Wednesday 29 April 2009

AMERICA'S NEW GREAT DEPRESSION?

They are breaking records in the United States, lots of them, all of them bad. A record 19.1 million homes are empty and the share of repossessed mortgages is at a record high of 3.3 per cent.

The percentage of delinquencies (home loan payments that are 30 days or more overdue) are 7.9 per cent, the highest since records began in 1972.

The number of people planning to buy a home next month has dropped to a 26-year low, despite mortgage interest rates being close to their lowest for half-a-century.

Despite a small rise in January, home sales are 74 per cent below their peak from three years ago. Half of properties sold are repossessions.

None of this helps prices. According to the US Case Shiller 20-city house price index, property values are 29 per cent below their 2006 peak.

Residential properties are now 10 per cent undervalued compared to being 35 per cent overvalued at the peak, but consultancy, Capital Economics, warns a market rebound is not in the offing.

"Historically, prolonged periods of overvaluation have been followed by prolonged periods of undervaluation," a bulletin from the consultancy reads.

Unemployment is dragging the housing market down. With unemployment at a 25 year high of 8.5 per cent and rising, economists at First American CoreLogic expect property prices to continue falling in 2010. Unemployment is forecast to reach 9.5 per cent by the end of 2009.

Pushing up unemployment is the worsening economy. US GDP contracted by 6.1 per cent in the first quarter of 2009 and is forecast to fall for the remainder of this year.

MIXED UP BRITAIN

Britons are confused. A survey of British homebuyers by the Association of Property Finders and Buying Agents (APFBA) found that two-thirds of them mistakenly think estate agents act in the interests of the buyer as well as the seller. In fact, estate agents represent the seller's interests only....and maybe their own of course.

There's confusion about the housing market. A surge in viewings and mortgage lending during the Spring has put a spring in the step of estate agents. Prices in central London actually rose 0.4 per cent in April estate agency, Knight Frank, reveals.

With affordability now better than its long term average Lombard Street Research says the housing slump is almost over, but Capital Economics says prices will fall 30 per cent over the next 18 months.

While debate rages about when to call the bottom of the market, most agree it will recover first in central London. Was that small rise in April just a blip? Watch this space.

RELIABLE GERMANY

Buying agency, German Property Finder, considers housing stock in Europe's biggest economy “a secure long term investment”. Prices for brand new homes rose 4 per cent over the past year and are projected to go higher in the next twelve months by financial services group, Hypoport, which monitors the housing market.

Prices for second-hand homes fell 5 per cent over the past twelve months Hypoport says. But they will start rise in the "medium term" as the growing proportion of older, wealthier Germans look for somewhere to settle down in their later years, it forecasts.

Nationally, the population is declining by 50,000 a year, but Deutsche Bank says the number of people living in south west Germany and Berlin will keep growing over the next decade. Investors ought to buy the most desirable properties in these locations German Property Finder recommends.

German property is relatively inexpensive. A refurbished, two bedroom apartment in a salubrious part of central Berlin is on offer for GBP187,000 through property-abroad.com. There are no restrictions on overseas investment in German property.

UK BUYING AGENCY BOOM

A legacy of Britain's recent property boom has been the proliferation in buying agencies, sometimes called property finders.

Unlike estate agents, which represent the interests of sellers, property finders help buyers. Following a client's brief they find a suitable home and negotiate its purchase for them. In addition to residential properties, some search for land and commercial premises. Hong Kong and other overseas buyers sometimes hire them.

“It is not just about finding a property, it is about evaluating a property and then negotiating a good deal on it,” said Tim Hammond, chief executive of the Association of Property Finders and Buying Agents (APFBA). “It is about giving the buyer professional representation.”

Buying agencies first appeared during the 1980s property boom, and mushroomed in number and size during the 1997-2007 property bonanza.

According to the APFBA, Britain has between 300 to 450 buying agencies. Most are one-person outfits covering individual towns or counties, some are companies employing dozens of staff. The largest, Property Vision, was also the first. Set up in 1986 it has 70 employees.

Some estate agencies have set up buying agencies. Prime Purchase, which is linked to Savills, and The Buying Solution, set up by Knight Frank, cover large parts of Britain.

