Whatever happened to getting a loan to buy an investment property with? They went out of the window with the world’s financial health when Lehman brothers bit the dust, that is what. The continuing devaluation of real estate around the world is continuing to put pressure on the loan markets and the credit crunch is still affecting property investment markets. The banks are well aware of the likely losses in the commercial property sector that are – as we speak – being announced. So, they are hoarding their money for the time when they must announce more losses and write off more outstanding debts.
Is is possible to arrange loans on investment properties, but you are going to need a substantial deposit and have a solid business plan. The days of the buy-to-let landlord with a 125% mortgage are over for the foreseeable future, and I would not consider even applying for a loan unless I could raise at least 25% of it first. Then – maybe a bank will talk.
This is a good indicator of the state of the market, and one also has to beg the question – who in their right mind would take on a mortgage on a piece of property that will fall in value in the short term? Simple – the actual value of the property makes no difference if it provides an income that more than covers the debt costs. But one thing is for certain – the days of flipping a property for a quick buck in a short time are all but over unless you have substantial cash behind you.
Some of the bulk sales happening at the moment are around 6-10% of the peak prices. Yes – that low – as much as 94% less than prices were just a few years ago. These tend to be in places where recovery will be extremely slow, but if you have cash available, I would consider looking at some areas of Miami, Las Vegas and Southern California for bargains. Although – only if you have cash, or can afford to make the loan repayments regardless of if the property is let out or not and – be prepared to be patient. Some of these area will not recover.
Investment property loans are not quite a thing of the past, but for the next two years, they are going to be in extremely short supply. The amount of investment property for sale is enormous and in places like Dubai, will perhaps never get sold. Dubai is extremely over built.
The property investing scene in Australia is a bit of mess – as usual the real estate agents would tell you, without a moments hesitation, that now is the time to invest! The stock market specialists, on the other hand, would say that property is still way over-valued.
Who do you believe as an investor. Well none of them – they all have an agenda and a product to sell – which is fine but as a buyer you need to be sure of your ground and some facts.
Australian Interest Rates will Go Up
I can make that statement without qualification: the cash rate of 3% is a historic low and the economy is not in recession. So long as China does not implode politically or otherwise then the Australian economy is probably not getting any worse. On last quarter’s figures and with the pick up of resource prices and the huge Gorgon gas deal in the North-West – Australia now seems unlikely to go into recession – the Lucky Country lives up to its name again.
Up or Down For Australian Property Investors?
Australian Government Subsidies Distort the Property Market.
Australian governments at both State and Federal levels love subsidies – the States particularly make a lot of their revenue from State property sales taxes, so often plenty of incentives to buy – particularly for first-home buyers. The generous Federal first-home buyer scheme has been extended to the end of 2009. Therefore first home, starter homes appear over-priced in many areas.
Top-End Australian Property in the Doldrums
If you have just come into the money and want to snap up a bargain in the multi-million dollar price range then now is a great time to invest. Particularly in Queensland and Western Australia where many on “millionaire’s row” were actually up to their ears in leveraged securities the margin calls have been brutal. From Perth to Sydney the most desirable, sea-side, old-money suburbs, are the ones with the most number of homes, the longest days to sell on the market, and the largest price drops.
Property Investment and Employment
Australian property prices are only as good as Australian jobs – if Australians feel confident that they will keep their jobs or get another contract then they love to buy real estate. Particularly in remote areas the only reason people move to the area is high-paid work. Property investment in areas such as Pilbara of Western Australia or the Northern Territory outside of Darwin, remains an investment in mining. The Pilbara is very vulnerable to the price of iron which China is prepared to pay.
This dependence on mining fundamentals extends to cities such as Perth and Darwin where there are many both directly employed in the industry: in a fly-in-fly-out capacity, and indirectly employed in support industries.
I tend to agree with the property supporter: you can’t sleep in a share portfolio! If you need a roof over your head and intend to stay in that location for five plus years then I would buy, but bargain hard. If I wanted to extend my property investment portfolio in Australia I’d be a little more cautious and be more interested in keeping track of the business news in the papers than the over-hyped property section!
