Global Property Guide - News and Discussions

    Prevent money laundering in Real Estate in Canada: Experts

    There is a growing call for stepping up efforts to rein in on money laundering in the real estate industry in Canada after media reports showed many firms have not complied with regulations intended to flag dubious property transactions.

    The Canadian Press reported recently that at least 85 firms have not fully implemented compliance plan despite suspicion of money laundering in many cases. Real estate companies have to submit a compliance assessment report to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the Canada's financial intelligence unit under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

    The media report was based on data obtained from Fintrac that facilitates the detection, prevention and deterrence of money laundering and the financing of terrorist activities.

    The data was compiled from 337 compliance assessment reports that were submitted to the federal anti-money laundering agency from roughly 1,000 companies in the real estate sector. There are about 20,000 real estate companies overseen by Fintrac.

    Data obtained from Fintrac through an access-to-information request showed that of the 85 companies studied, 38 companies had only partially implemented a compliance regime while another 47 had not at all.

    'We can have the best rules possible around keeping laundered money out of our real estate market, but if no one is enforcing those rules, what good are they?'' David Eby, the NDP housing critic in British Columbia was quoted by

    'The realtors appear not to be taking the rules or the reporting obligations seriously, and Fintrac seems to be not too concerned when they see mass non-compliance.''

    'I just wonder how many more audits with dismal results like this have to be returned to Fintrac and the federal government before they decide to really crack down,'' Eby said.

    The Real Estate Council of Ontario said it will remind its members of their legal obligations as a result of The Canadian Press' report.

    UK Right-to-Buy discounts strongly criticized
    The UK government's plan to extend Right-to-Buy discounts to 1.3 million housing association tenants in England has drawn strong criticism from Parliament's Public Accounts Committee (PAC). The committee has termed the plan as "entirely speculative" and said recently that increases in the value of discounts available under the policy "have increased the risk of abuse". The PAC scrutinises the value for money - the economy, efficiency and effectiveness - of public spending and generally holds the government and its civil servants to account for the delivery of public services. 'Extending Right to Buy discounts to tenants of housing associations, funded by the sale of high-value council housing, has potentially significant impacts for both local authorities and tenants of social housing, especially in areas where house prices are high,' said the PAC. "Despite the implications and complexity of this policy, the Department for Communities and Local Government (DCLG) has not published a detailed impact assessment to inform Parliament's consideration of its legislative proposals." "Extending Right to Buy will affect many thousands of people yet the DCLG has failed to provide basic information to support its stated aims. Instead we have heard vague assertions about what it will accomplish and howandhellip;The approach to paying for this policy seems to be entirely speculative. On the basis of evidence heard by our committee, there are no costings or workings out. We are not talking about a 'back of an envelope' calculation-there is no envelope at all," PAC chair Meg Hillier was quoted as saying. "The DCLG has not made a diligent and credible case for this policy. The PAC follows the tax pound and so far all we have are assertions that it will be fiscally neutral. We urge the government to address the very serious concerns highlighted by our committee as a priority," she further said. In the Global Property Guide's view, the policy could increase downward pressure on the UK housing market, by putting more low-end housing on the market, and reinforcing various measures (stamp duty increases, disclosure of true owners) now hitting the high end. While lower housing prices would be good, the Global Property Guide's view is that social housing is a necessary component of housing policy, and must be credibly funded.

    Chinese cities impose stricter restrictions on foreign and domestic property buyers

    China real estateTo tame skyrocketing property prices, some Chinese cities have increased restrictions on foreign, as well as domestic, residential property buyers.

    Earlier, non-local residents were allowed to buy a residential property in Shanghai if they had lived in the city for at least two years over a three-year period, but now their income tax and social security documents must show that they have resided in the city for more than five consecutive years.

    In Shenzhen, a non-local buyer must now reside for three consecutive years to buy a residential property. Earlier the residency requirement was one year only.

    Shanghai posted an increase of 21% in property prices in March, while the prices went up by 57% in Shenzhen on an annual basis, according to the latest data released by China's National Bureau of Statistics.

    Local residents are also set to feel the pinch. Shenzhen city authorities have raised the minimum down payment requirement for first-time and second-time home buyers to 40% from previous 30%. Shanghai's authorities have increased the minimum down payment amount to 50% for 'normal homes', and 70% for 'non-normal homes', from 40% for both types earlier. Homes are classified as 'non-normal' based on size, location and market price. For example, homes not bigger than 140 square metres and priced under 4.5 million yuan (US$696,594) situated in the Inner Ring Road are categorized as normal.