Many buying agents are former estate agents who use their contacts in the property world to unearth properties before they come to market. Typically, a buying agency will charge an initial search fee or deposit, and a success fee, based on the value of a property, when a purchase is made.

Based in Newbury, Berkshire, Middleton Advisors helps executives find homes in southern England. These include Britons moving back from Hong Kong.

“We deal mainly with expats looking for country homes,” said Tom Hudson, partner at Middleton Advisors, “Seventy per cent of all the deals we do are private, for properties never coming to market. This is relatively common in the GBP3 million bracket we operate in.”
The firm charges a GBP2,750 search fee, plus VAT, and a 2.75 per cent success fee, plus VAT.

In London, Mayfair-based Black Brick has been finding multi-million pound homes for clients, since 2006. It's fees are negotiable.

Black Brick's managing director, Camilla Dell, said buyers needed property finders to help them negotiate deals in an increasingly competitive environment.

“It is a very tricky market for people to buy a property without professional help,” she said, “It is hard to gauge value, because so few transactions have taken place. Buyers who bid too low, like 25 or 30 per cent, won't be taken seriously.”

London-based Property Hunt helps buyers find residential and commercial property, including hotels. It charges an initial GBP1,000 deposit, plus VAT, and a 2 per cent success fee, plus VAT, minus the deposit.

The APFBA has set up an online service to help house hunters find a buying agent, at findabuyersagent.com.

The Association of Relocation Professionals (ARP) has buying agencies among its members.

Wednesday 8 April 2009

SPAIN'S LUXURY HOMES MARKET HITS BOTTOM

With prices for luxury homes at Spanish coastal resorts down by as much as 50 per cent from their peak in 2007, the bottom of the market for these properties may have been reached, according to industry experts.

As a sign of the times, a three-bedroom beachfront penthouse on the Costa del Sol marketed for €1.3 million (HK$13.49 million) a couple of years ago was purchased for €600,000 recently.

Bank of Spain figures show prices for homes along Spain's Mediterranean coast rose by 200 per cent during a lengthy boom from 1996 to 2007. In Andalucia, the Mediterranean coastal region where the Costa del Sol is located, prices rose 243 per cent over that period.

Buying agents said that prices had fallen back by 40 to 50 per cent for upmarket properties on the Costa del Sol to 2004 levels from the 2007 peak. It is the same situation on the Costa Blanca, which is located further north up the coast.

Today, the entry level for upmarket properties on the Costa del Sol is about €500,000, on the Costa Blanca, €250,000. Lured by these lower prices, buyers are returning to the market for luxury homes.

Barbara Wood, director of buying agency The Property Finders, said: "Nobody rings a bell when the bottom of a downturn is reached, but in my opinion the number of buyers who are coming forward to buy now, means we have probably reached it, at least in prime locations.

We are now seeing discounts of 40 to 50 per cent compared with the peak. If you can find a really motivated seller who just has to get out, then now is the time to deal."
However, some developers only offered 10 per cent cuts and individual sellers might not reduce asking prices from peak levels.

Demand for mid-market homes, those valued at €200,000 to €500,000 on the Costa del Sol, and €100,000 to €250,000 on the Costa Blanca, remains quiet.

The market for low-end properties offered at around €200,000 or less on the Costa del Sol (less than €100,000 on the Costa Blanca) has collapsed, because of massive oversupply. Spain has an estimated 1 million empty homes, mostly along the Mediterranean coast and around Madrid.

"As regards the mountains of high-density, identikit apartments in second-rate developments in second-rate locations there is no evidence that buyers are coming forward at all," Ms Wood said.

"I suggest that this type of product will go even lower and maybe it is too early to enter this market, but any investor should ask themselves whether it is a good buy at any price."

Inez Rix, co-director of Marbella-based property auctioneer Direct Auctions, said prices for one- and two-bedroom flats in large developments, the type of low-end home most oversupplied, had fallen 30 per cent over the past 12 months.

"Prices will continue to fall as more stock is released on to the market and more importantly as the squeeze hits owners," she said. "I have had a steady increase in entries especially with owners now listening and taking off substantial sums in order to shift their properties. Banks are now caught with thousands of units they cannot shift and this will add further pressure to the market."