The Greek Fires – The Final Coffin Nail For Karamanlis
The Greek Fires – The Final Coffin Nail For Karamanlis
After the notorious fires of two years ago, which led to huge tracts of land laid waste, everybody assumed that the Greek government would have learned their lesson. With the ravaged lands just starting to regenerate, the fires struck again, destroying a huge area and reaching the outskirts of Athens itself. Sadly, the emergency response was disorganised and, once again, the Greek government stands accused of being directionless and rudderless. The perception of Karamanlis as incompetent plagues every political satire show and fills every newspaper op-ed.
Whilst the Greek fire-fighters fought admirably and bravely, the conspiracy theorists have once again suggested arson by land developers, keen to open up vast tracts of virgin forest for property development. Karamanlis stands accused of doing nothing to stop these practices and, under pressure, has called Greek elections in October. Coming on the back of a poorly handled response to the economic crisis, things look bleak for Uncle Kostas.
Greek Elections – Kostas Goes All In
In a straight out fight between Karamanlis’ New Democracy and Papandreou’s PASOK, ND will lose. However, Karamanlis is attempting one last throw of the dice, in a desperate gamble to hold onto power. The left-wing Syriza coalition is growing in popularity, under the stewardship of the young and charismatic Alexis Tsipras; Karamanlis is hoping that they, and the Green Party, can draw enough support to split the left wing vote. This will allow ND sneak through the back door, especially as the Greek electoral system is weighted to minimize the risk of hung parliaments and forced, static coalitions.
Karamanlis announces Greek Elections - How will this affect Greek property investment?
Greek Property Investment – Fear Of The Socialist?
Karamanlis announces Greek Elections - How will this affect Greek property investment?
If PASOK are victorious, many investors will be deterred by a socialist government and perceived left wing taxation policies, although PASOK long since gave up any pretence of being socialist – think British ‘no longer’ Labour party. This is a red herring and investors can still invest safely without fear of an increased tax burden. For Greek property investors, nothing will change in the foreseeable future and, if you are in the process of making a Greek property investment, there is no need to panic as long as you have performed your due diligence.
However, whichever party is victorious in October’s Greek elections; you can expect them to start taking strong action against dubious land developers. The new government will have to curb the rhetoric and actually take action to enforce the land registry and property licensing laws. If you are thinking about investing, you must make sure that your dream property has the correct paperwork and carries no suggestion of illegality. Following the steps towards finding a good lawyer and notary is more important than ever, lest you risk becoming a statistic. We have a guide to buying property in Greece if you need any pointers.
Greek Comedy – The Power of Satire
Greece has been under pressure to complete its land registry for many years and this election should provide the final impetus. Greek satirists, never kind at the best of times and unrestrained by any notion of good taste, are merciless in lampooning the government for bowing to property developers. The new government will be only too aware that a good satirist never forgets, and merely waits for an opening.
Again, this adds to the pressure on any new government to halt developments in protected areas because Greeks are tired of losing their green space. Whilst there is no proof, ND were perceived to be in the pockets of the property developers, so politicians will be keen to starve the comedians of any opportunity to pounce.
Greek Property Investment – Taking Advantage Of A Quiet Market
Again, as long as you make sure that you have the right people in place, there is no need to panic. In fact, the uncertainty surrounding this election can be turned to your advantage. The big players generally play a game of ‘wait and see’ at election time, so you can use this as a bargaining tool during your negotiations and pressure for a lower price/quick sale agreement.
Property investors are continuing to take a bath in Dubai as rents fell once again in August. According to a survey by the Khajeel Times and property management firm Asteco. Some of the more upmarket developments are beginning to stabilize, but with the outflux of ex-pats during the summer, falling property prices and a serious over-supply in most markets, rental prices continued their decline, and in many instances, renters are simply choosing to walk away from a new lease. The requirements in Dubai are a little different in that Islamic law does not allow for credit and renters are often required to pay a full years rent in the form of 4 post-dated cheques. This is an excerpt from the report.
