The small month-on-month rise experienced in US house prices in May has been described as a "positive" step for the sector by one real estate expert.
Adam Samuel, director of Nubricks.com, said that it is too soon to tell whether this will develop into a consistent upturn, but welcomed the news that values are starting to climb.
His comments come after the latest Standard & Poor’s/Case-Shiller index revealed that locations on the ten and 20-city composite indices increased by 1.1 and one per cent respectively in May compared to April.
However, all regions recorded a drop when compared to the same period in 2010.
Mr Samuel stated: "A lot of people are looking around and a lot of people are searching, but in regards to actually putting their money down and investing in the US market, I would say that things have remained fairly consistent over the last 12 months."
He did go on to point out that if enough investors enter the market, house prices will start to rise again.
Saturday 30 July 2011
‘Excellent opportunities’ can be found on Spanish property market
Buyers keen to find a property in Spain do not need to rush into any deals, it has been advised.
Freelance property journalist and founder of Propertyjournalist.com Marc Da Silva explained that prices are not likely to increase in the nation over the next couple of years.
He even suggested that they may drop further, which could enable investors to find a better bargain.
"In Spain, prices have been falling there at a rapid and alarming rate for quite some time. It is a wonderful opportunity to negotiate a cheap property deal," Mr Da Silva stated.
But he recommended that buyers wait to make a transaction until the pound has strengthened against the euro because the problems being experienced by several eurozone economies indicates that the currency is "potentially overvalued".
Earlier this month, Primelocation.com revealed that the number of searches for real estate in Spain dropped significantly between the first and second quarters of the year, falling by 24 per cent during this period.
Freelance property journalist and founder of Propertyjournalist.com Marc Da Silva explained that prices are not likely to increase in the nation over the next couple of years.
He even suggested that they may drop further, which could enable investors to find a better bargain.
"In Spain, prices have been falling there at a rapid and alarming rate for quite some time. It is a wonderful opportunity to negotiate a cheap property deal," Mr Da Silva stated.
But he recommended that buyers wait to make a transaction until the pound has strengthened against the euro because the problems being experienced by several eurozone economies indicates that the currency is "potentially overvalued".
Earlier this month, Primelocation.com revealed that the number of searches for real estate in Spain dropped significantly between the first and second quarters of the year, falling by 24 per cent during this period.
Wednesday 20 July 2011
California property appealing to foreign buyers
Real estate in the Silicon Valley region of California is increasingly being targeted by foreign investors, it has been claimed.
An article in the San Jose Mercury News noted that the influx of overseas buyers is being fuelled in part by workers moving to the area from elsewhere, as well as those looking for investment properties.
Speaking to the publication, realtor with Alain Pinel in Los Gatos Michael Riese commented that many buyers from outside the country consider "a home purchase in the US as a solid investment, compared with what they may otherwise put their cash in back home".
The publication revealed that Chinese buyers are among the most active in the Silicon Valley real estate market at present.
And it seems that California is not the only region that is appealing to investors when it comes to US property, with the country as a whole seeing the sector improve, according to a recent Jones Lang LaSalle report.
Research recently published by the firm revealed that global direct investment volumes were up by seven per cent in the second quarter of the year – compared to the first three months of 2011 – and had risen by 47 per cent over the same period in 2010.
An article in the San Jose Mercury News noted that the influx of overseas buyers is being fuelled in part by workers moving to the area from elsewhere, as well as those looking for investment properties.
Speaking to the publication, realtor with Alain Pinel in Los Gatos Michael Riese commented that many buyers from outside the country consider "a home purchase in the US as a solid investment, compared with what they may otherwise put their cash in back home".
The publication revealed that Chinese buyers are among the most active in the Silicon Valley real estate market at present.
And it seems that California is not the only region that is appealing to investors when it comes to US property, with the country as a whole seeing the sector improve, according to a recent Jones Lang LaSalle report.
Research recently published by the firm revealed that global direct investment volumes were up by seven per cent in the second quarter of the year – compared to the first three months of 2011 – and had risen by 47 per cent over the same period in 2010.
US homeowners ‘overpricing’ properties
Many US homeowners looking to sell their properties are overvaluing their abodes and pricing them significantly above the current market value, research has revealed.
According to a survey by Zillow, people who bought real estate in or after 2007 are overpricing by 14.1 per cent on average.
It is buyers who made a purchase between 2002 and 2006 who are the most realistic, as they tend to place their properties on the market at 9.3 per cent above their actual worth.
Those who bought before 2002 ask for 11.6 per cent over the true value, the study added.
Chief economist at Zillow Dr Stan Humphries commented: "Overpricing homes causes them to stagnate on the market and keeps inventory from decreasing – not a desirable outcome for either the sellers or the market as a whole."
Earlier this month, the Clear Capital Home Data Index revealed that house prices in the US fell by 3.2 per cent over the first six months of 2011, with a further decline of 2.4 per cent anticipated by the end of the year.
According to a survey by Zillow, people who bought real estate in or after 2007 are overpricing by 14.1 per cent on average.
It is buyers who made a purchase between 2002 and 2006 who are the most realistic, as they tend to place their properties on the market at 9.3 per cent above their actual worth.
Those who bought before 2002 ask for 11.6 per cent over the true value, the study added.
Chief economist at Zillow Dr Stan Humphries commented: "Overpricing homes causes them to stagnate on the market and keeps inventory from decreasing – not a desirable outcome for either the sellers or the market as a whole."
Earlier this month, the Clear Capital Home Data Index revealed that house prices in the US fell by 3.2 per cent over the first six months of 2011, with a further decline of 2.4 per cent anticipated by the end of the year.
Saturday 2 July 2011
Indian buyers targeting Italian property market
Wealthy Indians are increasingly purchasing properties in Italy, it has been revealed.
Vice-president of credit risk management at Deutsche Bank Gulzar Malhotra told Business Standard that locations such as Sicily and Tuscany are proving popular among Indian investors.
He explained that the decline in property prices experienced across Europe is attracting more foreign buyers to the marketplace, with perennial favourites like Italy among the top locations for those seeking second homes or investment opportunities.
However, Indians are restricted in terms of what they can purchase because the Reserve Bank of India has capped the amount that can be spent on foreign property annually to $200,000 (£125,517) per person.
In May, DTZ published its Money into Property Europe 2011 report, which noted that transaction volumes across the continent increased by 64 per cent in 2010 compared with the previous year.
The organisation went on to predict this to rise by a further 20 per cent by the end of 2011.
Vice-president of credit risk management at Deutsche Bank Gulzar Malhotra told Business Standard that locations such as Sicily and Tuscany are proving popular among Indian investors.
He explained that the decline in property prices experienced across Europe is attracting more foreign buyers to the marketplace, with perennial favourites like Italy among the top locations for those seeking second homes or investment opportunities.
However, Indians are restricted in terms of what they can purchase because the Reserve Bank of India has capped the amount that can be spent on foreign property annually to $200,000 (£125,517) per person.
In May, DTZ published its Money into Property Europe 2011 report, which noted that transaction volumes across the continent increased by 64 per cent in 2010 compared with the previous year.
The organisation went on to predict this to rise by a further 20 per cent by the end of 2011.
Australian property market ‘to start recovery’
Property prices in Australia are expected to remain steady throughout the rest of this year, one business research organisation has predicted.
BIS Shrapnel has published its Residential Property Prospects 2011-2014 and stated that a crash in the market is not anticipated.
In fact, the firm commented that some of the nation’s state capitals should experience "moderate price growth over the following two years", despite a drop in the median value of homes being recorded in many areas in the first three months of 2011.
Meanwhile, chief executive officer of Metropole Property Strategists Mike Yardney agreed that the Australian real estate sector is on the road to recovery.
He cited population growth, a culture of homeownership and a lack of new developments as factors that could support property prices and underpin growth within the industry.
Mr Yardney also noted that due to a shortage of homes in certain areas, rents are expected to rise, which could be good news for any investors with residential properties in their portfolios.
BIS Shrapnel has published its Residential Property Prospects 2011-2014 and stated that a crash in the market is not anticipated.
In fact, the firm commented that some of the nation’s state capitals should experience "moderate price growth over the following two years", despite a drop in the median value of homes being recorded in many areas in the first three months of 2011.
Meanwhile, chief executive officer of Metropole Property Strategists Mike Yardney agreed that the Australian real estate sector is on the road to recovery.
He cited population growth, a culture of homeownership and a lack of new developments as factors that could support property prices and underpin growth within the industry.
Mr Yardney also noted that due to a shortage of homes in certain areas, rents are expected to rise, which could be good news for any investors with residential properties in their portfolios.
Egypt ‘a good option’ for property investment
One expert has claimed that Egypt could be a good bet for anyone seeking an overseas property investment.
Director and founder of Rogue Property David Freeman stated that the north African nation is "definitely a place I’d recommend".
He noted that Sharm el Sheikh, a Red Sea resort in the Sinai Peninsula, has some developments that are worth considering and added that its popularity as a tourist destination enhances its appeal.
Meanwhile, a report in the Financial Times earlier this week revealed that construction activity in Egypt has slowed considerably since the revolution that took place in January this year.
With less stock being added to the Egyptian real estate market, investors may decide that now is a good time to make a purchase.
Hassan Allam, managing director of Hassan Allam Construction, told the publication that many people are holding back until the results of the elections – which are due to take place in September 2011.
Director and founder of Rogue Property David Freeman stated that the north African nation is "definitely a place I’d recommend".
He noted that Sharm el Sheikh, a Red Sea resort in the Sinai Peninsula, has some developments that are worth considering and added that its popularity as a tourist destination enhances its appeal.
Meanwhile, a report in the Financial Times earlier this week revealed that construction activity in Egypt has slowed considerably since the revolution that took place in January this year.
With less stock being added to the Egyptian real estate market, investors may decide that now is a good time to make a purchase.
Hassan Allam, managing director of Hassan Allam Construction, told the publication that many people are holding back until the results of the elections – which are due to take place in September 2011.
Saturday 11 June 2011
Regional variations emerge in Australian property market
Regional differences are emerging in the Australian housing market, with some regions reporting price rises and others seeing values decline.
Sydney and Canberra are seeing real estate values continue to climb, but those in Perth and Brisbane falling, according to the latest house market index.
In addition, the figures show that cheaper properties are selling better than the luxury end of the market, with interest rates and natural disasters such as the floods in January taking their toll.
According to Tim Lawless, RP Data’s research director, expensive suburbs have helped drag the overall market down.
Indeed, over the year to end April, properties in the most expensive suburbs fell 5.4 per cent. This compares to declines of 0.9 per cent and 0.5 per cent in the middle priced suburbs and cheapest suburbs respectively.
"The luxury end of the housing market is also showing its volatility. During the growth phase of the cycle the most expensive homes realised the highest capital gains," he said.
"Yet as the market cools premium home values seem to be losing steam the fastest."
Sydney and Canberra are seeing real estate values continue to climb, but those in Perth and Brisbane falling, according to the latest house market index.
In addition, the figures show that cheaper properties are selling better than the luxury end of the market, with interest rates and natural disasters such as the floods in January taking their toll.
According to Tim Lawless, RP Data’s research director, expensive suburbs have helped drag the overall market down.
Indeed, over the year to end April, properties in the most expensive suburbs fell 5.4 per cent. This compares to declines of 0.9 per cent and 0.5 per cent in the middle priced suburbs and cheapest suburbs respectively.
"The luxury end of the housing market is also showing its volatility. During the growth phase of the cycle the most expensive homes realised the highest capital gains," he said.
"Yet as the market cools premium home values seem to be losing steam the fastest."
Spanish property market ‘looks bright’
Despite a number of indices suggesting that prices are falling and oversupply is having a negative impact on the sector, one firm has offered a positive outlook for the Spanish property market.
"In Spain things are looking very bright," Dr Dennis Coote, founder of The Hampshire & Home Counties Property Networking Club, said.
"Prices are not going up very fast, but there’s a very lively atmosphere. I don’t see any evidence of people being hard up here, honestly. It’s very much [a vibrant market]," he explained.
His comments follow the publication of new research by the Royal Institution of Chartered Surveyors into distressed property listings.
According to its Global Distressed Property Monitor, Spain has seen one of the largest increases in foreclosed property anywhere in the world, with the firm only expecting the number to increase.
Indeed, in the coming three months, Ireland, Spain, Hungary and Italy expect the highest numbers of distressed properties to come to market, while Russia, China, South Africa and Poland expect the lowest.
"In Spain things are looking very bright," Dr Dennis Coote, founder of The Hampshire & Home Counties Property Networking Club, said.
"Prices are not going up very fast, but there’s a very lively atmosphere. I don’t see any evidence of people being hard up here, honestly. It’s very much [a vibrant market]," he explained.
His comments follow the publication of new research by the Royal Institution of Chartered Surveyors into distressed property listings.
According to its Global Distressed Property Monitor, Spain has seen one of the largest increases in foreclosed property anywhere in the world, with the firm only expecting the number to increase.
