Anyone expecting a quick recovery for Europe's housing markets think again. According to the Royal Institution of Chartered Surveyors (RICS), the London-based international surveyors body, the deepening global recession is making Europe's housing slump worse.
“Housing markets ... look set for a prolonged down-swing at least as great as that of the early 1990s,” says the RICS European Housing Review 2009.
Depending on the country, the 1990s slump went on for at least three years. Recovery from today's downturn will be slow, because few mortgages are available and few people want one says RICS.
“The financial system has been battered because of mortgage finance, and the riskiness of holding mortgage debt for investors and lenders rises as house prices fall,” continues the report.
It will take a long time for confidence to be restored it warns. In Ireland, mortgage lending reached 135 per cent of personal disposable income in 2006, so prospects are particularly miserable there it adds.
Monday, 30 March 2009
FRACTURED CHINA
China's government tells us it's economy will recover quickly from the global trade slump. Maybe it will, but sadly it's property market will not. Prices are down across China's 70 biggest cities and recovery is some way off the Global Property Guide says. It points to the low rental yields in its major cities as an indicator of market ill-health.
A rental yield is rather like a P/E ratio for shares. It is the value of the property divided by its annual rental earnings. The Guide says a housing market is fairly valued if rental yields are around 6 – 7 per cent.
In China's biggest cities – Beijing, Shanghai, Guangzhou, Shenzhen and Chengdu - yields are only 4.4 per cent, pushed down by falling prices. When yields are low, people prefer renting to buying and are less likely to invest in property the Guide's researchers reveal. “Conclusion – no turnaround in China's residential prices soon” it says.
A rental yield is rather like a P/E ratio for shares. It is the value of the property divided by its annual rental earnings. The Guide says a housing market is fairly valued if rental yields are around 6 – 7 per cent.
In China's biggest cities – Beijing, Shanghai, Guangzhou, Shenzhen and Chengdu - yields are only 4.4 per cent, pushed down by falling prices. When yields are low, people prefer renting to buying and are less likely to invest in property the Guide's researchers reveal. “Conclusion – no turnaround in China's residential prices soon” it says.
JET TO LET, MALAYSIA
Estate agents always get excited when a budget airline starts adding new destinations to its route map. Cheap flights have done much to boost property markets in touristy parts, like Spain's Mediterranean coast, because many holidaymakers decide they like a particular resort so much they want to buy a home there. Those low, low fares make regular trips to their beachside condo or country cottage so very practical.
Traditionally, the budget airline effect has been within continents, but estate agents reckon Air Asia X's new £200 London to Kuala Lumpur flights will draw British property investors to Malaysia's second homes market.
According to Asset Property Brokers, which is marketing holiday homes, “The launch of this new airline service will add a further boost to Malaysia’s booming tourist industry, driving up occupancy rates and yields of well located and managed hotel property projects.”
No doubt, plenty of hard-pressed, British estate agents hope the Malaysians may return the favour by hopping over their way to buy up hard-to-sell properties.
Traditionally, the budget airline effect has been within continents, but estate agents reckon Air Asia X's new £200 London to Kuala Lumpur flights will draw British property investors to Malaysia's second homes market.
According to Asset Property Brokers, which is marketing holiday homes, “The launch of this new airline service will add a further boost to Malaysia’s booming tourist industry, driving up occupancy rates and yields of well located and managed hotel property projects.”
No doubt, plenty of hard-pressed, British estate agents hope the Malaysians may return the favour by hopping over their way to buy up hard-to-sell properties.
Wednesday, 25 March 2009
BRITISH LETTINGS SLUMP
British tenants, fearing their rented homes may be repossessed before the end of a lease, are demanding landlords give references to show they can make mortgage payments. Falling rents and sales prices have hit Britain's landlords hard and many are having properties seized by mortgage lenders.
Lucy Morton, the managing partner and head of lettings at WA Ellis, said growing numbers of tenants who paid rent one or two years in advance wanted landlord references.
"I have been in the market for 25 years and find that it is something that tenants are now asking, because they want to be reassured that the property won't be repossessed," Ms Morton said.
Statistics show 46,750 homes were repossessed last year, a 68 per cent increase on 2007, when 27,900 properties were seized.
Ms Morton's revelations coincide with new figures that show the rental market is suffering its biggest downturn since the 1970s.
According to the Royal Institution of Chartered Surveyors' residential lettings survey for the fourth quarter, the net balance of surveyors reporting rises, rather than falls, in rents fell from minus 12 per cent to minus 48 per cent, the lowest level in the survey's history. London is worst hit.
Estate agency Knight Frank's London lettings index for the first quarter shows rents dipped 7.4 per cent in prime central London, the second-biggest fall on record. They have dropped 18.2 per cent over the past 12 months.
Benham and Reeves Residential Lettings says rents have fallen 25 to 30 per cent for large family houses in London.
Seema Shah, an economist at Capital Economics, said rents would drop further across Britain by the end of the year.
Property Portfolio Rescue, a firm that specialises in buying up homes from struggling landlords, forecasts 20 per cent of repossessed properties will be from the buy-to-let sector by the end of the year.
Lucy Morton, the managing partner and head of lettings at WA Ellis, said growing numbers of tenants who paid rent one or two years in advance wanted landlord references.
"I have been in the market for 25 years and find that it is something that tenants are now asking, because they want to be reassured that the property won't be repossessed," Ms Morton said.
Statistics show 46,750 homes were repossessed last year, a 68 per cent increase on 2007, when 27,900 properties were seized.
Ms Morton's revelations coincide with new figures that show the rental market is suffering its biggest downturn since the 1970s.
According to the Royal Institution of Chartered Surveyors' residential lettings survey for the fourth quarter, the net balance of surveyors reporting rises, rather than falls, in rents fell from minus 12 per cent to minus 48 per cent, the lowest level in the survey's history. London is worst hit.
Estate agency Knight Frank's London lettings index for the first quarter shows rents dipped 7.4 per cent in prime central London, the second-biggest fall on record. They have dropped 18.2 per cent over the past 12 months.
Benham and Reeves Residential Lettings says rents have fallen 25 to 30 per cent for large family houses in London.
Seema Shah, an economist at Capital Economics, said rents would drop further across Britain by the end of the year.
Property Portfolio Rescue, a firm that specialises in buying up homes from struggling landlords, forecasts 20 per cent of repossessed properties will be from the buy-to-let sector by the end of the year.