    Australia's shrinking houses and apartments
    Australia real estateAustralians own the world's biggest residential lots. It's a big country, and the size of Australians' houses and apartments have long been a source of amazement in other, less lucky, countries. But soaring land and home prices in the 'lucky country' have ushered in a new trend - smaller-sized houses and apartments, according to recent research. The Urban Development Institute of Australia (UDIA) says that Australians are accepting smaller houses and apartments, in a new report, the "2016 State of the Land Report". "Lot sizes continued to fall in 2015, with all five major markets now recording average lot sizes below 500 square metres. Limited supply and high cost of land mean that lot sizes have continued to shrink to maintain affordability for new home buyers," the report says. It adds that across the country, there appears to be a convergence towards a sub-450 square metre lot size, with buyers trading size for affordability. Smaller lots are gaining more and more acceptance in the different markets. In addition, most states now have policies conducive to smaller lots. In South East Queensland, average lot sizes fell below 500 square metres for the first time. Lot sizes fell to 488 square metres in 2015, a 4.1% fall compared to the previous year. In Melbourne and Adelaide, lot sizes fell to 430 and 423 square metres respectively. Despite very different market conditions, lot sizes in these two cities were virtually identical in 2014, with Adelaide experiencing a slightly larger fall in sizes (4.8%) than Melbourne (3.3%) over 2015. Lot sizes in Perth have fallen dramatically in 2015, down by 7.7% to average 395 square metres. The Perth market is the first (and so far only) major market with an average lot size below 400 square metres. Despite sharp price rises, Sydney lot sizes maintained their level above 450 square metres in 2015.

    Tougher underwriting rules on lending to UK buy-to-lets
    The Bank of England wants lenders to follow tougher underwriting rules when they approve loans for buy-to-let properties. Under new regulations imposed by the BoE, financial institutions will have to take into account all costs, including tax payments that landlords might have to pay when renting out a property. These costs will come into play when determining the amount of loan to landlords for buy-to-let properties. The BoE's Prudential Regulation Authority (PRA) recently came up with new underwriting standards to curb a potential rise in risky lending. The PRA will require lenders to set a minimum borrower interest rate of 5.5pc over a minimum period of five years when assessing affordability. Experts say the tougher underwriting rule may reduce approvals for buy-to-let properties by 20% over the next three years, taking into account how much they would have grown without these standards. The ratio of buy-to-loan approvals to other types of loans has been increasing tremendously. According PRA per the research, lenders expect 20% annual growth in gross buy-to-let lending over the next two to three years, despite recent tax changes including a 3% increase in stamp duty for landlords introduced by the Chancellor George Osborne.

    8 Ideas That Will Change The Property Market by 2035

    Some 20 years ago, it would have practically absurd to imagine people buying houses and apartments on the Internet but the property market is changing faster than we could have imagined. Another 20 years and we will be in a completely different society where new technology will be paramount to how we live, as well as to our attitude to property and infrastructure. Here are the eight most important innovations that will transform the property market by 2035. megacities and fast travel less car parks and gas stations building underground nanotechnology and cheaper building 3D printers in the construction industry extinction of shopping buying houses online robots about the house

    1. Ultra-high speed trains will consolidate cities into megalopolises

    In the future there will be ultra-high speed trains (not dissimilar to the Hyperloop project) that will travel 3-4 times faster than any modern train. The 600 km trip between Los Angeles and San Francisco could only take 30 minutes.

