The Housing Bubble

A report from El Pais on Spain. “Around 60 people who have been affected by an alleged scam in Mallorca, in which properties that didn’t exist were put on sale, say that they feel ‘unprotected’ under current Spanish law, and are calling for new regulations so that episodes like this one cannot happen again. The real estate company Mallorca Investment was offering off-plan properties in a number of areas on the Balearic island, at below-market prices. Clients handed over 10% of the sale price as a deposit. ‘We suspected that we were looking at a case of fraud,’ a victims’ statement reads, ‘after determining that construction had not begun, that a number of the plots of land were not theirs, and that any changes we wanted to the plans were possible and free. We met with a lawyer who confirmed what we already suspected: that this had the look of a pyramid scheme.’”

“The average amount that each person has lost is around €30,000, although there are more extreme cases, such as a foreign man who handed over more than €200,000 on the promise of a luxury apartment close to the sea. ‘We all trusted that, by making a bank transfer to a real estate company account, our money was protected; we thought that this kind of account was controlled by the banks and that it wasn’t so easy to take money out,’ the victims’ statement reads. ‘Although this man was moving it around as he pleased.’”

From AME Info on Dubai. “According to Matein Khalid in a report for the Khaleej Times, off-plan sales have grown significantly, accounting for 58% of total sales in Dubai in Q2 2018. This comes as a surprise as many homes and villas remain vacant in the prosperous Emirate. Off-plan purchasing in and of itself is a risky endeavor. It is easy to be scammed into buying properties from developments on the basis of vacant promises and beautifully-rendered 3D previsualizations.”

“Earlier this year in the UK, buyers wooed in by illustrious projects in Liverpool and Manchester, reportedly worth $463.5 million according to the Guardian, lost their investments when the projects stalled amidst accusations of fraud. James To Kun-sun, a member of Hong Kong’s legislative council, estimates more than 700 buyers have lost an average of $58,000 in Hong Kong alone, with many more across Asia and beyond.”

“According to Cavendish Maxwell’s report, this surge in off-plan purchases is one of the main reasons for the drop in rents. ‘Buyers continue to be spoilt for choice in the off-plan market thus forcing developers to offer special incentives such as aggressive payment plans, fee waivers and others to differentiate their projects,’ Cavendish Maxwell’s report explains.”

“Another cause has been the construction boom in the country, which has resulted in a surge in vacant homes, villas and apartments. According to Khaled’s report, off-plan purchases in Dubai have not been as rewarding as initially believed. ‘I have so many friends who waited three to four years for their luxury flat only to find out that prices were 30-40% lower, if their flat or villa could be sold at all,’ he said. ‘Rents are now falling faster than capital values, clear evidence metric of a glut in existing units, let alone development pipeline. An investor who cannot analyze the credit cycles can and will be fleeced by off-plan sharks with armies of commissioned brokers motivated by even 7% payouts.’”

The Times of Oman. “A number of people have cancelled their rent contracts in 2017, according to statistics issued by the Muscat Municipality. Al Khadouri from Al Sahwa Real Estate Company said, ‘In some apartments that we own, the rent has declined by 30 to 40 per cent; for example, rents that were OMR450 were cut down to OMR350, and then in 2018, we lowered the price again to OMR325,’ Al Khadouri added.”

“‘Rents in Muscat witnessed a 30 per cent decline,’ explained Al Ruqeishi, owner of Al Ruqeishi Properties.’We have 120 vacant apartments, and there are many residential and commercial units that have been lying empty in recent years because of the economic downturn,’ he said, adding, ‘I expect that the number of vacant units in Muscat alone exceed 100,000, including apartments, villas, and shops.’”

The Bangkok Post in Thailand. “The pace of condominium development has slowed dramatically in Pattaya over the past three years as developers wait for the supply built during more exuberant times to be absorbed. Although the average take-up rate in the Pattaya condominium market is 81% and sales have been improving lately, there are still at least 14,000 unsold units available.”

“Some market observers believe the real figure is higher, as some buyers have abandoned reserved units and are negotiating with developers to resell or return them. A lot of these units were speculative purchases made for investment during the boom years; when the market started to falter, many buyers started looking for ways to avoid losses.”

From ABC News in Australia. “Australia’s housing downturn is getting worse, with the more expensive end of the market in Melbourne and Sydney leading the declines. CoreLogic’s head of research Tim Lawless said there were a range of factors that had slowed the housing market. ‘The rise in inventory is simply due to a lack of absorption; with fewer buyers, homes are taking longer to sell.’”

“This trend continued over the weekend, with preliminary auction clearance rates in both Sydney and Melbourne below 60 per cent, pointing to a final clearance rate in the low-50s. The first reading on clearance rates was only just above 50 per cent in Perth and less than half of properties up for auction sold in Brisbane.”

