August 27, 2016

An Extreme Instance Of How Crowds Can Go Crazy

Two unrelated items for weekend reading, starting with MarketWatch. “It says a lot about human nature that the scientist responsible for the law of gravity was sucked into an investment that for a time defied gravity. Throughout history, people — especially those at the top rung of society — have been greedy and gullible participants in financial bubbles. And Sir Isaac Newton was only human, after all. But the infamous bubble that ensnared Newton, involving a newly established stock market with a company at its center that was fueled by rumors and information gleaned in coffee shops, holds investment lessons to this day.”

“Coming just a few years after the spectacular Dutch Tulip Bulb mania and crash, the South Sea Bubble of 1720 centered on a company that got its start in slave trading, and which had been promised a monopoly of trade by the British government in what is now known as South America for taking over and consolidating the national debt raised by the war against France.”

“After the South Sea Company got the green light on debt, its shares began soaring, pumped by rumor-spreading and inexperienced executives. Investors at this time had to rely on coffee-shop ‘grapevines’ and the press for share information, and the two were interdependent as Richard Dale, pointed out in his book ‘The First Crash: Lessons from the South Sea Bubble.’ The South Sea bubble eventually took down the French company, though the latter was blamed more on faulty monetary policies.”

“In many ways, Newton and other investors of the South Sea Bubble were not too dissimilar to those taken in by more modern bubbles — convincing themselves they were onto a sure thing only to have it blow up. MarketWatch spoke to him about the South Sea Bubble and what investors nowadays can learn from it: MarketWatch: How did the bubble eventually burst for the South Sea Company?”

“Richard Dale: The South Sea Company did not go bust in the sense of having negative net worth. It suffered a catastrophic liquidity crisis because it was spending so much money on supporting its share price. It had to be bailed out by a combination of debt forgiveness and injections of liquidity by the Bank of England. It survived as a financial holding company.”

“MarketWatch: How did Isaac Newton get lured into such a disastrous investment? Dale: Newton invested around £3,500 in early 1720 and sold out in late April of that year having doubled his money. However, like so many others, he was induced to get back into the market in the summer of 1720 at the height of the bubble and ended up losing £20,000, around £3 million in today’s money.”

“MarketWatch: What modern-day financial bubble is most similar to the South Sea Bubble? Dale: From the standpoint of the South Sea directors, the bubble represented a giant Ponzi scheme (e.g. Bernie Madoff) in that it proposed to pay dividends not from profits but from sales of new shares for cash. From the point of view of investment behavior, the bubble resembles the boom/bust when the valuations of companies lost any connection with underlying value or realistic profit projections. (The Bank for International Settlements pointed this out at the time).”

“Although this was far ago, the period of history the market was in was not so terribly different from today, such as options-forward markets and people buying on margin and so on. These were quite sophisticated markets. Ok, you didn’t have the framework of financial regulation and didn’t have long-term investors, it was a very short term market, allowing for those differences….I think you can draw parallels from today’s markets. I don’t think anything’s changed. I think it is a lesson to us all, a particular extreme instance of how crowds can go crazy.”

The Maryville Daily Forum by Eric Sheehan. “When we decided to move to this happy little Ville almost a decade ago we toured a bunch of houses. One in particular caught our eye. It was a turn of the century (1900) beauty with so much character only a fool could pass it up. Sure it needed a lot of cosmetic work and updates but that is part of being a homeowner, right?”

“We moved in and rolled up our sleeves. Layer upon layer of wallpaper was steamed and scraped to expose the beautiful plaster walls beneath. Sure there were cracks but that was just part of the character of a century old house. We had a check list and started to go room by room doing the what we could while the house built equity so we could afford the larger renovations like remodeling the 70’s kitchen and 80’s bath. Then the housing bubble popped. Our home’s value deflated like a helium balloon left out in the cold. Suddenly the biggest investment of our lives was becoming our biggest mistake.”

“I was bemoaning this predicament with a friend when he stopped me and said, ‘What you have there is a Money Pit.’ I paused and stared blankly at him. ‘You know, Money Pit, with Tom Hanks, came out in the 80’s,’ he clarified, ‘and Neighbors, the family that has a frat move in right next door to them….that’s you buddy.’”

“He was right, our home had become a financial vacuum and to compound things all the houses on our block had become rentals and not just family rentals, pack ‘em and stack ‘em college rentals. Our neighborhood has also become money making property for the most part. This caused a noticeable decrease in our resale value but there are also other benefits. A couple years back my son and mother got to see one of the neighbor kids streak around the house. We have had at least one young man pass out in the driveway and yet another try to come in our back door insisting that it was his house, they are so adorable at that age. Lucky for us since the central air is out it is almost impossible to hear the late night revelry over the window unit and three fans that cool our bedroom.”

“It hasn’t all been bad though. So many memories are held within the walls of that grand old house. She really has served us well, we just happened along 30 years late. Our next home will be a townhouse if I get my way and it will be rented. It’s not that home ownership is all bad, I just don’t think we’re cut out for it.”

“While I’m on the subject any one interested in one heck of an investment property? You could probably get eight kids in it, finish the attic and make that 12 and if they can swim you could fit three more in the basement … don’t worry I fixed all that stuff I mentioned.”

Supply Is Being Drained By Short-Term Scofflaws

The Gothamist reports from New York. “Activists often argue that Airbnb is driving up New York City rents by allowing fly-by-night hoteliers to illegally rent out whole apartments year-round, thus taking much-needed housing off the market. The data news site FiveThirtyEight commissioned data from the for-profit Airbnb data-scraping service Airdna to understand the prevalence of whole-apartment rentals in cities nationwide. The data for New York shows that between June 2015 and May 2016 about 8 percent, or 2,464 of the city’s 30,800 Airbnb listings offered whole apartments for more than 180 days out of the year.”

“A city housing survey in 2014 found that just 3.45 percent, or 75,900 of New York’s 2.2 million apartments were vacant at a given time. Last month, data compiled by the firm Citi Habitats showed that just 1.92 percent, or 16,500 of Manhattan’s about 854,000 apartments were available. In this context, 2,400 apartments (more or less) is kind of a big deal.”

“A recent report by MFY Legal Services and Housing Conservation Coordinators defined ‘impact listings’ as whole apartment listings that are rented for less than 30 days, booked more than once a month, and listed more than either 3 or 6 months out of the year. Their analysis found 8,058 such units in New York, and determined that if all else remained equal and those apartments were returned to the rental market, the citywide vacancy rate would rise to 4 percent.”

“Murray Cox, an activist with the group Inside Airbnb, said that the startup’s resistance to turning over even anonymized data shows that it doesn’t care about concerns that it is adding pressure to an already extremely tight housing market.”

“‘If they were really interested in accountability, they would be trying to work within the intent of [government] regulations and working with cities to protect affordable housing, and addressing what is abuse of the platform and what it is people are interested in protecting about neighborhoods,’ he said. ‘I think that Airbnb isn’t interested in doing that at all. I think they’re interested in defending anything that they see as an attack on their revenue.’”

The Tampa Bay Times in Florida. “Large parties are continuing in a Tierra Verde mansion rented through Airbnb, even as the host faces drug trafficking charges and a Pinellas County commissioner is looking at ways to eliminate abuses of the popular home-sharing site. As the Tampa Bay Times reported in June, the house has been in foreclosure for several years. The elderly widow who lived there deeded the property to Tampa real estate broker Kevin Byrne, who has been renting it for about $3,000 a month since January.”

“With a home in foreclosure, ‘who do you hold responsible in that scenario?’ said County Commissioner Janet C. Long. ‘People spend their hard-earned dollars to live in a lovely neighborhood and they have to deal with that kind of thing and there’s no law against it.’”

