Where are the property investment bargains in France? Having just spent two weeks wandering around Northern and middle-France to take a look at the markets and see what is going on on the ground as it were, I would say they have not yet surfaced, and the stunning amount of property for sale in France means we have a lot further to fall before seeing genuine bargains. I visited Brittany and the Dordogne to see just what was going on.
Property prices in Brittany.
Hand written price reductions in an estate agent's window in Brittany
There is a massive amount of property for sale in Brittany, and asking prices in the flesh are negotiable at between 25-45% less than peak 2006/7 prices. Having said that there is a drastic difference between the drops inland and on the southern coast line where prices have only come down around 10-20% so far. Denial is alive and well in certain corners dominated by Dutch, Belgian and German buyers. British sellers are being more realistic, although it is fair to say the price drops so far are really only reflecting the fall in the value of the pound. One local paper had pages upon pages of property for sale, many of which were being offered by Brits.
During two weeks at the height of the season, I never once had trouble finding a place to stay at late notice and in some cases negotiated a lower-than-advertised price for the rooms. The weather was atrocious, the market for Gites/Chambre D’Hotes is completely saturated and will propably be years recovering. No doubt also being affected by drops in tourist numbers, the real bargains have not come out to play just yet, despite the fact that almost every estate agent in the region has hand written price reductions throughout their window displays. Every owner I spoke to was having a poor season, with a few exceptions being well-established, up-market properties not relying on British visitors.
Property prices in the Dordogne
Property prices in the Dordogne have not yet fully adjusted
Once again, the Brits are being more realistic and prices have fallen around 25-30% but still only reflect the pound’s value. Many of these properties are being used as Gites or Bed and Breakfasts and I suspect, like Brittany, it will take a poor season for prices to genuinely reflect reality. Also like Brittany, the amount of property up for sale is quite amazing and the countryside is littered with “A Vendre” signs. Very few Brits were in evidence, but there was a strong Dutch and Belgian presence.
The French Market
Unlike British banks, French banks are still lending, although this is of little value in the British enclaves of Brittany and Dordogne. Despite the fact that 100% mortgages are still available in some cases, a euro mortgage being paid with GBP income is almost as dangerous as a sub-prime mortgage. The possibility of more shifts in the currency exchange rate make this a no-no. Patience or cash is the answer.
Dubai-based developer, Emaar properties saw another slide in share prices after closing it’s offices in Algeria due to “a lack of progress which is beyond the company’s control.” The action came after announcements that Emaar will be merging with several other government-owned developers, and threw more confusion and lack of confidence into Dubai’s stock and real estate markets. Investors reacted badly to the proposed merger and, Emaar’s shares fell sharply on the announcement. Several analysts have stopped rating the company, because of lack of transparency in the deal, but one thing is clear – the merger is highly likely to damage existing shareholders. Emaar shares dropped another 7.2%, to close at 2.60 dirhams (71 cents) Sunday after the Algerian announcement.
The amount of investment property in Dubai for sale is quite staggering at the moment, and one would be hard pushed to call this an investment, unless purchased at fire sale prices. Although prices have fallen between 50-70% (depending who is asked) the fall is by no means over yet. The summer ex-pat exodus should have an effect and hopefully, after the summer, we will all have a better idea of where things stand.
IPI is going on vacation for the next three weeks, to visit a few potential investment spots, and see where the market is, in the flesh, so to speak. On our itinerary is London, Paris and Northern France.
Whatever the government press release farms (newspapers) might be saying, those who have tried to refinance with poor credit will know that the economic crisis is alive and well currently. The news from the UK is frankly shocking at the moment, and any suggestion of a house price recovery should be taken with a very large pinch of salt.
Issues surrounding poor credit refinancing abound, and this is a selection of recent “news” reports suggesting the UK’s problems are a long way from over. The banks and mortgage companies (with the possible exception of HSBC) are still in dire straights and the likelihood of finding financing slim to none.
The ex-Midland bank headquarters in the City of London have just been repossessed and placed up for sale after the owner defaulted on his payments. James Bond building for sale
The UK economy shrank by 2.4 per cent in the first quarter at the fastest rate in more than 50 years and far worse than expected, according to official figures today. The Times
At the same time, the Telegraph – not known for their accuracy are claiming, “UK house prices rise for second month,” despite the fact that they actually fell, according to the land registry figures. Still, a headline is a headline I suppose. The Telegraph.
A wander through the other articles on the same page are full of negative headlines such as : “profits slump as consumers stop spending,” “FTSE100 goes into deep freeze,” “Bankers warn of long road to UK financial system,” and “UK economy shrinks most since 1958,” so I would be taking this “rise in UK house prices,” for what it really is – a miniscule rise in the median value of mortgages written by the Nationwide Building Society in June.