    These trains will reduce travel time and it is likely that neighbouring cities and towns will merge into a seamless urban blur. Prices in suburbs and for land between megacities will grow. China is already developing its own project along these lines with the plan to combine nine cities into one megacity called "Jing-Jin-Ji", home to 130 million people. 2. Electric self-driving cars save drivers time and cities space In 20 years, all cars will be driving themselves and human drivers will no doubt become a thing of the past. According to Ray Kurzweil, a futurologist, by 2024 people will be banned from getting behind the wheel of any car that's not equipped with a cyber-assistant. Mr Kurzweil goes on to predict that, by 2033, self-driving automobiles could be the only vehicles on the road. At the same time, city centres will no longer need to dedicate massive spaces to street and lot parking because cars will be able drive to and park themselves in remote parking areas. Tesla's new "Summon" function can already do this. And because these cars are also more environmentally friendly, they will run on electricity or hydrogen, thus eliminating the need for gas stations. 3. Property will be going deeper underground As more people move to cities, land prices will soar and development will become particularly costly. For this reason, there are already a variety of projects that are currently going on underground. For example, New York's Lowline underground park (due to open in 2018) has been built in an abandoned subterranean tram terminal on the Lower East-Side of Manhattan. Within the next two decades, shopping centres, gyms, spas and nightclubs will also join the trend, like Montreal's Underground City that connects shopping malls, apartment buildings, hotels, banks and more. Special technology that can conduct sunlight into these spaces is already in the works, so as to develop a whole new plant environment below the ground level. 4. Nanotechnology will make construction cheaper Nanotechnology has the power to revolutionise most of what humans can do now. It will be particularly useful in the creation of new high quality construction materials. Super strong elastic nanocables, self-cleaning water, dirt proof surfaces, extra strong concrete, material and structures accumulating solar energy, ultra strong glass are just among some of the things that will be making it into homes and offices. Arguably, the most excited about this discovery are the architects, who will finally be able to watch their wildest fantasies come true. According to Ray Kurzweil, nanotechnology should be on our doorsteps by the 2030. When it is finally mastered, construction industry costs for materials and development will be substantially reduced. 5. 3D printers will build houses faster In 2014, Shanghai company WinSun built 10 houses in one day using 3D printers. With the help of cheap materials (a mix of concrete and recycled waste) and no manual labour, the houses only cost $5,000 each. 3D printers may be rare now, but within the next few decades, they will have gone viral on the market. CEO of WinSun, Ma Yi He, is convinced much greater projects can be executed using 3D printers, like skyscrapers for instance. Who knows, we might all be saving money on buildings of the future. 6. 3D printers will change the concept of commerce Construction will not be the only are for use of 3D printers. They will be able to make clothes, furniture and household appliances. This will change the concept of commerce: buyers will choose and order online while sellers will make goods on 3D printers and deliver them. This will make most of the stores into mere shop-windows - places where the goods are demonstrated, while the purchases will be made online. Some things are already made using 3D printers, but the technology will become widely spread by year 2025. 7. Houses will be bought using virtual reality Virtual reality technology will soon allow us to overcome distance using virtual reality. According to Business Insider, the market for virtual reality helmets will grow 99% annually from $37M in 2015 to $2.8B in 2020. Futurologist Mr Kurzweil expects full-immersion virtual reality technology to be finished by 2039. There will be no need for equipment as nanotechnology will allow us to implant it straight into people's brains. But even before then, thanks to virtual reality helmets, interest buyers will no longer need to leave the house for property viewings. 8. Robots and gadgets will make house management easier In the near future, robots will be man's new best friend. There will be one in every house to clean up, do laundry and save time on all general maintenance. Landlords will no longer have to outsource these duties to a management company. French company, Blue Frog Robotics, is expected to put Buddy on the market soon. This machine is a social bot that that can interact with humans. According to Ray Kurzweil, this new generation of robots will be as common as any other kitchen appliance. New technology will change our lives and property market with it: all extra day-to-day duties will automated but also logistics and information exchange will become faster and construction will get cheaper. George Kachmazov, Managing Partner at Tranio

    Buying Property in Australia and Home Inspection Nightmares

    Why Property Inspections is the Most Glaring Omission in Australia's Consumer Laws Property inspection is unregulated in Australia. Becoming a property inspector, therefore, involves nothing more than calling oneself a property inspector. There are no training requirements, no necessary certifications, and no guarantee that individuals in the profession are qualified to be there. As a result, home buyers cannot assume that individuals who market themselves as property inspectors are necessarily well-qualified.

    Property inspection, however, remains an essential step in the real estate purchasing process. We have all heard horror stories of naive buyers who acquired new homes only to learn about serious and costly defects. Homeowners need to obtain an adequate inspection in order to avoid investing their hard-earned money in a poor quality home. Most property buyers do not have the skills to perform a thorough inspection of their own, and must therefore trust their fate to the skills of a property inspector.