Fusion on California. “In the teeny-tiny village of Joshua Tree, California, population 7,000, there are more than 200 vacation rentals on Airbnb. In recent years, visitors to Joshua Tree National Park have soared, and last year the number of visitors hit a record high, surging by more than 27 percent to over 2 million. ‘The short-term rental market is out of control right now,’ said Mark Lundquist, the local field representative for the village from the San Bernardino County government.”

“Over the past year, Lundquist told me, feeding that demand has put a strain on local resources. The local home buyers’ market has all but dried up as property owners put their places on short-term rental sites instead of up for sale. Long-term rental units are scant. And in Joshua Tree, it’s not even peak tourism season—that isn’t until the fall.”

“In May, I worked with the technologist and Airbnb data guru Tom Slee to investigate Airbnb’s effect on the small Icelandic capital of Reykjavik. In Reykjavik, which has a population of 120,000, five percent of the local rental market now belongs to Airbnb. It has made finding a place to live there next to impossible. Since then, both Slee and I have heard from even smaller communities reeling from the impact of sharing economy startups.”

The Williamette Week in Oregon. “When Rebecca Rosenfelt moved to Portland from San Francisco last summer, she and her husband paid $1.6 million for two Boise neighborhood townhouses and almost immediately began renting one of them out on Airbnb for as much as $350 a night. The four-bedroom townhouse is one of six properties Rosenfelt listed on the short-term rental marketplace Airbnb—three in Portland, one in San Francisco, and two in Northern California’s Sonoma County.”

“When Portland began allowing short-term rentals in 2014, City Hall created rules to ensure that Airbnb’s clients wouldn’t add to a citywide housing crunch by taking apartments and homes off the market and renting them out to tourists. San Francisco passed similar restrictions. Among those rules: People can list only properties where they live for at least nine months a year.”

“Rosenfelt’s six properties violate the spirit of those rules—and at least two of her rentals, the San Francisco condo and Northeast Portland townhouse, flout the letter of the law by not having the required city permits and safety inspections.”

“And Rosenfelt should know the law: She’s an Airbnb manager at the tech company’s Portland headquarters.”

“Critics have long complained that Portland’s short-term rental regulations are toothless—two years after the rules were adopted, less than a quarter of Airbnb clients have bothered to get the required $178 permit and safety inspection. Now those skeptics say the rules have become such a joke that even an Airbnb employee ignores them.”

“‘It just makes it look like those rules were only ever for show,’ says Margot Black, an organizer with Portland Tenants United. ‘Even an Airbnb manager is blatantly flouting them. The fact that it’s in the midst of a housing crisis makes it all the more obscene.’”

“An analysis commissioned by WW shows that if illegal short-term rentals were removed from the Airbnb website, as many as 1,718 homes could be made available to Portland residents instead of tourists. Some leaders say the city’s housing supply is being drained by short-term rental scofflaws. ‘If you take thousands of units off the market, it’s going to have an impact,’ says Commissioner Nick Fish. ‘People now have the option of making more money renting to short-term rather than long-term tenants.’”

“About 79 percent of the 3,500 Portland listings on Airbnb don’t have city permits, according to data provided by the city and Murray Cox of the tech website Inside Airbnb. In 2015, WW reported that dozens of Airbnb clients were ignoring city rules by listing multiple short-term rentals—sometimes while living out of state (”Hotel California,” WW, Feb. 17, 2015). A recent examination by Cox shows the problem has persisted even after repeated deadlines from the city and the threat of fines to the company.”

“In one example, one woman has 22 listings all clustered near Northeast Alberta Street, none of them giving a city permit number, according to data from Inside Airbnb. Rosenfelt has worked as a product manager for Airbnb since 2012, according to her LinkedIn profile.

“Rosenfelt’s condo in San Francisco remained listed on Airbnb. She can’t get a legitimate Airbnb permit for the San Francisco address as long as she lives in Portland, because San Francisco also requires Airbnb clients to live in the units they rent out. There’s no record of a permit ever being issued to Rosenfelt, officials with San Francisco’s short-term rentals office say.”

“She’s not the first Airbnb employee to run afoul of the rules. The company’s CEO, Brian Chesky, was busted in January for failing to register his apartment in San Francisco, but he easily rectified the situation by registering his couch, for which he asks $50 a night.”

“But unlike Chesky, Rosenfelt can’t fix her mistake with paperwork—she’s breaking the rules in two cities, including residency requirements. The Boise townhouses Rosenfelt purchased were built just last year. Nearly three years ago, a developer purchased a modest house on Northeast Rodney Avenue for $259,000, demolishing it to make way for Rosenfelt’s two, 3,000-square-foot townhouses.”

“Those new units might have increased the city’s housing supply—but it appears one of them is partly being used as a bootleg hotel. (Airbnb officials say Rosenfelt is renting at least a portion of her second townhouse to a long-term tenant, as well as advertising it as a short-term rental.) Airbnb spokeswoman Alison Schumer defends the company’s record in working with Portland, blaming the city’s ‘complex’ process for getting permits.”

“Schumer declined to comment on why Rosenfelt was allowed to list six properties on Airbnb. ‘We are working with this employee to help her navigate the registration process,’ Schumer says.”

August 26, 2016

Investors Need To Batten Down The Hatches

It’s Friday desk clearing time for this blogger. “If you’ve been shopping for a home in Boston or its suburbs in the past few years, you probably know how this story ends: cars lining the block and a hundred people at the open house. A dozen offers rushed to the listing agent, many of them above asking price or in cash. And an emotionally taxing, white-knuckle bidding war. When your reasonable offer is rejected, it’s enough to make you cry. ‘It’s really almost a national phenomenon,’ Lawrence Yun, chief economist at the National Association of Realtors, said of the Boston-area market.”

“Could the second attempt be the charm for a million-dollar-plus home sale in Sylvan Park? A $1.28 million listing of a 3,477-square-foot, single-family home at 109 42nd Ave. N. provides the latest test for that neighborhood southwest of downtown Nashville. Barring a major negative global event, Christie Wilson, president of The Wilson Group Real Estate Services doesn’t believe there’s going to be a popping bubble. ‘There are definitely micro markets in Nashville that are experiencing a bubble, and if demand subsides, we will see a typical deflate, but not a pop,’ she said. ‘That is the nature of real estate. It goes up, and it goes down … and still it remains the best investment a person can make.’”

“Reality TV show host and entrepreneur Marcus Lemonis on Monday sold his five-bedroom, 8,225-square-foot mansion in Lake Forest for $2.7 million. Lemonis paid $4.936 million for the mansion in 2005. He first listed it briefly in 2008 for $6.7 million and later relisted it in 2011 for $4.995 million before several price cuts. He then relisted it in 2014 for $4.1 million before taking it off the market. He put it back on the market on May 23 for just below $3 million.”

“Armstrong Realty Management CEO Benjamin Ringel, who’s facing foreclosure on his Southampton mansion, now has another legal woe. Ladder Capital is suing the Midtown-based landlord, claiming he defaulted on a $5.9 million mezzanine loan secured against an Upper West Side retail condo.”

“Detached housing sales have plunged 84 per cent on Vancouver’s West Side and are down 88 per cent in Richmond during the first two weeks of August compared to the same period in 2015. Total detached house sales through the Real Estate Board of Greater Vancouver plunged 71 per cent in the same period. Zolo Realty BC Inc., a real estate firm that tracks average, rather than benchmark, prices in Vancouver’s housing market, reports that as of Aug. 22, the average home price in the city dropped 17.1 per cent from July 25, to $1.1 million.”

“Noted real estate investment analyst Ozzie Jurock said it is likely that there will be a sharp increase in listing inventory in the weeks ahead. ‘As investors, we need to batten down the hatches,’ Jurock told his readers this week.”