Indeed, in the coming three months, Ireland, Spain, Hungary and Italy expect the highest numbers of distressed properties to come to market, while Russia, China, South Africa and Poland expect the lowest.
Monday 2 May 2011
Spanish property set to be popular this summer
Property analysts have forecast that the Balearic island of Mallorca will be this year’s hottest Spanish destination.
As confidence in European property markets continue on the road to recovery, a growing number of investors are expected to increase their exposure to the market.
The Balearics’ property market remains strong, with a 145 per cent increase in property sales in 2010 compared to 2009 recorded by the Public Works Ministry.
Ignacio Osle, sales and marketing director of Taylor Wimpey de Espana, claimed that it is easy to see why the Mediterranean island is proving popular with buyers.
"Over the last 12 months we have seen both visitor numbers and enquires for property on Mallorca rise steadily," Mr Osle said.
"Buyers from the UK and Europe are not only looking at the traditional property hotspots on the mainland but further afield to Spain’s stunning islands such as Mallorca."
It follows a recent study by Aviva which found that more Brits that ever before are considering emigrating.
Some 46 per cent of those questioned by the insurance firm claim that they are considering a permanent move abroad – with Spain one of the most popular countries for relocation.
As confidence in European property markets continue on the road to recovery, a growing number of investors are expected to increase their exposure to the market.
The Balearics’ property market remains strong, with a 145 per cent increase in property sales in 2010 compared to 2009 recorded by the Public Works Ministry.
Ignacio Osle, sales and marketing director of Taylor Wimpey de Espana, claimed that it is easy to see why the Mediterranean island is proving popular with buyers.
"Over the last 12 months we have seen both visitor numbers and enquires for property on Mallorca rise steadily," Mr Osle said.
"Buyers from the UK and Europe are not only looking at the traditional property hotspots on the mainland but further afield to Spain’s stunning islands such as Mallorca."
It follows a recent study by Aviva which found that more Brits that ever before are considering emigrating.
Some 46 per cent of those questioned by the insurance firm claim that they are considering a permanent move abroad – with Spain one of the most popular countries for relocation.
Thursday 28 April 2011
Investing in a Holiday Home – What to Expect
When you invest in a holiday property, you risk letting your emotions get the better of you at the expense of your finances. Fortunately, a little wise advice can help your holiday home provide you some income as well as great holidays and hopefully selling your house will never become a necessity.
Some owners love having a holiday home at their disposal and are satisfied if they can make $10,000 and pay the land taxes. Others pull in up to $60,000 a year for a handsome return on their investment, but must remain heavily involved, looking after the home between tenants, providing keys, and so forth. What is most important to you—return or lifestyle?
Rates for short term rentals are certainly superior to long term. A one bedroom in Sydney with an unfurnished return of $400 a week will likely earn $800 weekly as a short term, furnished rental property, minus about 20 percent for the management fee.
However, how often will you be able to pull in top rents? In a metropolitan area you may well get 90 percent occupancy, but in a regional area you may achieve only 20 to 40 percent. Management fees also vary wildly, from 16 percent plus a $90 cleaning fee each rental in Victor Harbor, to up to 50 percent on the Gold Coast.
It’s also important to consider actual cash flow versus high rents. Rental properties may stay empty for weeks at a time, but you’ll still need to pay the mortgage, while maintenance and management costs cut into your gross income and choke your cash flow.
Holiday letting can often be more lucrative than permanent rentals. For instance, a five-bedroom house can bring in as much as $75,000 a year in Lorne, Victoria. This equals a 6.9 percent gross yield, based on the current price of similar homes in Lorne. This is substantially more than the 5.5 percent yield for permanent rentals, according to the July 2009 listing in Australian Property Monitors.
Keep in mind that banks view holiday rental properties as higher risk, so investors may have to contribute a higher deposit. Another crucial aspect is the income tax break. Depreciation benefits and regular tax deductions may be associated with furnishing holiday rentals, depending on strategy. The Tax Office states that deductible property expenses are valid only in relation to the period that tenants actually occupy the property, or it is truly free for commercial rental. Travel costs are likewise deductible for true maintenance, but not personal trips.
Due to capital growth and the phenomena of sea change, owners of holiday homes in certain seaside locations have profited enormously in the past ten years. An idyllic location with a small local population and enough appeal to attract holiday-makers every year may be the key. Holiday homes that previously barely broke even in rental fees have risen in value by hundreds of thousands of dollars in the past ten years.
Even with current, higher purchase prices, there is still growing room in the right locations. Seaside locations will always have the potential for long term capital growth, and some continue to experience healthy price increases even in the current economy. Still, investors must be able to cover costs when seasons are slow. A property in an established city or town inhabitants will provide more reliable ordinary returns than in a remote beach village. In addition, amenities and infrastructure are needed for eventual capital growth.
Even well-known locations currently offer great bargains, such as the Gold Coast. True beachfront properties in older structures are available there for around $300,000, a real steal.
Still, remember that holiday homes are an investment in lifestyle with the goal of long term gain. Body corporate fees and renovation costs can be quite high, and you will need to own the property about ten years to get about 10 percent a year in capital gains. However, that’s better than for general housing, and some properties reap even more.
Independent one or two bedroom properties appeal to more buyers and provide the option of permanent occupancy. However, beware of council zonings. Some complexes do not permit more than three month occupancy, making eventual permanent letting or occupation impossible.
To summarize, you need to be a good marketer and manager of your property in order to reap big gains from a holiday home. If you simply want a place for a weekend getaway in a prime locale, just be ready to shoulder many costs yourself. Either way, with realistic expectations, you can make the best of your holiday home.
Article written and supplied by Anna K. on behalf of Sell My Castle
Anna K. is a journalist from Brisbane, Australia. She writes for several blogs about finance topics such as real estate, insurance and several others which attract attention of many readers.
Some owners love having a holiday home at their disposal and are satisfied if they can make $10,000 and pay the land taxes. Others pull in up to $60,000 a year for a handsome return on their investment, but must remain heavily involved, looking after the home between tenants, providing keys, and so forth. What is most important to you—return or lifestyle?
Rates for short term rentals are certainly superior to long term. A one bedroom in Sydney with an unfurnished return of $400 a week will likely earn $800 weekly as a short term, furnished rental property, minus about 20 percent for the management fee.
However, how often will you be able to pull in top rents? In a metropolitan area you may well get 90 percent occupancy, but in a regional area you may achieve only 20 to 40 percent. Management fees also vary wildly, from 16 percent plus a $90 cleaning fee each rental in Victor Harbor, to up to 50 percent on the Gold Coast.
It’s also important to consider actual cash flow versus high rents. Rental properties may stay empty for weeks at a time, but you’ll still need to pay the mortgage, while maintenance and management costs cut into your gross income and choke your cash flow.
Holiday letting can often be more lucrative than permanent rentals. For instance, a five-bedroom house can bring in as much as $75,000 a year in Lorne, Victoria. This equals a 6.9 percent gross yield, based on the current price of similar homes in Lorne. This is substantially more than the 5.5 percent yield for permanent rentals, according to the July 2009 listing in Australian Property Monitors.
Keep in mind that banks view holiday rental properties as higher risk, so investors may have to contribute a higher deposit. Another crucial aspect is the income tax break. Depreciation benefits and regular tax deductions may be associated with furnishing holiday rentals, depending on strategy. The Tax Office states that deductible property expenses are valid only in relation to the period that tenants actually occupy the property, or it is truly free for commercial rental. Travel costs are likewise deductible for true maintenance, but not personal trips.
Due to capital growth and the phenomena of sea change, owners of holiday homes in certain seaside locations have profited enormously in the past ten years. An idyllic location with a small local population and enough appeal to attract holiday-makers every year may be the key. Holiday homes that previously barely broke even in rental fees have risen in value by hundreds of thousands of dollars in the past ten years.
Even with current, higher purchase prices, there is still growing room in the right locations. Seaside locations will always have the potential for long term capital growth, and some continue to experience healthy price increases even in the current economy. Still, investors must be able to cover costs when seasons are slow. A property in an established city or town inhabitants will provide more reliable ordinary returns than in a remote beach village. In addition, amenities and infrastructure are needed for eventual capital growth.
Even well-known locations currently offer great bargains, such as the Gold Coast. True beachfront properties in older structures are available there for around $300,000, a real steal.
Still, remember that holiday homes are an investment in lifestyle with the goal of long term gain. Body corporate fees and renovation costs can be quite high, and you will need to own the property about ten years to get about 10 percent a year in capital gains. However, that’s better than for general housing, and some properties reap even more.
Independent one or two bedroom properties appeal to more buyers and provide the option of permanent occupancy. However, beware of council zonings. Some complexes do not permit more than three month occupancy, making eventual permanent letting or occupation impossible.
To summarize, you need to be a good marketer and manager of your property in order to reap big gains from a holiday home. If you simply want a place for a weekend getaway in a prime locale, just be ready to shoulder many costs yourself. Either way, with realistic expectations, you can make the best of your holiday home.
Article written and supplied by Anna K. on behalf of Sell My Castle
Anna K. is a journalist from Brisbane, Australia. She writes for several blogs about finance topics such as real estate, insurance and several others which attract attention of many readers.
Thursday 21 April 2011
French property demand remains high
Demand for property in France appears to be strong, with the number of overseas enquiries for homes in the country rising.
Comments from French estate agent Leggett Immobilier suggest that the country has put the recent global economic troubles behind it and is now an attractive market for investors to by in.
So far in 2011, the firm reports that it has seen an almost 100 per cent increase in new buyer enquiries compared to last year’s figures.
The stability offered in France is proving attractive to international property investors and reports suggest that the increasing demand is also being driven by mortgage rates, which are at their lowest levels since the Second World War.
"Enquiry levels from both shows are substantially up from both 2009 and 2010," managing director Trevor Leggett said.
"This is particularly the case for property on the Cote D’Azur where our representatives have already closed a significant number of sales this year."
Meanwhile, according to the latest figures from foreign exchange company Moneycorp, Germany, France, Italy and Ireland all proved popular destinations last month.
Comments from French estate agent Leggett Immobilier suggest that the country has put the recent global economic troubles behind it and is now an attractive market for investors to by in.
So far in 2011, the firm reports that it has seen an almost 100 per cent increase in new buyer enquiries compared to last year’s figures.
The stability offered in France is proving attractive to international property investors and reports suggest that the increasing demand is also being driven by mortgage rates, which are at their lowest levels since the Second World War.
"Enquiry levels from both shows are substantially up from both 2009 and 2010," managing director Trevor Leggett said.
"This is particularly the case for property on the Cote D’Azur where our representatives have already closed a significant number of sales this year."
Meanwhile, according to the latest figures from foreign exchange company Moneycorp, Germany, France, Italy and Ireland all proved popular destinations last month.
Spain proving popular with investors
Despite concerns surrounding the economy, interest in property in Spain from British buyers has not been dampened.
The country’s property market appears to have weathered the latest worries surrounding the state of its finances, with Rightmove reporting that interest from Brits remained high during March.
Indeed, the province of Valencia in Spain was the website’s top climber in terms of searches over the course of the month, with a massive rise of 166.78 per cent compared to the previous month.
Conversely, Australia appears to be heading in the opposite direction with five separate regions in Rightmove’s top ten fallers.
Shameem Golamy, head of overseas sales at the firm, noted that Spain was not the only destination that has been downgraded on the international financial markets to see an increase in interest.
"This could be from savvy investors looking to cash in on the economic uncertainty in those territories, or simply those looking to research property prices before flying away to enjoy the holiday season," he added.
The country’s property market appears to have weathered the latest worries surrounding the state of its finances, with Rightmove reporting that interest from Brits remained high during March.
Indeed, the province of Valencia in Spain was the website’s top climber in terms of searches over the course of the month, with a massive rise of 166.78 per cent compared to the previous month.
Conversely, Australia appears to be heading in the opposite direction with five separate regions in Rightmove’s top ten fallers.
Shameem Golamy, head of overseas sales at the firm, noted that Spain was not the only destination that has been downgraded on the international financial markets to see an increase in interest.
"This could be from savvy investors looking to cash in on the economic uncertainty in those territories, or simply those looking to research property prices before flying away to enjoy the holiday season," he added.
Wednesday 20 April 2011
Dubai property market is ‘stabilising’
Demand for property in the UAE could be set to rise following a recent report from a leading real estate firm in the region.
Research relating to the first three months of 2011 by Asteco has revealed that, for the first time in two years, the Dubai property market has stabilised.
According to the firm, apartment rentals averaged a decline of just two per cent over the three-month period.
However, despite the slowdown in average rents there were regional differences, with drops of as large as five and seven per cent in some areas.
Elaine Jones, chief executive officer of Asteco Property Management, noted that movements within the market were being driven by a desire by buyers to attain good quality, value for money stock.
"The rental market stabilised in certain areas, with a downward trend in others, albeit at a lower rate. This is attributed to the pressure of new stock on the already oversupplied market, especially for apartments and offices," she said.
It follows a recent report by CB Richard Ellis which revealed that Dubai is now considered one of the top shopping destinations in the world.
