As the new government attempts to make sense of the mess left by the outgoing administration, a belligerent Georges Papandreou laid down his vision for the future. As Greeks listened, waiting for a sign of optimism and hope, the new Prime Minister shared his vision for tackling the real economic problems faced by this small country.
Faced by an unacceptable level of public debt, a stagnating economy, and a population ready to destroy Athens if he does not deliver on his pre-election manifesto, Papandreou promised change. Using similar hyperbole to his father, Andreas, he warned of an economy set to explode, stating, “We have reached a point where we either will defeat the deficit, or the deficit will defeat us.”
Amongst promises of educational reform, tackling corruption and a move towards a green economy, some of the reforms are of great interest to Greek property owners and to foreign investors thinking of buying property in Greece. These are mostly beneficial, but high-end buyers and those looking for Greek luxury property may have some concerns. The PASOK government is aiming to shift the tax burden from the middle class to the affluent classes, so it may be wise to hold fire for a while to see how things pan out.
Greek Luxury Property - Higher Taxation?
Greek Property Investors – Check your Deeds
The most important pledge was a promise to adopt a zero-tolerance approach to the perennial problem of illegal buildings springing up on protected land, taking advantage of the fragmented nature of the land registry and the notorious Greek bureaucracy. The forest fires of the last two years were the suspected work of arsonists, hoping that corrupt local officials would rezone protected forest as building land if it was burnt.
This is the one promise that he must deliver upon, because another season of fires will also reignite a particularly ugly mood amongst Greeks, fed up of watching their environment systematically destroyed. According to the respected newspaper Kathimerini, seven out of ten Greeks are against any attempts to legalize such properties, an opinion that the new government will surely take on board
For anybody buying property in Greece, make doubly sure that you find a reputable lawyer and make sure that the deeds, plan and land registry are in good order. Finding out that your house is illegal, after the fact, is not a place that you want to be; you will face a very steep fine or you will risk home demolition, at your own expense. Our guide to buying property in Greece highlights some of the potential pitfalls.
A Warning for Greek Luxury Property Investors
For investors in Greek luxury property, the new burden of annual taxation may be a concern, especially for those with a large portfolio. Papandreou promised to replace the standard property tax, ETAK, with a ‘Large Property Tax.’ In addition, there will be a clampdown on tax dodges by overseas property investors, which may see some of the larger concerns shedding excess property onto the market.
Of course, as with any new government, these promises are never entirely forthcoming about where the money will come from. It remains to be seen whether PASOK can balance the budget and tackle corruption, but the next few months will provide some interesting times.
Image courtesy of sorinetzu, sxc.hu/photo/1081659
According to a recent report by Colliers International, property prices in Dubai will fall even further over the next 18 months and will not start to increase for the foreseeable future. 71% of developers polled stated that property prices had not yet bottomed out.
Prices have already fallen by at least 50% and another 20% reduction is likely, with no sign of recovery until such times as demand increased significantly. According to JP Grobelaar, CP at Colliers, in an interview with Gulf news, “With the oversupply [situation] now and its continuation, prices will only level out once demand starts to exceed supply,. While it is difficult to project how much further residential prices could potentially fall, a further 20 per cent isn’t unrealistic.”
There will be 340,000 residential units available in Dubai by the end of the year with a further 34,300 units due to be released by 2011. This will take supply in excess of 374,300 to 415,000 units. With the population still dropping and the speculators leaving teh market, how long it might take to clear this inventory is hard to predict.
Certainly a lot of foreign investors got their fingers burned this time around, but at some point there are going to be some bargains to be had. Most of the developers – those still in business anyway – are shifting focus to more affordable housing in Dubai, where there has long been issues of under supply. All the time there was a pool of available credit, the luxury housing market seemed a more attractive proposition. With this much over-supply, that will change for some time. .
One area not to be involved in property investment at the moment is the Dubai commercial property market. With businesses cutting back, firing staff all over and an estimated 3 million square meters to enter the market over the next two years, rents will have only one place to go – down.
