Category: Property Market Commentary

Comments on the state of property markets around the world

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A very misleading and poorly researched article on working in Dubai

I was very disappointed to come across this article when reading www.propertymash.com this morning. Published by The Australian newspaper, it really is the epitome of poor reporting – limited research and trying as hard as possible to create some spin for interest sake alone.

You can read the article yourself here – http://www.theaustralian.news.com.au/story/0,,25547622-25658,00.html?from=public_rss

Lets get a few facts straight about employment conditions and laws in the UAE. First of all if you are not a UAE national, you will need to get a VISA issued by your employer. If you cease to work for that employer, that company needs to release you and yes, they can place a ban on you working for other employers (by not releasing your VISA). This can however be challenged in local courts, and I have seen this done successfully. 

Is it harder to change jobs in Dubai? Undoubtedly. By virtue that employers control the issuing of VISA’s for you, this does give them a significant negotiating tool when things turn sour. Yes, employers can use this to manipulate employee’s. I have heard of many examples where the threat of not releasing an employee’s work visa is used as a negotiating tool to get an employee to stay, or take a revised package or even to leave and not take severance pay or, in the case of the property industry, not be paid commission that is owing to them.

However this is the exception and not the norm. Many companies are struggling in Dubai at present, just like in the rest of the world, so the temptation will be strong to use whatever means possible to reduce costs (paying severance pay and outstanding commissions).  This isn’t of course a valid excuse for not paying amounts due, however when dealing in emerging markets anywhere in the world, you need to be far more mindful of the balance of power in all forms of negotiation. The relatively equal balance of power between employers and employees  that Australian’s are used to is not the norm in most developing economies. So when taking a job in Dubai or any other emerging market enter it with your eyes open – and don’t be naive about what can happen if your relationship or the company’s prospects go south.

One more thing – the comment in the article on “These people also face financial hardships such as locked-in rental payments and relocation costs.”

A couple of things on this. I have not heard of a single management level executive working for one of the large developers (the examples cited in the article) who isn’t provided a very significant rental allowance or an apartment or villa rent free. It is almost always a standard part of a senior executives package. Similarly in my experience relocation costs are generally paid for by the employers for these senior executives.

What the article doesn’t tell you is that everyday people skip town, reneging on all of their financial obligations, whether they be car finance payments, mortgages, leases and of course, employment obligations. In this case the immaturity of the financial and legal system enables the employee to walk away from all of their obligations, with significant impacts of property owners, banks, employers and so on.

Like most things, there are two sides to every story.

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Property in New Zealand overpriced?

Read this morning a great article I found via www.propertymash.com. This is a website that we run that amalgamates the best property news from Australia, New Zealand, the Middle East and Europe so that you can easily find important information of interest to property professionals.

One great article I found today on www.propertymash.com is this one – http://blogs.nzherald.co.nz/blog/show-me-money/2009/5/17/graphic-proof-house-prices-are-overvalued/?ref=rss&c_id=8 from the New Zealand Herald dissecting a recent Reserve Bank paper. In essence it explains why the Reserve Bank believes NZ property is still too expensive. If you are a property owner or investor in New Zealand it is well worth reading.

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Insights into Baby Boomers – An interesting study on what Boomers are buying

Baby boomers represent a huge % of every ones target market, but in the retirement sector they are about to become the market! Baby boomers are generally classified as people born between 1946 to 1964.  Understanding what boomers are doing now and will be doing in the near future is fundamental to the success of everyone involved in the retirement or aged care sector as they are the future of the industry.

Focalyst, a market research consultancy that specialises on understanding Boomers and Matures, has recently published a study breaking Boomers down into 3 segments and analyising their purchasing behaviour. It is interesting reading and takes into account the impact of the ongoing Financial Crisis and the impact on Boomer behaviour. One outcome, which perhaps has a short term negative impact for the development and aged care sector, is that Boomers may have to delay retirement to make up for the losses arising from the crisis.

You can see the full report on the Focalyst site at www. focalyst.com

The company also has a interesting interview on NBC that provides a really good insight into mis-conceptions on Boomers.  It is well worth 6 minutes of any property developers time to watch this.

