March 29, 2017

People Have Been Paying Tomorrow’s Prices

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

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

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

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

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

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

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

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

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

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

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

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

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

RSS feed


Comment by Ben Jones
2017-03-29 10:13:25

‘More than 50 per cent of new apartments bought and re-sold in the five years to 2016 in Melbourne sold at a loss’

These are very likely Chinese speculators.

‘Why This 90% Plunge in Hong Kong Matters’

‘Huishan Dairy’s crash shows the risks posed by Chinese stocks with too much debt and too little governance.’

Comment by Ben Jones
2017-03-29 10:15:30

‘Fears that Brexit will cause rents to fall could lead to London office values dropping between a quarter and a third, according to Morgan Stanley. If potential property buyers lose confidence in their ability to charge more for vacant space when it becomes available, prices will drop sharply, especially given the new supply of offices under construction, Bart Gysens, an analyst at the bank, wrote in a note to clients.’

“Our key concern for London offices remains reduced demand at a time when supply increases, which we think should lead to lower rents and ultimately lower capital values,” Gysens wrote. “We increasingly worry” whether buyers will keep valuing buildings on the basis that vacant space will automatically command higher rent, he wrote.’

Comment by acutehemroid
2017-03-29 18:12:45

It is the immense amount of fluid and mobile global money that is sending local property prices through the orbits of the outer gas giant planets. Brexit is distressing because of the dis-investment from potentially beneficial endeavors and projects. Still, I’m curious on the effect that this will have on prices and returns in cities like London.

Comment by oxide
2017-03-30 05:18:40

Brexit will be a grand experiment for sure. If the globalists sell out and move to a more global-friendly city (Dublin?), maybe prices all over Britain will pop, which would be better for regular Brit citizens.

Comment by Race Bannon
2017-03-30 07:09:04
(Comments wont nest below this level)
Comment by Ben Jones
2017-03-29 10:17:47

‘THE “New normal” is a popular term that was first used to describe the change in financial and economic situations after the 2008 financial crisis. The term is now applied in a variety of contexts to state that something which was previously abnormal has now become commonplace and is the new normal.’

‘In the Bangkok real estate market, we have seen the new normal begin to take shape since last year and continue to do so into 2017. For the past decade, “normal” has been bull market growth environment in the Bangkok residential sector, which was driven by urbanisation, the changing behaviour of the working generations as well as more and smaller households; however, today developers are operating in a new normal environment characterised by a bearish slow-growth market and economy.’

‘The property market must find a new balance between supply and demand in the face of a slow economy and ageing population while adjusting to market saturation in certain property sectors. It used to be that you could build just about anything and call yourself a professional real estate developer, but the amount of new supply in recent years is turning the sellers’ market into a solid buyers’ market.’

‘Developers have to compete fiercely for the pool of eligible buyers. Purchasers have so many options now that they can afford to be picky and sometimes even the smallest advantage of one project over another can change buying decisions. This means that developers with insufficient experience, cash flow, product innovation and quality control will be weeded out of the game.’

Comment by Senior Housing Analyst
2017-03-29 10:30:14

Wesley Chapel, FL Housing Prices Crater 6% YoY

Comment by Ben Jones
2017-03-29 10:39:31

‘in some cases they are looking at loss-making properties’

I’ve been going over a lot of apartments for sale. I saw a brand new (2017) six-plex in San Antonio that has a 2% cap rate, 100% occupied. If you borrowed to buy that, you would lose money every single day. Same with those Marin apartments I posted the other day. The only reason you would pay that much was if you expected it to appreciate by a bunch. This is supposed to be a business. Would you open a hot dog stand expecting to sell it to someone for a lot more?

Comment by Rental Watch
2017-03-29 12:39:55

I recall hearing years ago (pre-2008) from an apartment developer that you never make money from the cash flow, only when you sell the asset for more to the next guy.

The comment left my partner and I scratching my head…if that’s how people underwrite apartments, we wanted no part of it.