    Because of Australia's lack of regulation in this area, home buyers need to be diligent in hiring an inspector. So, for example, if a properties inspector markets himself as an "expert on property inspection in Queensland," prospective home buyers should not take the claim at face value. Instead, they should investigate the inspector's qualifications. This is, of course, true in areas other than Queensland, also.

    Questions to Ask When hiring the property inspector

    If you are a home buyer, be sure you understand what does a building inspection cover and you should have a prepared list of questions to ask each property inspector you consider hiring. You are the client, and it is entirely appropriate for you to request information of a potential hire. At a minimum, ask them about their qualifications. For example:

    Have they had adequate experience in home inspection? What is their work history, and how did they gain their experience? Who mentored or supervised them when they were learning to inspect properties? Are they members of a certified home inspection company?

    A good inspector will have ready answers to these questions, and will be able to demonstrate extensive, meaningful experience in home inspection. You may also want to ask for a few references from former customers. Call these references and find out whether past clients are satisfied with the service they received.

    You should also ask questions about how the inspector's business operates, focusing on issues that will affect you personally. For example:

    Do they have indemnity insurance? If they fail to identify a property defect, how will they correct the error? How much do they charge for their services? Do they provide any guarantees?

    Any reputable property inspector will be happy to answer these questions and provide references. An inspector's refusal to do so should be seen as a major red flag.

    To ensure that you retain the best property inspector possible, interview more than one candidate. Examine each candidate thoroughly, and then choose the most qualified (but not necessarily cheapest) candidate. After examining several candidates, it will generally be quite easy to tell which candidate has the strongest qualifications.

    Property Valuations

    In addition in addition to spotting problems with the property, a qualified inspector can help determine the value of the property. A pre purchase building inspection will help you estimate the appropriate price for the property you are considering buying.

    Valuation can help you negotiate a good price, and avoid overpaying. It can also help improve your ability to obtain financing from your bank. A bank will obtain its own appraisal of the property's value, but it will be difficult to get financing if you are offering significantly more money than the bank believes justified.

    Your Own Basic Survey

    Even before going to the expense of hiring a property inspector, you should do your own simple survey of the property you wish to buy. Even if you feel an emotional attachment to the property, try to be objective in surveying it. Walk through the property, looking carefully for potential problems. Here are a few red flags to watch out for:

    Structural problems. Cracks in the foundation, bowed walls, and sagging roofs can be major problems. Utilities. When you visit properties, be sure to switch light switches on and off and run the water, to make sure that utilities are working properly. Mold and pests. Watch for signs of mold, including evidence of recent patching and painting. If you see any gnaw marks, rodent droppings, molehills, or other signs of a pest problem, consider the expense you might incur if you have to remediate the damage. If you buy a pest and building inspection report, it should reveal these problems, but you can discover most of these problems on your own. Neighborhood. Watch for nuisances and noises coming from elsewhere in the neighborhood. You might want to visit the property at different times of day, because a property that is peaceful during daylight hours might be a party zone at night. There might also be nearby trains, airplanes, or other noise sources that occur only at certain times of the day.

    Screening properties on your own will help you avoid paying for property inspections for properties that you will not ultimately buy.

    One More Tip

    One more way to protect yourself is to befriend neighbors before you buy a property. Knock on a couple or doors, or tactfully approach people in public, and asked them about the house. See what they think of the neighborhood, and obtain a little bit of history about the property. You will learn things that are not written down in real estate records or anywhere else.

    It might seem a little bold to approach strangers in this way, but most of them will understand. It is worth stepping out of your comfort zone to avoid buying a property that has hidden problems. If you end up buying the property, these people will be your neighbors, so it does not hear to inspect them a little bit, too.


    It is truly unfortunate that Australia has chosen not to regulate the property inspection industry. That may change in the future. For now, though, buyers must bear the burden of ensuring that their properties are properly inspected. Screen your property inspectors thoroughly, conduct your own pre-inspection of the property you wish to buy, and use the knowledge of neighboring property owners to your benefit. By doing so, you can greatly reduce the chances of buying your first or even second home in Australia with serious defects.