In addition, the future of an estimated 40,000 illegally-built homes around Marbella adds to uncertainty among buyers.

Estate agents are confident about the long-term prospects for property markets at Spanish coastal resorts.

According to estate agent Cluttons, which has an office in Marbella, these resorts remain popular with north European holidaymakers and will attract more tourists when new transport links are completed.

These include proposals for a high speed rail link between the Costa del Sol and the Spanish capital, Madrid.

Robert Green, director of developments at Cluttons Resorts, said: "Malaga airport receives over 10 million visitors each year but the new runway and terminal at the airport, combined with the new high speed train connection from Madrid, the AVE, is set to double tourism in the region. An overland rail extension along the coast of the Costa del Sol will help relieve congestion on the major roads, which in turn are being improved."

On the Costa del Sol, Ms Wood said, beachside homes, golf apartments and detached villas on hillside locations around Marbella, Puerto Banus, San Pedro and Estepona presented the best investment opportunities.

These properties included a new two-bedroom duplex penthouse on the beachfront near Puerto Banus marketed at €715,000, but bought for €418,000.

At the Costa Blanca, investment opportunities were available along the coast from Javea towards Valencia and the Costa del Azahar, she said. These included a three-bedroom detached villa on one square kilometre of land with private pool originally offered for sale at €460,000, but reduced to €300,000.

"The best deals are being done if the seller is British and repatriating the sale proceeds," she said. "The weakness of sterling means that they are able to slash asking prices even lower than euro sellers."



SPAIN HOME BUYER'S GUIDE

Spain is one country with two systems as far as overseas property investors are concerned. European Union nationals pay less tax than other overseas buyers and have automatic right of residency in Spain. Non-EU nationals must show they have sufficient resources to provide for themselves to gain residency.

While non-EU investors must pay 35 per cent capital gains tax when they sell a property, EU nationals only pay 18 per cent, Barbara Wood, director at buying agency The Property Finders, said. All other taxes are levied at the same rate for both groups of buyers.

A 7 per cent purchase tax is payable when buying a resale property, and a 1 per cent purchase tax and 7 per cent VAT are payable on new homes bought from a developer. Rental income is taxed at 24 per cent.

Legal, notary and registry costs amount to about 2 per cent of the purchase price, and mortgage costs about 3 per cent. Ms Wood said mortgages could be cheaper if the buyer took on the seller's mortgage, a common practice in Spain.

When buying at auction, fees range from 8 per cent for cash purchases to 15 per cent for mortgage-backed acquisitions. Bids can be taken over the phone, in writing or on the floor at auction houses such as Direct Auctions.

Ms Wood said rental returns were low on the Costa del Sol and Costa Blanca.
"Gross yields are very hard to predict in this market and I would hesitate to quote more than 2 to 3 per cent currently," she said.

Brennon Nicholas, managing director of estate agency Cluttons Spain, said there was steady demand for rental accommodation on the Costa del Sol, because its population was transient and swelled by holidaymakers in the tourist high season.

The level of rent achieved would depend on whether a property was let out as short-term holiday accommodation or in the long term, he said. A €5 million villa could be let out for €10,000 a week in summer, or €12,000-15,000 a month as a long-term rental, he said.

According to The Global Property Guide, Spain's rental market laws are strongly pro-tenant. During the first five years of a tenancy a landlord can only increase the rent in line with inflation. After that period a landlord can raise the rent 20 per cent above the current level. It can take six months to evict unruly, non-paying tenants. Landlords have greater control over rent levels and length of tenancy in the holiday lettings market.

AFFORDABLE GREEN PREFABS

A British architect believes he may have developed a solution for the shortage of lower-cost housing in locations like Britain and Hong Kong.

Tony Kettle, group director of British-based RMJM Architects, has designed a prefabricated housing unit that he claims is not only relatively cheap and quick to build but also inexpensive to run.

Mr Kettle has created MiLoft, a modular home built from steel and timber that can have one, two, three or four bedrooms. A one-bedroom unit costs about £55,000 to build. Needing only shallow foundations, a MiLoft block takes five months to build, twice as fast as conventional housing, and can be built to a maximum of 18 storeys.

