Beach Front Luxury Properties Hit Hardest in Downturn

ublished: 24th March 2010

Beach-front property hit hardest by global downturn
Beach-front property hit hardest by global downturn

Prices of coastal second homes were hit hardest by the global downturn in 2009, according to new data from Knight Frank.

In their annual Wealth Report published yesterday, Knight Frank reveal an uneven picture of house price performance both by geographical market and property type.

Overall, high-end residential house prices fell 5.5% in 2009 but prices in city centres rose by 0.4% while coastal second homes and ski property prices fell 13.9% and 12% respectively.
The divurgance is explained partly by the strong performance of a small number of city centre markets in the second half of 2009, most notably Shanghai (up 52%), Beijing (up up 47%) and Hong Kong (up 40.5%).


Super-rich buy up “cheap” property in capital cities



In the uncertain economic environment and with a supply of cheap credit, the super-rich have been flocking to buy super-prime property in capital cities. The trend was no doubt enhanced by the sharp drop in prices in 2008 which led to a perception that property was cheap by historical standards.

Indeed many of 2008’s worst performers, were the top performers of 2009. London moved from 53 to 9 in the rankings and Hong Kong moved from 55 to 3 for example.


Coastal properties could buck the trend in 2010 and 2011



The evidence suggests that there is merit in investing in good quality property in locations that have fallen the most in value. After all, markets tend to over-correct on the way up and under-shoot on the way down. In markets with strong demand and limited supply, price reversals can happen quite quickly as price falls result in construction projects being put on hold which puts upward pressure on prices.

Although holiday home markets tend be more fickle than city centres, don’t be surprised if some of holiday home destinations at the bottom of the list appear towards the top in next years figures. Now could be the time for your clients to invest.

Good News for the Second Home Market

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Investors Are Buying Houses Again

Posted: 23 Mar 2010 07:40 AM PDT

Good news for the second-home market. What’s happening in your area?

More home buyers are snapping up properties with cash, a trend driven in large part by investors returning to the market after four years of falling prices around the country.

The share of home sales involving all-cash transactions was 26% in January, up from 18% a year earlier, according to the National Association of Realtors. The figures come from a survey of members about their most recent transactions. Many home buyers also are paying cash, but investors are largely using cash so they can avoid paying interest charges on loans and get a larger return on their investment.

Other NAR data also show a pickup in investment activity.

Home purchases made by buyers identified as investors climbed to 17% in January, up from 15% in December and 12% in November.

“We bottomed out in 2008, and in late 2009, prices stabilized and investors have returned,” says Mark Fleming, chief economist at First American CoreLogic. “It’s a different type of investor going after foreclosed properties and expecting to hold on for longer time frames.”

Many investors say they’re financing their purchases with cash on hand, rather than borrowing.

Evan Spinrod of San Francisco bought three rental properties in November and February and now owns 21 in four states. The rent he collects gives him an 8.5% annual return on his investment. Some of his homes are worth about $165,000. “I’m still looking,” Spinrod says. “You can’t build these houses for the prices they’re selling them. I’ve always seen that the real wealth was in real estate. People have been sitting on cash, and there’s no interest from the bank (to pay).”

Leonard Baron, a real estate professor at San Diego State University, has bought three homes with cash in the

San Diego area in the past eight months, ranging in price from $100,000 to $130,000. He rents the properties.

Baron says now is an ideal time to make such purchases. “It’s because prices have dropped so much and rents really haven’t,” he says. “The deals were unbelievable.”

Some Realtors also say they’re seeing increased investor activity.

“Flippers, rehabbers, investors … are, in fact, buying,” says Lisa Johnson, with Coldwell Banker Residential Brokerage in Haverhill, Mass. “I’m getting builders who have stopped building and are instead buying up condos and single-family homes to fix them up and sell them. It’s a neat change I haven’t seen in four years.”

All-cash purchases also reflect a growing number of investors buying higher-end properties without credit, says NAR spokesman Walter Molony. That’s a sign that some investors see real estate prices as having nowhere to

go but up. All-cash offers give buyers a competitive edge on rival offers – even higher ones – that are dependent on financing. Cash deals can close faster and are less likely to fall through.

