All successful scams and cons have two things in common:

1) All scams involve a ‘hook’ designed to play on our natural greed and opportunism by asking us to do something that seems only slightly unethical (on the surface) in exchange for a huge monetary pay off. 2) All scams then count on our shame at accepting illicit terms to make sure we don’t report the crime or pursue justice.

Real estate scams are no different, and foreign investors have to be especially careful not to be taken in, especially investors who are new to the game. The Web is literally crawling with spammy get-rich-quick real estate investment sites. A single Google search will net you thousands of them. How can you tell a real opportunity from a scam? The best way is to thoroughly educate yourself on the current U.S. real estate market. You can start by reading our own article on U.S. real estate here.

In addition, the following tips will help you separate real deals from fake ones:

The deal sounds too good to be true. The old saw that if it sounds too good to be true then it probably is applies to real estate every bit as much as it applies to those Rolex watches being hawked out a Lincoln Navigator. If the deal you are being offered sounds too good to be true, don’t jump. Get your own attorney and real estate agent first, and investigate every angle thoroughly. The deal may indeed be genuine, but the only person you can really trust is you.

You read about it on a cheesy website. Really good real estate deals still disappear so quickly they barely get time to get settled on the Multiple Listing Service. Sometimes the photos never even make it onto the Web. If someone had to set up a spammy website to entice foreigners into buying certain U.S. properties, you can be pretty sure there either isn’t any property, or there is, but it is over-priced and nasty. Don’t even think about participating.

You have to go through an arrogant third party. If the come-on involves a lot of bashing of real estate professionals and a lot of bragging about how the third party has the ‘secret’ that will make you rich fast, run for your life. This is the classic “bend the rules with me and we’ll both get rich” line used by all professional con artists. He’ll get rich, you’ll lose everything.

You get lots of assurances of how easy it is. Investing in real estate is like home improvement in the sense that Murphy’s Law, “If anything can go wrong, it will,” definitely applies, as well as Murphy’s Corollary Law, “Everything costs twice as much as you think and takes twice as long.” Some people have become quite wealthy by investing in U.S. real estate, but very few of them did it while relaxing in their hot tubs and watching the money pour in. Not even Donald Trump gets off that easily.

The ‘service’ is targeted at foreign investors. During the craziest part of the recent real estate bubble, a common scam involved selling slum properties to recent immigrants and foreign investors at double the actual value on very poor mortgage terms. The scammer always worked with an appraiser who was in one the scam, and used out of state subprime brokers who knew they could sell the loans immediately and had lax underwriting standards. (See how we got in all this trouble?)

The immigrants were assured that once they got to the U.S. they’d be able to rent these places easily for huge profits. When they actually arrived, the scammers had cashed out the (false) equity in the worthless properties (which were deeded jointly to the immigrant and a nebulous third party name) and then disappeared without a trace, leaving the investors to make huge monthly payments on properties that were uninhabitable.

U.S. real estate prices are dropping fast, and great deals are definitely out there, but in general, there’s no substitute for research, hard work, and top-notch licensed professionals.

Keep that fact in mind, and you’ll do fine. Happy hunting!

Both Abu Dhabi and Dubai are currently facing the issue of lack of housing for the local population. It is ironic when you consider the enormous amount of construction that has taken place there over the last few years.

Most of this construction has, of course, been aimed at the luxury and tourist markets, leaving a big gap in the middle to lower income brackets.

Abu Dhabi

A shortage of 20,000 housing units by the end of the year could increase inflation and raise the cost of living in Abu Dhabi further, according to a recent study. The solution is to freeze prices, according to the study, released by the Abu Dhabi Chamber of Commerce and Industry. Here are a few snippets from the report:

“In 2008, housing projects will target highly paid executives while people with low and medium income will be affected by the shortage and high rent.”

“The housing shortage will inevitably increase rents and put more stresses on people who pay more than 40 per cent of their income in housing.”

The population of Abu Dhabi increased by 100% over the past few years causing the shortage to become acute. “In 2005, the supply and demand was levelled and there was no shortage in housing. In 2006, there was a shortage of 3,000 units. By 2007, the shortage rose to 8,000 units,” the report said.

While the direct impact may be an increase in the cost of living, the report said the shortage could ultimately create a vicious circle that could affect the overall performance and competitiveness of the country.

Despite dozens of housing projects underway in the capital, the Chamber says this will not meet more than 20 per cent of the shortage.

According to the report, the solution to this ever-growing problem is to freeze rent prices for two years, to develop a housing plan to meet low and middle income demands and to encourage the private sector companies to create some low income construction.

Khalfan Al Ka’abi, chairman of the Chamber’s construction committee disgreed, oddly enough, and said freezing rents would only bring more chaos. “Freezing the rent is a very bad solution because this would freeze all investments. The solution is more units. More units will inevitably cut down prices,” Al Ka’abi said.

While the concept of freezing rents may sound idealistic to renters. Ka’abi says this move would discourage developers from building.

“We need to motivate more investors. The solution is that the government needs to give more land and the developers to build more. There needs to be a better platform where more developers can build. You can not just depend on master developers who will build cities and islands. The government must encourage all sizes of developers,” Al Ka’abi says.

According to previous chamber reports, the ideal annual rent should not exceed 25% of a yearly income, but the average person currently pays more than 40 per cent on housing alone.

“Salaries have gone up but they have been consumed by an increase in the cost of living so we are back to where we started. Once the supply matches the demand that’s when prices will start to level,” Al Ka’abi said.

Similar problems are being faced in Dubai, although they are taking a more pro=active approach.