“Average annual rents for cheaper studio apartments in International City, Discovery Gardens, Jumeirah Lake Towers, Deira and Dubai Marina were unchanged at Dh28,000, but more expensive studios in these neighbourhoods fell to Dh45,000 from Dh50,000 in July. Smaller two-bedroom units and larger two-bedroom flats in these areas were unchanged at Dh60,000 and Dh85,000, respectively.
The average rent in these areas for a three-bedroom flat varied from Dh90,000 to Dh110,000 in August compared to a range of Dh90,000 to Dh130,000 in July. Rents for studios and one-bedroom flats in the mid-tier neighbourhoods of Bur Dubai, Al Barsha, Greens and Jumeirah Beach Residence averaged Dh35,000 to Dh50,000 in August, down from July’s range of Dh40,000 to Dh60,000. Rents for smaller two-bedroom units fell to Dh75,000 from Dh85,000, while those for bigger units dropped to Dh100,000 from Dh120,000.
For three-bedroom flats in these mid-tier locations, average rents ranged from Dh95,000 to Dh120,000, significantly lower than July’s range of Dh120,000 to Dh140,000, the survey showed.
In the upscale neighbourhoods of Marina Promenade, Downtown Burj Dubai, Emaar Six Towers, Palm Jumeirah, Shaikh Zayed Road and World Trade Centre, studio rents fell by an average of Dh5,000 in August and ranged from Dh50,000 to Dh60,000. A one-bedroom unit in these places ranged from Dh85,000 to Dh120,000 compared to July’s level of Dh90,000 to Dh130,000. Rent for a smaller two-bedroom flat was unchanged at Dh120,000, but rents for bigger two-bedroom flats slipped to Dh210,000, down by Dh10,000 on average from July. “Rents have only stabilised in the most sought-after developments, which offer higher quality, better location and amenities like retail components and other leisure facilities,” said Ahmad Saidali, head of investment in Dubai for property consultancy CB Richard Ellis (Middle East)..
“But one should also consider the holding capacity of some owners, who instead of accepting slightly lower market rents, will instead choose to leave properties vacant for an extended period of time in the hope of achieving their expectation of rental value. In some cases, this has created a short-term supply distortion, with some prime districts seeing availability of units virtually dry up,” he told Khaleej Times.
The ongoing financial crisis continues to distort the markets around the world. In many cases the amount of property being with held from the market by the banks actually outweighs the amount of property freely on the market. The banks and governments in Dubai, the USA and Spain are now the largest property owners in those countries and most of it is sitting rotting.
If you are considering buying investment property in the UK – be warned. The latest headlines from all the major newspapers and the BBC etc, are making a great deal of the fact that average house prices in the UK rose in July by 1.7%
This sounds like great news if you happen to be selling a property at the moment, but in fact – it is the opposite. It also sounds like great news if you are thinking of buying an investment property and were “scared,” that house prices might go down. One statistic deliberately omitted from every single piece of “news,” I have read, is the dismal level of sales. Sales volumes are bouncing around at the lowest levels since the land registry started keeping records in 1995. Around 40,000 houses were sold in July – down from a peak of 135,000 houses.
Comparing statistical data in this way and ignoring the sales volumes is potentially disastrous. When one considers the fact that the only stock that is selling tends to be at the higher end of the quality scale and to buyers with cash to spend, it is hardly surprising that average prices for houses that were sold rose. 40,000 units sold is not enough to provide a reasonable statistical analysis. It is barely enough to keep the estate agents in business.
If sales volumes were anything like a reasonable level – say, 80,000 units or so, it might be reasonable to conclude that there was some sort of return to health in the market. But – they are not, and every indicator points to a further fall in house prices. We are nowhere near reasonable levels of affordability, and the fact that almost every penny the Bank of England has created and poured into the system is sitting on the sidelines rather than being lent out means only one thing:
The banks and the BoE expect further asset devaluations and are hoarding this money to cope with more property price falls, more loan defaults and yet more bad news from the financial services sector.