“CoreLogic’s analysts are not expecting an improvement in the market for sellers during the peak spring sales period, even more so after Westpac become the first major bank to lift interest rates out-of-cycle for owner-occupiers. ‘The news that the first of the big four banks will lift variable mortgage rates in September is likely to send a chill through the housing market,’ Mr Lawless said. ‘With household debt at record highs, borrowers are likely to be sensitive to small movements in the cost of debt and this upwards shift in mortgage rates is a negative for housing market conditions.’”

“The rise in rates, tighter access to finance, a lack of investors and cautious buyers mean that property sellers need to lower their expectations, according to CoreLogic’s head of Australian research Cameron Kusher. ‘For sellers, they really need to be very realistic about the market … and set appropriate prices for the market, which means not prices that they would’ve set 12-18 months ago,’ he said. ‘For potential buyers, you don’t really need to be in a hurry in this market, there’s lots to choose from, there’s not as much competition out there in the market. Be aware that the cost of housing is falling, so if you hold off you might be able to get that property or a similar property at a lower price point a little bit further down the track.’”

A report from the San Diego Reader in California. “Rancho Santa Fe’s Irene Valenti runs a matchmaking service claiming to tie rich and/or talented women with rich and/or talented men. However, as revealed a year ago, she herself wouldn’t qualify for a match. She went into Chapter 7 (liquidation) bankruptcy in 2012 and was hit with around 30 civil fraud lawsuits when the purported matches didn’t work out. She still has troubles. This Friday (August 31) her home at 16275 Via De La Valle, Rancho Santa Fe, will go up for foreclosure auction at 9 am. Zillow’s foreclosure estimate is $2.6 million and the opening bid is at $2.1 million. The estimated mortgage is $11,803 a month. She uses this home as her office. She has another Rancho Santa Fe home.”

“‘The business is not in trouble,’ she says. ‘I am just a humble person. I have been doing this a long time.’”

The Palm Beach Daily News in Florida. “A federal grand jury in Connecticut has indicted Palm Beach developer Robert V. Matthews and wife Maria “Mia” Matthews on a charge of felony tax evasion related to the Palm House case — the 21st charge in the case against Robert Matthews but the first against his wife.

For Robert Matthews, 60, the tax-evasion charge is in addition to the 20 counts he faces for allegedly scheming to defraud foreign investors in the long-dormant Palm House hotel condominium project on Palm Beach’s Royal Palm Way, according to federal investigators. The tax-evasion charge against the Matthewses is part of a 21-count “superseding indictment” returned by the grand jury. The original grand jury indictment was returned in March and led to the arrest of Robert Matthews and Palm Beach real estate attorney Leslie R. Evans, 71, at their Palm Beach homes on fraud and money-laundering charges related to the Palm House.”

“Robert Matthews and Evans pleaded not guilty to all the charges in the original indictment. Both men are free on bond.”

“Foreign investors put money into the Palm House project through the federal EB-5 program, which offers foreign nationals and their families expedited permanent immigration visas — commonly known as green cards — into the United States in exchange for investing in U.S. construction projects under specific rules, the indictment said.”

“Last month, U.S. Securities and Exchange Commission initiated a separate eight-count civil complaint accusing Robert Matthews, Royal Palm Beach resident Joseph J. Walsh Sr. and two of Walsh’s companies of securities fraud by misusing millions of dollars solicited from EB-5 for the Palm House. That action was filed in U.S. District Court for the Southern District of Florida, demands restitution and money penalties, and mentions the possibility of a jury trial. Walsh and his companies have not been charged in the Connecticut case. Court filings show EB-5 investors lived in China, Iran and Turkey.”

“In early August, the Palm House’s court-appointed receiver filed for voluntary Chapter 11 bankruptcy on behalf of its ownership company, 160 Royal Palm LLC, which owes nearly $115 million to creditors, court filings show.”

From Nine News on New York. “This unusual space-ship style home in Mill Basin, Brooklyn, has finally sold — but for a huge 67 per cent discount off the original asking price. Every home buyer loves a bargain, but imagine snagging a home for two thirds less than the original asking price. That’s exactly what the proud new owners of this unusual mansion in Brooklyn have done, after managing to buy the property for $27.2m (US$20m) less than it was initially listed for.”

“On the market for a staggering five years, the four-storey home was originally listed for US$30m back in 2013, but the price was eventually dropped down to US$17m in 2014 when the owners were unable to sell. Fast forward to 2018, and after being removed from the market, the four-bedroom, eight-bathroom mansion was relisted for US$18m in January this year, before having the price slashed in order to secure a sale.”