“The ‘turmoil’ of the Brexit vote has seen Cambridge house prices fall for the first time in years, prompting fears the city’s housing bubble may be about to burst. Figures released today show the city’s average house price fell from May to June. One city estate agent, who asked not to be named, warned the local market could ’spiral out of control’ if things don’t soon stabilise. He said: ‘Sellers don’t want to accept prices could be coming down, and buyers have been conditioned into thinking Brexit would lead to prices coming down. The effect is, nothing much is really selling.’”

“Rents dropped by an average of KD 60 compared to two months ago in Salmiya, according to a report. Al-Rai’s report quotes Qais Al-Ghanem, Secretary of the Real Estate Association, who previously predicted a drop in rents due to a 30 percent decrease in investment lands’ prices in many areas, in addition to the fact that supply now far exceeds demand. ‘The real estate market has been saturated following the boom in construction investment buildings, and rents will eventually go down following years of rent bubbles,’ he indicated.”

“Rents have dropped considerably in high-end apartments. For instance, in Egmore, where there has a been a huge supply of luxury apartments, rentals over the last one year have dropped from about ₹85,000 to ₹65,000 an apartment. Abdur Ravoof, a property consultant, says the situation is particularly tough in high-end apartments – houses that fetch rent of over a ₹1 lakh a month. As companies and employees cut costs and expenses, rentals are taking a beating. Also, with the continuous increase in supply of apartments, the tenants have a wider choice.”

“‘I am paying a hefty maintenance on the vacant apartment on OMR. I need a tenant now,’ says a desperate apartment owner. His tenant has recently moved out of the two-bedroom unit to a larger apartment for a nominal increase in rent within the same township project. ‘True, this is the story of Chennai’s residential rental market,’ acknowledges Jayant Hemdev, Partner, Hemdev Real Estate, a leading player in the sector.”

“In Abuja, findings show remarkable drop in rents and house prices. At the Federal Housing Estate in Lugbe, where a three-bedroom flat was going for between N700,000 and N900,000 per annum. A tenant, who introduced himself as Luke, said his annual rent was N700,000 but his landlady had asked him to start paying N450,000 in the next rent cycle. According to Lordye Agema-Hur, CEO of Sir Hur Nigeria Limited, a three-bedroom flat sold for N20 million at the Federal Housing Estate in Lugbe, but can now be bought at N17 million.”

“Unfortunately, despite this drop in prices, there is low activity in the market owing to the fact that buyers are not coming up due to lack of cash. ‘It is not a seller’s market any longer,’ Terungwa Sabe, an Abuja-based estate surveyor and valuer, said in a telephone interview.”

August 25, 2016

Realtors Say It’s Not Time To Panic

CBS 46 reports from Georgia. “Atlanta home prices are the highest in recent memory. According to the Atlanta REALTORS Association, Atlanta’s median home price jumped from $105,000 in 2012 to $250,000 today. With some properties seeing such quick gains in pricing, however, some real estate agents say Atlanta’s market can’t handle it. ‘In 12 to 18 months I think that we will see a correction in prices,’ Said Kris Kolarich of Atlanta Intown Real Estate Services. Kolarich believes Atlanta’s housing bubble is about to burst. ‘I don’t see how you can sell houses in certain zip codes for $250,000 and $275,000 without commerce still, in heavy crime areas and without good schools,’ he said.”

The Miami Herald in Florida. “Close your eyes if you don’t like bad news. The volume of existing home sales in Miami-Dade County fell 20.8 percent in July compared to July 2015, according to a monthly report released Wednesday by the Miami Association of Realtors. Three main factors are conspiring to slow down Miami’s real estate market: Not enough affordable housing for locals. A lack of foreclosure inventory available for investors to snap up. And a major drop-off in the number of foreign buyers, who’ve been burned by the strong dollar.”

“‘When you see a 20 percent drop, you start thinking not just housing recession but housing depression,’ said Jack McCabe, a South Florida real estate analyst.”

“Realtors say it’s not time to panic. The pace of sales set in 2013, 2014 and 2015 simply wasn’t sustainable, said Ron Shuffield, president and CEO of EWM Realty International. ‘A lot of the decline we’re seeing is in the million-dollar market and in foreclosures,’ Shuffield said. ‘The middle of the market is still strong.’”

“The new report shows Miami-Dade’s condo market suffering more than single-family homes. Condo resales dipped to 1,104 in July, down 24.7 percent year over year, the Realtors’ group found. Existing condos are competing with a glut of luxury offerings, making older units a tougher sell. Single-family resales fell to 1,128 in July, a 16.4 percent decline from last year.” on Texas. “This enormous hunk of partly built real estate outside of Houston, which is on the market for $3.6 million, has been called ‘haunted,’ a ‘disaster,’ and a ‘mystery.’ But here’s what this unfinished, sprawling Texas property really is: a multimillion-dollar fixer-upper.”

“The massive home, abandoned and incomplete, has attracted media attention over the years. Located in the small town of Manvel, TX, the structure started in the early 2000s as a custom build for the original owners, a doctor and his wife, recounts Jim Youngblood, the current homeowner. ‘They got 70% done, and for some reason his wife thought the house was too big.’”

“Her rationale isn’t too hard to understand. According to Youngblood, the home was planned as a 63,890-square-foot facility on 10 acres and would include living quarters, the doctor’s medical practice, and a setting for housing foster children. Youngblood, an investor, decided to go in on the place with family members in 2008. He now owns it through foreclosure. Since then, he has tried to sell it unsuccessfully.”

“‘I’ve had it under contract dozens of times. For some reason, these people can’t get financing.’ He’s not the first person to have big dreams for the half-built home. Other potential buyers have appreciated the enormous 30,000-square-foot room in the back for an event center with a bed-and-breakfast. Or as an assisted-living facility with space for 70 rooms. Despite interest regularly rolling in, no one’s closed on it yet. ‘Everybody has these grand ideas, but they don’t have any money,’ Youngblood laments.”

August 24, 2016

From A Fear Of Missing Out To Maybe I Should Wait

A report from the New Zealand Herald. “One of New Zealand’s most controversial citizens has cut a record-breaking deal over the $40 million assets seized as part of a money-laundering inquiry. The deal struck with William Yan - also known as Bill Liu, Yang Liu and Yong Ming Yan - is the final settlement in a civil case two years after the police raided his penthouse. More than $40m of dollars of assets were frozen as New Zealand detectives worked closely with Chinese authorities who claim Yan stole $129 million in a complex fraud.”

“Court documents allege Yan concealed the fortune in New Zealand through complex money laundering transactions, where property and shares in companies were held by trusts and companies in other people’s names. Those assets included a collection of luxury cars, the Metropolis apartment - five titles joined together on the 35th floor - an 18.8 per cent stake in Mega, millions in bank accounts, a troubled North Shore property development and a Waikato farm.”

From Caixin Online on China. “The ongoing anti-graft campaign has netted one in three suspects on China’s ‘100 most wanted’ list – mostly government officials hiding overseas – to stand trial in China as of July 15, the Communist Party’s corruption watchdog said. The party’s graft buster says fugitives hiding in 40 countries and regions were repatriated in the first half of 2016 and that over 1.2 billion yuan worth of stolen funds were recovered from overseas in the first half of the year. According to Interpol, 40 of China’s 100 most wanted fugitives were thought to be hiding in the United States, 26 in Canada, 11 in New Zealand and 10 in Australia. Other locations include Belize, Sri Lanka, and Grenada.”

“Over 40 percent of the 738 fugitives who returned to China in 2015 were ‘persuaded’ to come back rather than forcibly repatriated, according to the CCDI. Fugitives’ family members sometimes played a role in these ‘persuasion efforts,’ Li Gongjing, a Shanghai police officer, said in an interview with Xinmin Weekly magazine. ‘It’s very effective. A suspect is like a kite. Although he is in a foreign country, his line is in China and we can find him through his relatives,’ Li said.”

