the popular site. The roof deck of the building at 9th and Wabash overlooks Grant Park and is a short walk from Lollapalooza, - but only for full-time residents. Following the city ordinance, the building’s condo board submitted paperwork to ban home-sharing there. ‘We are seeing either the city is not enforcing this ordinance, or Airbnb is ignoring it,’ said Luke Hanley, condo board president.”

The Idaho Mountain Express. “As short-term rentals have grown in popularity in Ketchum, the rental units on the long-term market have dried up. That was the conclusion of a year-long research project by Genevieve Pearthree, a graduate student who was hired for a city of Ketchum fellowship to study short-term rentals. Pearthree found 471 units listed on short-term rental websites such as VRBO, HomeAway and Airbnb on one day in February. She analyzed listings on VRBO last fall and found 332 units consistently rented on that website.”

“At the same time, the number of long-term rentals declined precipitously in Ketchum, she said. Ketchum had 38 studios for rent in 2012 but only four in 2016. One-bedroom units dropped from 70 in 2012 to 12 in 2016. Two-bedroom units declined from 124 in 2012 to 16 in 2016.”

“William Glenn, a property owner in Warm Springs who uses VRBO, said he rented his property long-term from 1979 until 2013, and had a tenant trash the property before being forced to move out. After that, he said, he started listing his unit on VRBO and has had no damage to the property and only positive experiences renting it to short-term occupants. ‘I’m glad that the state Legislature tied your hands,’ he said. ‘I have no obligation to provide affordable housing.’”

The Canadian Press. “New research suggests a small number of large commercial property owners are the most successful on Airbnb and are eating up the local supply of housing in Canada’s three largest cities. A team of urban planners from McGill University looked at Airbnb trends in Montreal, Vancouver and Toronto and noted a 50 per cent increase in the number of short-term rental properties year over year. Lead author David Wachsmuth said his team found that 10 per cent of hosts account for nearly half of the $430 million yearly revenue in the three Canadian cities.”

“The study suggests the number of entire homes available, full-time listings, and hosts with multiple listings are all on the rise. ‘What ties them together in common is these are not families renting homes while they’re out of town … these are people using Airbnb and other short-term rental platforms as a platform for making money off housing and doing so in a way that’s reducing the available supply of housing in those cities,’ he said.”

From CBC News in Canada. “Officials in Canmore are trying to cut down on the growing number of illegal vacation rentals in the mountain town. Mayor John Borrowman says hundreds of homes in residential areas are posted on websites like Airbnb and VRBO, making an already dire housing shortage worse. ‘Effectively it’s beginning to turn residential neighbourhoods into hotel districts,’ he said.”

“Andrew Shepherd, president of the Canmore Hotel and Lodging Association, is happy the town is going after illegal short-term rentals. ‘The hotels have no problem with competition. But every competition should be on a fair playing field,’ he said. ‘So if we’re paying business taxes, they should too. If we have health and safety inspections, they should as well.’”

From Metro News in Canada. “Stories about a recent study from McGill that found the majority of money from Airbnb rentals is collected by a slim majority of property owners were right to focus on the growing unaffordability of housing. But to understand that properly, we need to recognize this: Airbnb is not part of a ‘share economy’.”

“On the contrary, Airbnb is designed – quite obviously – for people who already have property to make more money from it. In 2015, Chase released a study it conducted on over 200,000 randomized, anonymized banking customers who earned income from the platform economy. Among its findings, the study showed that 21 per cent of those sampled participated in labour platforms (eg. Uber), 71 per cent participated in capital platforms (eg. Airbnb), but only two per cent did both. This puts to bed any notion of a collective ‘share economy’ – there are two distinct industries at work.”

“Importantly, the study also found that capital platform participants made more money than their labouring counterparts. Effectively, it suggests that those at an advantage are continuing to gain more of an advantage, and those who are initially less advantaged are not catching up.”

“In context of figuring out how to regulate something like Airbnb, these kinds of numbers are important, but just as crucial is understanding that it is not a benign ‘sharing’ app, but a platform that perpetuates the creation of capital for a particular class of people. Which is fine; it can be that. But we should be clear on what that means. Whether someone is making $2,500 in eight months or tens of thousands a year, we should remember one thing: Airbnb is perpetuating – not solving – an income divide.”