There is currently 3.25 million msq available and a good proportion of that is currently empty so that means the available space will double by the end of 2011. Prices for office space are down at least 50% already, and this is going to add an awful lot more pressure to the market.Office rents in Dubai in all but the most up market developments are extremely depressed.
Abu Dhabi is facing a similar issue, albeit nowhere near as acute as Dubai. 6 million square meters of office space in Dubai sounds like a speculators worst nightmare.
West Australian Property Under supply Threatens Recovery.
Unlike almost anywhere else in the developed world Western Australia seems to have a claim that its housing stock is seriously holding back its recovery. Lets look at why property prices are set to skyrocket in WA in 2010.
Western Australia is the largest state in the world’s largest island nation – and its also one of the world’s largest mines. WA is all about mining – from the Iron Ore of the Pilbara to the gold of Kalgoorlie this is a boom and bust mining state. The bust came about a year ago when investment dried up for smaller miners and exploration firms on the back of the chaos in Wall Street. But the fundamentals didn’t change. The gold price has gone from strength to strength as the US$ dives gold looks set to hit $1500 – that’s all good for the gold miners of the state. And while the iron ore industry hiccups and laid off about 20,000 workers earlier on in the year, the state’s unemployment figures are yet to hit 6%. Why? Well China is still buying, and now the massive off-shore Gorgon gas field is set to kick start a whole new infrastructure boom in the Kimberley and Pilbara.
The Busy Pilbara, from the man highway, in the height of the tourist season
Western Australia has one of the lowest population densities in the world. In a state of 2,529,875 km² (976,790 sq mi) there area a total of 2.24 million which works out to be an average density of just 0.84 people/km² (2.2 /sq mi). Its actually a lot lower than that as over 1 million live in Perth and 85% of the population live in the SouthWest. In short the state has an awful lot of space – which makes the following exchange as reported in The Australian even more extraordinary:
“There’s no question there is going to be a major housing crisis in Western Australia; the only question is when,” NAB state business banking chief Andrew Whitechurch told The Weekend Australian. “It is a big issue and it’s about to get bigger.”
With a string of major resources projects promising thousands of new jobs from next year, Mr Whitechurch said the lack of land release and a “ridiculous” approvals process were creating roadblocks for developers.
[Western Australian] Treasurer Troy Buswell revealed on Tuesday that fewer than 19,000 homes were built in WA in 2008-09, when 24,000 were needed just to cater for population growth of more than 67,000, without touching existing problems.
Mr Whitechurch said: “The number of people coming in is not stopping, so the problem gets worse every day, and even if you get through the approvals process you can’t provide additional supply for 12 to 18 months.”
So where there is so much land that most visitors come away simply amazed at the size of the state the government is the main cause of the housing crises. Now I can think of a number of issues as to why its hard to house people in isolated areas (access to water, protection from storms, communications) – but this is not the issue here – the issue is the planning department!
So in a state which can’t even organise Sunday shopping or daylight savings I feel confident in saying that property prices in the Pilbara and elsewhere will be staying sky-high for the foreseeable future!
As the world economy struggles along, and economists frantically attempt to uncover the notorious ‘Green Shoots of Recovery,’ the newly installed PASOK government has little time to waste. Prime Minister, George Papandreou, has named his cabinet and proposed a 100 day plan to boost the economy. Lowering some of the barriers to Greek Property investment is a keystone of this call to arms, a promise that may lure back some of the investors currently looking at Eastern Europe and Turkey.
Like the rest of the world, Greece is still in a little trouble economically, but the financial state of this small nation could be much worse. As the British look to buy property abroad again, the state of the Greek economy and the exchange rate are crucial to persuading them to choose Greece.
Surveying the Damage
The last government left an economy in a reasonable state, albeit with concerns about the size of the national debt, currently running at 10% of GDP. However, the common consensus is that the economy survived despite the outgoing administration, rather than through their policies. Ultimately, the high level of outright property ownership in Greece, the conservative nature of the banking system, and membership of the Eurozone ensured that the country did not sink into deep recession.
The Bank of Greece Governor, George Provopoulos, speaking at the annual meeting of the International Monetary Fund, pointed out that the introverted nature of Greek economy protected the country from a deep recession. He also warned that Greek politicians that this tendency towards looking inwards could be the biggest barrier to recovery.