You can see the video here – http://video.aol.com/video-detail/today-show-top-10-baby-boomer-myths/736032725

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Interesting Report Showing Green Rated Buildings Rent for More

This is an interesting report that has just come out that is probably the first detailed analysis of the commercial benefits of a Green Rated building from a Developers or Owners perspective.

The report analysed 694 Green Rated buildings and compared them to around 8000 non- green rated buildings to determined the comparative difference in rental returns. The report finds that a Green Rated building on average will lease for 2% per sq.ft higher than non-green rated buildings, with the difference in effective rent being around 6% (by virtue of less incentives as well as tenants in Green Buildings paying higher outgoings).

The one issue not addressed is the difference in build cost, and therefore whether these increased rents are enough to compensate for the increased build costs.

A 2007 report by David Langdon in Australia reported that initial constructions costs on (above comparable none Green projects) was likely to be in the order of 3 – 5% for a 5 star solution, with an impact of a further 5% plus for a 6 star non iconic design solution.

So in my mind this poses the underlying problem as to why more building are not being built to the various Green Star ratings. The economics are not compelling at this time. They are however very close as we can now see and all we would need is strong shove in the right direction to make building Green buildings compelling.

Government subsidies can of course make all of the difference. Attractive tax benefits alone would make the decision to build Green buildings compelling.

This is of course only one side of the energy issue as far as it concerns construction. What we are looking at here is the level of emissions and overall sustainability of the building once constructed. The major emissions however occur in the construction stage, primarily by virtue of the material used. For example a house made from wood, involves cutting down trees, processing the timber and then the physical construction itself, all of which have a negative emissions effect.

For those interested in the amount of carbon embodied in the construction of a new building, here is a calculator that helps you arrive at a estimate: http://buildcarbonneutral.org/

Here is the link to the Doing Well by Doing Good paper – http://urbanpolicy.berkeley.edu/pdf/EKQ_Green_Buildings_040808.pdf

Here is the link to the David Langdon report on “The cost and benefit of achieving green buildings” – https://www.usgbc.org/ShowFile.aspx?DocumentID=2583

 

 

 

You can find the full report here – http://urbanpolicy.berkeley.edu/pdf/EKQ_Green_Buildings_040808.pdf

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Housing Downturn in the USA said to be exaggerated

A recent study carried out at the University of Virginia has cast doubt on the wildly held belief that the whole of he USA is in a housing meltdown. The findings of the study makes good reading, and quite frankly makes sense. As we all know humans love to over-react – whether it is to a boom or a bust and it would seem that this is the case here.

Here are the first 3 paragraphs of the report that provides the core findings of the study:

“National housing price declines and foreclosures have not been as severe as some analyses have indicated, and they are not as important as financial manipulations in bringing on the global recession. Most foreclosures have been concentrated in California, Florida, Nevada, and Arizona, and a modest number of metropolitan counties in other states. In fact, 66 percent of potential housing losses in 2008 and subsequent years may be in California, with another 21 percent in Florida, Nevada, and Arizona, for a total of 87 percent of national declines in these four states.

California had only 10 percent of the nation’s housing units, but it had 34 percent of the foreclosures in 2008. California was vulnerable to foreclosures, because the median value of owner-occupied housing in 2007 was 8.3 times median family income, while the 2007 national average was only  3.2, and in 2000 it was lower still at 2.4. Another vulnerability to foreclosures was seen in the Los Angeles metropolitan area, where more than 20 percent of mortgage holders in each county were paying at least 50 percent of their income in housing related costs.

But even in California, enormous variations existed among jurisdictions, such as in the San Francisco metropolitan area, where Solano County had 3.69 percent of housing units in foreclosure in November 2008, while only 0.24 percent of housing units were in foreclosure in the City of San Francisco, a 15 to 1 difference.

Potential housing value losses from 2008 foreclosures  in 50 states, if values decline to year 2000 levels, were less than one-third of the $350 billion that has been provided to banks and insurance companies to cope with losses in mortgage backed securities. “

This last paragraph is what really grabbed me however. If this is correct, and I don’t have a basis for disputing the figures at this time, the bailout of the banks is not underwritten by their property portfolios. I believe that we have all been under the  belief that the money lent to the banks through the stimulus packages was at least secured in some way by the underlying assets, namely the property portfolio’s. I certainly have assumed that perhaps the devaluation may have been as much as 30% on these assets. So in other words – worst case scenario that the banks go bust, the tax payer would get 70c in the dollar back.