His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, recently announced the construction of 40,000 villas for nationals in the country.

After a whirlwind tour of the country’s central and eastern areas, Shaikh Mohammed said that Dh15 billion will be earmarked for the new housing program for nationals that embraces the whole of the UAE.

He issued directives to the Minister of State for Financial and Industrial Affairs. Shaikh Mohammed also said that he has instructed the Ministry of Social Affairs to immediately double the budget for social assistance allocations for nationals to Dh2.2 billion. This reaffirms his desire to see that citizens benefit from this program and achieve a better lifestyle.

Shaikh Mohammed also said that a cabinet reshuffle was on the cards next month.

He was accompanied by Mohammed Abdullah Al Gergawi, Minister of State for Cabinet Affairs, Dr Mohammed Khalfan bin Kharbash, Minister of State for Financial and Industrial Affairs, Sultan bin Sulayem, Chairman of Dubai Ports, Shaikh Hamdan bin Rashid Al Maktoum, Chairman of Dubai Executive Council, and Editors-in-Chief of Arabic and English newspapers in the UAE.

The US housing market is in dire straights, no one could argue with that. House prices are down, house sales are down and developers are cutting prices on new developments left, right and center. But where does that leave the homeowner who needs to sell, whether from financial difficulties or some other reason?

There are only two options here:

1. Accept the fact that you are not going to sell and wait.
2. Drop the price to sell now. There’s a good reason why developers are reducing prices country-wide. It’s cheaper to take a 10 % hit today than hang on to the property for 1/2/3 years in an uncertain market. And who knows where the slide will end, prices could be even lower next year.

Our advice is get out while the getting’s good. Take a look at the local property market and ask yourself two crucial questions. “How many properties similar to my own in price and specifications are for sale and how long are they taking to sell?” If the answer is “a lot” and “10 months or more,” financially speaking, taking a sizable drop in the price may well be cheaper in the long run than maintaining the house for that period of time. Take into account all running costs,, mortgage charges, property taxes and see which is the cheaper alternative. A year of costs or taking that much off the sale price and moving on.

It’s all to easy to get hung up on how much money you “should have made.” The market today is not what it was s little as a year ago.

There is a range of good advice and numbers here:

Don’t Blame Market for Housing Bubble (old but good) (house.gov)
Ron Paul Gives Fed’s Ben Bernanke a Schooling on Inflation (bullnotbull.com)
Leverage becomes enemy when prices fall (idahostatesman.com)
Calif. house prices 37% ahead of U.S. loan limits (lansner.freedomblogging.com)
Oppose the San Mateo County Foreclosure Moratorium! (patrick.net)
Seattle prices down again — it is NOT time to buy! (seattlepi.nwsource.com)
Condo Fee Defaults Surge in Manhattan (nysun.com)
Price drops $1000 every day! (fortlauderdale.craigslist.org)
Most Affordable Places to Live Well (finance.yahoo.com)
Bankruptcy Law Backfires on Banks (bloomberg.com)
Toll Brothers sales sharply lower in early financial report (money.cnn.com)
Shareholder Sues Citigroup Execs Over Subprime (efinancedirectory.com)
Affirmative Action for Morons (pacificariptide.com)
Houseowners Feel the Pinch of Lost Equity (nytimes.com)
Credit Card Debt a $915 Billion Disaster-in-Waiting (newsmax.com)
HSBC Ends Sales of Mortgage-Backed Securities in U.S. (bloomberg.com)
Houses Left Vacant in Slump Mar Neighborhoods (npr.org)
Downside risks from financial shocks will persist (PDF - patrick.net)

Quite apart from the small investors and home owners, it appears that some of the big boys are taking a hit or two in the sub prime crisis as well.

It’s unlikely that the chairman of Citigroup or Morgan Stanley will have their houses foreclosed upon, but, in a sick way, it’s nice to know the banks have been caught with their pants down as it were. According to Mike Mayo of Deutsch Bank, Morgan Stanley will be writing off $3 to $5 billion this coming quarter.

The ripples of this crisis are spreading further outwards as we speak and the upside down pyramid of failed mortgages is spreading inexorably upwards to the higher reaches of American financial institutions.

One analyst, CreditSights, put the potential losses at as much as $9.4 billion for Merrill Lynch, $5.1 billion for Goldman, $3.8 billion for Morgan Stanley and $3.9 billion for Lehman. Top of the list has to be Citigroup who are facing mortgage write-offs of as much as $11 billion. Stocks in all these firms took a down turn recently and Citigroup shares are at a one-year low. Down from $57 to under $35.

But what does this mean to the small investor or home-owner? Several things and it’s not all bad news.

Money is going to become increasingly difficult to find. The belt-tightening going on in the upper echelons of the mortgage world means mortgages are going to become harder to obtain and, despite a drop in the Fed recently, more expensive. Citigroup, along with all the other major players will be looking to do some repair work over the next year and this is where it will begin.

Foreclosures will continue to rise as the financial institutions attempt to limit their losses. One man’s loss is another man’s gain - residential property in all but a few prime locations is going to be available at bargain basement prices for the foreseeable future. Don’t look for a quick buck though, any property purchase made now will need to be sat on for a time – we’re not out of the woods just yet.

Real Estate agents are going to be fighting tooth and nail for a chance to sell your house.

Now is a good time to buy stocks in the firms reporting major losses. Citigroup, Merrill Lynch, Morgan Stanley, Lehman Brothers Holdings, Bear Stearns and Goldman Sachs Group all look a good bet at the moment.

Resources:

Wall Street Journal Stocks analysis

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