Research relating to the first three months of 2011 by Asteco has revealed that, for the first time in two years, the Dubai property market has stabilised.
According to the firm, apartment rentals averaged a decline of just two per cent over the three-month period.
However, despite the slowdown in average rents there were regional differences, with drops of as large as five and seven per cent in some areas.
Elaine Jones, chief executive officer of Asteco Property Management, noted that movements within the market were being driven by a desire by buyers to attain good quality, value for money stock.
"The rental market stabilised in certain areas, with a downward trend in others, albeit at a lower rate. This is attributed to the pressure of new stock on the already oversupplied market, especially for apartments and offices," she said.
It follows a recent report by CB Richard Ellis which revealed that Dubai is now considered one of the top shopping destinations in the world.
Monday 18 April 2011
‘Plan ahead’ when investing in Spain
Individuals looking to purchase property in Spain have been told to plan ahead in order to minimise risk.
This is according to Paul Collins, editor of BuyAssociation, who noted that many of the problems that crop up when buying a home abroad can be avoided with a bit of forward planning.
He explained that issues include changes to the country’s political situation, as well as legislative changes, such as stamp duty, which can add to the overall cost.
"Most of these things are signalled in advance, so with good research and careful research a lot of these things can at least be prepared for and mitigated in advance," he said.
New figures from the Bank of Spain show that real estate investment in the country climbed 2.9 per cent over the course of 2010, the Press Association reported.
The bank found that the last quarter of the year saw the highest annual improvement in foreign investment, with many industry experts attributing the increase in sales to low prices and promotions by the country’s banks.
This is according to Paul Collins, editor of BuyAssociation, who noted that many of the problems that crop up when buying a home abroad can be avoided with a bit of forward planning.
He explained that issues include changes to the country’s political situation, as well as legislative changes, such as stamp duty, which can add to the overall cost.
"Most of these things are signalled in advance, so with good research and careful research a lot of these things can at least be prepared for and mitigated in advance," he said.
New figures from the Bank of Spain show that real estate investment in the country climbed 2.9 per cent over the course of 2010, the Press Association reported.
The bank found that the last quarter of the year saw the highest annual improvement in foreign investment, with many industry experts attributing the increase in sales to low prices and promotions by the country’s banks.
Housing approvals rise in Spain y-o-y
The number of approvals for new homes in Spain increased by seven per cent in January compared to the previous year, the latest statistics have revealed.
According to figures released by the Spanish government, there has been an increase in the number of housing developments year-on-year.
However, the level of planning approvals in Spain fell by 15 per cent to 6,784 compared to December – an indication that the market is still not in the full throes of recovery.
Mark Stucklin, of Spanish Property Insight, is more upbeat about the long-term chances for the Spanish property market, forecasting that building activity will increase this year.
"In my opinion, 2011 will mark the bottom of the cycle for planning approvals, though I should stress that is just a hunch. If it is not this year it will be next year, so it’s not as if I’m taking a wild guess," he said.
It follows comments from European finance minister that Spain is not expected to follow in the footsteps of Portugal and seek financial aid.
According to figures released by the Spanish government, there has been an increase in the number of housing developments year-on-year.
However, the level of planning approvals in Spain fell by 15 per cent to 6,784 compared to December – an indication that the market is still not in the full throes of recovery.
Mark Stucklin, of Spanish Property Insight, is more upbeat about the long-term chances for the Spanish property market, forecasting that building activity will increase this year.
"In my opinion, 2011 will mark the bottom of the cycle for planning approvals, though I should stress that is just a hunch. If it is not this year it will be next year, so it’s not as if I’m taking a wild guess," he said.
It follows comments from European finance minister that Spain is not expected to follow in the footsteps of Portugal and seek financial aid.
Friday 15 April 2011
Queensland Coastal Plan eroding investor confidence, says Property Council
The Property Council of Australia (PCA) has expressed great concern following today’s release of the new Queensland Coastal Plan by Minister for Environment and Resource Management Kate Jones.
Ms Jones has moved to protect more coastal areas from development with a new, consistent approach to coastal planning aimed at stopping more coastline and communities becoming vulnerable to erosion and inundation, associated with climate change and severe weather events.
State Environment Minister Kate Jones said the plan took the long-term view that was needed.
"Councils will be able to better plan for the impacts of climate change and extreme weather events, not just over the next few decades but over the next 100 years," she said.
But Queensland Executive Director of the Property Council of Australia Kathy Mac Dermott said the Plan introduces major uncertainty and raises a raft of question just days before the Premier’s Building Revival Forum on 12 April 2011.
State Environment Minister Kate Jones said the plan took the long-term view that was needed.
"Councils will be able to better plan for the impacts of climate change and extreme weather events, not just over the next few decades but over the next 100 years," she said.
But Queensland Executive Director of the Property Council of Australia Kathy Mac Dermott said the Plan introduces major uncertainty and raises a raft of question just days before the Premier’s Building Revival Forum on 12 April 2011.
“The coastal plan raises serious issues around property values, future land use and development rights - along with existing and future state and local government infrastructure.
“Until there is certainty around these issues, the plan further erodes investor confidence and diminishes Queensland’s competitiveness.
According to PCA the Queensland government has prepared coastal hazard area maps showing areas projected to be at risk up to the year 2100. These maps factor in climate change impacts, including sea-level rise of 80 centimetres and a 10 per cent increase in the maximum potential intensity of cyclones.
“We understand that approximately 100,000 properties in Queensland are located within the areas identified as ‘high hazard’, with an additional 60.000 properties located in ‘medium hazard’ areas,” said Ms Mac Dermott.
The 160.000 properties at risk equate to 10 per cent of all Queensland properties.
“The Queensland government has sent a strong message that settlement in high hazard zones should be ‘avoided’,” she said.
According to PCA, councils will have up to five years to draw up ‘adaptation plans’ for (development in) at-risk areas, and the Queensland Government is working with the Local Government Association Queensland on guidelines.
“We do not expect any immediate prohibition of development in existing urban areas within identified hazard zones.
“However, additional costs for development projects are to be expected as yet unknown mitigation measures will have to be negotiated with Councils, with project timelines also affected.
“This is yet another State Planning Policy (SPP) that undermines the South East Queensland Regional Plan, and which could also lead to up to 5 years of uncertainty in Government mapped hazard zones.
“As part of its 2011 Advocacy Agenda, the Property Council has called for a moratorium on SPPs for the next three years.”
The Property Council is currently undertaking a detailed review of the Queensland Coastal Plan and its implications for the property industry in Queensland.
“Until there is certainty around these issues, the plan further erodes investor confidence and diminishes Queensland’s competitiveness.
According to PCA the Queensland government has prepared coastal hazard area maps showing areas projected to be at risk up to the year 2100. These maps factor in climate change impacts, including sea-level rise of 80 centimetres and a 10 per cent increase in the maximum potential intensity of cyclones.
“We understand that approximately 100,000 properties in Queensland are located within the areas identified as ‘high hazard’, with an additional 60.000 properties located in ‘medium hazard’ areas,” said Ms Mac Dermott.
The 160.000 properties at risk equate to 10 per cent of all Queensland properties.
“The Queensland government has sent a strong message that settlement in high hazard zones should be ‘avoided’,” she said.
According to PCA, councils will have up to five years to draw up ‘adaptation plans’ for (development in) at-risk areas, and the Queensland Government is working with the Local Government Association Queensland on guidelines.
“We do not expect any immediate prohibition of development in existing urban areas within identified hazard zones.
“However, additional costs for development projects are to be expected as yet unknown mitigation measures will have to be negotiated with Councils, with project timelines also affected.
“This is yet another State Planning Policy (SPP) that undermines the South East Queensland Regional Plan, and which could also lead to up to 5 years of uncertainty in Government mapped hazard zones.
“As part of its 2011 Advocacy Agenda, the Property Council has called for a moratorium on SPPs for the next three years.”
The Property Council is currently undertaking a detailed review of the Queensland Coastal Plan and its implications for the property industry in Queensland.
Asian Property Popular with Wealthy Investors
A number of property investors with cash to spend are looking to increase their wealth by purchasing real estate in the Asian property markets.
While a number of traditional locations around the world, such as London and New York, are expected to remain popular, many buyers are "starting to spread their wings" by looking at different areas, according to BuyAssociation.
While a number of traditional locations around the world, such as London and New York, are expected to remain popular, many buyers are "starting to spread their wings" by looking at different areas, according to BuyAssociation.
"We have certainly seen quite a bit of growth in the far-eastern and Asian markets. There seems to be buyers with cash to spend and they are looking at their overseas property markets as being a good place to invest," Paul Collins, editor at the website, said.
Indeed, recent research from Knight Frank has revealed that almost 40 per cent of global luxury residential property markets saw values climb during 2010, with six of the top ten biggest increases seen in Asia.
Overall, the property consultancy's research showed that luxury property price growth was highest in Shanghai with a 21 per cent rise. Also performing strongly were London and New York, with increases of ten per cent and 13 per cent respectively.
Indeed, recent research from Knight Frank has revealed that almost 40 per cent of global luxury residential property markets saw values climb during 2010, with six of the top ten biggest increases seen in Asia.
Overall, the property consultancy's research showed that luxury property price growth was highest in Shanghai with a 21 per cent rise. Also performing strongly were London and New York, with increases of ten per cent and 13 per cent respectively.
Thursday 14 April 2011
Buyers becoming increasingly focused on a property's 'real' value
With capital growth currently suppressed and the investor focus switching to rental yields, buyers are scrutinising their buy-in price now more than ever, according to Propell National Valuers.
However 15 per cent of buyers still pay $10,000 above the real value of a property, Residex chief executive John Edwards told The Australian newspaper last week.
While Propell National Valuers national director Kel Spencer said 15 per cent sounds a bit high and "sensationalised", he also acknowledges that buyers are now increasingly turning to independent valuers and advisers for help to secure and negotiate the real value of a property.
"To determine the real value of a property it's important to analyse the comparable sales in a nearby location and derive land values and building values from that," he said.
Spencer said mortgagee auctions and deceased estates often sell on the day so those sales can even be a little reduced in price and are often ignored in valuations because they're not in ample supply nor typical of prices around.
Valuations generally remain valid for 90 days for market accuracy purposes.
WBP Property valuations manager Brendan Smith said buyers must do their homework, particularly in changing markets.
He said buyers must first become familiar with the market.
"It's not just about turning up to a property… go look at other properties; attend some auctions in the previous weeks," said Smith.
However 15 per cent of buyers still pay $10,000 above the real value of a property, Residex chief executive John Edwards told The Australian newspaper last week.
While Propell National Valuers national director Kel Spencer said 15 per cent sounds a bit high and "sensationalised", he also acknowledges that buyers are now increasingly turning to independent valuers and advisers for help to secure and negotiate the real value of a property.
"To determine the real value of a property it's important to analyse the comparable sales in a nearby location and derive land values and building values from that," he said.
Spencer said mortgagee auctions and deceased estates often sell on the day so those sales can even be a little reduced in price and are often ignored in valuations because they're not in ample supply nor typical of prices around.
Valuations generally remain valid for 90 days for market accuracy purposes.
WBP Property valuations manager Brendan Smith said buyers must do their homework, particularly in changing markets.
He said buyers must first become familiar with the market.
"It's not just about turning up to a property… go look at other properties; attend some auctions in the previous weeks," said Smith.
Wednesday 13 April 2011
Spain ‘will not’ follow Portugal in seeking aid
European finance ministers do not expect Spain to follow in the footsteps of Portugal in seeking a financial bailout.
Spain is the latest eurozone country to come under pressure from financial markets in the past year, with Ireland, Greece and Portugal previously having to request monetary aid from the EU.
It stems from concerns surrounding a large budget deficit and a burst housing bubble in Spain.
To this end, the country has made progress in slashing its deficit, but unemployment remains high, at close to 20 per cent.
However, French finance minister Christine Lagarde dismissed concerns about the country’s fiscal strains, with the Wall Street Journal quoting her as saying that "Spain isn’t a problem".
The news is likely to be welcomed by individuals looking to buy real estate in the country, with their currently a high level of distressed properties available.
Market concerns have eased in recent weeks with investors gradually growing more confident that Spain can clean up its beleaguered savings banks.
Spain is the latest eurozone country to come under pressure from financial markets in the past year, with Ireland, Greece and Portugal previously having to request monetary aid from the EU.
It stems from concerns surrounding a large budget deficit and a burst housing bubble in Spain.
To this end, the country has made progress in slashing its deficit, but unemployment remains high, at close to 20 per cent.
However, French finance minister Christine Lagarde dismissed concerns about the country’s fiscal strains, with the Wall Street Journal quoting her as saying that "Spain isn’t a problem".
The news is likely to be welcomed by individuals looking to buy real estate in the country, with their currently a high level of distressed properties available.
Market concerns have eased in recent weeks with investors gradually growing more confident that Spain can clean up its beleaguered savings banks.
Overseas buyers drive Turkish demand
An increase in the number of overseas buyers active in the Turkish property market has helped the sector to exceed growth expectations.