    Global Investment Strategy - Foreign Investment In Australian Real Estate
    Why Australian Real Estate is a Smart Global Investment Strategy Australian Real Estate is a Smart Global Investment StrategyWith global stock markets in turmoil and several major corporations losing money, where will smart global investors put their money in the coming years? Australian real estate is quickly becoming one of the best investment options available. The following information discusses a few of the reasons Australian real estate is currently a great investment strategy, specific areas that are good options for investment, and some tips on the best strategies for investment. Why Invest in Australia? Economically, Australia is ranked number 4 in the world when it comes to economic freedom. The 2015 Index of Economic Freedom places Australia between number 3 ranked New Zealand and number 5 Switzerland. This ranking means Australia is 4th out of 42 nations in the entire Asia/Pacific region. This Index of Economic Freedom is based on several things including freedom from corruption, property rights, limited government, and regulatory efficiency. The rating system also takes into consideration open markets such as trade, investment, and financial freedom. Overall, these economic freedoms make Australia an attractive place for global investments. Smart investors see that Australia's growth during the last 25 years has provided safe, low risk business opportunities. The Australian Trade Commission has shown that besides offering economic freedoms, Australia provides continued growth, significant innovations, and strong ties to Asia. Besides all the economic factors that make Australia a great place for investment it is also a place with a wide range of diversity in culture and landscape. It is home to incredible deserts, modern cities, and gorgeous beaches. Where is the Best Real Estate Investments in Australia? Queensland, located in the northeast area of Australia, is also known as the Sunshine State. Many experts in the field of real estate believe that Queensland is a great area to invest in. According to the Deutsche Bank, Sydney home prices have on average rose above $900,000. This is up from under $700,000 just three years ago. Home costs in Brisbane have remained around $500,000 for longer than seven years. Because of this rise in home prices it is predicted that an influx of residents will be moving from areas like Sydney and Melbourne and heading toward the Queensland area. One of the best and safest strategies for investment in Australia is in the housing market. Real estate for business, corporations, and other large land investments can be lucrative, but riskier and obviously more expensive. Many investors simply don't have the capital to invest in large projects. That doesn't mean there aren't several great investment opportunities in the housing industry to take part in. The Australian Bureau of Statistics have noted that both Sydney and Melbourne are expected to have large population growth through 2050. Everyone needs a place to live and current building has not yet caught up with projected needs. The Australian housing market provides something for investors of all levels. From purchasing one or two homes to developing entire subdivisions, a variety of investment strategies can be successful. Who is Investing in Australian Real Estate? Foreign investors from all over the globe are investing in Australian property. Large companies and organizations wanting to expand businesses to individual investors simply wanting to buy a vacation or retirement home are looking into the many properties available in Australia. China has recently been one of the biggest foreign investors in Australian real estate. The United States has remained in second place when it comes to foreign investment. Singapore, Canada, and Malaysia round out the top five. Many experts say that Australia is so popular for foreign investors because it's close to Asia while still providing a western style culture. Investors know that the banking industry often shows favor to real estate and housing projects. Much of the banks' assets are currently held in residential property, either directly or indirectly. The banks, therefore, have a sound interest in maintaining a strong property market. Since property taxes are the biggest source of revenue for the local and state government, the government also has an interest in maintaining growth in the real estate industry as well. What are Some Specific Areas in Australia that are Prime for Investment? When investing in real estate it's often recommended to purchase properties with the most land. In general land appreciates while buildings depreciate unless they are being renovated and maintained on a regular basis. The suburbs in South and Western Australia are being touted as some of the best places to invest in real estate. In the southern part of Australia, Mansfield Park is one of the top suburbs for investing. An average home in this area costs about $375,000. In Western Australia, Maddington has been rated a top suburb to invest in. Some of the other hotspots for real estate investment include the city of Brisbane in Queensland. Reports that northern suburbs have rising real estate sales. A few specific suburbs include Nundah, Zillmere, and Chermside. The Sunshine Coast is also considered a prime spot for real estate investment. With stunning beaches, beautiful nature reserves, and chic eateries, the Sunshine Coast has provided a gold mine of real estate investment opportunities. A few specific places include Noosa Heads, Twin Waters, and Tanawha. Finally, Kangaroo Island is also expected to be a great place for investment since they are expecting tourism to increase in this area. Check here for more information regarding Australia foreign investment opportunities. What are Some Tips When Purchasing Australian Real Estate? Property in Australia is normally sold on an 'as is' basis. This means buyers should do their homework and find out as much about the property or structure as possible. Conducting a title search is the first place to begin. This can help a potential buyer find information such as mortgages, agreements with the government about the property, and any restrictions on use. There are also native title rights to consider. This means that indigenous people may still hold traditional interests and rights regarding water and land. This is normally not an issue in urban areas, but is something any prospective investor should look into. Finally, before making a deal in Australia for real estate it's important to decide exactly how the real estate will be acquired. There are several ways to do this. A few include a direct transfer, an acquisition of the shares from the owner, or a long term lease arrangement. A foreigner buy property in Australia now will be investing for the long run. All indications point to Australian real estate being a smart global investment. Regardless of the future economic conditions, real estate tends to hold its value better than most other investments. Property, and in particular houses, have the advantage that value can be added to the investment. That added value is independent of market and economic forces. All this seems to be especially true in regards to investment properties in Australia.