“You have to have cash to be able to close quickly and have negotiating power. Cash is king,” says Tanya Marchiol, president of Phoenix-based Team Investments, which buys about 70 properties a month with cash it raises from investors. “We do want to flip it or generate cash flow (through renting it out). Now is the time to buy for cash flow. We know the market is going to rebound.”

Some investors say the current real estate market is an ideal time to buy because homes are so low priced, they are bound to hold their value.

That’s the philosophy of Jim McClelland of Tinley Park, 111.

He is buying about 120 to 150 entrylevel homes in the Chicago area this year and owns a total of about 300 properties.

He says now is a good time to buy because properties going into foreclosure are no longer just one-bedroom, fixer-uppers but nicer, split-level brick homes with more bedrooms that will probably appreciate to a higher value.

That’s because so many prime-rate borrowers who bought more expensive homes have gone into foreclosure.

He puts about $60,000 into upgrading a property, then rents it out.

“Do I think this year will be a better time to invest than in 2009? Yes,” McClelland says. “There have always been foreclosures. The difference now is you get a better home for the same kind of money. You’re sitting on better inventory. People get into real estate for financial independence. It’s not a quick fix. It appreciates. It doesn’t happen overnight.”

By Stephanie Armour USA TODAY

China Housing Market Booming

China's housing prices hit new high in February



China's property market grew at the fastest pace in 20 months in February, with housing prices rising at a double digit rate, despite the government's cooling-down moves, according to data released Wednesday by the National Bureau of Statistics (NBS).



Housing prices in China's 70 large and medium-sized cities increased 10.7 percent in February from a year earlier, and were up 0.9 percent compared to the previous month, said the NBS.



Prices of new homes in February rose 13 percent year on year, up 1.3 percent from January, and were mainly pushed up by soaring home prices in Hainan Province as the state government decided to build the island into an international tourist resort in December.



Haikou, capital city of Hainan, ranked first among other major cities in new home price growth, which soared 58.4 percent year on year in February. Sanya, the second largest city in Hainan, saw its new home prices up 56.1 percent.



Prices of second-hand homes climbed 8.5 percent in February from the same time last year, up 0.5 percent from the previous month, according to the NBS.



Sanya topped other cities in second-hand home prices, with a rise of 42.2 percent in February year on year, and was followed by Haikou, with a 41.7-percent-growth, according to the NBS.



The figures were announced during the annual session of the National People's Congress (NPC), the top legislature, when Chinese Premier Wen Jiabao reiterated determination to curb the excessive growth of home prices in major cities and satisfy people's basic need for housing.



China's central and local governments rolled out a series of measures to dampen the overheated property market at the end of last year, including reimposing a sales tax on homes sold within five years of their purchase and raising the down payment requirement for families buying a second house or more with bank loans.



In another move to cool the property market, the People's Bank of China, the central bank, raised the deposit reserve requirement ratio in January, and in February for the second time.

The Wealthy are Coming Back

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Wealth rebuilding bodes well for luxury market

Posted: 11 Mar 2010 07:04 AM PST

U.S. Millionaires' Ranks jumped 16 Percent in 2009, Study Says

"The millionaires’'club in the U.S. grew by 16 percent in 2009, following a 27 percent decline in 2008," according to a new Spectrem report. Affluent households -- those with net assets of $500,000 or more -- increased 12 percent to 12.7 million. At the same time, the number of households with a net worth of over $5 million rose 17 percent to 980,000. Finally, the magazine reports, "The average age of a so-called affluent investor is 58, compared with 62 for a millionaire and 67 for an investor with more than $5 million." Value of a household’s primary residence is not included in the calculation.

Resort Sells Out in Six Weeks

Resort sells out in six weeks
Resort sells out in six weeks

Alpine Homes International, Savills’s ski property partner has sold its 14 unit ski resort in Austria within six weeks of launch.

The speed of sale is reminiscent of the good old days of 2006 and 2007 says Managing Director Jeremy Rollason:

“At the peak of the market we were selling this many properties every month. It’s unusual for this market. It’s nice to put all the ingredients together and have this level of success”.