Tuesday, 24 March 2009
TIME TO GET GREEDY?
Warren Buffet, The Sage of Omaha, has made himself the world's richest man by investing in the right commodity at the right time. It is said that every long term shareholder in his company Berkshire Hathaway is a millionaire thanks to his genius. Each year they celebrate their good fortune at the company's annual conference by watching the great man play his ukulele, something else he is known to be good at.
This is what Buffet said about the US housing market at its peak in 2006 - “We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments...Dumb lending always has its consequences. It's like a disease that doesn't manifest itself for a few weeks, like an epidemic that doesn't show up until it's too late to stop it.”
He certainly got that right. Since he spoke those words property prices in one country after another have fallen sharply, starting with the United States and Ireland in 2007, joined by Britain, Spain and others in 2008, and, if the pundits are correct, Dubai and many more in 2009. From Chicago in the United States to Shenzhen in China, the downturn is truly global. With recession spreading, unemployment rising and mortgage lending reduced to a trickle, the omens look bad for property markets in 2009. Many are destined to crumble.
So, with this in mind, now may be a good time to consider some of the great man's other words of wisdom to see whether they can point a way out of this mess.
A recent comment by Buffet following his purchase of a chunk of Goldman Sachs bank in autumn 2008 is revealing. Bluntly, he believes now is the time to buy, buy, buy. “The time to get greedy is when others are fearful” he says. He was referring to stocks and shares, but this maxim could hold true for property. Most of the world's property markets are consumed with fear, but they will bounce back eventually. For property buyers who get greedy now, this may be a year to remember.
Prospective buyers may want to focus on property markets which hold their value best during a slump.
Buffet again - “Look after the downside and the upside will look after itself.”
Nick Barnes, research partner at international estate agency, Knight Frank, says property markets at the heart of the global economy, like London, New York, Paris, Singapore and Hong Kong will survive the global economic crisis best.
“We are definitely seeing a flight to quality,” he says, “We will go to the thing that is most resistant to recession. In London and New York values are down, but prices are looking cheap now.”
Rebecca Gill research associate at international estate agency, Savills, says the top end of the world's property market - homes valued at £1.5 million or more - is well placed to come out smelling of roses, even in countries like Spain which is hard hit by the downturn.
“Exclusive areas have limited supply and for that reason they won't see the drop in prices other areas might do,” she says, “there are still people out there with cash taking the opportunity to buy.”
Barnes says there is $1 trillion of private equity looking for a safe haven from the financial turmoil. Much of it will end up in property he considers, though this won't trigger an overnight upturn in sales prices.
“There won't be a huge v-shaped bounce-back, because we are a long way from sorting out the banking crisis,” he says, “there will be banks that need capitalisation and re-capitalisation, and the banks will be more prudent and will want to be seen as prudent.”
So buyers need to patient. As Buffet says “Only buy something that you'd be perfectly happy to hold if the market shut down for ten years...Our favourite holding period is forever.”
Buy that house of your dreams it could make you rich.
This is what Buffet said about the US housing market at its peak in 2006 - “We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments...Dumb lending always has its consequences. It's like a disease that doesn't manifest itself for a few weeks, like an epidemic that doesn't show up until it's too late to stop it.”
He certainly got that right. Since he spoke those words property prices in one country after another have fallen sharply, starting with the United States and Ireland in 2007, joined by Britain, Spain and others in 2008, and, if the pundits are correct, Dubai and many more in 2009. From Chicago in the United States to Shenzhen in China, the downturn is truly global. With recession spreading, unemployment rising and mortgage lending reduced to a trickle, the omens look bad for property markets in 2009. Many are destined to crumble.
So, with this in mind, now may be a good time to consider some of the great man's other words of wisdom to see whether they can point a way out of this mess.
A recent comment by Buffet following his purchase of a chunk of Goldman Sachs bank in autumn 2008 is revealing. Bluntly, he believes now is the time to buy, buy, buy. “The time to get greedy is when others are fearful” he says. He was referring to stocks and shares, but this maxim could hold true for property. Most of the world's property markets are consumed with fear, but they will bounce back eventually. For property buyers who get greedy now, this may be a year to remember.
Prospective buyers may want to focus on property markets which hold their value best during a slump.
Buffet again - “Look after the downside and the upside will look after itself.”
Nick Barnes, research partner at international estate agency, Knight Frank, says property markets at the heart of the global economy, like London, New York, Paris, Singapore and Hong Kong will survive the global economic crisis best.
“We are definitely seeing a flight to quality,” he says, “We will go to the thing that is most resistant to recession. In London and New York values are down, but prices are looking cheap now.”
Rebecca Gill research associate at international estate agency, Savills, says the top end of the world's property market - homes valued at £1.5 million or more - is well placed to come out smelling of roses, even in countries like Spain which is hard hit by the downturn.
“Exclusive areas have limited supply and for that reason they won't see the drop in prices other areas might do,” she says, “there are still people out there with cash taking the opportunity to buy.”
Barnes says there is $1 trillion of private equity looking for a safe haven from the financial turmoil. Much of it will end up in property he considers, though this won't trigger an overnight upturn in sales prices.
“There won't be a huge v-shaped bounce-back, because we are a long way from sorting out the banking crisis,” he says, “there will be banks that need capitalisation and re-capitalisation, and the banks will be more prudent and will want to be seen as prudent.”
So buyers need to patient. As Buffet says “Only buy something that you'd be perfectly happy to hold if the market shut down for ten years...Our favourite holding period is forever.”
Buy that house of your dreams it could make you rich.
Friday, 20 March 2009
HONG KONG'S PEAKED
The housing market slump is not only in the West – In Hong Kong's most des res location, The Peak, house prices tumbled 41 per cent in the last quarter of 2008 compared to the previous quarter. Prices will continue falling for the rest of 2009 estate agents say. In mainland China, prices dropped 18 per cent in Shanghai. The average fall in values across the Middle Kingdom's 70 biggest cities is 1 per cent over the past twelve months.
To help stimulate the property market the Chinese authorities are making it easier for foreigners to buy in Beijing. The Chinese government often changes the rules for overseas investors, banning them when prices rise too fast, so foreign devils determined to gain a toehold in China's capital may want to make the most of this window of opportunity. There are no barriers to overseas investment in Hong Kong.