The Malaysia Kini. “The ‘Datuk Seri’ who was arrested by Malaysian Anti-Corruption Commission (MACC) to assist in a corruption investigation is believed to own 31 luxury condomimium units worth more than RM15.5 million, reported Utusan Malaysia. These units located in Kuala Lumpur were ‘purchased’ from five housing developers which had dealings with Kuala Lumpur City Hall. Quoting a source, the report said the MACC found that the suspect had purchased all the condominium units, each priced between RM200,000 and RM300,000, without paying downpayments when the sale and purchase agreements were executed.”

“The houses were bought using the suspect’s own name and those who are close to the suspect. ‘It is believed that the suspect would sell these units with an estimated price of RM500,000 each, once they are completed to gain profit,’ said the source. During the raid, MACC officers also seized huge amounts of cash hidden in the ceiling of a suspect’s house.”

From The Star in Kenya. “The National Youth Service scam suspects Josephine Kabura, Ben Gethi and six others were yesterday ordered to pay Sh300,000 bail each to secure their release, pending trial over money laundering. Chief magistrate Daniel Ogembo says the suspects allegedly knew the money they used to buy property, including high-end vehicles, land and houses, was proceeds of crime, namely Sh791,385,000 stolen from the Devolution ministry.”

“Some of the properties have already been frozen by the Assets Recovery Agency. Some suspects are battling to save their property and have filed cases at the High Court.”

The Richmond News in Canada. “Sales of detached homes for August are predicted to be down by as much as 55 per cent compared to the same time last year, thanks, in part, to the new foreign home buyers tax, according to Steveston realtor Sean Lawson. In fact, Lawson argues the tax, which tacks on another 15 per cent to the purchase price for non-residents, means Richmond has likely reached its high watermark for real estate prices, and the August slump may extend into the fall.”

“‘The market was already slowing and they (government) dropped this bomb on it without any real consultation with the industry,’ he said, adding it has dour consequences for the overall economy. ‘To kick out two of the pillars – construction and real estate – that along with tourism were doing well was ridiculous and foolhardy. It was a purely political move that is likely to backfire on the government.’”

“Vancouver realtor Steve Saretsky said he has been watching market trends closely since the foreign buyers tax was implemented and said it is impossible to know for sure how much the tax has slowed sales in the Richmond area where government tracking of real estate transactions showed about 19 per cent of homes were purchased by non-residents — the highest concentration in Metro Vancouver.”

“‘The implementation of the tax put an immediate halt on peoples’ plans,’ Saretsky said via email. ‘Everyone wants to see what’s going to happen next before making any decisions. It changed the mentality of locals from a ‘fear of missing out’ to maybe I should wait.’”

“‘Here’s what I see, things are clearly trending downwards,’ Saretsky said. ‘After basically hitting a 40 per cent increase in price at one point how much further can we really expect it to go up? Real estate is cyclical. I don’t want to make any predictions, but if you look at all the data and the trends over the last four months, it’s certainly not encouraging. I would expect things to continue cooling, however September is generally an active month.’”

“‘If September is another slow month, then the writing is on the wall,’ he added.”

At Its Peak Or Beginning A Downturn

A report from the Tennessean. “Some things are more predictable than others. The topic and timing of this week’s column is one of those. For the last several years, David and I have attended a late summer conference in steamy Austin, Texas. Keller Williams Realty International’s (KWRI) Mega Agent Camp is routinely packed full of insights. One of the most valued presentations is always the market update presented by KWRI chairman and co-founder Gary Keller. As always, Keller’s presentations take an historical look at where we have been and then challenge us to draw reasonable assumptions about the future. The starting point was a broad-based question posed to all in attendance: Where are we in the housing cycle?”

“Nationally, the current market is at its peak or beginning a downturn. The market traditionally works its way through the cycle every seven years, so this should come as no surprise. The indicators of a downturn have already begun to surface in several markets across the U.S.; fortunately Middle Tennessee is lagging behind. Increasing days on the market, flat or increasing inventory, coupled with a slowdown in sales units and drop in average price are indicators that a downturn is imminent.”

Bloomberg on California. “Stacey Smith and her husband looked at about three dozen homes in the San Francisco Bay area and lost a bidding war before finally purchasing a four-bedroom house in June for $1.5 million — 40 percent more than the asking price. Their search wasn’t in Silicon Valley or San Francisco. It was just across the bay in Oakland, which has supplanted its pricier and better-known neighbors to become the region’s most heated real estate market.”

“‘Something we had to wrap our head around really quickly was the fact that we were automatically going to bid at least 30 percent over asking,’ said Smith, a 50-year-old strategy consultant who moved from San Francisco in search of more space for her family’s three kids. ‘It’s the new normal.’”

“The median home price in Oakland has soared 178 percent since 2011, almost double the gain in San Francisco, Paragon Real Estate Group data show. ‘Most markets would be pleased if they averaged asking price, or 1 or 2 percent over asking price,’ said Patrick Carlisle, chief market analyst at Paragon. ‘To see things averaging 9 to 17 percent over asking price is virtually unheard of. It’s the highest I’ve ever seen.’”

From Community Impact on Texas. “Previously the top single-family housing market in the U.S., the Greater Houston area fell behind the Dallas-Fort Worth market early this year, according to Metrostudy. The Houston market had 27,263 new homes under construction during the first quarter of this year—down 3,089 from the same time period in 2015. Similarly, the Conroe, Montgomery and Willis area saw a decline in new home construction during the second quarter of this year.”

“‘We built a lot of new communities with the goal of capturing some of the people that would be relocating to work at the new ExxonMobil campus, but that has not materialized in the volume that we thought it would,’ said Metrostudy-Houston Regional Director Lawrence Dean. ‘While the new home market is still going strong, we probably built too many new subdivisions and too many lots at the same time. It will take a little bit longer to build and sell the homes than we thought.’”

“‘It has been a pretty significant shift in the market,’ Gracepoint Homes President Tom Cox said. ‘The buyers that are above $450,000 are very discretionary buyers, and they are in a significant holding pattern right now.’”

“Additionally, homeowners who are looking to sell their homes are having a difficult time in the current market because homebuilders offer incentives to sell their inventory, such as paying bonuses to real estate agents and covering closing costs for homebuyers, said The Woodlands Realty Realtor Marisol Luyckx. ‘Homebuilders give a significant amount of incentives to real estate agents as well as buyers, so it is difficult to compete when you have a home for resale,’ Luyckx said. ‘That is when you know that [builders] are desperate to get rid of their inventory. If [homes] were selling quickly, they wouldn’t offer those things.’”

August 23, 2016

A Trend That Is Happening More Often

The American Statesman reports from Texas. “Average apartment rents in the Austin area increased in July for the seventh straight month, though the rate of increase from last year fell to a six-year low, according to Axiometrics. ‘Austin has been adding a lot of jobs, but also adding a lot of apartments,’ said Stephanie McCleskey, vice president of research for Axiometrics. ‘Though a lot of the new supply is being absorbed, the slowdown in construction we’re starting to see for 2017 would come as welcome relief.’”

“An estimated 10,173 new apartment units are expected to come to market this year — the busiest of the current apartment cycle — and another 5,906 are slated for completion next year, Axiometrics said.”

The San Francisco Examiner in California. “It wasn’t until San Francisco resident Gary McCoy stopped looking for an apartment to share with his husband that one became available in their price range. Earlier this month, after a ‘frustrating’ year and a half of searching for a home to call their own, the couple signed a lease for a rent-controlled studio with a full kitchen and bathroom in The City’s Civic Center neighborhood. The price? Less than $1,800 a month. ‘It’s still an uncomfortable amount of rent compared to what we’ve been used to … [but] to find a pretty large studio with full kitchen and full bathroom for less $1,800 blew us away,’ said McCoy.”