Comment by Ben Jones
2017-03-29 12:51:26

I just got this email:

We only do investors for the following :

• 2-4 UNITS

Our Program consist of the following:

Rate as low as 7.49

With a 2% cap rate you’d be paying around 5 or 6% a year for the privilege of being a landlord, assuming you put 20% down. This is why when you hear about 10 or 15% vacancies (or decreases in effective rents), they are losing money.

Comment by Rental Watch
2017-03-30 02:17:16

They’d be stupid to buy at a 2% cap with 7-8% money. And those lending at 7-8% on a 2% cap deal is foolish as well. Both parties deserve what they get.

When I’ve heard of ultra-low cap rates (4% or lower), it is usually either:

1) Someone buying all cash (whether it be a small investor buying a 4-plex, or a large institution buying a new property); or
2) Someone buying a rent-controlled apartment…which typically stay full, with income growing as people finally give up the below market rates.

I’m pitched on apartment projects all the time. The typical deal is as follows:

Buy at a 5% cap on in-place income.
Renovate, raise rents to match other properties in the renovated condition and then, 5-years later, sell at a 6% cap.

And magically, the numbers work to generate a profit that seems attractive.

However, the cap rate for the deal today would be 6%, if there wasn’t “value-add” (e.i. the underwriting assumes cap rates don’t rise), AND they assume rents continue to grow at a rate of 3% or better each and every year (with expenses of course growing slower).

So, we have a strong enough economy to increase rents faster than 2%, without it being strong enough for interest rates to rise, or expenses to rise as fast?

If you take out the rent growth, you don’t make any money on the sale of the asset.

In other words, there really is no value add. The guy bringing the deal essentially wants the investor to take the risk that market rents keep rising (after having a tremendous run already).

If I thought that was a good idea (which I don’t), I would just buy EQR (which I’m not), have liquidity with a $5 trading cost, have great diversification, and not split the upside with someone else.

(Comments wont nest below this level)
Comment by taxpayer
2017-03-29 10:42:43

had an office building go for 75% below 2011 price
how’s that for a plunge

Comment by Race Bannon
2017-03-29 10:49:54

Right about what they’re actually worth with some value built in.

Comment by Ethan in Northern VA
2017-03-29 14:03:44

Office building might make a nice house if you’re me!

In Norfolk I noticed the apartment rent per square foot was higher than the most expensive building. They’re converting the Bank of America tower there into apartments.

Comment by Ben Jones
2017-03-29 10:46:19

‘People speaking Chinese were noticeably absent from the shopping district of Myeong-dong, Seoul, Wednesday morning. This was the day when the Chinese government’s de facto ban on the country’s tour agencies from offering group tours to Korea went into effect as part of retaliatory measures against the deployment of a U.S. anti-missile Terminal High Altitude Area Defense (THAAD) battery here.’

“I think the number of Chinese tourists has declined almost 70 to 80 percent recently,” said an information clerk who was helping foreign tourists near Myeong-dong Theater.’

‘The measure has been enough to make Chinese group tourists almost disappear from their favorite destination in Korea, where they had once crowded to shop for cosmetics and luxury goods. Missing their most lucrative customers, owners of so-called “road shop brands,” such as Nature Republic, The Face Shop and Innisfree, were struggling to attract Japanese visitors who were filling the vacancy left by the Chinese.’

‘Most of store clerks were speaking Japanese, and distributing leaflets and maps in the language. But they said the number of tourists from Japan is not large enough to make up for Chinese shoppers who had literally swept away goods from cosmetics display stands.’

“The number of Japanese tourists is almost the same as before,” said a Japanese speaking part-timer who was distributing leaflets for a massage parlor. “But the number of Chinese has considerably decreased this year.”

Comment by palmetto
2017-03-29 11:48:00

So lemme get this straight. Chinese tourists won’t go to Seoul because the US deployed THAAD. However, China is still perfectly happy to ship crap to the US, do business with Amazon and other companies and let their citizens come to the US for school, business and birthing.