    Risks: macro and micro pitfalls in property investment strategies

    Risk assessment is crucial in developing an investment strategy. In terms of property, risk determines both the budget and expected returns on the project.

    low risk = low yields: the investor pays more per dollar of expected revenue in exchange for reliable earnings and secure capital. high risk = high yields: the investor earns more per dollar invested, but incurs higher chances of a negative event which could, in extreme cases, lead to capital loss and negative yields. Risk can be linked to internal or external factors and has two main sources: either the country where the investment is located or within the project itself. Macroeconomic risks depend on the country Macroeconomic risksCountry risks are primarily linked to changes (often violent) in the economic, political or social situation. These can include changes in political leadership, legislation, currency or financial crises as well as social unrest within the population. Reference point: The best way to evaluate this risk is via credit ratings provided by global agencies like SandP or media specialised in market intelligence. The Economist Intelligence Unit , market intelligence branch of the British weekly newspaper, rates Austria, the UK, Germany and the USA as countries with the least risk and Afghanistan, Belarus, Ukraine (among others) as highest risk. Risk metrics: the main factor to look out for is rising inflation. Risk is at its lowest when inflation is under 5% per annum and peaks when it exceeds 100%. Real estate markets are "safe" from inflation as rental rates are revisited monthly or annually and pegged to the retail price index whose dynamics are in line with inflation. Rates that are frequently revisited means that the property is sensitive to inflation, either rising or falling with it. For instance, in one scenario, inflation is rising and so are rental rates - but in a different scenario, inflation is falling, the rates are revised and so is the revenue from the investment. Effects: inflation is the barometer for a country's economic health. When it is strays from acceptable levels, currency, imports and exports, lending, purchasing power and consumer ortenant morale are all affected. Property types by sensitivity to inflation
    Sensitivity to inflation Property type
    Low Long-term residential rentals Land
    Medium Offices REIT (Real Estate Investment Trust)
    High Hotel units Short-term residential rentals Warehousing/industrial premises
    National currency Reference point: another important factor is currency volatility. Any major fluctuation, up or down, can cause serious disbalance in the national, even global economy. This is particularly noticeable in commodity-dependent markets. Risk metrics: Markets are at highest risk when the currency rises or falls by more than 20%. Commodity-focused economies like BRICS countries are particularly vulnerable for volatility, like Russia for example whose currency is suffering from record-low oil prices. Political instability, insurgency or warfare also affect currencies like in Ukraine. Finally, central bank decisions or poor economic management, like in Hungary, can lead to extreme changes in value. Five volatile currencies in 2014
    Country Currency Average change vs USD 2014, % Reason
    Hungary HUF 19.63 economic mismanagement
    Norway NOK 21.21 falling oil prices
    Colombia COP 21.76 falling oil prices
    Argentina ARS 27.09 economic mismanagement
    Russia RUB 60.91 falling oil prices, Ukraine conflict, EU/US sanctions
    Sources:, Effects: aftermath of currency fluctuations include falling GDP, slowing production, shrinking exports and lower purchasing power, particularly if any of these drivers drops by more than 10%. Other risks Negative population growth or mass movements of people also have an impact on local and national real estate markets. For instance, residents of East Germany move to the more developed and promising western regions. This is why all of Germany's "Big Seven" cities, leading investment destinations, are located in the West, with the exception of Berlin. These markets are considered stable, thus less risky, latter are considered as less risky markets for real estate investments (except for small towns in the Ruhr Area that faces resident outflows due to lacking jobs). The political situation also materially affects the behavior of investors and their risk perception. According to results of Tranio's Russian and CIS Buyer Activity Report 2015, these investors consider political and economic stability a priority when selecting an investment destination. This is why, despite the crisis, the UK, Germany, USA and France are witnessing above-average spending on commercial property. Changes to legislation and taxation are also a risk for investors. Countries contemplating increasing the tax burden on investments or targeting foreign buyers as well as legal restrictions on construction and investments and limitations on capital flow lose investor interest. For example, strict new laws on money laundering