By this, he means that the new government must rid the country of some of the inertia and dogmatic bureaucracy that consistently stifle inward investment. Fiscal reform, and a 3bn Euro stimulus plan, must be matched by genuine structural reforms, or the chance to restart growth will be lost.
PASOK - Attracting Greek Property Investment?
Potential for Greek Property Investment
If the new administration delivers upon its promise to ease the property buying process and reduce the Greek annual property taxes, Greece could become a very good preposition for property investment. However, one major obstacle is the strong Euro, a factor deterring British investors.
Economists believe that the size of the UK economy, and its close ties with the US crisis, created an inertia and lag, leaving it in the doldrums whilst the Eurozone turned the corner.
According to most predictions, the pound should recover over the next few months, so any growth in Greek property investment from the UK will not take root until next year. The European Central Bank President, Jean-Claude Trichet, has signalled his attention to address the strength of the Euro, which will be a welcome relief to the beleaguered Eurozone exporters.
For British buyers planning to spend hundreds of thousands of Euros on Greek property investment, we advise waiting until the spring. If the Sterling strengthens against the Euro, the savings will be huge. In addition, property prices are stagnant in Greece, so there is little pressure to buy immediately.
Waiting a few months will give a better picture of whether Papandreou and his PASOK government genuinely want to encourage Greek property investment. If they are, investors will save a hefty sum on taxes and will be able to fully exploit a buyers market.
Thinking of buying investment property in Dubai? Look at the foreclosures when they start happening. The amount of loan defaults across the UAE continues climbing and the banks are considering repossessions as a way of balancing their books. With property prices in Dubai down as much as 70%, and thousands more new properties still entering the market place one would have expected a few bargains to be had. But – lacklustre auctions and developers holding vast stocks are keeping prices from properly correcting.
Having said that, the suggestion that banks in the UAE will begin repossessing properties soon brings with it the possibility that when this begins, there might be a few bargains to be had. According to 24/7:
“I am sure some banks are indeed looking to repossess properties to rebalance their books for those borrowers who have defaulted. For the procedure involved you would have to check with the banks themselves,” said Tim Searle, CEO, Globaleye.
Speaking to Emirates Business, Searle called for banks to make their debt-service ratios more robust. “Banks should be making their debt-service ratios more robust. They have already taken a lot of high-risk finance so expanding that further would be fiscal suicide.
“The credit committees of banks set their own debt-service ratios (DSR) with a view to balancing the need to locate secure borrowers (those who are unlikely to default) and remaining competitive in the market. If their DSR regime is too strict then they will not get any business. This is their problem,” said Searle.
In an e-mailed response to Emirates Business, Abdulfattah Sharaf, CEO, Personal Financial Services Middle East, HSBC Bank Middle East, said: “We have always been a prudent lender and used robust lending criteria, which has left us with a strong mortgage book.
“We will no doubt see stress in mortgage portfolios emerging, and there are players that are in trouble because of falling property prices. However, we’ve made no repossessions to date.”
Sharaf said in the UAE the courts will oversee the matter in case of any repossessions. He said HSBC’s debt-service ratio was in line with market realities and is a function of prevailing economic condition.
“Credit assessment of the applicants is a robust process, and of course the global financial scenario and local implications are assessed before taking decisions.”
Abu Dhabi Finance (ADF) too said the company had not recorded any defaults.
“The fundamentals in Abu Dhabi are strong and there is much more demand for properties than supply. It is likely to last for the next four to five years,” said Phillip Ward, CEO, ADF.
“Maybe at some point in the future there will be some repossessions, but Abu Dhabi will never see large-scale repossessions,” he said.
The ADF CEO called for real estate and mortgage regulations in Abu Dhabi as early as possible.
“It frightens me sometimes on the quality of advice given on mortgages by people. Our approach, however, is that all of our mortgage staff go through an intensive training programme. They are given a test and only at the end of it are they allowed to sell mortgages,” said Ward. “It is important that customers are given correct information.”