"It is all about minimum cost, minimum assembly time and minimum energy use," he said. "This is about quality as well. It is about creating the type of environment that you would like to live in."

A conventionally built, six-storey apartment building in Britain or Hong Kong costs between £1,000 and £1,100 per square metre to build, according to Mr Kettle. That compares with a cost of £900 to £1,000 per square metre for a MiLoft building because of the savings in construction time and standardisation of components.

Units would be manufactured so that walls, doors and windows can be made sufficiently tight-fitting to give high levels of insulation, according to Mr Kettle.

An energy-saving mechanical ventilation heat recovery system will be used, the first time this had been done for flats. Invented by Max Fordham Consulting Engineers, the technology reuses hot or cold air to regulate temperature.

The combined effects of this ventilation system and tight insulation meant MiLoft apartments would have lower running costs than for conventional housing Mr Kettle said. In hot countries they needed fewer air-conditioners and dehumidifiers running. In cold countries, recycled heat from domestic appliances and the apartment's occupants would be enough to keep them warm.

"This is a new concept as it combines high-quality space with low energy, highly insulated apartments with high levels of airtightness and unitised construction at an affordable price," he said.

Fully glazed on one side, natural daylight can flood through the open plan, contemporary-looking apartments, helping to reduce lighting costs.

To improve residents' sense of wellbeing and to reduce CO2 emissions, plants would be grown in communal areas, like stairways and on roof gardens, Mr Kettle envisaged. In another Green initiative, rainwater collected on the roof would be used to flush toilets.

Units would be manufactured close to where they would be built to reduce transport costs, and timber would come from sustainable sources.

RMJM launched MiLoft at the MIPM property industry conference in Cannes, France last month. European politicians, developers and housing executives are taking an interest in it.
Although the concept has not been marketed in Asia yet, early interest has been encouraging.

"Last week, I saw a Chinese bank and they seemed to really like it," Mr Kettle said. "Their eyes lit up."

Thursday 2 April 2009

BRAZIL IS MAKING INVESTORS DANCE

Brazil appears to be flavour of the month with property investors. It might be a long way from Asia and Europe, but favourable exchange rates, solid economic prospects and low cost housing are luring investors and developers from these distant continents to make the journey south. For example, 37 apartments at two developments in the city of Sao Paulo were sold to buyers from Japan, Hong Kong and Singapore by British estate agents Dehouche Land, recently.

In addition to Sao Paulo, overseas buyers target Rio de Janiero and north east coastal resort towns, like Salvador in Bahia province, and Fortaleza, further north up the coast. Occasionally a buyer wants something exotic, like a few hectares of Amazon virgin rainforest or a private island off the country's long coastline.

These buyers are entering the market at a time when exchange rates are favourable to buyers spending in euros, dollars and currencies linked to the Greenback. The US Dollar has appreciated by 20 per cent against the Brazilian Real over the past year. Even the British Pound, struggling on currency exchanges elsewhere in the world, has held its own against the Real.

The Real has slumped against major currencies, because Brazil is taking a battering from the global economic storm, even though it's debt levels are relatively low compared to Britain, the United States and many other countries.

“There is nowhere that has not been affected by the global contagion of economic downturn,” says Nick Barnes, residential research partner at estate agency, Knight Frank, “Even though Brazil's economy is self-sufficient, the banks are feeling the pinch, the consumers too.”

Despite the downturn, estate agents consider the Brazilian property market undervalued, particularly when compared to fellow BRIC nations, Russia, India and China.

“Of all the BRIC countries, Brazilian property is considerably underrated,” says Henry Madden, partner at Dehouche Land, “A premium apartment in central Sao Paulo has an average price of USD2,000 per square meter, compared to USD12,000 per sq m for a central apartment in Moscow.”

Knight Frank figures show average prices in Bahia's luxury resorts are USD3,500 per square meter. In Sao Paulo's Cidade Jardim district, developer, JHSF, is offering 236 square meter apartments at its mixed-use Parque Cidade Jardim scheme for R$1.5 million (USD727,000).