To help stimulate the property market the Chinese authorities are making it easier for foreigners to buy in Beijing. The Chinese government often changes the rules for overseas investors, banning them when prices rise too fast, so foreign devils determined to gain a toehold in China's capital may want to make the most of this window of opportunity. There are no barriers to overseas investment in Hong Kong.
GERMANY BUCKS TREND
Who would have thought it?! Germany's residential sales market spent the past decade floundering at or near the bottom of most league tables for price growth. Property prices fell in Europe's economic powerhouse for most of the ten years leading up to 2007, even though they rose just about everywhere else.
Now, the league tables are turned upside down. Just when the rest of the world is caught in the global property slump, so the value of German apartments are rising, up 1.2 per cent last year according to property research company Bulwiein Gesa AG.
Why is Germany's property market surviving better than others? Investors consider Germany a safe haven in these troubled times, and its property market, unlike so many others, is not weighed down with millions of euros of mortgage debt. There's also a solid rental market to tap into - most Germans rent.
Now, the league tables are turned upside down. Just when the rest of the world is caught in the global property slump, so the value of German apartments are rising, up 1.2 per cent last year according to property research company Bulwiein Gesa AG.
Why is Germany's property market surviving better than others? Investors consider Germany a safe haven in these troubled times, and its property market, unlike so many others, is not weighed down with millions of euros of mortgage debt. There's also a solid rental market to tap into - most Germans rent.
ENGLISH COTTAGES WANTED
Not everyone suffers in an economic slump. Britain's recession winners include pizza takeaways, supermarkets, wood stove makers, cobblers, makers of sweets and …...wait for it.....holiday cottage rentals. Property finder, The County Homesearch Company, says rental bookings for holiday cottages have leapt 30 per cent from early 2008 to early 2009, because cash-strapped Britons have opted for a holiday on home shores this summer. The collapse of Sterling has made overseas holidays too expensive. What's more, more people want to buy a cottage says the company.
With prices for cottages 15 per cent down and mortgage rates falling, these properties are potentially lucrative for investors it says. Traditional “chocolate box” cottages in the Cotswolds, New Forest, South Cornwall and Pembrokeshire are most in demand from holiday renters. Some pundits warn prices for cottages will continue to fall for the remainder of 2009, because too few bankers and stockbrokers are looking for places in the country - their bonuses have been cut, because of the credit crunch.
With prices for cottages 15 per cent down and mortgage rates falling, these properties are potentially lucrative for investors it says. Traditional “chocolate box” cottages in the Cotswolds, New Forest, South Cornwall and Pembrokeshire are most in demand from holiday renters. Some pundits warn prices for cottages will continue to fall for the remainder of 2009, because too few bankers and stockbrokers are looking for places in the country - their bonuses have been cut, because of the credit crunch.
ENORMOUS WEBSITE
The world's largest property website has renamed itself and added new content. Enormo.com, the property sales and rentals website previously known as Properazzi.com, has launched 16 country specific websites and community blogs where bloggers discuss vital issues such as whether location is as important now as before today's housing crisis – more than ever they conclude.
The Barcelona-based website has doubled its number of visitors over the past six months from two million to four million. It lists seven million properties for sale in 50 countries, including Britain, USA and Spain.
Other useful websites include www.worldproperties.com which lists three million properties for sale and provides buyers guides on individual countries. Investors may find www.globalpropertyguide.com useful, because this Philippines-based website gives property market news and investment data.
Some websites are highly specialist, such as www.lawoverseas.com and www.mortgagesoverseas.com - as their addresses suggest these British websites deal with international property law and mortgages respectively.
The Barcelona-based website has doubled its number of visitors over the past six months from two million to four million. It lists seven million properties for sale in 50 countries, including Britain, USA and Spain.
Other useful websites include www.worldproperties.com which lists three million properties for sale and provides buyers guides on individual countries. Investors may find www.globalpropertyguide.com useful, because this Philippines-based website gives property market news and investment data.
Some websites are highly specialist, such as www.lawoverseas.com and www.mortgagesoverseas.com - as their addresses suggest these British websites deal with international property law and mortgages respectively.
Thursday, 19 March 2009
PRIVATE ISLANDS SHUNNED
Demand for private islands is dropping, because of the global recession.
According to German estate agency, Vladi Private Islands, demand is holding firm for the most sought after islands, but falling away for less well located properties.
“The credit crunch will not affect values of quality islands which have been in firm hands for a long time,” says Farhad Vladi, managing director of Vladi Private Islands, “It will definitely have an effect on secondary islands, which were bought for speculative purposes. These are islands mainly in Central America, South America and the Indian Ocean. Islands off the coastline of Western Europe would not be affected.”
Sales prices for islands in less sought-after locations can be relatively low.
For example, Ilha Sapoeira, off the coast of Brazil is on the market for $399,000. This wooded 0.3 hectare island near Rio de Janiero has three beaches, bamboo bar, piped spring water and many fruit trees including papayas, avocados and bananas. It has an electricity generator, satellite television, satellite phone and small motorboat. According to Vladi, the surrounding crystal clear waters are perfect for diving, swimming, sailing and fishing.
Canada has many private islands for sale and is considered a relatively secure market. Kings Island in Nova Scotia, north east Canada, is a wooded, 2.6 hectare retreat in a lake. It has a log house, power and hot and cold running water. Price, $280,000. Undeveloped islands can be picked up for as little as $30,000.
In the best locations and with plenty of facilities, private islands can be expensive. Sanda Island off the coast of Scotland is on the market for more than $5 million. Its owner can adopt the feudal title of Laird of Sanda, issue his own stamps and mint his own gold coins. Located near the Mull of Kintyre on Scotland's west coast, the 161 hectare island has a hill farm and comes with two neighbouring islands. Vladi is marketing this jointly with estate agency, Knight Frank.
But, be warned - It takes a special kind of person to live on a private island, even if they do so for only part of the year says Vladi.
“Whoever buys an island should be able to improvise and value solitude,” he says, “If there is a power cut or a storm blows the roof off, the island inhabitant cannot simply call on the electrician or fire brigade. As King or Queen of your island you must be prepared to do without many of the luxuries of civilisation. Nature is so unpredictable and one needs to be able to repair the generator in the pouring rain when there is a power cut.”