This is according to a recent report by the Association of Real Estate Investment Companies, which found that the market is returning to strength following the recent economic troubles, Hurriyet reports
Indeed, between 2006 and 2008, property sales to foreign nationals stood at $3 billion (£1.8 billion). In 2009, the figure fell by $1.8 billion, but has now rebounded up once again to $2.5 billion.
"Real estate sales to foreign nationals rose by 40 per cent, reached $2.5 billion. Foreigners’ interest in and appetite for Turkish property continues to increase. If the reciprocity problem is solved, we think the figure may double," Is?k Gokkaya, the chairman of organisation, said.
Mr Gokkaya added that the country’s construction sector expanded by 18 per cent over the course of last year, with new developments springing up around Turkey.
Meanwhile, Nick Mar, chief executive officer at Homesgofast.com, recently claimed that Turkey is one of the best foreign property markets at present, along with Spain, Brazil and Malaysia.
This is according to a recent report by the Association of Real Estate Investment Companies, which found that the market is returning to strength following the recent economic troubles, Hurriyet reports
Indeed, between 2006 and 2008, property sales to foreign nationals stood at $3 billion (£1.8 billion). In 2009, the figure fell by $1.8 billion, but has now rebounded up once again to $2.5 billion.
"Real estate sales to foreign nationals rose by 40 per cent, reached $2.5 billion. Foreigners’ interest in and appetite for Turkish property continues to increase. If the reciprocity problem is solved, we think the figure may double," Is?k Gokkaya, the chairman of organisation, said.
Mr Gokkaya added that the country’s construction sector expanded by 18 per cent over the course of last year, with new developments springing up around Turkey.
Meanwhile, Nick Mar, chief executive officer at Homesgofast.com, recently claimed that Turkey is one of the best foreign property markets at present, along with Spain, Brazil and Malaysia.
Friday 8 April 2011
Investor confidence returning
Homebuyers and investors are slowly coming back to the market, with mortgage sales during March bouncing back from the record lows of January and February, according to Australian Finance Group.
However, the company says the figures are still lower than a year ago. The $2.51 billion of home loans processed in March is up by 22 per cent on the February figure of $2.05 billion, but still 8.9 per cent lower than the $2.76 billion arranged in March 2010.
New South Wales recorded exactly the same figure for mortgage sales in March 2011 as March 2010. South Australia had a slight softening (-2.7 per cent) with greater differences recorded for Western Australia (-10.9 per cent), Victoria (-11.7 per cent) and Queensland (-15.4 per cent).
New South Wales also showed the highest level of investor activity, with 40.2 per cent of all new home loans being processed for investors – well above the national average of 34.7 per cent.
Australian Finance Group’s general manager of sales and operations Mark Hewitt says buyer confidence is slowly returning.
“The Reserve Bank of Australia holding off further rate rises has given some sense of normality and while the lender wars haven’t encouraged many people to switch, at least there’s now a feeling that lenders are trying to be competitive,” he says.
“In our view, last month’s banning of exit fees will have little, if any, positive effect on the market in the short term, and will certainly hurt non-major lenders going forward.”
However, the company says the figures are still lower than a year ago. The $2.51 billion of home loans processed in March is up by 22 per cent on the February figure of $2.05 billion, but still 8.9 per cent lower than the $2.76 billion arranged in March 2010.
New South Wales recorded exactly the same figure for mortgage sales in March 2011 as March 2010. South Australia had a slight softening (-2.7 per cent) with greater differences recorded for Western Australia (-10.9 per cent), Victoria (-11.7 per cent) and Queensland (-15.4 per cent).
New South Wales also showed the highest level of investor activity, with 40.2 per cent of all new home loans being processed for investors – well above the national average of 34.7 per cent.
Australian Finance Group’s general manager of sales and operations Mark Hewitt says buyer confidence is slowly returning.
“The Reserve Bank of Australia holding off further rate rises has given some sense of normality and while the lender wars haven’t encouraged many people to switch, at least there’s now a feeling that lenders are trying to be competitive,” he says.
“In our view, last month’s banning of exit fees will have little, if any, positive effect on the market in the short term, and will certainly hurt non-major lenders going forward.”
Thursday 7 April 2011
Slow growth predicted for Australian housing market
House prices in Australia are forecast to grow by just 0.6 per cent over the course of this year, a survey by National Australia Bank has said.
According to the research, access to credit was the "biggest impediment" stopping people from buying homes and pushing prices up.
Most respondents to the survey expected the strongest growth in values to occur in Western Australia (up 1.1 per cent) and New South Wales and the ACT (up 0.9 per cent). The weakest area is expected to be South Australia and the Northern Territory, with respondents expecting a 0.2 per cent decline in home prices over the next year.
However, while prices are expected to remain fairly stable, investors and agents are more optimistic about the rental market.
They noted that the year will see higher rents, with survey respondents predicting an average 3.5 per cent increase in residential rents.
Western Australia, New South Wales and the ACT were again expected to see the biggest rent rises of 4.6 and 4.3 per cent respectively, while Queensland rents are only tipped to rise 2.5 per cent.
According to the research, access to credit was the "biggest impediment" stopping people from buying homes and pushing prices up.
Most respondents to the survey expected the strongest growth in values to occur in Western Australia (up 1.1 per cent) and New South Wales and the ACT (up 0.9 per cent). The weakest area is expected to be South Australia and the Northern Territory, with respondents expecting a 0.2 per cent decline in home prices over the next year.
However, while prices are expected to remain fairly stable, investors and agents are more optimistic about the rental market.
They noted that the year will see higher rents, with survey respondents predicting an average 3.5 per cent increase in residential rents.
Western Australia, New South Wales and the ACT were again expected to see the biggest rent rises of 4.6 and 4.3 per cent respectively, while Queensland rents are only tipped to rise 2.5 per cent.
Wednesday 6 April 2011
Brazil is a ‘hot market’ at present
Interest in Brazilian property could be set to rise following the comments of one expert.
Nick Marr, chief executive officer at Homesgofast.com, has heaped praise on the South American market noting that it should be considered an "exciting prospect" by investors.
Mr Marr said that there are a number of "great exit opportunities" currently available in Brazil as a result of the amount of potential local and international buyers active in the market.
The expert also suggested that Turkey, the Canary Islands and Malaysia are also top property investment destinations at present.
"Prices [in Brazil] are still low compared to Europe and with all the exciting things happening to the country – from Obama’s visit, oil finds, the World Cup and the Olympics – it’s proving irresistible," Mr Marr added.
According to the latest Global House Price Index by Knight Frank, residential property values across South America climbed by 3.8 per cent in 2010, ahead of the global performance of 2.8 per cent.
Nick Marr, chief executive officer at Homesgofast.com, has heaped praise on the South American market noting that it should be considered an "exciting prospect" by investors.
Mr Marr said that there are a number of "great exit opportunities" currently available in Brazil as a result of the amount of potential local and international buyers active in the market.
The expert also suggested that Turkey, the Canary Islands and Malaysia are also top property investment destinations at present.
"Prices [in Brazil] are still low compared to Europe and with all the exciting things happening to the country – from Obama’s visit, oil finds, the World Cup and the Olympics – it’s proving irresistible," Mr Marr added.
According to the latest Global House Price Index by Knight Frank, residential property values across South America climbed by 3.8 per cent in 2010, ahead of the global performance of 2.8 per cent.
Monday 4 April 2011
Portugal property prices set for a 20% fall
Economic turmoil in Portugal could lead to property prices in the country falling a further 20 per cent by the end of 2012.
This is according to foreign exchange bureau Caxton FX, which noted that after the country failed to pass a strict austerity package, an EU and IMF bailout looks all but certain.
As a direct result of this, the firm suggested that property in Portugal was likely to fall in value.
Caxton FX explained that there has been a steady increase in the number of Brits buying property in the European country in the past year, adding that recent economic events mean that buyers will be able to negotiate more on asking prices.
Rupert Lee-Browne, the firm’s chief executive officer, said: "Eurozone interest rates are likely to rise, increasing the expense of homeowner loans. As loan defaults increase, and the number of repossessions rises, I expect the price of Portuguese property to fall significantly."
This is according to foreign exchange bureau Caxton FX, which noted that after the country failed to pass a strict austerity package, an EU and IMF bailout looks all but certain.
As a direct result of this, the firm suggested that property in Portugal was likely to fall in value.
Caxton FX explained that there has been a steady increase in the number of Brits buying property in the European country in the past year, adding that recent economic events mean that buyers will be able to negotiate more on asking prices.
Rupert Lee-Browne, the firm’s chief executive officer, said: "Eurozone interest rates are likely to rise, increasing the expense of homeowner loans. As loan defaults increase, and the number of repossessions rises, I expect the price of Portuguese property to fall significantly."
Friday 1 April 2011
Average UK property values fall, Land Registry claims
The latest figures have revealed that average house prices in the UK fell during February, although there are a number of regional differences.
According to statistics released by the Land Registry, the value of a residential property in England and Wales has dropped by 1.7 per cent.
However, house prices in London were up 3.2 per cent in the year and in the east of England values went up by one per cent.
The biggest fall in prices over the year was seen in the north-east of England, at 7.1 per cent. The region also had the biggest month-on-month decline, dropping by four per cent in February.
London had the biggest annual rise in prices, although properties in the capital did drop in value by 0.5 per cent in February month-on-month.
The IPD UK Residential Index recently claimed that property in England offered investors double-digit annual returns last year.
Standing at 10.4 per cent, the index shows that individuals with real estate in the UK enjoyed capital growth of 7.4 per cent and income growth of 2.8 per cent in 2010.
According to statistics released by the Land Registry, the value of a residential property in England and Wales has dropped by 1.7 per cent.
However, house prices in London were up 3.2 per cent in the year and in the east of England values went up by one per cent.
The biggest fall in prices over the year was seen in the north-east of England, at 7.1 per cent. The region also had the biggest month-on-month decline, dropping by four per cent in February.
London had the biggest annual rise in prices, although properties in the capital did drop in value by 0.5 per cent in February month-on-month.
The IPD UK Residential Index recently claimed that property in England offered investors double-digit annual returns last year.
Standing at 10.4 per cent, the index shows that individuals with real estate in the UK enjoyed capital growth of 7.4 per cent and income growth of 2.8 per cent in 2010.
Malaysian property prices to rise in 2011
Residential values in parts of Malaysia are expected to rise in 2011, albeit at a slower pace than in previous years.
This is according to real estate services company CH Williams Tahir & Wong, which noted that prices in the Klang Valley, Penang and Johor will remain on their upward trend.
The company’s managing director Foo Gee Jen said this year’s growth in the prime areas is projected to be between ten and 15 per cent, an article by Property Report revealed.
With prices expected to rise in the coming years, property in Malaysia offers some excellent opportunities for foreign buyers and investors.
Investor speculation in the Malaysian market has been triggered by fears of property bubble forming as a result of the government’s decision to introduce a maximum lending limit of 70 per cent for third house financing.
"The government announcement to lower the cap on the loan-to-value ratio for third house financing gave a bit of psychological effect on people," Mr Jen said.
This is according to real estate services company CH Williams Tahir & Wong, which noted that prices in the Klang Valley, Penang and Johor will remain on their upward trend.
The company’s managing director Foo Gee Jen said this year’s growth in the prime areas is projected to be between ten and 15 per cent, an article by Property Report revealed.
With prices expected to rise in the coming years, property in Malaysia offers some excellent opportunities for foreign buyers and investors.
Investor speculation in the Malaysian market has been triggered by fears of property bubble forming as a result of the government’s decision to introduce a maximum lending limit of 70 per cent for third house financing.
"The government announcement to lower the cap on the loan-to-value ratio for third house financing gave a bit of psychological effect on people," Mr Jen said.
Thursday 31 March 2011
Economic growth will underpin property
I’M not worried about the current weakness in the economy. There is no major shock lying in wait.
There are some hangovers from the global financial crisis, and a series of natural disasters here and abroad are hampering activity and confidence. But the weakening of growth is really a changing of gears as the private sector takes over from government expenditure as the primary driver of growth.
Will private expenditure come through in time to fill the gap left by the public sector? We think so. Our gross domestic product forecast is for a quick rebound from 2.6 per cent growth this year to 4 per cent next financial year.
Over the next five years the economy will be strong, underpinning demand for property.
Our problems will be on the supply side as a residual consequence of the GFC, as insufficient investment to underwrite future growth comes home to roost in property and other sectors.
The economy has paused after the initial rebound following the GFC-induced downturn.
To me, that demonstrates the strength of government stimulus to cushion the Australian economy. It worked. Without it we would have had a recession. But now, as governments focus on reducing their budget deficits, government expenditure will start to wind down. Hence the current weakening of growth. We’re switching gears from government to private drivers of growth.
The economy may be a little weak now but it has an underlying strength. Apart from the winding down of major government projects, the current weakness is due to precautionary savings by households and businesses.
Apart from resources, private investment remains patchy. But that will change amid emerging capacity constraints, tighter leasing markets, rising incomes and strong returns on investment.