Oh, please, punish us, China! Cut those supply lines, tell Jeffie so solly, withdraw your students, your businesses, your products. That’ll teach us!

Comment by Blue Skye
2017-03-29 13:31:23

China is leveraged to the extreme. Any leak of money is also highly leveraged. The reasons they give for setting up barriers may not mean much.

Comment by Apartment 401
Comment by new attitiude
2017-03-29 11:50:00

I can’t believe these junkies can’t get jobs.

the walking dead.

Comment by rms
2017-03-29 19:54:09

“Dope will get you through times of no money better than money will get you through times of no dope.” —Gilbert Shelton, The Fabulous Furry Freak Brothers

Comment by Blue Skye
2017-03-29 13:35:56

Canada is on the pot legalization wagon. Nationwide.

“The Liberal government will announce legislation next month that will legalize marijuana in Canada by July 1, 2018.”

from the CBC.

Comment by FTHB wannabe
2017-03-29 14:40:13

No surprise. I just had a newborn earlier this year, and the doctor was prescribing Oxycodone to the breast feeding mom as an optional pain medicine without a single word of warning.

Comment by phony scandals
2017-03-29 17:32:06

(This is the second time Roanoke, VA has showed up here today)

“the doctor was prescribing Oxycodone to the breast feeding mom”

This is becoming a very common tale.

Mom found passed out in car with child, heroin paraphernalia

By Associated Press March 1, 2017 | 4:35am

ROANOKE, Va. — A Virginia woman is charged with child neglect after police say officers found her and two other adults passed out in a car while the woman’s infant daughter cried unrestrained in a child safety seat.

Comment by palmetto
2017-03-29 18:10:48

My sister tells me they’re dropping like flies from heroin ODs in Connecticut, too. It’s being cut with fentanyl, which my sis says is practically impossible to get, unless you’re with the government.

(Comments wont nest below this level)
Comment by phony scandals
2017-03-29 19:04:21

Greenwich family sues drug company after overdose death of son

By Robert Marchant Updated 12:32 pm, Wednesday, March 29, 2017

GREENWICH — A lawsuit has been filed by the parents of a Greenwich college student who died of a heroin overdose against the manufacturer of a prescription drug they claim led to his death.

Laurence and Michelle Allen are suing the makers of Suboxone, which was used to treat a previous addiction to painkillers their son acquired after a car accident. When the Suboxone prescription ran out, according to court papers, Bradley Allen, 19, turned to street heroin and died of an overdose in 2014.

Comment by ibbots
2017-03-30 06:09:11

Apparently a lot of the fent that ends up in heroin is bootleg out of china smuggled in to the u.s.

Comment by CHE
2017-03-30 12:24:03

Who are these doctors?!??!

When I BROKE MY ARM last year the orthopedist was scared and wouldn’t give me anything! I only wanted something for a few days to get me through the weekend so I could sleep a full night.

I ended up having to get a couple Vicodin from a friend’s mom.

I legit needed it and couldn’t get it legally!!!! UGH. This is so screwed up.

Comment by palmetto
2017-03-29 16:05:38

Why aren’t we drug-testing members of Congress and their staffs? Especially before voting on legislation. And drug test ALL Federal employees, for that matter. Early and often.

Comment by new attitiude
2017-03-29 11:30:39

NAR says, “hurry up and buy now before rates go up.”

What happens to prices when rates go up?

Comment by AbsoluteBeginner
2017-03-29 21:42:53

‘What happens to prices when rates go up?’

Oh don’t you know, the house price will go up and the would-be buyer will get priced out. Not sure why the real estate industry would want to warn us before that happens. I guess they are looking out for us.

Comment by Professor Bear
2017-03-30 05:55:33

Prices go up. Exhibit A: US housing in the 1970s.