The newspapers, the BBC and the estate agents are talking the market up for one reason, and one reason only. They need the money. Sadly, I think this will backfire, because the simple fact is that most buyers cannot raise the necessary deposit for an “average,” house – £31,177. Which means that until prices fall further, sales volumes will be depressed.
The real danger here is reinforcing sellers unrealistic valuations. With this much gap between expectations of buyers and sellers, the market is already stalled and in real danger of coming to a complete standstill. We expect prices to fall a minimum of 20% from today’s level and probably much further depending on the depth of the recession that is not happening (according to the BBC).
The other danger is creating more people with a negative equity mortgage and exacerbating the current problems. I can almost guarantee that if you buy a typical house today with an 80% mortgage – in two years time you will owe more money than the house is worth. If you are considering buying now – offer a minimum of 25% less than the estate agent is asking and walk away if they will not deal at that price. If you are a seller – either be realistic or accept that you need to wait this out – probably 5-7 years.
This chart was produced by the Land Registry – comparing sales volumes and average prices in England and Wales since 1995. As you can see, the level of sales is well below anything since 1995, and nowhere near sustainable:
Expect substantial price falls when sales volumes eventually start to recover. Some other opinions:
Another round of losses in the third quarter shows continuing weakness in the world’s real estate markets. Although property investment in Singapore ticked up slightly in the third quarter, more bad news from major developers and property investment vehicles show continuing declines in prices, sales volumes and profitability. US luxury home builder Toll Brothers posted a Q3 loss of $472.3 million, and GPT group in Sydney, Australia posted a US$995 million loss for the first half of the year.
Toll brothers CEO remained cautiously optimistic – apparently a drop in cancellation percentages was enough to persuade him of a future increase in strength of the markets.
Sydney-based GPT was equally optimistic, and the CEO, Michael Cameron saying, “The pace of the devaluation cycle, however, is slowing and values may stabilize in the near term.”
GPT has already made two attempts to raise equity, and has written off it’s stake in Babcock and Brown. Nevertheless, their staggering level of debt remains an issue.
Despite assurances that Australia’s property market is in good health, the largest industrial property trust in the country, Goodman Group out of Melbourne, also posted a rather large loss of US$941 million, after writing off slightly more than that in investment properties. Like GPT, Goodman is also heavily indebted and has undertaken a major effort to raise more capital.
Property funds across the world are writing off values at increasing levels. Multiplex European Property Fund reported a $149 million loss to June 30, with revenues down 36.5%. The fund said that the German budget would fall into deficit as the government tried to stimulate demand and continues with its policy of wage subsidies to limit unemployment. Interest rates were forecasted to remain low (currently 1%) and there might be some unorthodox policy measures to increase money supply. (printing more money). The ECB has limited it’s money printing to just E60 billion so far, when it was forced to bail out Spain – buying Spanish covered bonds to prevent a collapse of the banking system in Spain where the banks are now the largest property owners in the country, following numerous “debt for equity swaps,” with troubled developers. The amount of Spanish repossessions is quite stunning and many of them are unsaleable, as they are often in part-built developments that are unlikely to be finished any time soon.
But conditions are showing signs of stabilizing. 
To listen to some of the headlines produced around the latest CB Richard Ellis report on Singapore’s property investment market, you could be forgiven for thinking the second coming had arrived.
“Property sales soar in Singapore,” says property wire. They go on to state that property sales have risen 51.6% from June to July and that this is a “record high since the URA began recording figures – in 2007 when the downturn began. 
It is encouraging to see some activity, but a 51.6% increase over almost zero sales is not exactly something to get too excited about. A closer look at the CBRE figures reveals that this is still a 77.6% fall from Q2 2008. I am not really sure why it is necessary to dress up statistical data in this way, but I imagine property wire has a vested interest in talking up the market.