Rising sea levels mean many low-lying island nations like the Maldives and Tuvalu fear becoming wholly or partially submerged beneath the waves, so prospective private islanders may want to choose properties with plenty of high ground.
But even when all dangers and inconveniences are considered, islands retain a strong allure.
“Few of us can withstand the longing for our own private island, surrounded by a turquoise ocean or set on an idyllic lake, far from the stress and speed of the rest of the world,” says Vladi, “Even though an island is a manageable size, it can engender a feeling of infinite space - the vast expanse of water that separates you from the mainland is your own backyard.”
What's more, many of us may want to escape to our own desert island during these turbulent times.
According to German estate agency, Vladi Private Islands, demand is holding firm for the most sought after islands, but falling away for less well located properties.
“The credit crunch will not affect values of quality islands which have been in firm hands for a long time,” says Farhad Vladi, managing director of Vladi Private Islands, “It will definitely have an effect on secondary islands, which were bought for speculative purposes. These are islands mainly in Central America, South America and the Indian Ocean. Islands off the coastline of Western Europe would not be affected.”
Sales prices for islands in less sought-after locations can be relatively low.
For example, Ilha Sapoeira, off the coast of Brazil is on the market for $399,000. This wooded 0.3 hectare island near Rio de Janiero has three beaches, bamboo bar, piped spring water and many fruit trees including papayas, avocados and bananas. It has an electricity generator, satellite television, satellite phone and small motorboat. According to Vladi, the surrounding crystal clear waters are perfect for diving, swimming, sailing and fishing.
Canada has many private islands for sale and is considered a relatively secure market. Kings Island in Nova Scotia, north east Canada, is a wooded, 2.6 hectare retreat in a lake. It has a log house, power and hot and cold running water. Price, $280,000. Undeveloped islands can be picked up for as little as $30,000.
In the best locations and with plenty of facilities, private islands can be expensive. Sanda Island off the coast of Scotland is on the market for more than $5 million. Its owner can adopt the feudal title of Laird of Sanda, issue his own stamps and mint his own gold coins. Located near the Mull of Kintyre on Scotland's west coast, the 161 hectare island has a hill farm and comes with two neighbouring islands. Vladi is marketing this jointly with estate agency, Knight Frank.
But, be warned - It takes a special kind of person to live on a private island, even if they do so for only part of the year says Vladi.
“Whoever buys an island should be able to improvise and value solitude,” he says, “If there is a power cut or a storm blows the roof off, the island inhabitant cannot simply call on the electrician or fire brigade. As King or Queen of your island you must be prepared to do without many of the luxuries of civilisation. Nature is so unpredictable and one needs to be able to repair the generator in the pouring rain when there is a power cut.”
Rising sea levels mean many low-lying island nations like the Maldives and Tuvalu fear becoming wholly or partially submerged beneath the waves, so prospective private islanders may want to choose properties with plenty of high ground.
But even when all dangers and inconveniences are considered, islands retain a strong allure.
“Few of us can withstand the longing for our own private island, surrounded by a turquoise ocean or set on an idyllic lake, far from the stress and speed of the rest of the world,” says Vladi, “Even though an island is a manageable size, it can engender a feeling of infinite space - the vast expanse of water that separates you from the mainland is your own backyard.”
What's more, many of us may want to escape to our own desert island during these turbulent times.
PRICES SOFTEN IN MAURITIUS
Mauritius, one of the most popular countries for setting up second homes, will probably see a fall in prices this year, according to estate agents.
Holiday home projects have sprung up on the coastline since the Indian Ocean island opened its doors to overseas property buyers in 2005. These developments are mostly gated communities with leisure facilities including golf courses, spas and restaurants. There are two types of communities - Integrated Resort Schemes (IRS), launched four years ago, in which villas are mostly available, and smaller, less expensive Real Estate Schemes (RES), started 18 months ago, which are apartments and houses.
IRS project Villas Valriche, on the southwest coast, will comprise 52 homes in phase two, seven of which have been sold since marketing started last November. Its developers, South Africa-based Second Lifestyle and Mauritian landowner Hector Espitalier-Noel, said completion of the second and third phases might be delayed if sales remained slow. This is because they cannot build the homes until buyers decide what style of villa they want. Twenty four styles are on offer.
"Phase two was launched at the end of 2008 and, although interest has been very high, the global market conditions have slowed buyers' willingness to put down deposits," said Robert Green, director of Cluttons, the sales agents for Villas Valriche. Prices start at US$950,000 for the estate's freehold villas.
Harry Lewis, international residential director at estate agency Savills, said sales were traditionally weak at this time of year which exacerbated the downturn.
"We've seen a mirror situation to all high-end resort developments worldwide," he said. "There has been a substantial reduction in inquiries, prices are softening but not as quickly as many would hope, and everyone forgets that January and February is traditionally our slowest selling period of the year."
The slowdown follows strong sales at initial IRS projects until last year. Anahita and the Tamarina Golf Estate and Beach Club are both sold out. At Villas Valriche, 123 of 132 plots in phase one were sold following its launch in May 2007.
Mr Green said resale prices for Tamarina properties were double their initial sales prices because of that growth. Prices rose 20 per cent at Villas Valriche last year, he added.
The nationality of buyers has altered since the IRS initiative was launched.
"The profile of buyers has changed as a result of the global financial crisis," Mr Green said. "The South African and British markets, previously regarded as the two biggest, have retracted largely due to weakening exchange rates and, as a result, other markets, particularly in the euro zone, have increased interest."
Some buyers are western expatriates based in the Middle East.
Projects had not been marketed in East Asia, so few buyers had come from there, Mr Green said. With demand drying up elsewhere, developers considered these markets potentially important now, so exhibitions might be held in Hong Kong soon, he added.
Several developments are scheduled for completion over the next couple of years.
South African estate agency Pam Golding Properties, which is affiliated to British agency Savills, is marketing two schemes that will be completed next year, including The River Club where half of its 250 homes have been sold. Prices start from US$825,000. It is also marketing Corniche Bay on the southwest coast which is centred on an 18-hole Gary Player-designed golf course. Ten of its 120 wavy-roofed villas, designed by Norman Foster, have been reserved. Prices start at US$3 million.
RES schemes include Cape Bay Beach Resort Mauritius where 22 of the 41 apartments have been sold. Prices for the remaining units start at US$355,000. Prices at RES project Le Residence start at US$352,000 for a two-bedroom, two-bathroom first floor apartment with roof terrace.