Comment by Senior Housing Analyst
2017-03-29 12:33:56

San Mateo County, CO Housing Demand Craters 21% YoY

Comment by Senior Housing Analyst
2017-03-29 12:47:55


San Mateo County, CA Housing Demand Craters 21% YoY

Comment by Ben Jones
2017-03-29 12:56:42

‘California 2017 February Pending Home Sales Dial Back, Marking Weakest February In Three Years – Central Valley Down 11.4 Percent’

‘Santa Cruz and San Francisco counties experienced the largest year-to-year reductions in pending sales of 40.6 percent and 23 percent, respectively.’

Comment by Blue Skye
2017-03-29 13:55:48

This while S&P/Corelogic/Case Shiller is pimping rising prices.

(Comments wont nest below this level)
Comment by SW
2017-03-29 16:03:32

Case Schiller lags market by three to six months.

Comment by Race Bannon
2017-03-29 16:06:51


Worse yet, CS is a index, not transactional data.

Comment by new attitiude
2017-03-29 14:52:17

no inventory in Santa Cruz = less sales. Price s still going up in SC.

(Comments wont nest below this level)
Comment by FTHB wannabe
2017-03-29 15:13:50

According to Movoto,

61 new listings in Sep, 841 sold/expired
77 new listings in Oct, 61 sold/expired
60 new listings in Noc, Only one sold/expired
40 new listings in Dec, One sold/expired

Apparently, you can raise prices as much you want if you are targeting one greater fool each month.

Comment by new attitiude
2017-03-29 15:59:09

yep, locals won’t pay those high prices. Foreigners will.

I guess the sellers are in no hurry.

Comment by aNYCdj
2017-03-29 14:22:21

anyone want to live in David Bowies old place comes with a PIEannnoh!

Comment by oxide
2017-03-30 07:28:30

Pianos really don’t cost that much. Unless you want a fully refurbished antique or some such, you can get almost anything you want for $25K. Sounds like a lot, but not if you can afford a $6.5 mil apartment in Manhattan.

Comment by aqius
2017-03-30 09:00:31

quite a few ads on craigslist here in Sacramento area offer free pianos. and judging by some of the pictures they’re often in very good condition.

it looks like people are just tired of these huge heavy paperweights and just want them gone.


Comment by Senior Housing Analyst
2017-03-29 15:04:31

Ashland, OR Housing Prices Crater 11% YoY On Record High Housing Inventory

Comment by new attitiude
2017-03-29 15:57:53

Isn’t it odd that everyone is waiting for the stock market correction so they can buy in?

Comment by FTHB wannabe
2017-03-29 16:20:59

Some say a large portion is attributable to firms buying their own stocks waiting for the tax reform. If it fails, most likely, we will see the correction.

Comment by scdave
2017-03-29 17:50:07

Corporate tax cut is a lock. Trump needs/wants a win.

Comment by azdude
2017-03-30 07:01:55

I’m not sure everyone wants to buy in. Some people want to make money on the downside when its very obvious prices are grossly inflated.

Problem is they are fighting global central banks and in turn corporations borrowing money to buyback stock.

The interference in the markets has cost people a lot of money.

Comment by Senior Housing Analyst
2017-03-29 16:15:32
Comment by palmetto
2017-03-29 18:07:10

Beware of old bags wearing purple leather.

From 1958, here’s Sheb Wooley singing about the Purple People Eater:

Comment by Blue Skye
2017-03-29 18:37:30

At last, contemporary music!

I’ll see you with an itsy, bitsy, teenie, weenie, yellow polka-dot bikini.

Comment by palmetto
2017-03-29 19:29:17

Heh-heh, I saw a post you made a little while back about Tee-vee and culture, I think it was, and I wanted to tell you, I actually watched the original Gidget movie over the weekend, the one with Sandra Dee, James Darren and Cliff Robertson. First time I ever saw it. It was slightly before my time, and then all the stuff that came later never interested me much, the beach blanket bingo movies and the Sally Field series I thought was kinda dopey.