The CBRE report is quite informative and detailed, and does indeed point out that this rise is off of an extremely poor Q1. Rents in all categories are still falling, although median sales prices have risen, which is perhaps an encouraging sign, but still not the second coming.
Most of the increase in sales of investment properties seems to stem from private Asian investors with cash to spend, and the institutional investors are still sitting on the sidelines awaiting the real bargains in 12-18 months time. I tend to agree with the larger firms’ approach – the fundamentals are still weak, the Singapore government has just revised it’s projected GDP figures to - 6-9% from -2-5%, and the Singapore dollar continues to slide against the US dollar.
The full report is available for download here – CBRE Q2 Singapore
If you were starting to doubt the veracity of the press releases being issued by Dubai, the latest news should settle the matter once and for all. Back in March this year, the major developers in Dubai started canceling projects and refusing to repay deposits. Nakheel, which canceled the Trump Tower in Dubai offered – nay insisted – that investors accept a unit in other developments. This has been argued about since that time, but they are holding out against the suggestion that a unit in a different development is not the same thing – financially or otherwise. Apparently any protests have fallen on deaf ears, and Nakheel have been issuing credit notes on other canceled projects, rather than refund any money.
Dubai Waterfront and Palm Jebel Ali, are now also canceled or delayed and investors are being forced to accept consolation units in other developments. Quite how this is an acceptable practice is beyond me, but when the developer is owned by the government, and runs the law courts, I suspect you can do as you please. Personally – I think this is a huge mistake, and is generating so much ill-will, many will never return to Dubai. There is apparently brisk trade in these “credit notes,” as would-be investors seek some damage limitation.
According to a recent article in the Financial Times, which has now mysteriously been taken off line:
The growing use of these transactions comes as the developer, arguably the most high-profile victim of the Dubai property crash, seeks to raise $4bn needed to settle a $3.5bn Islamic bond, plus profits, due in December, and to meet invoices from contractors and suppliers. Thousands of “credit notes” have been issued since April, as the developer seeks to shrink its $80bn project portfolio and to cut expenditure, the brokers say.
Hossam, who asked that his full name not be used, last year put down Dh1m ($272,330) for a villa in Veneto, billed as the most exclusive residential district in the Waterfront project. Veneto has since been deferred by Nakheel. Two months ago Hossam managed to sell his investment to another Nakheel investor – but only at a 50 per cent discount. The buyer used this “credit note”, plus an extra injection of cash, towards another company property.
“Of course I am angry that I lose money, but what am I going to do? Sue the government?” he asks. “At least the notes have created some liquidity, the larger problem lies with the private developers.”
Hossam is more troubled by the millions of dirhams he ploughed into a private developer which has gone bust during the recession, leaving his family living hand-to-mouth.
The trade in these “credit notes” is helping lubricate the clogged property market in Dubai, where volumes have declined as prices halved since the peak last year. “It’s been a very busy market,” says one broker, who declined to be named. Emaar, the listed property company, has also offered consolidation deals to customers, he says.
Nakheel confirmed that it was consolidating properties – it declines to use the term “credit notes” – but would not say how many it has approved.
“Investors in projects that have been deferred have the option of consolidation if they own other properties within the Nakheel portfolio,” the company said. “The advantage to the investor is that Nakheel is able to hand over property to the owner sooner than it might on a deferred project and help investors reduce their financial exposure.”
The consolidations also show the painful measures the company is taking to secure money.
Last week Nakheel raised more than $170m by selling its stake in Mirvac, an Australian developer. The company’s parent, Dubai World, the guarantor of Nakheel’s 2009 bond, is considering other ways of raising cash as refinancing looms. This year it asked contractors and suppliers to take “haircuts” of about 25-35 per cent on unpaid invoices.
But bankers say the company is losing future profits since the cash payments made as part of these consolidations are a fraction of what the company could expect to gain at a later date, but they do at least cover construction costs.
“Forget profits, it’s all about the balance sheet right now,” says one banker.