The commercial office markets are a classic example. My last column argued that we were headed for an office market boom. Indeed, across the board, the undersupply of commercial and industrial building — the collateral damage of the GFC — will recover strongly in a series of rolling investment cycles.
The scene is set for strong growth in private investment to drive economic growth over the next five years. We are already well into the second major phase of resources investment.
Residential construction has picked up strongly and, though currently pausing, will resume its growth over the next few years until rising interest rates trigger a downturn. Next comes a recovery in retail development, followed by industrial and then the office market.
These rolling investment cycles will underpin growth in the medium term, hence my optimism about growth prospects.
But it’s not all rosy.
Current underinvestment means capacity constraints will emerge within two or three years. Add the problem of emerging skilled labour constraints and we have a dangerous demand-inflationary mix. Two years from now we’ll be back to pre-GFC conditions, with capacity and labour constraints inducing demand-inflationary pressure and strongly rising interest rates. Here we go again.
The Reserve Bank sees its primary task as containing inflation. Inflation is not a problem now but the RBA knows it will be, and sees its job as making room for the minerals boom.
Already cash rates have risen from a stimulatory level of 3 per cent to 4.75 per cent. Current economic weakness has allowed a pause but there will be more rate rises. We expect three more over the next year in response to signs of economic strength.
But that’s not the main game. When capacity and labour constraints lead to demand-inflationary pressure in two years’ time the RBA will become really aggressive. We think home loan rates will be 9.5 per cent or higher three years from now. That will kill housing demand.
How can we make room for the minerals boom? Apart from housing, the major collateral damage will be in the domestically produced tradeables sectors — manufacturing, tourism, education and business services. The high dollar, strong commodity prices and comparatively high interest rates will do the damage by hurting competitiveness in both export and import markets. This process of slow and painful structural change has already begun.
Will we continue to see a two-tiered economy? Of course. There will be major differences between winners and losers. The impact of the high dollar will be compounded by high interest rates.
So you see, I’m not worried by the current weakness in the economy. Growth will pick up strongly, but not uniformly. The minerals boom means tradeables gloom, with higher rates and a limited life for the housing upswing.
But there are plenty of opportunities in the underpriced and soon to be undersupplied investment markets. And there are ways to insure ourselves against rising interest rates.
There are some hangovers from the global financial crisis, and a series of natural disasters here and abroad are hampering activity and confidence. But the weakening of growth is really a changing of gears as the private sector takes over from government expenditure as the primary driver of growth.
Will private expenditure come through in time to fill the gap left by the public sector? We think so. Our gross domestic product forecast is for a quick rebound from 2.6 per cent growth this year to 4 per cent next financial year.
Over the next five years the economy will be strong, underpinning demand for property.
Our problems will be on the supply side as a residual consequence of the GFC, as insufficient investment to underwrite future growth comes home to roost in property and other sectors.
The economy has paused after the initial rebound following the GFC-induced downturn.
To me, that demonstrates the strength of government stimulus to cushion the Australian economy. It worked. Without it we would have had a recession. But now, as governments focus on reducing their budget deficits, government expenditure will start to wind down. Hence the current weakening of growth. We’re switching gears from government to private drivers of growth.
The economy may be a little weak now but it has an underlying strength. Apart from the winding down of major government projects, the current weakness is due to precautionary savings by households and businesses.
Apart from resources, private investment remains patchy. But that will change amid emerging capacity constraints, tighter leasing markets, rising incomes and strong returns on investment.
The commercial office markets are a classic example. My last column argued that we were headed for an office market boom. Indeed, across the board, the undersupply of commercial and industrial building — the collateral damage of the GFC — will recover strongly in a series of rolling investment cycles.
The scene is set for strong growth in private investment to drive economic growth over the next five years. We are already well into the second major phase of resources investment.
Residential construction has picked up strongly and, though currently pausing, will resume its growth over the next few years until rising interest rates trigger a downturn. Next comes a recovery in retail development, followed by industrial and then the office market.
These rolling investment cycles will underpin growth in the medium term, hence my optimism about growth prospects.
But it’s not all rosy.
Current underinvestment means capacity constraints will emerge within two or three years. Add the problem of emerging skilled labour constraints and we have a dangerous demand-inflationary mix. Two years from now we’ll be back to pre-GFC conditions, with capacity and labour constraints inducing demand-inflationary pressure and strongly rising interest rates. Here we go again.
The Reserve Bank sees its primary task as containing inflation. Inflation is not a problem now but the RBA knows it will be, and sees its job as making room for the minerals boom.
Already cash rates have risen from a stimulatory level of 3 per cent to 4.75 per cent. Current economic weakness has allowed a pause but there will be more rate rises. We expect three more over the next year in response to signs of economic strength.
But that’s not the main game. When capacity and labour constraints lead to demand-inflationary pressure in two years’ time the RBA will become really aggressive. We think home loan rates will be 9.5 per cent or higher three years from now. That will kill housing demand.
How can we make room for the minerals boom? Apart from housing, the major collateral damage will be in the domestically produced tradeables sectors — manufacturing, tourism, education and business services. The high dollar, strong commodity prices and comparatively high interest rates will do the damage by hurting competitiveness in both export and import markets. This process of slow and painful structural change has already begun.
Will we continue to see a two-tiered economy? Of course. There will be major differences between winners and losers. The impact of the high dollar will be compounded by high interest rates.
So you see, I’m not worried by the current weakness in the economy. Growth will pick up strongly, but not uniformly. The minerals boom means tradeables gloom, with higher rates and a limited life for the housing upswing.
But there are plenty of opportunities in the underpriced and soon to be undersupplied investment markets. And there are ways to insure ourselves against rising interest rates.
Tuesday 29 March 2011
Property Investment Wise: Negotiating With Property Sellers For The Best Deal
Talking to new investors you could be excused for thinking that the price of the property was the most important issue when purchasing an investment property, and in most instances this would be right, but also there are often circumstances where this is not so.
Sellers also have a agenda when it comes to selling their property and buyers should always find out just what it is that they want to achieve from selling the property. You see different reasons will mean you have different strategies for negotiation and could get you a better deal.
Let’s look at some of the scenarios that a buyer could be faced with as a property investor:
Buying from an estate – this seller could be interested in the price because it may be money they had not counted on, but more important to them may be the fact that they have an unconditional contract which means that they may be happy to have a longer than normal settlement – this may benefit a buyer from:
A seller who does this is working the sale to their tax advantage, but they may not necessarily need an early settlement because it is the date on the contract that is the ‘date the property is sold‘ so as long as it is a signed contract before the end of the financial year the sale is deemed to be in that financial year.
***You can see that there can be quite different situations where a seller may negotiate a contract quite differently from what was initially intended. Not only can the time be advantageous to an investor, but if an investor works with the seller they will often save a few thousand dollars as well. A double move within a few months, for example, would cost a vendor more than a few thousand dollars! Never mind all the hassle!
***Always make sure a solicitor knows exactly what you are trying to achieve with these types of deals and get them to write the clauses that affect anything different than a standard sale contract.
Sellers also have a agenda when it comes to selling their property and buyers should always find out just what it is that they want to achieve from selling the property. You see different reasons will mean you have different strategies for negotiation and could get you a better deal.
Let’s look at some of the scenarios that a buyer could be faced with as a property investor:
Buying from an estate – this seller could be interested in the price because it may be money they had not counted on, but more important to them may be the fact that they have an unconditional contract which means that they may be happy to have a longer than normal settlement – this may benefit a buyer from:
- a finance point of view,
- because they need to sell a property,
- they want to have some time to arrange contractors for a renovation,
- they want to let it out as soon as it settles but the property needs some tidying up which they are prepared to do but want to do it before settlement
- the seller may be building a new home so they need the money, but don’t want to move just yet because the house is not finished so right here and now the investor has a tenant! The buying price in this situation is often adjusted to take into consideration some rent, but of course care needs to be taken in this regard.
- the seller may be building and needs some finance so you may negotiate a partial release of monies prior to settlement (usually the deposit), the date of which is when their new property is finished
A seller who does this is working the sale to their tax advantage, but they may not necessarily need an early settlement because it is the date on the contract that is the ‘date the property is sold‘ so as long as it is a signed contract before the end of the financial year the sale is deemed to be in that financial year.
***You can see that there can be quite different situations where a seller may negotiate a contract quite differently from what was initially intended. Not only can the time be advantageous to an investor, but if an investor works with the seller they will often save a few thousand dollars as well. A double move within a few months, for example, would cost a vendor more than a few thousand dollars! Never mind all the hassle!
***Always make sure a solicitor knows exactly what you are trying to achieve with these types of deals and get them to write the clauses that affect anything different than a standard sale contract.
Sunday 27 March 2011
Low-risk on offer in France
France offers property investors a low-risk, value for money option when it comes to real estate, it has been claimed.
A growing number of British property buyers are now looking at investing in the market, with the country accounting for more than 40 per cent of all mortgage enquiries from Brits buying overseas.
Speaking to A Place in the Sun, Patrick Joseph, of property portal My-French-House.com, believes that stable prices and close proximity to the UK are the main factors behind the trend.
"Property in France doesn’t devalue and although the financial gains won’t be dramatic there is an almost guaranteed return on investment over time," he said.
Indeed, it would appear that the long-term security offered in France is an attractive prospect for investors, particularly those who have experienced market volatility in other parts of Europe in recent years.
According to France’s national association of estate agents, the FNAIM, there will be price rises this year between three and six per cent.
A growing number of British property buyers are now looking at investing in the market, with the country accounting for more than 40 per cent of all mortgage enquiries from Brits buying overseas.
Speaking to A Place in the Sun, Patrick Joseph, of property portal My-French-House.com, believes that stable prices and close proximity to the UK are the main factors behind the trend.
"Property in France doesn’t devalue and although the financial gains won’t be dramatic there is an almost guaranteed return on investment over time," he said.
Indeed, it would appear that the long-term security offered in France is an attractive prospect for investors, particularly those who have experienced market volatility in other parts of Europe in recent years.
According to France’s national association of estate agents, the FNAIM, there will be price rises this year between three and six per cent.
House prices falling in Portugal
Weak demand and falling confidence in the Portuguese property market is causing residential home prices to fall in the country.
This is according to the latest survey from the Royal Institution of Chartered Surveyors, which noted that property values in February have continued to decline at roughly the same pace as the previous two months.
Indeed, many real estate agents are recording large price falls and the outlook for prices remains negative, the data shows.
The news may lead a number of individuals to consider making a property purchase in Portugal, with current low prices meaning that there is an opportunity to pick up a bargain home.
According to a spokesman from the firm, the main concerns of Portuguese real estate agents and developers relate to the financial constraints felt in the market.
"These concerns are being amplified by higher unemployment and political uncertainty," he said. "On the other hand, some expect a boost from tourism due to the political changes taking place in competitor countries in the Maghreb."
Amanda Lamb, presenter of A Place in the Sun, recently named Portugal as one of the most popular destinations to buy property.
This is according to the latest survey from the Royal Institution of Chartered Surveyors, which noted that property values in February have continued to decline at roughly the same pace as the previous two months.
Indeed, many real estate agents are recording large price falls and the outlook for prices remains negative, the data shows.
The news may lead a number of individuals to consider making a property purchase in Portugal, with current low prices meaning that there is an opportunity to pick up a bargain home.
According to a spokesman from the firm, the main concerns of Portuguese real estate agents and developers relate to the financial constraints felt in the market.
"These concerns are being amplified by higher unemployment and political uncertainty," he said. "On the other hand, some expect a boost from tourism due to the political changes taking place in competitor countries in the Maghreb."
Amanda Lamb, presenter of A Place in the Sun, recently named Portugal as one of the most popular destinations to buy property.
Florida home to 1.6m empty properties
Some 1.6 million homes are sitting empty in Florida, the state’s census bureau has revealed.
The number of unoccupied homes in the region has risen by 63 per cent over the past ten years, with such high levels of oversupply expected to keep home prices depressed.
In California, eight per cent of the state’s housing units are now vacant, while in Nevada 14 per cent of residential homes are empty.
As such, full recovery of the housing market is expected to be a long and drawn out process, according to Ingo Winzer, a housing market analyst and founder of Local Market Monitor.
Mr Winzer forecast that prices in Florida will drop even further, another five per cent in 2011 and three per cent in 2012.
"Even after that, they’re not going to rebound, they’ll just sit on the bottom," he said.
The news may prompt some individuals to look at property in the US, with the current low prices meaning that there is an opportunity to pick up a bargain.
The number of unoccupied homes in the region has risen by 63 per cent over the past ten years, with such high levels of oversupply expected to keep home prices depressed.
In California, eight per cent of the state’s housing units are now vacant, while in Nevada 14 per cent of residential homes are empty.
As such, full recovery of the housing market is expected to be a long and drawn out process, according to Ingo Winzer, a housing market analyst and founder of Local Market Monitor.
Mr Winzer forecast that prices in Florida will drop even further, another five per cent in 2011 and three per cent in 2012.
"Even after that, they’re not going to rebound, they’ll just sit on the bottom," he said.