Meanwhile, HSBC said the bank is levying penalties for payment defaults. “There is a penalty for defaulting on payments. We continually urge our customers to contact us should they have difficulties making payments. Early contact is always best. We have a special department that helps customers who are in those circumstances. We have a wide range of solutions to help people and the emphasis is to find a solution that best suits each customer and to implement that as soon as possible to avoid additional fees or distress,” said Sharaf.
“We have for some time now offered free debt counselling service, whereby customers can call confidentially for advice about money worries. Dedicated staff members are here to listen to any problems customers may be experiencing and direct them towards finding solutions,” he said.
Searle said: “Late payment fees are standard just like with any other kind of loan. They could even change the interest rate if the loan becomes unstructured from its original contract terms.”
“Lending should never be about jobs and salaries in the first instance. The bank should be carrying out proper due diligence to determine whether they have the means to service debt over the period chosen given certain variables. One could be earning Dh10,000 per month, but if he is spending the same then he is not a viable candidate for a loan. Moreover, any capital required when determining the LTV should also come from free funds [savings] when, again in recent past, people were borrowing capital as a down-payment and failing to disclose this to the lender,” said Searle.
Searle said there is a renewed interest in reviving the credit reference agency in the UAE.
At the same time, the announcement from Dubai Properties Group that they will deliver more than 7,000 units over the next few months and claiming that “mature investors,” were now entering the market, one has to wonder how much pressure this will put on prices. Quite where these “mature investors,” are coming from is anyone’s guess. Thin air seems to be the most likely answer.
This year’s CityScape in Dubai is forcing the industry to face a few harsh realities. Duding the run up to the exhibition, all the major Dubai property developers pulled out, including Nakheel, Emaar and Limitless, although Emaar and Nakheel were touted as “Foundation Sponsors,” and the 2009 exhibitor list on CityScape’s website is still empty. The amount of exhibitors is well down and the usual, “XXX Billion Dirham development!” announcements have been somewhat lacking. I don’t think anyone could have swallowed that this year.
The mergers and lawsuits floating around in the background are still casting a shadow of uncertainty over the region. Emaar’s merger with Dubai holdings‘ Sama Dubai, Dubai Properties and Tatweer, is still “with the regulator,” which we take to mean “trying to decide how much shareholders will lose without causing a riot.”
Attendance at Cityscape was extremely poor – unsurprisingly, which meant poor Donald Trump Junior was speaking to an almost empty room when he told Dubai’s developers to “Be realistic,” and start cutting prices.
The road to recovery in Dubai is likely to be a long hard one, with financing still the main issue. Some are estimating that Dubai’s developers are staring at as much as a 50% default rate for those developers who sold at peak prices. With prices having fallen as much as 70% it often makes sense to walk away from a 5% deposit on an off plan property that could take 20 years to recover in price. Tamer Bazzari, CEO of Rasmala Investments said,
Mortgage companies have limited funding resources, while banks have no appetite to increase their exposure. The worst-hit sector in Dubai was in sales of raw land, with most such projects at a standstill. It would take at least two years for new land projects to be launched in Dubai. Unlike a year ago, when 30 buyers chased a seller, today 30 sellers are chasing a buyer. The default rate could be low in cases where the developer managed to get most of the payments from buyers. It can go up to 50 per cent in cases where the developer could get only fraction of the price from investors.
No one is arguing that there will be a fast rebound and the banks are making it clear that there appetite for risk has been severely curtailed ad there will be limited demand for investment property in Dubai for the foreseeable future. There is still the issue of new supply being added to an over-supplied market and prices are likely to remain on a downward spiral for some time, although there are the usual attempts to talk up the market which are sounding increasingly hollow as the gap between supply and demand becomes more and more apparent.
Property investors and first-time home buyers often go head to head for the same property. The big bad property investors in Australia though have been at a disadvantage because of the Federal government’s first home buyers grant. The on-going scaling back of that grant gives both first home buyers and investors an opportunity – here’s how.
The Federal First Home Owners grant is currently being reduced. Last week it dropped from $14,000 to $10,500 for buyers of established homes and from $21,000 to $14,000 for buyers of new homes. On 1 January 2010 both grants will drop to $7000 – their original level.