“Prior to finding the studio, McCoy said each apartment the couple viewed cost a minimum of $1,800 a month, ‘and that’s for the smallest studio that we actually looked at.’ ‘Rents have definitely come down,’ McCoy said.”

“Last month, friends of Planning Commission Vice President Dennis Richards sought to rent their two-bedroom top floor apartment next to Dolores Park for a year and asked $7,300 a month. There were no takers. His friends have since dropped the price twice, most recently to $6,800 a month. Richards — who conceded that price ’still seems high’ — estimated that if the home had been rented at this time last year, there would have been no need to reduce the rent.”

The Pagosa Daily Post in Colorado. “It has been an interesting summer for the real estate world in Pagosa Springs. Overall sales activity is up slightly as measured against the prior 12 months. For all property types (building lots, acreage, commercial, ranch, single family, condos, etc.) the average selling price was down 2.5% over the prior year. When you cross into the $500,000+ price ranges the level of supply significantly outpaces demand as shown below.”

“Listing Inventories: $200,000-$300,000: 67 Active Listings = 10 month supply. $300,000-$500,000: 90 Active Listings = 16 month supply. $500,000-$750,000: 53 Active Listings = 29 month supply. $750,000-$1,000,000: 35 Active Listings = 76 month supply. $1,000,000 plus: 49 Active Listings = 106 month supply.”

“The market in Southwest Colorado has been impacted energy prices. Pagosa Springs has always benefitted from our visitors and second home buyers from Texas and other nearby energy states. An increasing number of households with a significant portion of wealth and income tied to oil and gas are choosing to postpone plans for a second home or cabin in the mountains of southwest Colorado.”

From Chicago Now in Illinois. “If you read my last Chicago real estate market update you saw that July home sales came in well below last year’s numbers, which was a bit disconcerting. There is a segment of the housing market where inventory has been quietly building for more than 2 years: single family homes in higher end areas such as West Town, Lake View, North Center, Lincoln Square, and Uptown. I put together the graph below based upon an agglomeration of these community areas and the trend is rather striking. From a low of a 2.1 month supply in December 2013 home inventory has risen to a 6.5 month supply in July. Technically, realtors consider anything above a 5 month supply to be a buyer’s market.”

“What’s driving all this and why is it just happening in these areas and with just single family homes? For instance the inventory of single family homes remains very low in Logan Square at only a 2.3 month supply. Could it be all the new construction driving up inventory? Could it be upper tier homebuyers giving up on Chicago Public schools?”

From Mansion Global on New York. “The daughter of billionaire hedge funder Israel Englander has sold her Manhattan apartment at a loss — a trend that is happening more often across New York’s luxury market. Dr. Laura Englander Levin, a radiologist whose father is the founder of hedge fund Millennium Management and is reportedly worth $5 billion, has sold her condo at 960 Park Avenue, which had a $13.5 million asking price, well below the $15.5 million she paid for it in July 2014.”

“A total of 16 contracts were signed last week at $4 million and above, seven more than the previous week. The median asking price was $6.1 million, while the average discount from original ask to last asking price was 6%, and the average number of days on the market was 245.”

Will We Get To Step 7 This Time?

A report from Builder Online on Florida. “Metrostudy’s 2Q16 survey of the Tampa housing market shows that 2,034 single-family units were started in the quarter, a 1.9% increase from 2Q15. The annual rate of 8,191 starts showed a 24.2% increase compared to last year. Single-family quarterly closings totaled 1,855 units, 8.6% higher than 2Q15. The annual closings rate was 7,277 units, 21.2% above the annual closings rate for the twelve months ended 2Q15. ‘The 2Q16 quarterly starts pace of 2,034 units was the second single best quarter for starts since 1Q07, closely following the strong performance of 2,097 starts last quarter,’ said Tony Polito, Director of Metrostudy’s Tampa market. ‘Competition, especially at the low end, comes from apartments. Townhomes are an attractive alternative to renting and there was a 54.4% increase in the annual starts pace for townhomes during 2Q16 versus 2Q15, up from 890 annual units to 1,374 units.’”

“In 2Q16, total single-family inventory – units under construction, finished vacant and models – equaled 4,647 units on the ground, a 7.7-month supply. Inventories grew by 24.5% compared to 2Q15. ‘Tampa’s new housing inventory is also showing a significant trend: although the market added 111 FV units during 1Q16, FV inventory was only reduced by 24 units in 2Q16,’ said Polito. ‘The result was that Months of Supply held level at 2.2 months in June not only compared to March 2016 but also June 2015. Ideally the supply of FV units would be nearer to 1.5 months. The backlog of under construction remains strong and points to solid closing numbers in 3Q and 4Q 2016. With 2,899 units under construction, close attention should be paid to cancellation rate as this could push FV supply even higher.’”

The Miami Herald. “While the Miami condominium market can be unpredictable, it is also very cyclical. Real estate experts and insiders often can see what’s coming next. And what’s next could be bulk buys. As the market cools, investors can oftentimes buy 10 or more units — and sometimes even entire buildings — at a discount. Of seven conditions that typically lead to bulk buys, we are already seeing signs of six of them.”

“Commissions and incentives to brokers are increasing. The practice started in late 2015 and has spread. In March, one developer announced it was raising commissions to 10 percent on two Miami projects and lowering deposit requirements. Another developer upped its commission from 6 percent to 7 percent while also offering Realtors car leases or jet skis as additional incentives and other projects promptly followed suit.”

“Sales prices are flat or falling. A report released by Miami’s Downtown Development Authority at the beginning of August showed that downtown Miami condominium prices dropped for the first time in five years. The report focused on resale prices, which declined 4 percent, a phenomenon representative of the entire Miami market. Which leads to resales in new buildings. The same DDA report compared listings from May 2014 to May 2016. There were 1,900 listings then; there are 3,000 now. Over that same period, monthly sales fell 43 percent.”

“New inventory builds up. According to the Integra Realty report released by the DDA, more than 2,500 units were available in any given month over the past two years. This May, the number topped 3,000. Because of long lead times, nearly 7,500 condos were under construction in the second quarter of 2016 with another 1,550 being marketed in the pre-construction phase.”

“Developers and investors begin looking for financing against their unsold or all cash units. This is where we are right now. For example, the demand for hard money lending to foreign buyers has never been higher. All of these steps could eventually lead to…Off-market opportunities. If history repeats itself, we could start to hear developers whispering about blocks of units for sale. Although we have not seen this yet, the practice became common in the last cycle when velocity slowed and buyers stopped showing up for closings.”

“Between July 2008 and August 2009, nine bulk sales in Miami-Dade County totaling 613 units averaged $199 per square foot, according to Condo Vultures. One buyer bought 10 units at Brickell on the River South Tower at a 43 percent discount. Another buyer paid less than $200 per square foot for 21 units at Marina Blue. Over the next two years, bulk sales were recorded at a Fontainebleau project, Regent Hotel, 900 Biscayne Bay, Downtown Dadeland and others.”

“Will we get to Step 7 this time? This is not 2008-09.”

The Real Deal. “Commercial property brokerage Marcus & Millichap announced the bulk sale of 188 condominium units in Orlando for $8.084 million, or $43,000 per unit. The units are part of a 200-unit property called Los Robles Condominiums. Michael Donaldson and Nicholas Meoli in the Tampa office of Marcus & Millichap secured and represented the buyer, which plans to rent the 188 condo units acquired in the bulk sale. Meoli said in a written statement that Los Robles underwent conversion to condo units in 2007 and ‘will prove to be one of the most attractive rental communities in the sub-market.’”

From First Coast News. “A Jacksonville family says they feel trapped in their own home. The couple says there has been a rash of car break-ins at their Arlington apartment complex and they want something done about. The couple have lived at Sorrel Luxury Apartments off of Kernan Boulevard N. for a little more than a year. In that time, they said their truck has been broken into three times. The most recent time was Friday night. The couple said the thief ripped their car apart, leaving behind thousands of dollars in damages. The couple said eight other cars were also broken into and vandalized that night.”