The news may prompt some individuals to look at property in the US, with the current low prices meaning that there is an opportunity to pick up a bargain.
Friday 25 March 2011
Helpful Information To Know About Mortgages
The first thing you need to know when looking for the right home loan is your mortgage principal, which is the amount you will borrow from the lending company minus your down payment. Determining how much the lender or banks will be able to let you borrow depends on your income and credit score.
After knowing your principal, determine the type of mortgage you will be able to afford. Fixed interest rate, which is higher, allows you to pay a mortgage in a fixed amount throughout your term, making budgeting easier and more manageable while adjustable rate mortgages (ARM), which is lower, usually provide you with an initially lower interest rate which could change depending on the market, entailing a possibility of higher paying rates in the future.
When looking for a home loan, acquiring a low-interest deal does not mean cheaper monthly dues. Low interest rates are usually only applicable to high principal home loans which can have a higher monthly due than a high interest rate with lower principal.
The monthly payment can be determined by computing your principal and interest rate by the number of months you are going to pay. Choose a mortgage that you think has the most maintainable monthly fee. Make sure you can afford to pay the fee and keep up with payments on a consistent basis.
Mortgage terms vary on loans you apply and depend on how much you can shell out for monthly dues. A short-term mortgage carries higher monthly payments but includes a lower interest rate while a long-term mortgage has a lower monthly due at a higher rate.
When applying for a mortgage, it is advised to ask your lenders for lock-in rates for a specific period of time since the market can change dramatically causing rates to go up and down. If there is no added cost of if fees are refundable for having this service, agree on a lock-in rate and have it in writing.
Lenders usually charge for deals that they close in your behalf which may cost to thousands of dollars depending on the state rules that apply where you live. Ask your lenders for an estimation of this cost to give you an idea how much more will be added to your principal.
Applying for a mortgage may sound complex to the virgin ears. But with proper understanding, anyone can make a smart decision on their mortgage to buy their new home.
After knowing your principal, determine the type of mortgage you will be able to afford. Fixed interest rate, which is higher, allows you to pay a mortgage in a fixed amount throughout your term, making budgeting easier and more manageable while adjustable rate mortgages (ARM), which is lower, usually provide you with an initially lower interest rate which could change depending on the market, entailing a possibility of higher paying rates in the future.
When looking for a home loan, acquiring a low-interest deal does not mean cheaper monthly dues. Low interest rates are usually only applicable to high principal home loans which can have a higher monthly due than a high interest rate with lower principal.
The monthly payment can be determined by computing your principal and interest rate by the number of months you are going to pay. Choose a mortgage that you think has the most maintainable monthly fee. Make sure you can afford to pay the fee and keep up with payments on a consistent basis.
Mortgage terms vary on loans you apply and depend on how much you can shell out for monthly dues. A short-term mortgage carries higher monthly payments but includes a lower interest rate while a long-term mortgage has a lower monthly due at a higher rate.
When applying for a mortgage, it is advised to ask your lenders for lock-in rates for a specific period of time since the market can change dramatically causing rates to go up and down. If there is no added cost of if fees are refundable for having this service, agree on a lock-in rate and have it in writing.
Lenders usually charge for deals that they close in your behalf which may cost to thousands of dollars depending on the state rules that apply where you live. Ask your lenders for an estimation of this cost to give you an idea how much more will be added to your principal.
Applying for a mortgage may sound complex to the virgin ears. But with proper understanding, anyone can make a smart decision on their mortgage to buy their new home.
Now There Is Mortgage Help for Unemployed Homeowners
There has been a lot of press regarding programs to help struggling homeowners stay in their homes. The Home Affordable Mortgage Program is just one avenue to avoid possible foreclosure. Up until this point, however, homeowners could only get assistance if the situation that put them in financial distress in the first place had been resolved. Unfortunately, this left people who were victims of the declining job market without options for aid. Now unemployed homeowners in 18 states can also get the help they need.
The federal government realized that some states throughout the country were worse off than others and established the Hardest Hit Fund in February 2010. States exhibiting a greater than 20% decline in home prices since the downward spiral of the housing market or states struggling with unemployment rates at or above the national average were designated to receive funds. Eighteen states were designated to receive funds: Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina and Tennessee.
President Obama’s Hardest Hit Fund was established over a year ago and was specifically intended to help homeowners that were out of work. Depending on the state you live in, unemployed homeowners can receive up to $3,000 a month to pay their mortgage, up to a maximum of 36 months. The rules and guidelines vary in each state.
Although the federal government provided each designated state with anywhere from 20 million to almost 2 billion dollars as part of this program, states have been slow to roll the program out. This is due, in part, to each state being given the flexibility to create state specific guidelines for assistance. The government felt this was the most effective way for each state to tailor the program to best meet the needs of their specific economic situation.
The 32 states that were not included in the Hardest Hit Fund were left to take care of themselves. Or, so they thought. The Housing and Urban Development (HUD) program has stated they will help any state not covered by Obama’s program that has a high foreclosure rate. HUD’s plan is to make accessible no interest loans for emergency mortgage relief.
If you are unemployed and need help staying in your home, there are options available to you. The U.S. Treasury website lists the guidelines for each Hardest Hit Fund state. Additionally, if you live in one of the undesignated states, you can look to HUD’s website for more information on their program.
The federal government realized that some states throughout the country were worse off than others and established the Hardest Hit Fund in February 2010. States exhibiting a greater than 20% decline in home prices since the downward spiral of the housing market or states struggling with unemployment rates at or above the national average were designated to receive funds. Eighteen states were designated to receive funds: Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina and Tennessee.
President Obama’s Hardest Hit Fund was established over a year ago and was specifically intended to help homeowners that were out of work. Depending on the state you live in, unemployed homeowners can receive up to $3,000 a month to pay their mortgage, up to a maximum of 36 months. The rules and guidelines vary in each state.
Although the federal government provided each designated state with anywhere from 20 million to almost 2 billion dollars as part of this program, states have been slow to roll the program out. This is due, in part, to each state being given the flexibility to create state specific guidelines for assistance. The government felt this was the most effective way for each state to tailor the program to best meet the needs of their specific economic situation.
The 32 states that were not included in the Hardest Hit Fund were left to take care of themselves. Or, so they thought. The Housing and Urban Development (HUD) program has stated they will help any state not covered by Obama’s program that has a high foreclosure rate. HUD’s plan is to make accessible no interest loans for emergency mortgage relief.
If you are unemployed and need help staying in your home, there are options available to you. The U.S. Treasury website lists the guidelines for each Hardest Hit Fund state. Additionally, if you live in one of the undesignated states, you can look to HUD’s website for more information on their program.
Thursday 24 March 2011
US homes sales fell in February
Existing home sales in the US fell in February, following three consecutive month’s worth of increases.
This is according to the latest data released by the National Association of Realtors (NAR), who noted that transactions dropped 9.6 per cent month-on-month and 2.8 per cent compared to the previous year.
"Housing affordability conditions have been at record levels and the economy has been improving, but home sales are being constrained," Lawrence Yun, NAR chief economist, said.
The industry expert warned that those looking to buy property in the US could expect recovery to be unsteady, especially as a result of the tighter lending market.
NAR added that the decrease in sales was accompanied by an increase in supply. Inventory rose 3.5 per cent to 3.49 million units.
Meanwhile, recent research from the University of Florida found that sales of single family homes and condominiums are increasing, as well as investments in land are increasing.
And speaking to Overseas Property Professional, the organisation forecast that 2011 will see a greater number of potential buyers making house purchases in the US.
This is according to the latest data released by the National Association of Realtors (NAR), who noted that transactions dropped 9.6 per cent month-on-month and 2.8 per cent compared to the previous year.
"Housing affordability conditions have been at record levels and the economy has been improving, but home sales are being constrained," Lawrence Yun, NAR chief economist, said.
The industry expert warned that those looking to buy property in the US could expect recovery to be unsteady, especially as a result of the tighter lending market.
NAR added that the decrease in sales was accompanied by an increase in supply. Inventory rose 3.5 per cent to 3.49 million units.
Meanwhile, recent research from the University of Florida found that sales of single family homes and condominiums are increasing, as well as investments in land are increasing.
And speaking to Overseas Property Professional, the organisation forecast that 2011 will see a greater number of potential buyers making house purchases in the US.
UK property prices rise for second consecutive month
Property in the UK enjoyed its biggest increase in asking prices since May 2010 this month, the latest figures have found.
According to statistics compiled and released by the Find a Property website, prices climbed by 0.5 per cent over the course of the month.
The news may be of interest to individuals looking at UK property, with the rise suggesting that there are now opportunities to make a return on real estate within the country.
The price increase is the second month in a row that the housing market has seen a return to positive growth, following an increase of 0.3 per cent in February, the real estate portal said.
Nigel Lewis, property analyst at the firm, noted that it has been a year since asking prices rise for consecutive months.
"The unpredictable nature of the housing market means that it’s impossible to predict how prices will behave throughout the rest of 2011, but this month’s figures do indicate that consumer confidence is still present," he added.
According to statistics compiled and released by the Find a Property website, prices climbed by 0.5 per cent over the course of the month.
The news may be of interest to individuals looking at UK property, with the rise suggesting that there are now opportunities to make a return on real estate within the country.
The price increase is the second month in a row that the housing market has seen a return to positive growth, following an increase of 0.3 per cent in February, the real estate portal said.
Nigel Lewis, property analyst at the firm, noted that it has been a year since asking prices rise for consecutive months.
"The unpredictable nature of the housing market means that it’s impossible to predict how prices will behave throughout the rest of 2011, but this month’s figures do indicate that consumer confidence is still present," he added.
Tuesday 22 March 2011
Price rises in France tempting investors
A growing number of overseas investors are looking to take advantage of rising prices in France, it has been suggested.
According to the latest monthly report from Rightmove International, internet searches for real estate in the country have risen dramatically.
Indeed, the firm explains that included within its top ten climbers were several French regions.
The Midi-Pyrenees was up 6.87 per cent, Alpes-Maritimes up 6.53 per cent, the Loire Valley up 5.59 per cent and the Pays de la Loire which was up 2.5 per cent.
It comes in the wake of new figures which show that residential home values in Paris increased by almost 18 per cent in 2010, following after a four per cent decline a year earlier, according to Paris Chamber of Notaries.
Righmove added that other top climbers were Ireland, up four places and Germany, up one place, with price making a big difference according to Robin Wilson, head of Overseas at the firm.
According to the latest monthly report from Rightmove International, internet searches for real estate in the country have risen dramatically.
Indeed, the firm explains that included within its top ten climbers were several French regions.
The Midi-Pyrenees was up 6.87 per cent, Alpes-Maritimes up 6.53 per cent, the Loire Valley up 5.59 per cent and the Pays de la Loire which was up 2.5 per cent.
It comes in the wake of new figures which show that residential home values in Paris increased by almost 18 per cent in 2010, following after a four per cent decline a year earlier, according to Paris Chamber of Notaries.
Righmove added that other top climbers were Ireland, up four places and Germany, up one place, with price making a big difference according to Robin Wilson, head of Overseas at the firm.
Monday 21 March 2011
$30 million ranch for sale near Zion National Park
Are you in the market for some real estate with a scenic view? Are you looking for a place that will let you get away from it all? If so, then I've got just the deal for you. The beautiful Trees Ranch, located right next to Zion National Park in Utah is on the market, and can be yours for just $30 million.
The ranch, which consists of nearly 2200 acres of land, is bordered on two sides by Zion, but the other two neighbors aren't bad either. One of the other boundaries is the Canaan Mountain Wilderness and a fourth border sits next to acreage that is overseen by the U.S. Bureau of Land Management. I think it is safe to say that this prime piece or real estate has the "scenic view" covered quite nicely.
And what exactly do you get for your $30 million? Glad you asked! Trees Ranch comes with 2066 acres of pristine land, 200 of which are dedicated to an organic apple orchard which provides inventory for the the Springdale Fruit Company. There is also several ranch houses, an on site vineyard, a stable and corral, and even a lake complete with a dock for launching boats. There are several historic sites on the premises as well, including an old pioneer homestead and cemetery, as well as ruins from the Anasazi Indian tribes that once lived in the area.
Best of all, the natural landscapes that surround the ranch are amongst the most beautiful in the entire western United States. Zion is well known for its towering rock spires and walls, while Canaan Mountain Wilderness is nearly 45,000 acres of public land, bounded by wind swept sandstone cliffs. The ranch exhibits much of the same scenery, giving the buyer of the property their very own personal national park to explore.
The ranch, which consists of nearly 2200 acres of land, is bordered on two sides by Zion, but the other two neighbors aren't bad either. One of the other boundaries is the Canaan Mountain Wilderness and a fourth border sits next to acreage that is overseen by the U.S. Bureau of Land Management. I think it is safe to say that this prime piece or real estate has the "scenic view" covered quite nicely.