Jonathan Tagg, managing director of Pam Golding Properties, said even though the launch of the RES sector coincided with the start of the credit crunch, it had withstood the property market downturn because few properties were on the market.
"The shortage of resales of RES units has kept prices high and the crisis has not affected prices substantially," he said.
Mr Tagg forecast lower-priced RES and IRS properties coming on the market this year.
"We will see more IRS developments priced at about US$1 million as opposed to the conventional pricing of around US$2 million," he said. " RES developments are likely to be priced from US$300,000 to take advantage of a lower price bracket of buyers."
He said prices in Mauritius were, until recently, expensive but that there were some nice apartment blocks and small housing developments coming onto the market at prices ranging from US$250,000 to US$500,000.
MAURITIUS HOME BUYER'S GUIDE
Overseas buyers of Mauritian homes, sold for US$500,000 or more, will gain permanent residency on the island. Investors can only buy these properties at Integrated Resort Schemes (IRS) which are holiday home communities dotted round the island's coastline.
Permanent residency brings several advantages including tax. Income tax is levied at a flat rate of 15 per cent on their worldwide income. Expenses, losses and debts can be offset against this. Depending on the taxpayer's circumstances a certain amount of income is tax-free. There is no capital gains tax or inheritance tax.
On the downside, IRS homebuyers must pay a US$70,000 purchase tax.
Alternatively, overseas investors can buy less expensive homes at Real Estate Schemes (RES) where prices start at about US$300,000. However, they will not gain permanent residency by investing in these projects. Investors in new RES units must pay US$25,000 registration duty. Buyers of resale RES homes pay this charge plus a 5 per cent land transfer tax.
In a separate government initiative, retired foreigners can live in Mauritius provided they deposit a minimum of US$40,000 into a local bank account each year. These retirees can buy IRS and RES properties.
The Permanent Residence Scheme (PRS) awards permanent residence to foreigners who invest US$500,000 or more to start a business. These overseas businessmen are allowed to buy a home on the island. Foreigners with sought-after professional skills can gain permanent residency under another scheme and buy property.
Robert Green, director of Cluttons estate agent, said the IRS and RES rental markets were untested, so rental returns were impossible to calculate. The developers of Villas Valriche estimate 8 per cent yields are possible at their IRS project. According to the Global Property Guide, rental yields are 6.17 per cent in the general housing market.
IRS and RES home owners, who let their properties through the development's management company, must pay it a letting fee of about 20 per cent of the rent. Rental income is taxable.
More than 60 per cent of Mauritians are of Indian origin, 25 per cent Creole, 3 per cent Chinese (mainly Hakka) and 2 per cent Europeans. English is the official language.
Holiday home projects have sprung up on the coastline since the Indian Ocean island opened its doors to overseas property buyers in 2005. These developments are mostly gated communities with leisure facilities including golf courses, spas and restaurants. There are two types of communities - Integrated Resort Schemes (IRS), launched four years ago, in which villas are mostly available, and smaller, less expensive Real Estate Schemes (RES), started 18 months ago, which are apartments and houses.
IRS project Villas Valriche, on the southwest coast, will comprise 52 homes in phase two, seven of which have been sold since marketing started last November. Its developers, South Africa-based Second Lifestyle and Mauritian landowner Hector Espitalier-Noel, said completion of the second and third phases might be delayed if sales remained slow. This is because they cannot build the homes until buyers decide what style of villa they want. Twenty four styles are on offer."Phase two was launched at the end of 2008 and, although interest has been very high, the global market conditions have slowed buyers' willingness to put down deposits," said Robert Green, director of Cluttons, the sales agents for Villas Valriche. Prices start at US$950,000 for the estate's freehold villas.
Harry Lewis, international residential director at estate agency Savills, said sales were traditionally weak at this time of year which exacerbated the downturn.
"We've seen a mirror situation to all high-end resort developments worldwide," he said. "There has been a substantial reduction in inquiries, prices are softening but not as quickly as many would hope, and everyone forgets that January and February is traditionally our slowest selling period of the year."
The slowdown follows strong sales at initial IRS projects until last year. Anahita and the Tamarina Golf Estate and Beach Club are both sold out. At Villas Valriche, 123 of 132 plots in phase one were sold following its launch in May 2007.
Mr Green said resale prices for Tamarina properties were double their initial sales prices because of that growth. Prices rose 20 per cent at Villas Valriche last year, he added.
The nationality of buyers has altered since the IRS initiative was launched.
"The profile of buyers has changed as a result of the global financial crisis," Mr Green said. "The South African and British markets, previously regarded as the two biggest, have retracted largely due to weakening exchange rates and, as a result, other markets, particularly in the euro zone, have increased interest."
Some buyers are western expatriates based in the Middle East.
Projects had not been marketed in East Asia, so few buyers had come from there, Mr Green said. With demand drying up elsewhere, developers considered these markets potentially important now, so exhibitions might be held in Hong Kong soon, he added.
Several developments are scheduled for completion over the next couple of years.
South African estate agency Pam Golding Properties, which is affiliated to British agency Savills, is marketing two schemes that will be completed next year, including The River Club where half of its 250 homes have been sold. Prices start from US$825,000. It is also marketing Corniche Bay on the southwest coast which is centred on an 18-hole Gary Player-designed golf course. Ten of its 120 wavy-roofed villas, designed by Norman Foster, have been reserved. Prices start at US$3 million.
RES schemes include Cape Bay Beach Resort Mauritius where 22 of the 41 apartments have been sold. Prices for the remaining units start at US$355,000. Prices at RES project Le Residence start at US$352,000 for a two-bedroom, two-bathroom first floor apartment with roof terrace.
Jonathan Tagg, managing director of Pam Golding Properties, said even though the launch of the RES sector coincided with the start of the credit crunch, it had withstood the property market downturn because few properties were on the market.
"The shortage of resales of RES units has kept prices high and the crisis has not affected prices substantially," he said.
Mr Tagg forecast lower-priced RES and IRS properties coming on the market this year.
"We will see more IRS developments priced at about US$1 million as opposed to the conventional pricing of around US$2 million," he said. " RES developments are likely to be priced from US$300,000 to take advantage of a lower price bracket of buyers."