He attributes the success to a time and energy invested in finding the right product.

“We spent a long time planning the project and ripped up the original designs. We eventually went for modern interiors with more traditional exteriors which appeals to the British market. The fact that is was ski-in, ski-out also made a big difference.”

The price of the development and strong rental potential also played a part in the sales success. “Prices started at €196,000 for 2 bed apartments. At 70% loan-to-value and with gross rental yields of around 6%, the properties wash their face in terms of the mortgage and running costs. It was a nine out of ten product”.

So what would make a ten out of ten product? “Cutting the price by 50%”, jokes Rollason. It seems nine out of ten is the best most of us can hope for in this market.

You can view the development here.

China Overtakes US in Global Property Investments

China overtakes U.S. in attracting most property investment



China overtook the U.S. as the world’s biggest property investment market last year and will probably keep the lead in 2010 on economic growth and a lower reliance on debt, Cushman & Wakefield LLP said.



Real estate investment in China more than doubled to $156.2 billion last year, while the total for the U.S. slumped 64 percent to $38.3 billion, the New York-based broker said in a report today. Excluding residential investments, the U.S. came third after China and the U.K.



“China will continue to see vibrant investment activity, despite recent government measures to cool down the property markets,” Donald Han, Cushman & Wakefield’s managing director for Asia-Pacific capital markets, said in the report.



China’s economy expanded at an annual rate of 10.7 percent in the final quarter of last year, boosted by Premier Wen Jiabao’s $586 billion stimulus package. The U.S. property market is being hurt by high levels of unpaid debt and a reluctance among banks to lend as they clean up their balance sheets, Cushman & Wakefield said.



China is taking steps to rein in the real estate market as price increases accelerate. The government in January re-imposed a sales tax on homes sold within five years of their purchase and the People’s Bank of China raised the proportion of deposits banks must set aside as reserves to reduce lending. Property prices in December rose at the fastest pace in 18 months.



Eight of the world’s 20 largest property markets last year were located in the Asia Pacific region, with Hong Kong, Taiwan and New Zealand registering gains in investment, according to the report. Cushman & Wakefield is the world’s largest closely held commercial real estate adviser.



Japanese Revival



Japan will see a revival after investment fell 48 percent to $19 billion last year, it said. Some distressed properties are selling for less than their construction costs and average rental incomes tend to be higher than financing costs, making the market “compelling,” Han said.



U.S. property investment will rise 50 percent this year on falling prices and an increase in distress sales.



“Large pools of frustrated capital,” may be attracted to well-located properties with financially secure tenants, boosting prices, said Frank Liantonio, executive vice president of U.S. capital markets for Cushman & Wakefield. “Distressed sellers begin to deal with a mounting volume of properties,” he said.



In Europe, most investors are focusing on the largest, most active markets such as the U.K., France and Germany. Investment in the continent will probably rise 44 percent this year to $152 billion, the firm predicts.



U.K. prices were among the quickest to bottom out after the global financial crisis began, with values falling 44 percent in the two years to July 31. The slide in prices and the pound’s weakness helped revive investment and lift property prices.



(Source: Bloomberg, 2010-3-2)

Boomers and Second Homes

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Boomers Ready for Retirement Housing

Posted: 05 Mar 2010 02:20 PM PST

According to John Migliaccio, director of research for MetLife’s Mature Market organization, more than 78 million baby boomers, born between 1946 to 1964, will reach age 55 over the next 10 years.

He and other trend spotters believe this dominant group of home owners will lead the industry out of its slump.

Baby Boomers approaching retirement continue to be interested in buying into active-adult communities, but their moves are slowed due to a decline in the value of both their retirement savings and their current homes. To encourage seniors to find a way, 51 percent of builders of active-adult housing cut prices in the third quarter of 2009 – often as much as 25 percent or more – according to a survey by the National Association of Home Builders.

Practitioners point out that new isn’t always best. Buying an existing home in an active adult community can be a particularly good deal because these communities have extensive amenities, including golf courses and gyms. Some new construction projects on which builders have trimmed prices are not nearly as well equipped.

Source: Investor’s Business Daily, Joe Gose (02/25/2010)