However on these figures, the taxpayer would only get 33c in the dollar back. Not a very smart investment decision is it. None of us would ever make this investment by ourselves – and yet the US taxpayer is (by virtue of their Government) and they don’t have a choice in the matter.

Here is the link to the full report – http://www.virginia.edu/uvatoday/newsRelease.php?id=7838

It is very interesting and worth a read if you have an interest in economics. I particularly found the relationship they draw between foreclosures rates and housing affordability interesting, which is something I will write about further in the near future.

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Plenty of opportunities still in the Dubai property market

While the market might be quiet on the whole, I am still seeing plenty of positive signs. Yes, prices might be down and many future mega projects may be on hold, but the projects underway are still moving forward and transactions are still taking place. A quick glance in any direction shows that while the pace is slowing, the cranes are still moving and the construction is still forging ahead at a pace no other city in the world can match.

 

It is easy to be drawn in to all the “doom and gloom” being thrown about concerning the outlook for the Dubai property market, however from my vantage point, dealing with a large number of people in various aspects of the local real estate market, it is clear that there are still opportunities there for those who work hard and leverage their strengths.

 

Daily I am hearing of new sales, from investors snapping up bargain basement villa’s on The Palm, to Marina and Springs renters transitioning to owner occupiers as the lower prices open new opportunities for many residents.

 

While the Loan To Value (LTV) ratio being offered by mortgage lenders might still be low, there are still many investors and residents with cash savings looking to take advantage of a weak property market. As other avenue’s of investment continue to look unstable or offer poor returns the long term stability offered by property investment is once again luring those with cash reserve’s and Dubai is still firmly rooted at the top of the property investment tree.

 

The key over the coming months will be staying in constant touch with clients and prospects to keep a feel for their needs and an eye out for the ripe opportunities.

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Savvy Real Estate Brokers are helping existing tenants become property owners

A new niche in the market has become very clear to me over the past month. While there is a very clear and obvious trend amongst brokers to concentrate on the leasing market, there is also an underlying growth in the number of local owner occupiers.

 

On the whole consumer optimism in Dubai is still high. This is the finding of the latest surveys and backed by statistics on spending by the credit card companies, plus my own sole of the shoes experience. A quick stroll through any Dubai shopping mall will show you that the local populace is still out spending in droves. Combine this with the significant drop in prices and many current renters are looking to make the leap and become property owners as their leases expire. This sentiment has be echoed at many a recent bbq or social event.

 

To tap into this lucrative opportunity, the savvy real estate brokers are mining their leasing databases to offer bargain properties to tenants nearing the end of their leases. Brightfox’s automated business processes give users of our Workflow Manager a distinct advantage in this area by tracking every lease expiry and allowing brokers to profile the tenants to understand what property features and pricepoints make an attractive investment opportunity which would see them move from tenant to owner.

 

Just as importantly, it is not to late to take advantage of this phenomenon, as those taking up leases now will also still be in the position to take advantage of the lower prices still on offer when their leases expire 12 months from now.

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RBA & the Government – so out of touch!

I read today the Reserve Banks latest Statement on Monetary Policy and also most chocked on my water (I have recently given up coffee!).

Here is an excerpt from the Statement:

“Short-term indicators of housing construction suggest that activity weakened late last year, and there were modest declines in aggregate house prices. Nonetheless, prospects for the year ahead should be supported by the significant declines in interest rates that have occurred, along with the increase in the first home owners’ grant announced in October. A recent pick-up in housing loan approvals and in reported display home traffic suggests that these factors are now starting to add to housing demand.”

To read this it sounds like the property sector is in a slight downturn and that things are now looking up. Seriously, who are these guys talking to! If they would talk to any real estate agent or developer who is on the ground they would tell them how tough things really are. A pick up in traffic to onsite displays from 0 to a couple a week for anyone (other than those selling to First Home Buyers) is hardly cause for optimism.

Unfortunately the Government hasn’t really figured it out either. Their plan is to spend money. In fact it is the same plan we all have had for the past decade or so – spend money. The Government is now replicating the exact same thing that consumers have done for the past decade and more that got us into this problem in the first place…. that is, spending more than we earn. Effectively financing our lifestyles on credit.