Following on from Emaar’s recent announcement that they will merge with selected parts of Dubai Holdings, another merger has just been announced - Standard & Poor’s Ratings Services said today that it had decided to keep its ‘A’ long-term credit ratings on Dubai-based real estate developer and hotel operator Dubai Holding Commercial Operations Group LLC after an announcement that the company will now merge with Emaar. This is the S&P press release:
“The CreditWatch status reflects our need to review our assessment of the likelihood of sufficient and timely extraordinary government support for DHCOG as a result of recent developments in Dubai and the company itself,” said Standard & Poor’s credit analyst Alf Stenqvist.
The existing ratings on DHCOG reflect its key role in executing part of the government of Dubai’s plan to develop the emirate into a major hub for commerce and tourism, and its 97.4% ownership by Sheikh Mohammed Bin Rashid Al Maktoum, the ruler of Dubai. DHCOG is one of three major government-related masterplan developers in Dubai, and has been gifted land by the government to pursue key infrastructure and real estate developments in the emirate.
On April 30, 2009 we placed all Dubai government-related entities (GREs), including DHCOG, on CreditWatch with negative implications in line with our view of increased likelihood that the government of Dubai was considering the restructuring of debt in one of its key GREs, Nakheel (unrated). As articulated at the time, we reviewed all rated Dubai GREs because such a possibility stood at odds with our prior expectation that the government of Dubai was committed to providing extraordinary support to all its key GREs to allow them to service their respective obligations in a full and timely manner. This expectation had been factored into the ratings on Dubai GREs, providing significant uplift from their stand-alone credit profiles.
On June 26, 2009, it was announced that DHCOG intended tomerge its three real estate businesses (Dubai Properties LLC, Sama Duabi LLC, and Tatweer LLC) with (Emaar, BBB+/Watch Dev/–). Emaar is also one of the three government-related master developers in Dubai, being 32% owned by the government. Details of the merger are not yet public, and it is estimated that the process of consolidation will take about four months to complete.
The combination of Emaar and DHCOG’s real estate businesses would likely increase DHCOG’s importance in the development of Dubai, although we assume that the merged entity would not be fully owned by DHCOG or indirectly by the ruler of Dubai or the government. A merger would create possibilities for synergies and strengthen DHCOG’s position in the Dubai real estate market, which however is currently is experiencing a severe downturn. The benefit on DHCOG’s credit quality will also depend on the new entity’s capital structure.
The ratings could be lowered if, following a review, we believe that the likelihood of sufficient and timely extraordinary government support is lower than we currently assume. In resolving the CreditWatch listing we will reassess DHCOG’s importance to the government and the development of Dubai combined with its future ownership structure within the prospective combined entity. We will also review the impact of the prospective merger on DHCOG’s stand-alone credit quality, future business and financial strategies, and the capital structure of the merged entity. Standard and Poor’s
My thinking is that this will serve to add yet more confusion and uncertainty in the Dubai marketplace – with what little privately owned stock there is being gobbled up by government entities.
Asking prices for houses in the UK dropped in June, after rising consecutively in the preceding four months, a report from the property website Rightmove showed Monday. With sales volumes considerably off compared to last year, it would appear sellers are finally coming to terms with the realities of the market. The average asking price of property slipped 0.4% month-on-month in June, after rising 2.4% in May. The average asking prices declined to £226,436 from £227,441 in the preceding month. Despite the fall in June, the asking prices have increased 6% since January, Rightmove said.
Year-on-year, house prices slipped 5.5% in June from a 6.2% drop in May.
“The hesitation in asking prices after four consecutive monthly rises appears to highlight that, while new stock remains in short supply, new sellers are having to vary their prices to match local buyer demand,” Rightmove said.
“It’s a mistake to confuse the upturn in enquiries and sales with a return to a more normal market. While conditions are much improved on the darkest days of last year, we are now starting to see some big distortions and wild swings due to the combined effects of recession and restricted mortgage availability,” Miles Shipside, the commercial director of Rightmove noted. The property website pointed out that as the best deals on properties and mortgages were available only for the equity-rich, there was a need to match new stocks which dealers were planning to attract with want buyers want to buy and can afford.
The report said due to limited funds available, rationing of mortgages by raising interest rates and requiring large deposits is likely, as the demand rises with the increase in number of sales.
“Property deals appear within the grasp of cash strapped first time buyers, but every rise in fixed rates frustratingly nudges them a bit further out of reach. Lenders need to be wary not to choke off the recovery in affordability and activity by punishing the returning buyers with ever widening margins,” the report said.
Moreover, Rightmove indicated that unless the markets for wholesale mortgage funding reopen, volumes would remain low due to a distorted reliance on equity-rich buyers.
Meanwhile, the latest report from Halifax showed that median house prices were up 2.6% month-on-month in May, while the Nationwide Building Society reported a 1.2% increase in median house prices for the month. As usual, this clashes badly with the average sales prices which have consistently fallen as asking prices were rising. While the average asking price is £226,436, the average selling price is £152,898, according to the Land Registry – 16.2% down annually.
SINGLE LARGEST ONE-MONTH DECLINE – Index Stands 25.3% below April 2008 Levels; 29.5% below peak of October 2007
The Moody’s/REAL National All Property Type Aggregate Index from Real Estate Analytics, LLC, (REAL), measures 135.31 for April 2009, a decrease of 8.6% from the previous month and single largest one-month decline. The Index, which has captured price data through the end of April 2009, is now 25.3% lower than it was a year ago and 29.5% below the peak measured in October 2007. The index also indicated a 27.4% drop in prices over the past two years.