He said prices in Mauritius were, until recently, expensive but that there were some nice apartment blocks and small housing developments coming onto the market at prices ranging from US$250,000 to US$500,000.
MAURITIUS HOME BUYER'S GUIDE
Overseas buyers of Mauritian homes, sold for US$500,000 or more, will gain permanent residency on the island. Investors can only buy these properties at Integrated Resort Schemes (IRS) which are holiday home communities dotted round the island's coastline.
Permanent residency brings several advantages including tax. Income tax is levied at a flat rate of 15 per cent on their worldwide income. Expenses, losses and debts can be offset against this. Depending on the taxpayer's circumstances a certain amount of income is tax-free. There is no capital gains tax or inheritance tax.
On the downside, IRS homebuyers must pay a US$70,000 purchase tax.
Alternatively, overseas investors can buy less expensive homes at Real Estate Schemes (RES) where prices start at about US$300,000. However, they will not gain permanent residency by investing in these projects. Investors in new RES units must pay US$25,000 registration duty. Buyers of resale RES homes pay this charge plus a 5 per cent land transfer tax.
In a separate government initiative, retired foreigners can live in Mauritius provided they deposit a minimum of US$40,000 into a local bank account each year. These retirees can buy IRS and RES properties.
The Permanent Residence Scheme (PRS) awards permanent residence to foreigners who invest US$500,000 or more to start a business. These overseas businessmen are allowed to buy a home on the island. Foreigners with sought-after professional skills can gain permanent residency under another scheme and buy property.
Robert Green, director of Cluttons estate agent, said the IRS and RES rental markets were untested, so rental returns were impossible to calculate. The developers of Villas Valriche estimate 8 per cent yields are possible at their IRS project. According to the Global Property Guide, rental yields are 6.17 per cent in the general housing market.
IRS and RES home owners, who let their properties through the development's management company, must pay it a letting fee of about 20 per cent of the rent. Rental income is taxable.
More than 60 per cent of Mauritians are of Indian origin, 25 per cent Creole, 3 per cent Chinese (mainly Hakka) and 2 per cent Europeans. English is the official language.
LONDON'S BARGAIN HUNTERS
London home sellers are accepting offers of up to 30 per cent below their asking prices, with Hong Kong buyers among those taking advantage of the deep discounts and the added attraction of a collapse in the value of the British pound. These Hong Kong investors join buyers from Europe and the Middle East who have been active in London's property market since late 2008.
Camilla Dell, the managing director of property search company Black Brick, said bargain hunters were demanding big discounts whether homes appeared fairly valued or not. Caught in a credit squeeze and by tumbling resale values, many vendors were accepting these low offers.
"You can now get 20 to 30 per cent less for homes still advertised for sale at 2008 prices," said Ms Dell.
"The penny has dropped, and sellers have realised that they will not get the prices now that they might have got in 2008."
However, vendors who had already cut their asking prices to reflect the weakened state of the market were now turning down even lower offers and in some cases were taking their properties off the market because they were fed up with the bargain hunters, she added.
Meanwhile, genuine investors were snapping up bargain properties quickly, so potential buyers needed to act fast, Ms Dell said. "The window of opportunity in London won't last as long as people think.
"From this week we started to find we are competing against other buyers, many of them international, for the same property. People sitting on the sidelines thinking they will come in later in the year may miss out."
But other commentators believed there was still room for further price falls. Russell Hunt, managing director of property finders Property Hunt, said big price cuts were possible in the middle and lower end of the market.
The type of property and its location were less important than the vendor's circumstances, he said. Unemployment is rising across London and many people are struggling with debt.
"At the upper end of the market, some of the larger houses are achieving close to asking prices, as some confidence has come back to the market. In other cases it really does depend on the vendor's situation and how keen they are to sell."
Mr Hunt said there had been an upsurge in the number of Hong Kong buyers arriving in London since the start of the year.
Developers Weston Homes and Berkeley Homes are completing deals with Hong Kong buyers at London developments like Bridges Wharf (SEHK: 0004) in Battersea and Chelsea Bridge Wharf.
Robert Hadfield, managing director of investment property management company Pineflat, said yields would need to rise before residential property became an attractive investment, which meant prices needed to fall further.
"My instinct is that we need to get back to 2002 [price] levels before the market will be in some sort of balance," he said.
According to estate agency Knight Frank's Winter 2009 London Residential Review, London prices have dropped 20 per cent from their 2007 peak. It expects prices to fall at least another 10 per cent before recovering, with bigger drops likely for newly built properties in secondary locations.
Camilla Dell, the managing director of property search company Black Brick, said bargain hunters were demanding big discounts whether homes appeared fairly valued or not. Caught in a credit squeeze and by tumbling resale values, many vendors were accepting these low offers.
"You can now get 20 to 30 per cent less for homes still advertised for sale at 2008 prices," said Ms Dell.
"The penny has dropped, and sellers have realised that they will not get the prices now that they might have got in 2008."
However, vendors who had already cut their asking prices to reflect the weakened state of the market were now turning down even lower offers and in some cases were taking their properties off the market because they were fed up with the bargain hunters, she added.
Meanwhile, genuine investors were snapping up bargain properties quickly, so potential buyers needed to act fast, Ms Dell said. "The window of opportunity in London won't last as long as people think.
"From this week we started to find we are competing against other buyers, many of them international, for the same property. People sitting on the sidelines thinking they will come in later in the year may miss out."
But other commentators believed there was still room for further price falls. Russell Hunt, managing director of property finders Property Hunt, said big price cuts were possible in the middle and lower end of the market.
The type of property and its location were less important than the vendor's circumstances, he said. Unemployment is rising across London and many people are struggling with debt.
"At the upper end of the market, some of the larger houses are achieving close to asking prices, as some confidence has come back to the market. In other cases it really does depend on the vendor's situation and how keen they are to sell."
Mr Hunt said there had been an upsurge in the number of Hong Kong buyers arriving in London since the start of the year.
Developers Weston Homes and Berkeley Homes are completing deals with Hong Kong buyers at London developments like Bridges Wharf (SEHK: 0004) in Battersea and Chelsea Bridge Wharf.
Robert Hadfield, managing director of investment property management company Pineflat, said yields would need to rise before residential property became an attractive investment, which meant prices needed to fall further.
"My instinct is that we need to get back to 2002 [price] levels before the market will be in some sort of balance," he said.