On the other side of the deal sits James, who has taken advantage of another investor’s woes to shave $50,000 off the $800,000 price of his off-plan villa. Legally, James, who works in financial services, has bought his counterparty’s property outright, but in effect he is paying a 50 per cent discount on the value of his counterparty’s down payment, in this case a villa in part of the Waterfront.
James has agreed with Nakheel to transfer his counterparty’s down payment into James’s last instalment payment due on another Nakheel development. His counterparty has walked away with about half of his original investment, but the full face value goes into James’s villa. The contract for the deferred Waterfront property has been cancelled.
Crucially, Nakheel asked James to inject cash worth 25 per cent of the value of the “credit note”. Brokers say the cash percentage sought by Nakheel is increasing, but the company says it averages 30 per cent.
Before sealing the deal, James clambered over the fence of his new property to check progress. Based on what he saw, he believes the building will be ready next year and so he is willing to gamble on the developer meeting its schedule.
“It’s a good for me, but I feel sorry for the other guy,” he says. “The government is not honouring a contract with him.
Where this article disappeared to is a mystery, the why is fairly obvious, and a little scary as to just how manipulated the information being provided by so-called impartial news sources is. Emaar has been offering credit notes also, and a google group was set up where investors who have paid for investment property in Dubai, but are now being faced with this issue can discuss the matter. Dubai property investors group. The problem facing small investors is the insane cost of attempting legal action individually. Most “lawyers” in Dubai require an up-front fee in the order of 10% of the money invested and have very little chance of winning a battle.
Dubai Properties, Sama Dubai and Tatweer have merged in an attempt to lessen the impact of the financial crisis. Dubai holding now consists of just 4 divisions instead of the previous 7 – investments, hospitality, property and business parks. there is also talk of merging Emaar properties into this new vehicle.
In July, Moody’s downgraded the ratings of Dubai Holding Commercial Operations Group to A3 from A2 and placed the ratings on review to reflect the continued fundamental challenges” and “financial profiles in the wake of difficult conditions on Dubai’s property market.”
Dubai has been extremely hard hit by the current economic crisis, and there is a substantial amount of property for sale in Dubai. Exactly how far prices will fall is anybody’s guess, and it will be interesting to find out just how extensive the expat exodus was over the summer. Unfortunately the news reports from Dubai are invariably government manufactured, and written in an attempt to disguise the true size of the downturn.
So many projects have been canceled, delayed or put on hold, it will be years before the dust settles and some sort of clear picture emerges. But one thing is clear – property investors are avoiding Dubai like the plague at the moment. Until such times as prices reach a bottom – and bottom has been called numerous occasions recently – they are unlikely to be attracted back.
As per usual, getting any solid factual information about the state of the UAE’s property investment market is difficult, but a recent survey by the Royal Institution of Chartered Surveyors (RICS) points to another rise in commercial property defaults in the UAE for the second quarter.
Still – this is not terribly surprising and the UAE is by no means alone in this. A world wide survey was conducted, with the UAE coming in 13th from the 27 countries surveyed. South Africa and the USA were top of the list. New Zealand, Malaysia and Hungary were next, with The Caribbean, Ireland, Spain, Russia and Ukraine filling out the top ten spots..
Over 75% of respondents reported a rise in the number of commercial properties that are coming to market under distressed conditions in the second quarter of 2009 compared to three months earlier and the general feeling is that it will get worse before it gets better, with commercial defaults continuing to increase through 2010. Whatever may be said in the newspapers, refinancing a mortgage, commercial or other wise, remains difficult. Especially with the drop we have seen in commercial property values.
At the boittom of the chart, China and Brazil reported a decline in the number of distressed properties coming on the market. China because the government is basically buying everything up and taking them off the market, although Brazil seems to be weathering the storm comparatively well. Germany, the Czech Republic, Hong Kong, Japan, Italy and Switzerland, all reported little change, which is not exactly encouraging either. There should be some commercial bargains floating around for at least the next 18-36 months.
