April 6, 2018

Investors May Find Themselves In A Sticky Situation

It’s Friday desk clearing time for this blogger. “WFLD-Ch. 32 news anchor Sylvia Perez and her husband recently sold their four-bedroom, 4,375-square-foot house in Hinsdale for about $1.33 million. The couple paid $2.2 million for the house in 2006. They first listed it in 2013 for $2.399 million and later cut their asking price to $2.199 million, $1.995 million, $1.95 million and just below $1.8 million. ‘We had it on the market for four years, and it did not move,’ Perez said. ‘It definitely was time to downsize; we would like to have downsized years ago when we put it on the market, but we got caught up in this financial downturn in the housing market like everyone else.’”

“Residents at Millennium Tower, San Francisco’s leaning, sinking skyscraper, are scrambling to sell their multimillion-dollar condos. Residents say they’re selling their homes short of what they paid for them, with about 100 condos falling $320,000 in value on average.”

“Real estate sales in Manhattan plunged 25 percent in the first quarter from a year ago, as the new federal tax law, stock market swings and a glut of luxury condos spooked buyers. Prices are also under pressure. The average sales price dropped 8 percent compared from the same quarter last year. The high end of the market is getting hit the hardest, since it’s the most discretionary segment. Prices for luxury apartments in Manhattan fell 15 percent and sales were down 24 percent in the quarter from last year.”

“With so many luxury apartments still overpriced, they are now sitting on the market on average of more than a year and a half — a 50 percent jump over last year. ‘The next couple of years will be all about price discovery,’ said Jonathan Miller, president of Miller Samuel.”

“As of February one of every 1,012 ‘units’ in the state was a foreclosure, said Bayard Williams, president of the Delaware Association of Realtors. This puts Delaware among the top five states in the nation in terms of high foreclosure rates. The damage caused by the recession appeared for many in the loss of home equity, said Mr. Williams. Homeowners who may have refinanced on their homes before the recession hit found themselves in a particularly bad position.”

“‘When they refinanced, they pulled as much equity back out as they were allowed prior to the downturn in the market — when the market went south, they ended up upside down on their loans,’ he said. ‘We’re even seeing some people who’ve been in their homes for 20 or 30 years trying to sell and you’d think that they’d have a lot of equity at that point to put toward closing costs and the purchase of their next house. But, that’s not always the case anymore.’”

“A group of Oakville homebuyers, struggling to finance the pre-construction houses they bought in February 2017 at the height of last year’s real estate frenzy, are blaming ‘reckless’ provincial housing policy and new mortgage rules for putting them on the brink of financial ruin. Declining real estate sales in the Toronto region have meant the buyers have not been able to sell their existing homes for the amounts they anticipated when they contracted to buy new houses in Mattamy’s Preserve development. After they failed to sell when the market plunged or they took lower-than-expected prices, they say they couldn’t get larger loans to cover the difference.”

“‘This impacts your health. Financially it breaks families,’ said Zahir Bashiruddin. The Bashiruddins were watching real estate prices climb in 2016 and early 2017. They worried they wouldn’t be able to afford a move. ‘At the time we thought it was a great decision (to buy the Mattamy home) because we’ve locked in our price,’ he said. ‘I honestly have not been this stressed ever.’”

“‘The individuals who signed up for these houses … did so with full understanding of where we were in the full housing cycle, in the same way anyone else would,’ said Mattamy president Brad Carr, adding that there was extensive media coverage of the heated housing market around the time the buyers purchased. The average price of a new-construction detached house in the Toronto region was $1.22 million in February this year. A year earlier, the average was higher — about $1.5 million, according to building industry statistics.”

“A surge in supply of rental properties has given tenants added bargaining power when looking for a new place. The market shift has occurred in rental markets outside budding city regions such as Helsinki, Tampere, Turku and Oulu, where tenants are increasingly hard to find. ‘That is what it looks like right now. Tenants have the freedom of choice between properties and are even in a place to negotiate,’ said Mia Koro-Kanerva, executive director of the Finnish Landlord Association.”

“If the competitive market is tightened further, housing investors may find themselves in a sticky situation as an empty owner-occupied apartment will quickly become a costly venture. Many housing investors will buy a rental apartment with a loan. If interest rates increase but rents don’t, investors’ returns will diminish. Koro-Kanerva said the rent landlords are asking for apartments should be dropped if no interest is shown in the property. ‘You should definitely not wait around for months on end.’”

“The dozens of suburbs bordering Nairobi, Kenya’s capital, have experienced rapid real estate development in the last a few years, but this growth is now hurting property developers as rental yields fall. Over the years, population in all the suburbs has surged, becoming an impetus for developers to invest in high-rise residential buildings to reap big. These structures have now become a major undoing for the landlords as rents for two and three bedrooms fall in some suburbs and in others stagnate.”

“‘I had to cut rent from 140 dollars to 125 dollars to maintain my tenants but still two of the six two-bedroom houses remain vacant after the previous occupants relocated to a new apartment offering same rates,’ said John Kuta, a banker and landlord in Ruai. ‘I have seen Ruai being turned into high-rise residential estate, with many developers coming in but the market is now saturated and we are feeling the pinch.’”

“Thousands of homes are lying empty in Brisbane’s most desirable neighbourhoods amid a chronic apartment oversupply. Nearly 20 per cent of the apartments in inner Brisbane are sitting empty and more than 50 projects have been shelved or ditched altogether as landlords struggle to survive the city’s oversupply crisis. More than 10,000 new apartments have been abandoned or deferred by developers in the past 12 months. Record levels of apartment completions have tipped the market into oversupply, putting pressure on rents and prices and resulting in a growing number of ‘ghost houses’, according to the Inner Brisbane Apartments 2018-2025 Market Brief.”

“BIS Oxford Economics senior manager of residential property Angie Zigomanis said many unoccupied apartments were kept as second homes or speculative investments, but a number were also empty because landlords simply couldn’t find a tenant for them. Mr Zigomanis said landlords would continue to struggle to find tenants for inner Brisbane apartments for another two to three years. ‘They’ll always be competing against the latest and greatest new stock, so they’ll need to offer incentives to make their properties more attractive,’ he said.”

“While Gladstone’s rock-bottom housing market has meant sellers have had to take significant losses, it hasn’t been all doom and gloom for those on the other side of the equation. Electrical engineer Rachael Parker and her partner Lee MacBeath have been looking to buy their family home over the last seven months. Ms Parker said the current state of the market means they can take their time in finding the house which best suits their needs as a family, without worrying about rising prices or increasing rents.”

“The couple spend time looking for houses every second day and have been to two auctions - one at which they were the only bidders - but they remain confident they will not have to pay more than what they have budgeted. While the current circumstances are working in her family’s favour, Rachael said she was aware not everyone in Gladstone was lucky enough to be in the same position and she felt very sorry for those who bought in the boom and were now trying to get out of the market.”

“‘There’s a lot of people that have lost out big… it hasn’t been a pleasant experience for a lot of people,’ she said.”