“According to the couple crime is an on-going problem at the luxury complex and they want out but management isn’t budging. ‘They wont let us get out of our lease. They said it’s not grounds to break a lease, even with the amount of criminal activity that goes on here,’ said Sara Obadia.”

August 22, 2016

The Departure Of Investors Is Quietening The Market

A report from the Australian Financial Review. “Buyers seeking advice need to take extra care they’re not being flogged developer apartments in deals better suited to their adviser’s pocket than their own situation. Leaked documents show hard-sell strategies being offered to advisers promise them $5000 for one successful residential property referral, or ‘passive income’ of $300,000 a year for just over one successful sale a week. ‘The departure of Asian investors is quietening the market,’ says Suzi Antic, a director and investor advocate for Melbourne Property Acquisition and Investments, which acts as an intermediary between developers and advisers.”

“‘A lot of developers are really struggling to sell apartments that have been built,’ Antic says. ‘That means they are honing in on local buyers,’ she says.”

“Some buyer’s agents claim sales inquiries have slipped by about 40 per cent since lenders cracked down on overseas’ borrowers by increasing deposits, restricting currencies used for payment, boosting scrutiny of overseas income and tightening checks on employment. Lenders have also tightened – or stopped – offering loans to borrowers for high-rise apartments. In addition, an estimated 45,000 apartments are due for completion and settlement over the next nine months in Melbourne, Sydney and Brisbane, an increase of nearly 25 per cent compared with last year, according to planning consultancy MacroPlan Dimasi. Another 53,000 could be coming to market in the same postcodes next year, the consultancy estimates.”

“To attract buyers some developers are discounting, extending settlement terms and offering headline-grabbing incentives such as luxury flights and accommodation packages to Europe and Asia. But others are sceptical about the continued strength of demand if overseas’ buyer numbers continue to fall, price rises outpace income growth and apartment completions result in a big supply surge. ‘They must be on crack cocaine,’ says David Morrell, founder and director of Morrell Koren, about claims that advisers can make hundreds of thousands a year in referral fees.”

The Hindu Business Line in India. “The luxury real estate market has come crashing down in the past few years, leaving developers of opulent housing saddled with an inventory that will, by some accounts, take four years to clear. The situation represents a dramatic turnaround from 2010, up until which year many developers, spurred on by rising demand among investors and end-users, were focussed on luxury projects. ‘We didn’t have as many homeless billionaires as the number of houses that were planned for them,’ Pankaj Kapoor, Managing Director of real estate consultancy Liases Foras, told BusinessLine.”

The Daily Nation on Kenya. “The property market in Mombasa County is experiencing a major shift, with low-cost houses now making their way into upmarket areas of Nyali and Shanzu. The shift from high cost to low -cost housing units comes in the wake of concern by developers that sales of high-end properties were dwindling after supply exceeded demand, with prospective home owners preferring to buy low cost housing units.”

“According to figures released by Hass Property Index, Nairobi is experiencing a glut especially in the high-end segment, with prices for housing units falling in the city’s outskirts. Rent for high-end housing units are also projected to decrease. In Mombasa, although property agents say there are no official statistics yet, the same trend is being witnessed. According to Rescom Properties Managing Director, Michael Masila, sales for high-end units have slowed down.”

“‘I have been trying to sell a house located in Shanzu, going for Sh20 million, for the past one year but have been unable to get a buyer,’ he says.”

The Associated Press on Brazil. “The celebrations are done and the torch extinguished, but now that the Olympics are gone, Rio is left with questions about what will become of the city’s plan to convert the Olympic Park into a bustling recreational district with luxury apartments and offices. Amid a continuing national recession, the consortium behind the park has sold less than 7 per cent of the Olympic Village’s 3,604 apartments, and real estate experts worry a similar fate is ahead for the main Olympic site.”

“‘Right now we are in the bottom of a well. Nobody is making offers on apartments, and there are many apartments sitting empty,’ said Claudio Tavares de Alencar, president of the Latin American Real Estate Society.”

“There’s an oversupply of apartments all over Rio, obvious by the sight of partially built towers. After years of rising, prices per square meter have dropped 6 per cent in the last year and a half to 10,241 reals, or about $3,200, according to real estate index FipeZap. With financial institutions charging prohibitively high rates for lending, real estate agencies have begun offering incentives such as honeymoon trips or private school tuition.”

“Carlos Carvalho, the billionaire who developed the Olympic Park and village, has infuriated many in a country that desperately needs subsidized housing for saying the athletes village caters to the city’s elite. It is called ‘Ilha Pura’ — Pure Island — and apartments average 1.4 million reals ($435,000), offering amenities such as pools, a spa and a beauty salon. Penthouses of 1,700 square feet go for up to 2.3 million reals ($700,000). Another wealthy developer is building luxury marble and glass high-rise apartments around the Olympic golf course, with units that will start at about $2 million.”

“‘They are very nice-looking apartments,’ said Idenir Cunha, a 67-year-old retired physician’s assistant who lives in an older complex nearby. ‘If I had the money, I would love to buy one. But in the middle of this crisis, who does?’”

A Sense Of Scarcity That Drives An Escalation Of Expectations

The Tribeca Citizen reports from New York. “Last August, I counted 100 available retail spaces in Tribeca. This year, there are 129.* This is sure to inspire comments about ‘greedy landlords,’ but the landlords lose money every month their storefronts remain vacant. Asking rents are clearly too high—landlords think their storefronts are worth more than they are—but as one broker I spoke with pointed out, there’s just enough activity to keep hope alive: ‘Landlord #1 hears that landlord #2 was able to get $150 per square foot, so he wants to wait, even though his space is worth more like $80.’”

“There are likely other factors at work. As another broker explained, a lot of landlords get financing with high expected rents as part of the equation. No one wants to admit he or she overpaid, and it’s not in a landlord’s interest to only make enough rental income to pay the bank—so, in a twist on a banking term, better to extend and pretend. What I wrote last year still feels applicable—and only more so as FiDi turns into a massive mall: ‘Even if Tribeca continues to get aggressively developed, it will never be a high-density neighborhood when developers keep building 4,000-square-foot, single-family apartments. And the lack of corresponding foot traffic is what caps the amount of money any business can make here.’”

The Houston Chronicle in Texas. “One Hermann Place, a new luxury midrise apartment, is slated to open in September on 2.5 acres in the Museum District. Tema Development’s seven-story building is an example of the Class A buildings that began construction during high times in Houston’s economy, when deep-pocketed renters seeking luxury housing were moving to the city by the thousands.”

“The building will offer one to two months free rent for new tenants, but developers hope its proximity to the park will help make the project successful. Nadim Zabaneh, vice president at Tema Development, touted the building’s location near the Texas Medical Center and Rice University. ‘Our location will make us a success,’ Zabaneh said. ‘We do realize that it is a more challenging market.’”

“The rental market — particularly at the high end — has weakened, and economists have warned of a glut of new construction. The ongoing slump in crude-oil prices paired with plummeting job prospects comes at a time when more than 29,000 units are under construction. Many of the 20,000 or so units set to open this year were built to carry rents much higher than the city traditionally has seen, raising concerns that the demand may lag.”

The Mountain View Voice in California. “With favorable polling and two separate rent stabilization measures going before voters this November, the possibility that Mountain View will enact some form of rent control is causing angst among some apartment owners. Some owners say they have been investigating selling their properties and making an exit, but they say buyers who previously would have jumped at the opportunity are now wary of how Mountain View’s rent-control campaign will take shape.”