But that first Gidget movie was really interesting, against the background of what I’ve absorbed over the years. It was actually a “message movie” (like it sent a LOT of mixed messages). Anti-war, but at the same time, it was like everyone should get a job and succumb to the middle class, USA, USA! And a lot of other stuff I’m not gonna get into here, but Hollywood was already hard at work trying to subtly interject its crappy kink into it all. I guess Walt Disney stepped in soon after that and postponed that stuff for a few years.

Comment by Professor Bear
2017-03-30 05:53:10

Any theories on why so much luxury housing is under development throughout the developed country economies?

How about:

1. A growing army of wealthy tycoons need ever more residential properties to house them.

2. Yellen bux need lotsa toe tag homes.

3. Other?

Comment by Larry Littlefield
2017-03-30 06:15:36

This might be a good discussion for another day.

Small apartment buildings are cheaper, but zoned out. Without zoning you know how you could get them and make them affordable? Convert the white elephant suburban McMansions. A 4,000-square-foot house could hold four one-bedroom apartments, or perhaps six with a mix of studios and one bedrooms. Just add bathrooms (may not even been necessary) and kitchenttes.

Comment by palmetto
2017-03-30 08:04:06

Not exactly a new idea. A lot of old, larger homes were converted into apartments in the past. However:

“Convert the white elephant suburban McMansions.”

Won’t fly if they’re in HOAs. There weren’t a lot of HOAs in the past, just municipalities, townships, county government. However, I could see your idea working if there’s a HOA that’s on the ropes. But I have no idea how it would revert back to the local government. After all, a lot of those HOAs were permitted to relieve local government of responsibility for roads, landscaping, etc.

Comment by Professor Bear
2017-03-30 06:33:40

R u leveraging yourself to the hilt to go all in on stox?

Comment by palmetto
2017-03-30 07:52:04

“CBO Warns Of Fiscal Catastrophe As A Result Of Exponential Debt Growth In The U.S.”

Catastrophe! Catastrophe! The ship is headed for the reef!

And all because of some bux created out of thin air. Oh, my!

Comment by palmetto
2017-03-30 08:56:05

I’m sorry, I’d really like to talk about housing, but is anyone watching the Senate Intelligence, er, uh, Disinformation hearings on Russian “interference”? I’m sick to my stomach. This is almost a repeat of the laying of the foundation of going to war with Iraq. This is how it’s done, get those “think tanks” and academicians to testify first and build it up from there. When do we get to hear about the “yellowcake”?

I just called both my Senators’ offices and about lost it. Jeebus, folks, if you care, please at least call your Senators’ offices and let them know what a juvenile farce this is and how disgusted you are.

Oh, and by the way, be prepared to be labelled a Russian “sympathizer”.

Comment by Rental Watch
2017-03-30 10:34:37

I go back to my main comments on the whole thing.

1. Of course Russia would like to influence other country’s elections. So do we! (cue the quote from HRC re Palestinian election: “if we were going to push for an election, then we should have made sure that we did something to determine who was going to win.”)

2. Russia’s influence appeared to be primarily by the leaking of DNC and Podesta’s hacked e-mails. In other words, they influenced the election by exposing the truth. My son once blamed me for the dookie he left in his underwear–sorry dude, I just confirmed the source of the stench, that many already guessed.

By the way, there are probably plenty of e-mail dookies in the RNC computer systems (they were just less successful than the DNC in harming the less preferred candidate), which would have also been fun to read, but the hackers never got them.

The fact that Russia TRIED to get RNC data using the same techniques as they used on the DNC (but apparently failed to get current information–only unused domains), leads at least me to believe that their main push was to delegitimize the US electoral process.

And rather than let the FBI do their job to see if this was in any way coordinated by Trump and/or his team, they create this circus to score political points.

I know you suggest I watch. Sorry, but I just can’t do it. I’ll wait for the results of the FBI investigation.

Comment by Albuquerquedan
Name (required)
E-mail (required - never shown publicly)
Your Comment (smaller size | larger size)
You may use <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong> in your comment.

Trackback responses to this post