The Williston Herald in North Dakota. “Williams County is looking at a substantial spike in properties that have been delinquent on their taxes for three years in a row, and thus are in danger of being sold to satisfy the debt.Deputy auditor Jim Ryen said he’s seeing that next year’s watch list could be even larger than this year’s. ‘Next year’s is starting at 1,106 properties that have the potential for delinquency,’ he said.”

“And the year after that, the watch list is so far at 5,063 parcels — though many of those still have time to pay off the debt, Ryen pointed out. In general, the spike in tax foreclosures is mimicking the pattern of the 80s, Ryen added. ‘In a boom-bust cycle it happens like this,’ he said. ‘You are in such a rush to build and accommodate, and then all of a sudden we glut the industry.’”

A report from the Sunday Independent. “Back in February, we published a report compiled by the Institute of Professional Auctioneers and Valuers (IPAV) that showed the first signs of a slowdown in house price inflation in Dublin. In August, the CSO’s monthly index of house prices showed increases in the city were cooling off, dropping from 11.4pc last June down to 8.4pc year on year. Now the latest report from IPAV, published yesterday, shows that Dublin house prices in the city’s most expensive areas have not only peaked but fallen dramatically in the first six months of the year.”

“The price drops were recorded in seven of 14 Dublin areas, and were hardest hit in the city’s most exclusive postcodes, such as D4 and D2, but also affected more affordable areas such as D14 and D15. In Dublin 4, for example, the average price drop for a four-bed semi was €150,000, bringing the average cost down from €1,375,000 to €1,225,000.”

“However, a two tier market continues nationwide - with house prices in other areas, including the commuter belt and parts of north and south county Dublin, still rising. Prices in some of the wider commuter belt counties have increased by up to 18pc as they play catch-up with those of the capital, highlighting the distances buyers are prepared to commute to find houses they can afford.”

“‘There has definitely been a correction in different parts of the city,’ comments Pat Davitt, chief executive of IPAV, ‘The market is able to allow for a correction to take place,’ he points out, ‘which a normal working market should actually be able to do.’”

“He suggests that further price corrections may still be going on. ‘I’d say the Dublin market is a market that is working well. I’d say the market in the country is still dysfunctional.’”

“Diving a little deeper into the figures shows that leafy Dublin 4 has been worst hit as prices for four-bed semis dropped by 12.24pc, to an average of €1,225,000, three-beds fell by 2pc to an average price of €967,500. A similar trend is seen in Dublin 2 where the price tag for a four-bed semi fell by 11pc, a drop of €100,000; three-beds also saw prices fall, while two-bed apartments rose slightly by almost 2.5pc. However, Dublin 4, 2 and 6 were still the most expensive parts of the city in which to buy any type of property.”

“Other areas where values have fallen significantly include Dublin 15, where a number of large new developments came to market over the past 18 months, including Hamilton Park and Fairhaven. Here values fell by 10.11pc for four-bed semis to an average of €445,000. Dublin 14, which includes upmarket Churchtown where Hazelbrook Square and Park Developments’ Fernbank apartments launched earlier this year, also saw price drops of an average of €65,000 or 9.49pc, bringing the amount a buyer could expect to pay for a four-bed home to €685,000.”

“Davitt comments that ‘in some of the areas that we see the biggest drops, we see supply coming on the market.’”

“In fact, the latest figures from the CSO show that 14,446 houses were built in 2017, and 7,909 in the first six months of this year. While these figures falls far short of demand, which has been estimated somewhere between 30,000 and 50,000 a year, the arrival of new homes to market is clearly beginning to have an impact on price.”

“It’s likely too that the Central Bank’s tighter lending rules are taking effect, putting a ceiling on the amount that buyers can borrow, and having a knock on effect on prices. According to John McCartney, director of research at Savills, ‘Mortgage finance is taut. My understanding is that a number of banks have exhausted the number of their exemptions already.’ These exemptions typically allow a buyer to access a loan for 4.5 times their income but banks are restricted in the percentage of loans they can allocate to each category of buyer, with only 5pc allocated to first-time buyers, and 20pc of second and subsequent buyers.”

“Despite dramatic price falls in higher-end properties in the city, there is little sign of a property crash. This time round, the Central Bank rules are having a moderating effect, and the outlook is for price stabilisation as more supply arrives. Commenting on the market in general, John McCartney of Savills says: ‘In a sense, there is nothing unexpected happening. Strong house price inflation will slow further in the year, we think it will be at 5-6pc by the time we get to the end of the year. At some point the gap between supply and demand will close and that will bring more moderate price inflation. It’s nothing sinister.’”