“A Mountain View resident for more than 40 years, Linda Curtis owns eight apartment units, one of which she lives in with her husband, located one block off Castro Street. They became full owners of the property in 2009 after buying out their partners for about $2 million, she said. Around 2015, the value of their property peaked at around $5 million according to an appraisal they commissioned. But Curtis decided to wait on a sale in hopes of getting a little more.”

“A second appraisal conducted earlier this year indicated their building’s value had dropped to $3.3 million, which she attributed to the growing possibility of rent-control. Curtis says she is having trouble going forward with her plan to sell the apartments to get a mortgage on a new place to live because her property’s value has plummeted. ‘I lost $2 million by just sitting here doing nothing,’ she mused. ‘People have always told me Mountain View won’t ever do (rent control). It never occurred to me that the Tenants Coalition would get this on the ballot.’”

“On the other side of the landlord spectrum are John and Stephanie Sorenson, a young married couple in their 20s and both early in their careers as attorneys. Last November, without knowing a political groundswell for rent control in Mountain View was emerging, the Sorensons said they purchased a four-unit apartment building for $2.55 million. Now Sorenson says he has no idea what his property is worth, and he feels like a ‘nervous wreck’ fretting about what will be left of his investment.”

“‘In pure speculation, I think it’s worth nothing because no one’s buying,’ he said. ‘We worked our asses off, saved up and put forward all this money, and now we’re looking at a loss.’”

From Los Angeles Downtown News in California. “The signs are everywhere. Literally. From a string of spaces in developer Hanover Company’s South Park apartment buildings, to the base of the office tower at 615 W. Sixth St., to the Spring Arcade Building in the Historic Core, the ‘Retail For Lease’ signs have bloomed across Downtown Los Angeles. The surge of both new development and upgraded older buildings in Downtown has brought not only thousands of residents, but hundreds of thousands of square feet of retail space.”

“The residential rise and the new retail arrivals have a number of market analysts and Downtown stakeholders feeling rosy about the future. In their eyes, the ‘For Lease’ signs hint at further growth and additional activity.”

“Others, however, are urging caution. While local real estate experts are not using the B word — bubble — more than one pointed to storefronts in seemingly attractive areas that have stood empty for six months or longer, whether because of supply issues or price. This comes as a wave of huge retail projects are on the horizon.”

“Avison Young Principal Derrick Moore has been helping fill retail space in Downtown for a decade, and he’s among the first to laud the real estate boom. That said, he is concerned that landlords both new and old are asking for rents that are unsustainable. ‘Simply put, residential density hasn’t caught up to pricing,’ Moore said. ‘The pricing for retail space is better suited for a more mature market, because it’s too expensive. A lot of new tenants are coming here, but there’s a lot being left on the table.’”

“While some observers blame landlords or developers for jacking up prices and kicking out older tenants, there’s only so much a property owner can ask for before they hit the limits of the market, said longtime Downtown developer Yuval Bar-Zemer, principal of the firm Linear City. That said, Bar-Zemer sees increasingly aggressive deals that he believes are likely to backfire for landlords and tenants alike. ‘The inflation of rent has been so radical that whoever entered in the last two years is probably the most vulnerable,’ Bar-Zemer said. ‘Within the next year, we’re gonna see casualties.’”

“Some of the hottest action in the past two years has come in the Arts District’s retail market, which Bar-Zemer calls ‘hyperinflated.’ He thinks it could be a barometer for other areas of Downtown.”

“‘There’s a sense of scarcity where people think they have to open a store Downtown, and that typically drives an escalation of rents and expectations. Existing landlords that had $1.50 per square foot, if they hear a rumor of $3 around them, that sets an internal standard,’ he said. ‘Plus, new projects are coming to the market with the advice of brokers, but I think pricing is higher than the market can afford. It’s a formula for disaster.’”

August 21, 2016

Irrational Exuberance At Its Worst

A report from Bloomberg. “Chinese authorities said 450 suspects have been arrested this year in a crackdown on using offshore companies and ‘underground banks’ to transfer money illegally, underscoring the scale of the task for officials trying to control capital flows. The cases involved almost 200 billion yuan ($30 billion) of transactions, the Ministry of Public Security said in a statement on its website. A net $55 billion exited in July, compared with $49 billion in June, Goldman Sachs Group Inc. analysts wrote in a note. Outflows surged during the second half of last year, rising to as high as $171 billion in December, according to a Bloomberg estimate.”

NewsHub on New Zealand. “A Chinese-New Zealand real estate agent says some foreigners are buying Auckland property purely for profit. Adam, who did not want his surname revealed, has worked in real estate in Auckland for almost four years. ‘A good proportion of foreign buyers come here as speculators. They think the New Zealand housing market is very hot and the price may be in their opinion still under-valued. So they come here to buy and they have an intention to sell,’ he says.”

“He says he felt so strongly about the issue he emailed NZ First leader Winston Peters, who today put out a press release quoting Adam. ‘The agent said many foreigners did not pay tax, bought and sold through their own circles and would sell in bulk and abandon New Zealand if there was a downturn in property values,’ says Mr Peters.”

“He admits his comments around the Auckland housing market are not based on fact, but rather his dealings with foreigners in Auckland. ‘A good proportion of Chinese, they come here with bags and bags of cash. I am dealing with a lot of foreign buyers and many of them come here to buy property, to live in New Zealand with an intention for education or business, but some of them come here for investment purposes.’”

The New Zealand Herald. “It’s tempting to join the chorus of sinophiles who slapped ‘Adam’ for suggesting Chinese speculators were building the Auckland property bubble. But the spectre of large-scale money-laundering through cash buys in the Auckland market - which the anonymous real estate agent also raised - must be investigated. It must not be simply swept under the carpet while the Government meanders slowly towards cracking down on the estimated $1.3 billion of ‘dirty money’ washed through New Zealand each year.”

“The Chinese agent - who wrote an article in Monday’s Herald and spoke with radio host Duncan Garner - painted a disturbing picture. ‘Adam’s’ claims were evocative: ‘I remember seeing young couples with their hands clenched and eyes glued to the auction screen, only to find their first dream house outbid by someone screaming in Mandarin. And I shudder to imagine their feeling when they see the very house they missed out on back on the market within a couple of months with 200k added on top … meanwhile, a champagne is uncorked at another New Zealand property expo in China.’”

“This is because while the property market has been reflecting an exhilarating population growth, it is also fuelled by the widespread assumption that ‘the Chinese pay the most’. It is irrational exuberance at its worst.”

The Daily Mail on Australia. “Chinese buyers are increasingly dominating home auctions as they race to get on the property ladder soon after arriving in Australia. Such is their enthusiasm that in some suburbs it is rare to find house hunters of other nationalities bidding on family homes, even in crowds of 50 or more. All but one of seven auctions Daily Mail Australia visited in Sydney’s northern suburbs this weekend was won by a Chinese bidder, with one home only contested by Chinese buyers.”

“Kitchen supplies wholesaler Andrew Shen was one of dozens of bidders for a four bedroom house in Epping that sold for $1.8 million on Saturday. The 26-year-old, who moved from Jaixing, near Shanghai, in 2010 and is now an Australian citizen, was looking to move his new family out of their cramped flat. He said he had been house hunting in the area for more than two months and had his heart set on the brick home next door to West Epping Park, but was priced out by another Chinese buyer.”

“‘I think this price was a bit too high for the market. It was incredible, crazy. I hope I can find another one,’ he said. ‘I’ve worked so hard to get money and buy a home for my family.’”

“Mr Shen first came to Australia to study at university, following his older sister who moved years before, and was soon joined by his parents. He is now married with a five-month-old daughter and his parents and sister now own property in Sydney, and came to the auction to support him. Like many young Chinese homebuyers, he got help from his parents to buy his first property – a flat nearby he acquired in 2014 – but said he had to finance the new house himself.”