At the time of course we all thought that our increased spending was not financed by credit, but by increases in asset prices. So as our homes and shares increased in value, we borrowed more money as we believed we had it, to spend more. Sometimes on other assets (thereby pushing up asset values further), and a lot on discretionary items. The problem is now is that our assets are not worth what we thought they were. So what we were spending wasn’t our money at all as whilst out asset values have dropped, unfortunately, our debt levels haven’t. So in effect we were spending the bank’s money. No different to a credit card really when you look at it like this, and credit card’s have to be repaid at some stage don’t they?

So what is the Government doing now? Pretty much the same thing. Spending money that it doesn’t have based upon what? ….. future revenue which will be predominently funded from what? ….. commodity revenues! So the Government is going to spend Billions of dollars of our money on the hope that Commodity Prices will once again boom and our economies fortune will turn around.

Well my question is… what if it doesn’t? What if commodity prices remained subdued for 3 years or even 5. What happens then? I don’t hear anyone talking about that. Are we going to spend $50 Billion each year to try and shore up the economy for the next 5 years? People talk about leaving a legacy for our children. Now that would be a legacy worth talking about!

What should we be doing? I don’t purport to be an expert but surely we need to focus on productivity improvements. Surely we need to bring back into balance our society so that we generate more than what we spend … excluding digging stuff out of the ground. You see the emergence of China, India and the other emerging markets of Asia and Latin America have all breed huge inefficiencies into Western Economies. You tell me how it can be efficient to pay Wall Street brokers millions for retention bonuses (eg Merill Lynch) when they almost drove the company into the ground, and there are no other jobs to go to anyway. How can it be efficient to pay grounds people at schools in mining communities $150,000 salary? Not that I think it is great that they can earn it, but how can that be classed as efficient. We have all been lulled into a sense of security that by exporting our manufacturing and other labour intensive jobs to developing nations we have begun efficient. Certainly this has improved efficiencies. Certainly we all work harder. But 0 elasticity in employment, asset bubbles and high commodity prices have not been conducive to productivity improvements within our own workforce.

So we should be offering incentives to businesses to retool, upskill, employ. We should be spending our money on big ticket assets that will produce productivity benefits for years to come, such as new and upgraded ports, hydro-electric schemes like the Snowy River and improved rail. We should be helping our exporters in every way we can (and not just mineral exports).

We shouldn’t be doing cash handouts. We should be providing tax benefits and other incentives for businesses and individuals to invest in anything that delivers productivity enhancements.

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Buying homes in the US for $1000 (or less)

I read an interesting article on CNN about purchasing homes for as little as $500 in many cities in the US due to the dire financial circumstances the US is in. You can see the article here – http://money.cnn.com/2009/01/08/real_estate/thousand_dollar_homes/index.htm

So I went to www.realtor.com to check out some of these places for myself. Here is a list of some of the more presentable  $1000 homes I could quickly find in Detroit.

http://www.realtor.com/realestateandhomes-detail/3936-Beniteau-St_Detroit_MI_48214_1105870011

http://www.realtor.com/realestateandhomes-detail/3464-Edison-St_Detroit_MI_48206_1105998133

http://www.realtor.com/realestateandhomes-detail/18368-Bentler-St_Detroit_MI_48219_1105325462

http://www.realtor.com/realestateandhomes-detail/19173-Dresden-St_Detroit_MI_48205_1105799515

Sounds like great value – but there is one catch!

You need to sign an affidavit that you will fix the home up to a habitable state. So you will need to add a little to the prices, however still great value I suppose.

In the past property has always fared some much better than shares in recessions. The basic reasons for this is the fundamental characteristics of the property market – namely it is rather illiquid (homes can not be sold easily such as shares – it takes time and money) and the majority of residential property are people’s homes and not investments, which as a result is one of the last things sold even when times are tough.

The big difference in the US now is that when times are so tough that hanging on to a home is not possible, this impediment to significant price reduction is removed. So whilst property is still illiquid as compared to shares, in markets such as the US it is suffering price depreciation at least as significant as the share market.

In Australia and the UAE (where we have offices), the drop in the share price has still superseded property price falls, at least for the time being, and given that both economies are genuinely sound, this should continue to be the case in my view.