Brasil Sothebys International Realty is marketing upmarket homes like a five bedroom house at Itu outside of Sao Paulo for R$6.5 million. The 2,600 square meter home features a cinema room, swimming pool, Jacuzzi, party room, garden and orchard. Staff accommodation and garage also included. Or there is a four bedroom home at the Reserva de Paiva resort community, on Brazil's north east coast, on offer for R$2 million. Located 14 kilometres from Recife airport, this beachside house and the 66 other homes at the development are surrounded by rain forest.

With prices static in des res city districts and pushed down in coastal resorts, developers were offering incentives to buyers, either price cuts or give-aways, Barnes says. Exact figures on how far prices rise or fall across Brazil don't exist, but the Global Property Guide estimates Brazilian property prices doubled over three years to the end of 2008.

Past price rises may have been even greater if credit had been available to buyers. Brazilians have traditionally bought homes with cash, because high interest rates, which hit a whopping 2,500 per cent in 1993, have deterred buyers from taking out mortgages – only 800,000 Brazilians have a home loan. What's more, the government has kept a tight rein on mortgage lending historically.

However, interest rates are down to around 11 per cent now and mortgage lending rules have been relaxed, enabling the country's emerging middle class to purchase homes without needing to rely solely on savings.

The economic downturn has dampened this middle class housing demand, but estate agents and developers are confident it will revive when the global recession ends. They point to a number of pluses that will stand Brazil in good stead in the years to come – its 195 million population is young, only 15 per cent of national GDP is export reliant, so the domestic economy is strong and diversified, and an oil field, the third largest in the world, was recently discovered off the Brazilian coast.

A revival in housing demand will not lead to a debt-fuelled housing bubble provided the government continues to regulate mortgages carefully, Barnes says.

“In the medium-to-longer term Brazil has tremendous prospects,” he says, “Its economy has grown largely off domestic demand and they have just found two of the world's biggest oil fields which will come into production over the next decade. Unlike much of eastern Europe where there has been too much construction, Brazil is big enough to absorb new housing developments.”

John Hitchcox, chairman of international designer-developer YOO, expects Brazil will emerge from the global economic downturn faster than most other countries, because it is not burdened by debt. As their affluence grows, the country's middle classes will want to live in higher quality housing which remains in short supply he believes.

“There is a real emergence of sophistication in Brazil and new housing reflects this,” he says.

His own company is planning to build three residential developments in Sao Paulo and Rio de Janiero.


BRAZIL HOME BUYERS GUIDE

Foreigners are free to buy property anywhere in Brazil. However, they ought to seek expert advice when doing so, because little English is spoken, the legal system is different to that found in most other countries and scams abound.

First, the good news. According to the Global Property Guide, Brazilian property law is pro-landlord, yields are “good” and transactions costs “moderate”. Gross yields are between 6.5 – 8.5 per cent in Sao Paulo and slightly lower in Rio de Janiero Knight Frank reports.

In north east Brazil's resort towns, rental guarantees of 5 per cent or more are available for a couple of years at new developments. However, lettings in Brazil's holiday resorts are highly seasonal, so void periods can be lengthy.
Now for the warnings.

“A lot of developers are new to the game, so buyers need to question the viability of the developer and the scheme,” Barnes says, “Due diligence is absolutely vital on a project.”
Buyers need local expertise to help them buy and manage properties he adds.

“It's a long way away, so investors are entirely in the trust of local managers to manage the property,” he says.

Hiring a local lawyer is advisable, because of the complexities of Brazilian law.
Buyers, and their lawyers, must ensure contracts are properly registered. In some cases, unscrupulous sellers have sold their home many times over leaving unfortunate buyers in a legal tangle.

Overseas buyers must get a tax ID form called a CPF from the Brazilian government before making an offer on a property. They can do this through their local embassy or a Brazilian lawyer. Lawyers can represent a buyer at the completion stage of the buying process when all the parties come together to sign the official transfer of deeds. The buying process normally takes four to six weeks.

Purchase costs, including stamp duty, which is variable depending on location, amount to about 7 per cent of the value of a property. When it comes to selling, the vendor pays an estate agent a 5 per cent fee.

Rental income is taxed at 15 per cent and capital gains 25 per cent usually. Mortgage lending to foreigners is tightly controlled by the government, so Brazilian banks may not be that forthcoming with loans, but large international banks like HSBC will fund overseas buyers.