According to estate agency Knight Frank's Winter 2009 London Residential Review, London prices have dropped 20 per cent from their 2007 peak. It expects prices to fall at least another 10 per cent before recovering, with bigger drops likely for newly built properties in secondary locations.
STRUGGLING SEYCHELLES
Nowhere is immune from the global economic crisis, not even paradise. Sales of luxury holiday homes in the Seychelles have slowed to a trickle, because of belt tightening by the world's wealthy.
Although the Seychelles gave the go-ahead to building resort communities for overseas buyers four years ago, tight planning controls mean only four schemes have homes for sale. Prior to the collapse of several banks like Lehman Brothers, last autumn, sales had been good.
On the west coast of Mahe, the Seychelles' principal island, 18 of 28 villas at the highly exclusive Four Seasons Private Residences were sold within a couple of months of coming onto the market in May 2008, most in pre-sales. The least expensive home, a three bed residence, is USD7million. Two buyers come from Singapore, most of the rest from Europe and the Middle East. Over the last six months no villas have been sold at this project.
Only one villa from 13 on offer at the Banyan Tree Seychelles resort on Mahe island has been sold. Prices start from USD1.5million for a one bedroom villa. Eden Island, the first, largest and least expensive of the resort communities was mostly sold before credit began to be crunched. Two-thirds of its 450 villas, duplexes and apartments are sold with South Africans and Britons the biggest groups of buyers. Prices start at USD375,000.
Sales were strongest over the past six months at Zil Pasyon on Felicite Island where prices start at USD3million for a three bed home. Nine of its 28 villas have been sold to buyers from across the world, including a Hong Kong-based western expatriate. However, some buyers were having financial difficulties project developer, Per Aquum Residences, revealed.
“Some buyers have asked for extensions on payment schemes,” said Jenni Beggs, managing director of Per Aquum Residences, “Two UK buyers from Monaco put down deposits and have withdrawn. We've found that the UK market has been hardest hit.”
James Davies, director at London-based Hamptons International, sales agents for Four Seasons Private Residences, said the global economic slump had dampened sales of homes, but buyer enquiries had grown since December.
“Inevitably, like everything, there were buyers, but then their circumstances have changed, both at the high end and entry level,” he said, “Since the end of last year we have had more interest from individuals looking to relocate, some for tax reasons. Also we have entrepreneurs looking for somewhere to chill out.”
He anticipated sales would start to pick up at Four Seasons following the opening of its hotel on 5th February, because visiting holidaymakers would be able to view nine villas completed in January.
“We are very confident that we will have sold out by end of 2009, because it will all be built, the hotel is open and it is one of the best resorts in the world,” he said.
With only a few luxury homes being built in the Seychelles, estate agents and developers are confident they can ride out the downturn, especially since these properties are rent-able to holidaymakers.
“The key is that it is a very limited market,” said Mr. Davies, “The Seychelles has very high environmental standards, so getting planning permission takes years and years and years. Also, it has the highest average hotel room rates in the world and consistently higher occupancy levels.”
Each resort scheme is highly distinctive. Situated on steep hillsides overlooking a quiet bay, the Four Seasons villas are built on stilts from stone and wood in the creole-style with steep metal roofs to shoot heavy rain. Residents can use Four Seasons hotel facilities.
The strikingly minimalist Zil Pasyon villas designed by British architectural practice, Richard Hywel Evans, have James Bond baddie-levels of over-the-top glamour. Each villa has a glass bottomed swimming pool outside the first floor master bedroom which forms part of the ceiling of the lounge below.
Each Banyan Tree villa has a surround sound home theatre system, steam room, jet pool, sun deck, private swimming pool and access to the beach, although the sea is rough here, so not ideal for swimming. Residents can use the resort's spa.
Eden Island is a marina complex built on reclaimed land off the coast Mahe, close to the airport. Mr. Davies said there was a growing trend for overseas investors to buy land on the Seychelles's 115 islands, so they could build their own home. Hamptons was helping six foreigners, including a Hong Kong-based British expatriate, to buy land.
“They are looking for sites that range from one to 20 acres,” he said, “You can pay GBP5 million for a few acres of beach-front, or get something significantly better for GBP2million, because owners are picking valuations out of the air. It is a brand new market, so it is very difficult to get good valuations. “As soon as you step back from the beach prices fall right back. You can get a couple of acres of property with ocean views for a GBP300,000.”
SEYCHELLES HOME BUYER'S GUIDE
The Seychelles is a tax haven which gives permanent residency to overseas second home buyers. As residents, they benefit from paying no tax on income, inheritance and capital gains.
A minimum of SCR1 million (one million Seychelles rupees) must be spent on a property to gain residency.
Property taxes can be high or low depending on where you buy. Stamp duty is higher for properties bought outside of holiday home estates. The tax ranges from 2 per cent at resort community, Eden Island, to 30 per cent in the general housing market.
Placing your home in an estate's rental pool may reduce your stamp duty liability – at resort community, Zil Pasyon, home-buyers pay 6.5 per cent stamp duty if they allow the estate's management to rent out their home, but 10 per cent if they don't.
Buying properties on holiday home estates can incur some huge service charges. At Four Seasons Private Residences, they levy USD65,000 to USD85,000 per year service charges and at Zil Pasyon, USD100 per square meter per year. Since Zil Pasyon's villas range from 612 square meters to 1400 sq m in area, that means owners could pay a whopping USD140,000 in management charges each year.
Developers say high service charges are needed to pay for expensive construction and maintenance costs. At Four Seasons Private Residences, hotel facilities were enlarged to accommodate villa owners and basic infrastructure like water desalienation and power generation had to be built. Providing security guards and golf buggies for residents raised costs further.
Properties at Four Seasons and the Banyan Tree Seychelles resort can be bought freehold, so too individual homes and undeveloped plots. At Zil Pasyon and Eden Island homes are leasehold.
Rental income is classed as business revenue, so it is taxed at a progressive rate from 25 per cent to 40 per cent. Tax deductible expenses can be claimed.
James Davies, director at estate agency, Hamptons International, said the second home sales and rentals market on the islands was too “immature” to estimate potential rental yields accurately. Rental returns could be given at the Four Seasons project in six months time when its rental programme was up and running and it was known how much rent holidaymakers were willing to pay, he said.