And what exactly do you get for your $30 million? Glad you asked! Trees Ranch comes with 2066 acres of pristine land, 200 of which are dedicated to an organic apple orchard which provides inventory for the the Springdale Fruit Company. There is also several ranch houses, an on site vineyard, a stable and corral, and even a lake complete with a dock for launching boats. There are several historic sites on the premises as well, including an old pioneer homestead and cemetery, as well as ruins from the Anasazi Indian tribes that once lived in the area.
Best of all, the natural landscapes that surround the ranch are amongst the most beautiful in the entire western United States. Zion is well known for its towering rock spires and walls, while Canaan Mountain Wilderness is nearly 45,000 acres of public land, bounded by wind swept sandstone cliffs. The ranch exhibits much of the same scenery, giving the buyer of the property their very own personal national park to explore.
Seems like the perfect haven after a long day at the office. Now if only I could come up with down payment.
UK mortgage market 'stuck in a rut'
Activity in the UK property market has remained subdued over recent weeks, the latest figures from the Council of Mortgage Lenders (CML) show.
According to the statistics published by the industry body, gross mortgage lending stood at £9.5 billion in February.
Given that a figure of £9.475 billion was recorded for the previous month, the CML has noted that the market is failing to pick up pace as prospective buyers stay away until prospects for the UK economy as a whole improve.
"The housing market is stuck in a rut," explained the council's chief economist Bob Pannell.
"This is going to be a challenging year for households and the housing market," he added.
At the same time, however, property market observers are likely to be heartened by the latest figures from the National Association of Estate Agents, whose members have reported a 25 per cent year-on-year rise in housing stock for February.
According to the statistics published by the industry body, gross mortgage lending stood at £9.5 billion in February.
Given that a figure of £9.475 billion was recorded for the previous month, the CML has noted that the market is failing to pick up pace as prospective buyers stay away until prospects for the UK economy as a whole improve.
"The housing market is stuck in a rut," explained the council's chief economist Bob Pannell.
"This is going to be a challenging year for households and the housing market," he added.
At the same time, however, property market observers are likely to be heartened by the latest figures from the National Association of Estate Agents, whose members have reported a 25 per cent year-on-year rise in housing stock for February.
Sunday 20 March 2011
Australian property listings at all time high
The number of properties listed for sale in Australia recently hit an all time high, new research has found.
According to RP Data findings, total advertised listings are now 24.2 per cent higher than they were at the same time last year. Within capital cities, listings are 29.1 per cent higher than last year.
But despite the positive news, research analyst Cameron Kusher said there is clear disconnect between the number of properties being brought to the market and the activity amongst buyers, with recent data showing sales volumes were 20 per cent below 10-year average levels during 2010.
In addition, FHB finance commitments currently account for just 15.2 per cent of the owner occupier market are also at their lowest levels since July 2004. The total value of investor finance commitments is at its lowest level since March 2009 and is down -8.3 per cent for the year.
“These two findings are the major contributing factors to the elevated level of listings, evidence suggests that many vendors have brought their property to the market hoping to sell and upgrade.
“The issue is there is not enough active FHB or investors in the market currently to allow them to sell their property,” Mr Kusher said.
According to RP Data findings, total advertised listings are now 24.2 per cent higher than they were at the same time last year. Within capital cities, listings are 29.1 per cent higher than last year.
But despite the positive news, research analyst Cameron Kusher said there is clear disconnect between the number of properties being brought to the market and the activity amongst buyers, with recent data showing sales volumes were 20 per cent below 10-year average levels during 2010.
In addition, FHB finance commitments currently account for just 15.2 per cent of the owner occupier market are also at their lowest levels since July 2004. The total value of investor finance commitments is at its lowest level since March 2009 and is down -8.3 per cent for the year.“These two findings are the major contributing factors to the elevated level of listings, evidence suggests that many vendors have brought their property to the market hoping to sell and upgrade.
“The issue is there is not enough active FHB or investors in the market currently to allow them to sell their property,” Mr Kusher said.
Saturday 19 March 2011
How to make money from Property TODAY
With so many mixed messages this is a timely reminder about what really drives property and some strong evidence that there won’t be a better time than right now…
It’s the economy
It may sound simple but sometimes people forget that the economy drives markets – all of them. When someone is telling you how great or terrible a particular market is or isn’t, a good indicator is how is the rest of the economy doing. Then ask ‘what are the implications for property?’. Today the Reserve Bank is telling us we are already in a boom that may last decades. They don’t know how it (the effect on the overall economy) will look yet, but they recommend that it is deserving of a total rethink by the Government.
History shows that when there is a positive structural (permanent) change to the economy markets can take some time to react. This is particularly true for property. As a (simplistic) example, the freeing up of funds through deregulation in the late 70’s didn’t have its full effect until the late 80s. Similarly the increase in affordability through inflation targeting in the mid 90’s wasn’t fully absorbed until the early 2000s. So, how long until the current change is fully understood and felt?
Similar, not the same
Sometimes we forget that Australia is a Commonwealth of States and Territories, with each being significantly different to the others in size, demographics, geography and most importantly, economically. Therefore if the economies are different and run at different cycles then surely so does property? … the short answer is yes. This is why the QLD and WA property market cycles have historically followed NSW and Victoria by as much as one to three years!
This also holds true today where in the last two years we have seen an upswing in NSW and Victoria while QLD and WA have languished, despite the onset of a mining boom in the country’s two biggest resource states. There are of course other factors driving this but its not an outright negative as it bodes well for the future as the QLD and WA economies benefit from the flow through of the mining boom (particularly for QLD when other market fundamentals are considered and the additional boost from the reconstruction after floods and cyclones).
Trends are not the ‘be all’
So many property investors focus on ‘trends’ as the answer. While trends are important, especially in long established areas, they are not always the best indicator of potential future performance. It is also vitally important to understand how the economic fundamentals have driven the particular market in the past and what are the changes to these fundamentals in the future, either directly or as a function of changes in the economy. In 2000 there were plenty of people talking up Sydney and Melbourne. 10 years later the same money would have returned far more had you put it in Perth or Brisbane – over 5% more. New rule of thumb, don’t follow the trends, hunt out the new ones!
It’s like printing money
For us the current lack of activity and position in the market cycle in QLD means that there are some great opportunities to be had in areas we beleive have all the right fundamentals in place for strong ‘above trend’ growth into the future. What do these ‘opportunities’ look like? – they look like several properties we’ve been able to source recently for our clients: CBD (or close to CBD) house and land packages with 5-6% yields and significant additional equity (some $50,000 to $100,000) on completion.
Why, because the market is ‘quiet’ – this is exactly the time to buy. It doesn’t get better than this. When everyone else catches on (that delay I was talking about) how much more has already been made by those acting today?!
It’s not only our clients who can see the ‘today’ window in the right market who are benefiting, we’re putting our money where our mouth is too. Based on our research we are sourcing a number of larger opportunities through our development company and having just secured a unit development in North Queensland, we are currently looking for others in the South East corner. Today is the time!
When you are seeking advice for your trusted circle of experts – ask them this question ‘what are you doing with your money?’… I guarantee the answers will be very revealing.
It’s the economy
It may sound simple but sometimes people forget that the economy drives markets – all of them. When someone is telling you how great or terrible a particular market is or isn’t, a good indicator is how is the rest of the economy doing. Then ask ‘what are the implications for property?’. Today the Reserve Bank is telling us we are already in a boom that may last decades. They don’t know how it (the effect on the overall economy) will look yet, but they recommend that it is deserving of a total rethink by the Government.
History shows that when there is a positive structural (permanent) change to the economy markets can take some time to react. This is particularly true for property. As a (simplistic) example, the freeing up of funds through deregulation in the late 70’s didn’t have its full effect until the late 80s. Similarly the increase in affordability through inflation targeting in the mid 90’s wasn’t fully absorbed until the early 2000s. So, how long until the current change is fully understood and felt?
Similar, not the same
Sometimes we forget that Australia is a Commonwealth of States and Territories, with each being significantly different to the others in size, demographics, geography and most importantly, economically. Therefore if the economies are different and run at different cycles then surely so does property? … the short answer is yes. This is why the QLD and WA property market cycles have historically followed NSW and Victoria by as much as one to three years!
This also holds true today where in the last two years we have seen an upswing in NSW and Victoria while QLD and WA have languished, despite the onset of a mining boom in the country’s two biggest resource states. There are of course other factors driving this but its not an outright negative as it bodes well for the future as the QLD and WA economies benefit from the flow through of the mining boom (particularly for QLD when other market fundamentals are considered and the additional boost from the reconstruction after floods and cyclones).
Trends are not the ‘be all’
So many property investors focus on ‘trends’ as the answer. While trends are important, especially in long established areas, they are not always the best indicator of potential future performance. It is also vitally important to understand how the economic fundamentals have driven the particular market in the past and what are the changes to these fundamentals in the future, either directly or as a function of changes in the economy. In 2000 there were plenty of people talking up Sydney and Melbourne. 10 years later the same money would have returned far more had you put it in Perth or Brisbane – over 5% more. New rule of thumb, don’t follow the trends, hunt out the new ones!
It’s like printing money
For us the current lack of activity and position in the market cycle in QLD means that there are some great opportunities to be had in areas we beleive have all the right fundamentals in place for strong ‘above trend’ growth into the future. What do these ‘opportunities’ look like? – they look like several properties we’ve been able to source recently for our clients: CBD (or close to CBD) house and land packages with 5-6% yields and significant additional equity (some $50,000 to $100,000) on completion.
Why, because the market is ‘quiet’ – this is exactly the time to buy. It doesn’t get better than this. When everyone else catches on (that delay I was talking about) how much more has already been made by those acting today?!
It’s not only our clients who can see the ‘today’ window in the right market who are benefiting, we’re putting our money where our mouth is too. Based on our research we are sourcing a number of larger opportunities through our development company and having just secured a unit development in North Queensland, we are currently looking for others in the South East corner. Today is the time!
When you are seeking advice for your trusted circle of experts – ask them this question ‘what are you doing with your money?’… I guarantee the answers will be very revealing.
The Daily Reckoning Australia: Collateral Damage
'The Great Moderation' is the name given to the time leading up to the 2008 financial crisis. (Different people give it different starting dates.) The idea is (now was) that regulation and central banking had given rise to stability and growth.
Part of this moderation was attributed to derivatives. By allowing companies to hedge the risks inherent in their primary business, derivatives were supposed to make those primary businesses safer.
A company dealing in lots of foreign cash could secure an exchange rate by buying a foreign exchange derivative. Pension funds could insure their portfolios by buying options. Insurers could insure themselves against wild weather by buying a weather-linked derivative.
But the practice didn't just allow risk to be mitigated. Someone had to take the opposite side of each trade. So, pretty quickly, derivatives got turned into financial gambling steroids. They allowed leveraging of positions without actual leverage. Heck, they changed the very definition of 'leverage'. It used to mean using debt. Now it describes bets that move in multiples to the underlying asset's movement.
Aside from derivatives, which are of course a major factor, there is another story that allowed The Great Moderation to take hold and then blow up. And it's one we haven't really read about. At least not with this angle.
When people engage in transactions, they often demand collateral from their counterparty. The idea being to reduce the risk of something going wrong. 'If you don't pay, then I have the right to sell your house.' Or something like that.
Banks and financial institutions often use collateral to back up promises. And many companies hold safe assets on their balance sheet as a type of collateral to creditors. If the company fails, there are plenty of assets to go around. It may not be collateral in the strict sense of the word, but the effect is much the same: to reduce counterparty risk... the financial fallout of the other person not doing what they are supposed to under the agreement.
But using collateral exposes you to a whole new risk. If housing is used as collateral, then house prices are a risk. If collateralised debt obligations (CDOs) are used as collateral, then you are exposed to CDO price risk. If an implied government backing, or 'too big to fail' status is used as a type of collateral, you are exposed to political indecision risk. (Ask Lehman Brothers creditors about this one.) If access to the central bank's discount window is used as a type of collateral, you expose yourself to risks in the discount rate.
In other words, reducing counterparty risk by using collateral, or something that has the effect of collateral, may leave you with a new type of risk that can infect the rest of the transaction or relationship. Collateral can add to your overall risk instead of reducing it.
So, what do you do? Not use collateral? More on that below. First, let's look at just how prevalent this issue is. Based on Ben Bernanke's comments at the Financial Crisis Inquiry Commission, the Tri-party Repo Market in 2008 was a prime example of how collateral can turn on you. With no small consequences.
' ... runs in the tri-party repo market, where what we used to think was very stable funding, which is funding through repurchase agreements where the investment banks would put out assets overnight and use that as collateral, they thought that was a pretty much foolproof form of short-term funding.'
To clarify, a repurchase agreement, or 'repo' is like a short-term loan with collateral. You sell assets with the agreement to buy them back. If you can't finance the repurchase, the holder of the collateral is left holding assets. Which is much better than a claim on assets as with normal lending agreements. Bernanke continues:
'But in a crisis where people began to doubt the liquidity or the value of those assets, the haircuts went up and you got into a vicious cycle which led to the Bear Stearns collapse and was important in the Lehman collapse as well.'