“The largest negative monthly return likely reflects the fact that deals closed were negotiated at the end of 2008 and in the first quarter of 2009, when securities markets and overall sentiment were plunging,” said Neal Elkin, President of REAL. “The question is will this mark the bottom or not.”
For the first time, the repeat sale transactions in April showed more negative than positive annualized rates of return. Overall, the South was the worst performing region, with all four property types seeing annual value declines of more than 20%. The three major office markets measured significant annual declines. New York and San Francisco had declines of 13% and 20%, respectively, with Washington DC posting the biggest year-over-year fall at 21%.
Moody’s/REAL Commercial Property Indices are owned by Real Estate Analytics, LLC, and provides the only investable, transaction-based commercial real estate benchmarks available in the United States.
The All Property Type Aggregate Index is measured monthly, while national and regional data by property type are measured quarterly. Changes in quarterly indices, if any, will be reported in May 2009.
To read the full report, please visit www.realindices.com
Foreclosure rates in the U.S. are big news world wide. The continuing glut of foreclosed and distressed properties on the U.S. market caused home values to drop another 16.8% over this time last year, and in some parts of the U.S. the drop was even steeper.
In Kalamazoo, MI, for instance, home values have fallen an additional 25% over the past year alone, even though Kalamazoo is a university town in one of the western pockets of Michigan where the economy is still ’somewhat’ stable. Unemployment in west Michigan is hovering just under 10% (as opposed to 14.7% for the state as a whole).
The sheer volume of foreclosures in the U.S. is approaching some kind of critical threshold.
Lenders are now starting to drag their feet.
In early 2007 the number of homeowners who were more than three months delinquent on their mortgage but who had not yet received a foreclosure notice from their lender was less than 1% of all borrowers. In recent months that percentage has tripled and is rapidly climbing. Some homeowners are now at 12 months behind in their payments and yet the lender has still taken no action to foreclose.
According to a recent report in the Washington Post, the reasons are many but they boil down to one common denominator:
Banks can’t afford to own many more homes they can’t sell. The losses are too staggering.
In the past, foreclosure proceedings were routinely initiated at 90 days past due. Today foreclosure might not be initiated for 6, 9, 0r even as many as 12 months, and even when foreclosure does finally begin, more and more banks are backing out before the property ever goes to sheriff’s sale. That’s because often these properties don’t sell at sheriff’s sale.
Foreclosures are still going forward, but in more and more cases the threat of foreclosure is more of a collection tactic than an actual legal proceeding.
Most lenders have come to the conclusion that at this point almost anything is better than foreclosing on a property and taking yet another big loss. Some of the homes in question cannot be sold at any price in this market, even though they are almost surely worth something. In response, many banks are holding properties longer, waiting for the market to bottom out so they can recoup something closer to true value on the distressed property.
There is no question that many, many U.S. properties in foreclosure limbo are undervalued right now, so holding them longer makes a certain amount of sense, but it’s complex. Some parts of the U.S. may not recover economically for decades, and if that is the case, neither will the property values. Right now, local trends are hard to predict.
Most analysts are however predicting increased foreclosures and defaults through the rest of 2009 and into 2010. Home values are unlikely to stabilize until the glut of distressed and foreclosed properties has been cleared.
At the moment, the most optimistic date when that might happen is 2011. Maybe.
Foreign investors interested in buying property in the U.S. now should be forewarned: You might have to hold that property and maintain it for several years before you see appreciation.
For those who managed to avoid losing their shirt in the Spanish property market, or investing in Dubai’s real estate bubble, another possibility seems to be floating on the horizon – maybe. Cambodian Prime Minister Hun Sen on Friday urged the Ministry of Land Management, Urban Planning and Construction to expedite the drafting of new rules that would permit foreign ownership of property in Cambodia.
In a press release issued by the Council of Ministers, Hun Sen said implementation of the rules would lead to an influx of foreign capital investment in the real estate and other sectors.
“The law will make foreigners feel confident in investing in other sectors in Cambodia,” he said.
In an interview Sunday, Sung Bonna, CEO of Bonna Realty Group and president of the National Valuers Association of Cambodia, said he welcomed the premier’s comments, calling them “a highly valued answer to help the real estate industry survive”.
He added, “Samdech [Hun Sen] made a good decision with this law. This law is a positive law that will benefit the country’s economy.”
The NVA is to meet today with a working group of government officials and private sector representatives to give input on the new rules. Existing rules prohibit foreigners from owning property, which supporters say prevents speculation and price volatility. The proposed changes would allow for foreign ownership of houses, apartments and condominiums above the ground floor. Foreigners would also be able to inherit property. This would be a substantial turn around and I suspect the impact of the global economic crisis is spurring this suggestion.
Either way – a potential new market looks about to open up for those interested in investing in property overseas .