However, Banyan Tree guarantees villa buyers gross returns of 6 per cent per year for six years and use of the villa for a maximum of 60 days each year. Owners can use some of this time at the operator's other resorts.
Independent estate agents offer completed homes and undeveloped plots for sale, including the occasional private island.
Although the Seychelles gave the go-ahead to building resort communities for overseas buyers four years ago, tight planning controls mean only four schemes have homes for sale. Prior to the collapse of several banks like Lehman Brothers, last autumn, sales had been good.
On the west coast of Mahe, the Seychelles' principal island, 18 of 28 villas at the highly exclusive Four Seasons Private Residences were sold within a couple of months of coming onto the market in May 2008, most in pre-sales. The least expensive home, a three bed residence, is USD7million. Two buyers come from Singapore, most of the rest from Europe and the Middle East. Over the last six months no villas have been sold at this project.Only one villa from 13 on offer at the Banyan Tree Seychelles resort on Mahe island has been sold. Prices start from USD1.5million for a one bedroom villa. Eden Island, the first, largest and least expensive of the resort communities was mostly sold before credit began to be crunched. Two-thirds of its 450 villas, duplexes and apartments are sold with South Africans and Britons the biggest groups of buyers. Prices start at USD375,000.
Sales were strongest over the past six months at Zil Pasyon on Felicite Island where prices start at USD3million for a three bed home. Nine of its 28 villas have been sold to buyers from across the world, including a Hong Kong-based western expatriate. However, some buyers were having financial difficulties project developer, Per Aquum Residences, revealed.
“Some buyers have asked for extensions on payment schemes,” said Jenni Beggs, managing director of Per Aquum Residences, “Two UK buyers from Monaco put down deposits and have withdrawn. We've found that the UK market has been hardest hit.”
James Davies, director at London-based Hamptons International, sales agents for Four Seasons Private Residences, said the global economic slump had dampened sales of homes, but buyer enquiries had grown since December.
“Inevitably, like everything, there were buyers, but then their circumstances have changed, both at the high end and entry level,” he said, “Since the end of last year we have had more interest from individuals looking to relocate, some for tax reasons. Also we have entrepreneurs looking for somewhere to chill out.”
He anticipated sales would start to pick up at Four Seasons following the opening of its hotel on 5th February, because visiting holidaymakers would be able to view nine villas completed in January.
“We are very confident that we will have sold out by end of 2009, because it will all be built, the hotel is open and it is one of the best resorts in the world,” he said.
With only a few luxury homes being built in the Seychelles, estate agents and developers are confident they can ride out the downturn, especially since these properties are rent-able to holidaymakers.
“The key is that it is a very limited market,” said Mr. Davies, “The Seychelles has very high environmental standards, so getting planning permission takes years and years and years. Also, it has the highest average hotel room rates in the world and consistently higher occupancy levels.”
Each resort scheme is highly distinctive. Situated on steep hillsides overlooking a quiet bay, the Four Seasons villas are built on stilts from stone and wood in the creole-style with steep metal roofs to shoot heavy rain. Residents can use Four Seasons hotel facilities.
The strikingly minimalist Zil Pasyon villas designed by British architectural practice, Richard Hywel Evans, have James Bond baddie-levels of over-the-top glamour. Each villa has a glass bottomed swimming pool outside the first floor master bedroom which forms part of the ceiling of the lounge below.
Each Banyan Tree villa has a surround sound home theatre system, steam room, jet pool, sun deck, private swimming pool and access to the beach, although the sea is rough here, so not ideal for swimming. Residents can use the resort's spa.
Eden Island is a marina complex built on reclaimed land off the coast Mahe, close to the airport. Mr. Davies said there was a growing trend for overseas investors to buy land on the Seychelles's 115 islands, so they could build their own home. Hamptons was helping six foreigners, including a Hong Kong-based British expatriate, to buy land.
“They are looking for sites that range from one to 20 acres,” he said, “You can pay GBP5 million for a few acres of beach-front, or get something significantly better for GBP2million, because owners are picking valuations out of the air. It is a brand new market, so it is very difficult to get good valuations. “As soon as you step back from the beach prices fall right back. You can get a couple of acres of property with ocean views for a GBP300,000.”
SEYCHELLES HOME BUYER'S GUIDE
The Seychelles is a tax haven which gives permanent residency to overseas second home buyers. As residents, they benefit from paying no tax on income, inheritance and capital gains.
A minimum of SCR1 million (one million Seychelles rupees) must be spent on a property to gain residency.
Property taxes can be high or low depending on where you buy. Stamp duty is higher for properties bought outside of holiday home estates. The tax ranges from 2 per cent at resort community, Eden Island, to 30 per cent in the general housing market.
Placing your home in an estate's rental pool may reduce your stamp duty liability – at resort community, Zil Pasyon, home-buyers pay 6.5 per cent stamp duty if they allow the estate's management to rent out their home, but 10 per cent if they don't.
Buying properties on holiday home estates can incur some huge service charges. At Four Seasons Private Residences, they levy USD65,000 to USD85,000 per year service charges and at Zil Pasyon, USD100 per square meter per year. Since Zil Pasyon's villas range from 612 square meters to 1400 sq m in area, that means owners could pay a whopping USD140,000 in management charges each year.
Developers say high service charges are needed to pay for expensive construction and maintenance costs. At Four Seasons Private Residences, hotel facilities were enlarged to accommodate villa owners and basic infrastructure like water desalienation and power generation had to be built. Providing security guards and golf buggies for residents raised costs further.
Properties at Four Seasons and the Banyan Tree Seychelles resort can be bought freehold, so too individual homes and undeveloped plots. At Zil Pasyon and Eden Island homes are leasehold.
Rental income is classed as business revenue, so it is taxed at a progressive rate from 25 per cent to 40 per cent. Tax deductible expenses can be claimed.
James Davies, director at estate agency, Hamptons International, said the second home sales and rentals market on the islands was too “immature” to estimate potential rental yields accurately. Rental returns could be given at the Four Seasons project in six months time when its rental programme was up and running and it was known how much rent holidaymakers were willing to pay, he said.
However, Banyan Tree guarantees villa buyers gross returns of 6 per cent per year for six years and use of the villa for a maximum of 60 days each year. Owners can use some of this time at the operator's other resorts.
Independent estate agents offer completed homes and undeveloped plots for sale, including the occasional private island.
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