In other words, the collateral used in the repo agreements added risk instead of reducing it. The value of the assets fell, making the repo transactions dubious. That interrupted the funding structure of two major investment banks, marking the onset of a major financial crisis.
Many of the assets used in these repo agreements were linked to real estate and mortgages. This is the crucial link between sub-prime lending, securitisation and the collapse of financial institutions. They used securitised loans as collateral in their repos. Assets that were conveniently rated AAA by credit ratings agencies, which is a common requirement for collateral in repo markets.
Had Bear Stearns borrowed in straightforward lending agreements without collateral, the falling asset prices of the collateral used may not have caused the collapse of the company.
This is of course an over-simplified view, as Bear Stearns would have had the assets used as collateral on its balance sheets instead of in the repo market. But the risk would have been within the company, which changes the nature of the risk. For example, by using housing-linked assets as collateral for so much of its funding (enough to cause it to fail), Bear Stearns was playing the game with an open hand. Its creditors knew the assets Bear Stearns held, as they themselves held them as collateral. The famous secrecy with which investment banks conduct their affairs allows them to hide such structural weaknesses.
Also, when the repo market dried up, Bear was forced to sell exactly those assets that were being used as collateral in the repo market. This pushed the price down further, exacerbating the problem. The predictability of this sequence of events from the perspective of Bear's repo counterparties is a major factor to the sudden loss of willingness to lend to Bear.
If Bear had had access to a lending facility that was not as directly linked to the assets it held on its balance sheet, its funding crisis may have slowed significantly. Whether it could have been saved is pure speculation.
It could be argued that by relying on funding that is directly linked to assets held (by using them as collateral), a company is asking for trouble. If something goes wrong with the assets held, not only is the balance sheet in trouble, but funding the balance sheet is too.
Remembering the point made above about derivatives providing leverage, this is much the same concept, but applied to corporate finance. It is not traditional leverage, although that forms part of the equation. It is a speculative type of leverage, which changes the odds of the game.
By tying funding (via collateral) and profit (via assets held) to the same set of assets, you get leveraged profits. In a good year, the price of the assets go up, improving the quality of your collateral, which lowers funding costs. The gains in the value of assets held also show up as revenue. A double-sided benefit. In a bad year, the collateral is perceived risky and funding costs rise, while the falling price of assets pushes down revenue. Good and bad are exacerbated. Much like with the derivatives used to earn multiples of returns, rather than the inherent return of the underlying asset.
The idea that collateral can make things safer by reducing risk is a remarkably similar fraud to the derivatives story in many other ways. But an even closer parallel is likely to be found in your own portfolio.
How many times has your financial advisor or broker told you to hold a diversified portfolio? Well, aren't you just assuming a larger number of different types of risk each time you buy a stock different to the ones you already hold?
If you are optimistic on retail and your portfolio consists of retail stocks only, then you are exposed to risks affecting retail. If you buy mining stocks, you take on the risk of mining as well. You may be less exposed to risk in retail, but you now have two sectors of the economy for which bad news will affect you. To do well, you have to be right on both counts.
As for the mathematical justification for diversification, your editor has studied it. And it relies on many theories that are now considered laughable by anyone who has followed the news during the financial crisis. But even before 2008, the idea that diversification was a good idea never really held up. For example, when your broker shows you how well the All Ords has performed over the long term, ask them what happens to the companies that fail and drop out of the index. What if you had bought and held them? How would your portfolio look compared to the index?
The source of capitalism's strength is that everyone is not in it together. People can dissent. This allows those who are prudent to do well, and those who aren't to be taken over by better decision makers. If you force all to sink or swim together by assuming each other's risk, you lose this dynamism.
The purpose of collateral is to soften those effects of capitalism. Some would call it risk management. But, as mentioned above, it often fails miserably.
The solution is painfully obvious. Use collateral that is inversely correlated to your existing risk. Cancel the risk out. Do the opposite of firms like Bear Stearns. But now we are back to where we started - derivatives. The agreements designed to hedge risk, which can be abused to gamble. Collateral can be used in much the same way.
But many people do use derivatives well and responsibly. So collateral can be used effectively too. And it should have similar attributes to the way derivatives are used well. The assets used as collateral should be inversely correlated to your inherent risk.
Otherwise, don't call it collateral.
So, we've had derivatives and collateral blow up. What's next? What asset class is currently being designated as 'risk mitigating' when it is actually increasing risk.
In keeping with the idea that the economy is going from bad to worse and that the risk has gone from the balance sheets of the banks to the balance sheet of governments, bonds are the place to look. US treasuries are used by finance professionals as the risk-free benchmark. And what could better blow up than a risk-free asset?
But how? Well, like the risk-mitigating abilities of derivatives and collateral encouraged bad behaviour, so too do government bonds. Designating the bonds 'risk free' created massive demand for them, which has allowed governments to spend and borrow their way to presidencies and prime-ministerships. But, like with derivatives traders and collateral users, the concept was taken too far.
Now the so-called risk-free asset class looks like it could bring down the system completely. It will make derivative and collateral collapses look boring when it does. Japan, Europe and the US are playing a combination of spin the bottle and Russian roulette on this one.
Nick Hubble
For Daily Reckoning Australia
Part of this moderation was attributed to derivatives. By allowing companies to hedge the risks inherent in their primary business, derivatives were supposed to make those primary businesses safer.
A company dealing in lots of foreign cash could secure an exchange rate by buying a foreign exchange derivative. Pension funds could insure their portfolios by buying options. Insurers could insure themselves against wild weather by buying a weather-linked derivative.
But the practice didn't just allow risk to be mitigated. Someone had to take the opposite side of each trade. So, pretty quickly, derivatives got turned into financial gambling steroids. They allowed leveraging of positions without actual leverage. Heck, they changed the very definition of 'leverage'. It used to mean using debt. Now it describes bets that move in multiples to the underlying asset's movement.
Aside from derivatives, which are of course a major factor, there is another story that allowed The Great Moderation to take hold and then blow up. And it's one we haven't really read about. At least not with this angle.
When people engage in transactions, they often demand collateral from their counterparty. The idea being to reduce the risk of something going wrong. 'If you don't pay, then I have the right to sell your house.' Or something like that.
Banks and financial institutions often use collateral to back up promises. And many companies hold safe assets on their balance sheet as a type of collateral to creditors. If the company fails, there are plenty of assets to go around. It may not be collateral in the strict sense of the word, but the effect is much the same: to reduce counterparty risk... the financial fallout of the other person not doing what they are supposed to under the agreement.
But using collateral exposes you to a whole new risk. If housing is used as collateral, then house prices are a risk. If collateralised debt obligations (CDOs) are used as collateral, then you are exposed to CDO price risk. If an implied government backing, or 'too big to fail' status is used as a type of collateral, you are exposed to political indecision risk. (Ask Lehman Brothers creditors about this one.) If access to the central bank's discount window is used as a type of collateral, you expose yourself to risks in the discount rate.
In other words, reducing counterparty risk by using collateral, or something that has the effect of collateral, may leave you with a new type of risk that can infect the rest of the transaction or relationship. Collateral can add to your overall risk instead of reducing it.
So, what do you do? Not use collateral? More on that below. First, let's look at just how prevalent this issue is. Based on Ben Bernanke's comments at the Financial Crisis Inquiry Commission, the Tri-party Repo Market in 2008 was a prime example of how collateral can turn on you. With no small consequences.
' ... runs in the tri-party repo market, where what we used to think was very stable funding, which is funding through repurchase agreements where the investment banks would put out assets overnight and use that as collateral, they thought that was a pretty much foolproof form of short-term funding.'
To clarify, a repurchase agreement, or 'repo' is like a short-term loan with collateral. You sell assets with the agreement to buy them back. If you can't finance the repurchase, the holder of the collateral is left holding assets. Which is much better than a claim on assets as with normal lending agreements. Bernanke continues:
'But in a crisis where people began to doubt the liquidity or the value of those assets, the haircuts went up and you got into a vicious cycle which led to the Bear Stearns collapse and was important in the Lehman collapse as well.'
In other words, the collateral used in the repo agreements added risk instead of reducing it. The value of the assets fell, making the repo transactions dubious. That interrupted the funding structure of two major investment banks, marking the onset of a major financial crisis.
Many of the assets used in these repo agreements were linked to real estate and mortgages. This is the crucial link between sub-prime lending, securitisation and the collapse of financial institutions. They used securitised loans as collateral in their repos. Assets that were conveniently rated AAA by credit ratings agencies, which is a common requirement for collateral in repo markets.
Had Bear Stearns borrowed in straightforward lending agreements without collateral, the falling asset prices of the collateral used may not have caused the collapse of the company.
This is of course an over-simplified view, as Bear Stearns would have had the assets used as collateral on its balance sheets instead of in the repo market. But the risk would have been within the company, which changes the nature of the risk. For example, by using housing-linked assets as collateral for so much of its funding (enough to cause it to fail), Bear Stearns was playing the game with an open hand. Its creditors knew the assets Bear Stearns held, as they themselves held them as collateral. The famous secrecy with which investment banks conduct their affairs allows them to hide such structural weaknesses.
Also, when the repo market dried up, Bear was forced to sell exactly those assets that were being used as collateral in the repo market. This pushed the price down further, exacerbating the problem. The predictability of this sequence of events from the perspective of Bear's repo counterparties is a major factor to the sudden loss of willingness to lend to Bear.
If Bear had had access to a lending facility that was not as directly linked to the assets it held on its balance sheet, its funding crisis may have slowed significantly. Whether it could have been saved is pure speculation.
It could be argued that by relying on funding that is directly linked to assets held (by using them as collateral), a company is asking for trouble. If something goes wrong with the assets held, not only is the balance sheet in trouble, but funding the balance sheet is too.
Remembering the point made above about derivatives providing leverage, this is much the same concept, but applied to corporate finance. It is not traditional leverage, although that forms part of the equation. It is a speculative type of leverage, which changes the odds of the game.
By tying funding (via collateral) and profit (via assets held) to the same set of assets, you get leveraged profits. In a good year, the price of the assets go up, improving the quality of your collateral, which lowers funding costs. The gains in the value of assets held also show up as revenue. A double-sided benefit. In a bad year, the collateral is perceived risky and funding costs rise, while the falling price of assets pushes down revenue. Good and bad are exacerbated. Much like with the derivatives used to earn multiples of returns, rather than the inherent return of the underlying asset.
The idea that collateral can make things safer by reducing risk is a remarkably similar fraud to the derivatives story in many other ways. But an even closer parallel is likely to be found in your own portfolio.
How many times has your financial advisor or broker told you to hold a diversified portfolio? Well, aren't you just assuming a larger number of different types of risk each time you buy a stock different to the ones you already hold?
If you are optimistic on retail and your portfolio consists of retail stocks only, then you are exposed to risks affecting retail. If you buy mining stocks, you take on the risk of mining as well. You may be less exposed to risk in retail, but you now have two sectors of the economy for which bad news will affect you. To do well, you have to be right on both counts.
As for the mathematical justification for diversification, your editor has studied it. And it relies on many theories that are now considered laughable by anyone who has followed the news during the financial crisis. But even before 2008, the idea that diversification was a good idea never really held up. For example, when your broker shows you how well the All Ords has performed over the long term, ask them what happens to the companies that fail and drop out of the index. What if you had bought and held them? How would your portfolio look compared to the index?
The source of capitalism's strength is that everyone is not in it together. People can dissent. This allows those who are prudent to do well, and those who aren't to be taken over by better decision makers. If you force all to sink or swim together by assuming each other's risk, you lose this dynamism.
The purpose of collateral is to soften those effects of capitalism. Some would call it risk management. But, as mentioned above, it often fails miserably.
The solution is painfully obvious. Use collateral that is inversely correlated to your existing risk. Cancel the risk out. Do the opposite of firms like Bear Stearns. But now we are back to where we started - derivatives. The agreements designed to hedge risk, which can be abused to gamble. Collateral can be used in much the same way.
But many people do use derivatives well and responsibly. So collateral can be used effectively too. And it should have similar attributes to the way derivatives are used well. The assets used as collateral should be inversely correlated to your inherent risk.
Otherwise, don't call it collateral.
So, we've had derivatives and collateral blow up. What's next? What asset class is currently being designated as 'risk mitigating' when it is actually increasing risk.
In keeping with the idea that the economy is going from bad to worse and that the risk has gone from the balance sheets of the banks to the balance sheet of governments, bonds are the place to look. US treasuries are used by finance professionals as the risk-free benchmark. And what could better blow up than a risk-free asset?
But how? Well, like the risk-mitigating abilities of derivatives and collateral encouraged bad behaviour, so too do government bonds. Designating the bonds 'risk free' created massive demand for them, which has allowed governments to spend and borrow their way to presidencies and prime-ministerships. But, like with derivatives traders and collateral users, the concept was taken too far.
Now the so-called risk-free asset class looks like it could bring down the system completely. It will make derivative and collateral collapses look boring when it does. Japan, Europe and the US are playing a combination of spin the bottle and Russian roulette on this one.
Nick Hubble
For Daily Reckoning Australia
Subscribe to:
Posts (Atom)