The increased grant levels, which were introduced to prevent a US-style crash of property prices in 2007. To that level they have worked – but at a price. Research suggests that prices have increased at a rate of around $30,000 to $40,000 – suggesting that all the increased grants have done is given real estate agents higher commissions, kept developers in business, and left first home buyers with a large mortgage on a property they probably paid too much for.
The fall out could be pretty ugly for those that want or need to sell a house attractive to first home buyers in the early new year. On the flip side there could well be some great buying opportunities for investors looking to get into the market. Here’s the logic. For the last six or more months Australian home buyers have been repeatedly told that they must buy before the grant goes away – sales have been strong in the last two quarters and mortgage figures that many have done just that. At least some of those buyers have brought forward their purchase to this year while all else being equal they would have delayed buying an Australian property until next year. These buyers are convinced that on 1 January 2009 they will “lose” $7000. While that’s true – its hardly the point. The point is that a house that has been on the market for a while, come January will have a negotiable price – and if you can’t get at least $14,000 off the asking price I’d suggest you walk away.
As an investor I would be aggressively looking for developer’s properties which have been on the market too long and I would be putting in cheeky low-ball offers come January – a traditionally slow buying month in Australia anyway. As a first home buyer I’d be doing the same – basically you will always out-bid an investor if you really want the property – but for goodness sake don’t be a bunny and pay their price!
And if I had a property to sell to in this part of the Australian property market – I’d have it on the market NOW not later! There are always winners and losers in property investing – just be clear which side you are on.
As we are all too painfully aware, property prices across the world have taken a tumble, with the only variable being the degree. Some countries, such as Greece and Australia, have emerged from the crisis relatively unscathed, with property prices stagnating but not falling. Other nations, notably the US, the UK and Spain have suffered something of a meltdown in the property market.
In Cyprus, the property market split into two and, whilst property in tourist areas plummeted in value, residential property outside these areas remained fairly buoyant. As the effects of the crisis become more apparent, the 40% decline in the price of holiday properties became too large an effect to ignore and the ripples have now affected property prices across the whole island. Experts estimate that the price for residential homes has fallen by up to 10% and that the market is extremely sluggish.
Lakis Tofarides, president on the Cyprus Land and Building Developers Association stated,
“The price of a main residence in the centres of Nicosia, Larnaca, Limassol, Paphos and Famagusta has dropped by over 10% while prices of summer residences have fallen between 30 and 40%,” He added that land prices have remained steady and hopes that this will act as a brake to any further decreases.
Tofarides is confident that the market has bottomed out and that residential values will not fall any lower. Stable land prices should help to underpin values, although it is unclear if this will include the coastal Cyprus investment properties. ‘The value of land, which once represented 18% of the total value and now represents 45%, will not drop,’ added Tofarides
Cyprus Investment Properties - Growth Amongst the Stagnation
Cyprus Property Investment – Stagnation and Solutions
However, despite lower prices, which should encourage first time buyers, the market is still extremely stagnant, and the number of transactions has fallen by 80%. The government has offered loans and incentives to first time buyers, but the money earmarked for this lies largely untouched.
Amongst a raft of suggestions designed to drag the market from its stagnancy, Tofarides suggests a number of measures, one of which will be of potential interest to foreigners interested in Cyprus investment properties.
One of his proposals involves reducing the tax burden for buying properties. Whilst the taxes on low-end properties are reasonable, at 4% for properties less than €100 000, this percentage rises steepl. An investor purchasing a property of half a million Euros will pay €60 000 in duties, an extortionate amount at the best of times but even more so when the world is in crisis. Cyprus also adds VAT onto these duties, further deterring potential property investors.
Certainly, reducing the tax burden may be one way of stimulating the market and luring back foreign investors, especially if the government delivers on its promise to sort out the numerous issues with the new rules for Cyprus title deeds. If demand in the tourist areas increases and prices rise, there is a chance that this will positively impact values across the whole island. For a nation that relies upon the property market as a major source of income, overcoming governmental inertia and offering incentives may yet reap dividends. Cyprus property investments may, once again, become an attractive preposition.
Photo Courtesy of Vasantdave: sxc.hu/photo/751976