“‘I have to work very hard to hopefully get a big house, that’s my dream. I hope it comes true,’ he said, adding that he also planned to keep the flat as an investment.”

Domain News in Australia. “The Hunters Hill trophy home of Cate Blanchett and her husband Andrew Upton is set to return to the market after the buyer was forced to default given problems getting their funds out of China. The historic residence, Bulwarra, made headlines when it sold for $19.8 million last August, not only because of its high-profile ownership, but because the sale came less than three weeks after it hit the market. Property transactions at this level usually involve a 10 per cent deposit, which represents a $1.98 million loss for the Chinese buyer.”

“The Hollywood A-listers exchanged on the sale of their historic home a year ago and have since moved to the United Kingdom. Earlier this year China started forcing its state-owned banks to delay or block large sums of money going overseas. By law, individuals in China are restricted to moving the equivalent of $US50,000 out of the country each year.”

“Foreign buyers relying on finance from Australian banks hit a roadblock in May this year when the big four started clamping down on loans obtained based on overseas income. Property developers have reported concerns with smaller-priced investments to foreign buyers defaulting as a result of the crackdown on foreign capital outflows from China.”

“Until now the trophy home market was said to be immune to the moves because buyers at that level usually already have their money in offshore accounts.”

The Australian. “As buyers returned to the Sydney dwelling market over the weekend, taking auction clearances to a one-year high, on the other side of the Pacific in Vancouver, prices are down 20 to 30 per cent. Vancouver, Sydney and Melbourne are, in a strange way, ’sister’ cities because all three have been subjected to unprecedented Asian buying of domestic real estate, which has sent prices so high that young locals are being priced out of the market.”

“So, what has happened in Vancouver in the last three months is of vital interest to the Sydney and Melbourne real estate markets. Two blows have hit Chinese buyers of Vancouver real estate — the increasing difficulty of moving money from China and the implementation last month of a 15 per cent property tax by the provincial government of British Columbia.”

“Both Victoria and NSW have imposed property taxes on foreign purchases but nothing on the scale of what was imposed in Vancouver (in Sydney it is being levied at 4 per cent of the purchase price). Before the tax came into effect, Vancouver experienced the same developments that we saw in Sydney and Melbourne — such as deals falling through as foreign buyers forfeited deposits on binding deals.”

“Then the Vancouver market received an extra blow — local buyers began withdrawing offers in expectation that the market would soften. Volume slumped dramatically. While August is typically one of the slowest months for real estate transactions in Vancouver, the number of homes sold during the first two weeks of August in Greater Vancouver dropped by 85 per cent on average.”

“Solo, a Canadian real estate brokerage house, reports that the City of Vancouver currently has an average apartment price of $1.1 million, down 20.7 per cent over the last 28 days and down 24.5 per cent over the last three months. Real estate experts say that the foreign buyer tax has certainly stopped speculative buyers. This has caused many other buyers to take a wait-and-see approach, which has essentially frozen the market. Australia is not experiencing such a development but if the Vancouver slide continues, it should raise property alarm bells around the world.”

A Market Gone Wild

The Globe and Mail reports from Canada. “A year ago, when Bank of Canada Governor Stephen Poloz cut interest rates for the second time in six months, we knew we’d have to take the bad with the good. Slashing the bank’s overnight rate in half to 0.5 per cent would surely further inflate regional real estate bubbles. But that, we figured, was just the price to pay in order to fuel non-energy exports and a sustainable recovery.”

“Hewers of wood and drawers of water, not. Canada is now a real estate nation, with little else to keep the economy from sinking into an even deeper funk. Gross domestic product shrank 0.1 per cent in May, and that’s after excluding the negative impact of Alberta’s wildfires on oil sands output. Yet, we’re still buying houses like there’s no tomorrow. And there may not be a tomorrow for the suckers who buy in at the peak, whenever it comes.”

“The so-called economic rotation from oil to manufacturing exports that rate cuts (and the related decline in the Canadian dollar) were supposed to produce has not only failed to materialize but policy makers have pumped helium into an already overheated real estate sector that is masking structural weaknesses in the economy and setting us up for a bigger fall.”

“Politicians who claim to be fighting for the middle class have priced most of them out of the Toronto and Vancouver housing markets. But worry not. B.C. has slapped a 15-per-cent tax on foreign buyers and Ontario could follow, while Ottawa is contemplating raising minimum down payments and slapping a hefty deductible on banks’ insured mortgages.”

“These and other demand-side policies might indeed lead to a real estate slowdown – to wit, the 18-per-cent year-over-year drop in Vancouver home sales in July. But at what cost? If prices do start to fall, even moderately, buyer psychology will shift rapidly and a reverse wealth effect will set in. A real estate crash (which bypassed Canada during the last recession) could become a self-fulling prophecy. On the bright side, policy makers might finally get their economic rotation.”

From Metro News. “Following the introduction of B.C.’s 15% tax targeting foreign homebuyers, realtors say local buyers no longer seem to be feeling the FOMO that had been spurring them to compete in bidding wars.”

“‘What it did, in my opinion, it’s changed the behaviour of the locals where everybody before was rushing in to buy something, going in way over their head with multiple offers,’ said Steve Saretsky, a realtor with Sutton Group West Coast, describing a situation in which local buyers expected prices to continue to rise because of interest from foreign buyers. ‘Then (the tax) came out and everyone’s like oh, all these foreign buyers are going to leave the market, maybe I’ll wait.’”

“There has already started to be some price reductions in some detached homes in Richmond and Tsawwassen, Saretsky said, markets that had seen detached home prices rise a nosebleed 47 and 42 per cent, respectively. ‘It just couldn’t keep going,’ Saretsky said.”

The Nelson Daily. “Last week the province instituted a tax on foreign ownership, increased fines for realtor misconduct and moved to create a provincial superintendent of real estate, who will take over all regulation and rule-making duties from the Real Estate Council of B.C. The moves are in response to the ongoing public outcry for reigning in skyrocketing real estate prices in the Lower Mainland and drafting tighter controls for the industry across the province. However, the need for control of a market gone wild in the rest of B.C. is not reflected in the market of Nelson of the present day, say some local realtors.”

“In fact, Valhalla Path Realty’s Robert Goertz doesn’t foresee a foreign ownership tax being implemented in Nelson, since the heritage city does not have the same issues with foreign ownership as Vancouver does. ‘People are buying in Vancouver on speculation. People who own homes in Nelson use their homes, even if it is as a secondary dwelling,’ he said.”

“But Century 21 realtor Brian Euerby said a foreign ownership tax may come to pass in Nelson, even though the tax was largely targeted toward those from mainland China that are making offers without seeing the properties. ‘The demographic of the (buyers) would suggest they prefer the larger urban lifestyles,’ he said about Nelson. ‘That said, though, this model is being watched carefully by other levels of government and there has been some discussion that this tax may well spread throughout the entire province if foreign ownership spreads to the Interior.’”

“The province could allow the City of Vancouver to impose a tax on vacant homes, with a city-led study finding over 10,800 empty homes in the city in 2014. The province could allow other cities to implement similar taxes. ‘You would be surprised as to how many vacant homes there are out there, but none of which I would suggest are as a result of the foreign buyers that are being targeted on the Lower Mainland,’ Euerby said.”

“‘People need a place to live and rising prices are the reality they are faced with even if it means over extending themselves,’ Euerby said. ‘I personally believe people are over extending themselves to reach up for prices. Any rise in the interest rates and this is going to tip many over the edge, a society that is already statistically spend $1.60 for every $1 earned.’”

“And a good deal of the $1.60 is simply debt service, he said. ‘If this tax, and it is substantial, spreads nationwide, it will have an impact,’ he said. ‘Two things are driving this market: foreign investment in larger urban centres; and low interest rates. If one or the other of those is taken out of the equation then Houston, we have a problem. If both change, well … stay tuned.’”