and know your customer compliance in the United Kingdom and European Union require investors proof of funds source. Microeconomic risks depend on the project Investment strategies fall into two categories with separate risks: added value buy-to-let 1. Added value projects Reference point: Added value projects encompass construction and redevelopment. Risks escalate in proportion to the developer's credit burden, so the more debt taken on, the higher the risk. All these possibilities can engulf returns, stripping the investor of profits or even causing losses. In worst-case scenarios like high debt to construction and material cost adjustments ratio, the developer or investor can ultimately incur losses. Risk metrics: projected earnings are attractive (14-25% yields). Experienced developers expect to earn 15-20% (general scenario) or 20-25% (best-case scenario) upon exiting the project but plan for the following risks: Land/property can be initially overpriced. Construction/repairs can be delayed or exceed the initial budget. Resale property price can be lower than planned. Sales (e.g. property units) can be slower than planned. Prevent risks: negative occurrences linked to development projects can be identified by a comprehensive due diligence in four stages.
    Type of due diligence Function
    Legal Lawyers review the validity of documents and contracts pertaining to the property and project.
    Finance/Tax Tax advisors assess actual property maintenance costs, calculates the profits and tax charges.
    Risk Expert review of local development prospects and impact of existing and future competitors.
    Technical Expert review of the land or property's technical condition (usually conducted in purchase of old properties).
    Other risks can even emerge before construction begins, particularly if the construction permit is refused. Investments directed into redevelopment, capital repairs or construction can only be launched once authorities give approval to the acquired land or property. However, generally the raised funds are budgeted to cover risks linked to the lack of permit or delays in its delivery. 2. Buy-to-let Reference point: when investing in buy-to-let property, whether it is retail, industrial or residential, is dependent on the reputation of the area, the technical condition, financing and much more. Real estate and financial experts as well as keeping up to date with local media can provide exclusive insight into the validity of an investment. Risk metrics: Location is the most important feature: a central location or a reputable neighbourhood reduce risks and guarantee liquidity in case the investor needs a rapid and efficient exit with minimal value loss. Risks include future development of the district or current changes (expansion of the transportation network, establishment of new amenities etc.) that can gradually increase the capitalisation rate on the property or conversely decrease it. For instance, a person who buys an apartment overlooking a picturesque view of the Central Park in New York City would initially safeguard the investment as there are few apartments with such view and there will be no new developments. Technical condition: poor condition of the property, insufficient equipment/engineering capabilities/systems or inability to upgrade current features (e.g. heating, plumbing, telecommunications, etc.), bad interior planning, structural issues, poor access and local amenities all impair competitiveness on the market, bring down property value and affect rental demand. Although old and shabby properties can yield decent return at a given moment, they are always riskier than buying a building in good condition. Tenants and lease contracts ignite or mitigate the risks. The least risk comes with middle class tenants (residential property) or leading companies (commercial premises) as well as property on long-term lease with a current tenant. Short-term lettings bring in higher yields but do not guarantee full occupancy and while an expiring lease comes with potential to increase yields, it runs the risk of losing money if a tenant is not found quickly enough or if the market situation changes. Rental rate: average rental rates are more attractive to potential tenants, thus incurring less risk. Higher rates bring in higher yields but are harder to find tenants for. Property use: property with only one authorised purpose ties the investor into one particular activity, which may be affected by macroeconomic changes or restricted interest due to its nature. For example, retirement homes bring in above-average yields but do not reconvert easily, nor are they cheap to upgrade if they no longer meet new standards for senior care. Multipurpose property or the possibility to change the property use contain less risk (e.g., transfer hotel property to residential stock or vice versa). Debt and leverage: generally, the higher the LTV ratio, the loan to value of the property, the higher the risk. The capital raised should earn profits that exceed the costs for its use. The investment is incurring increasing losses as the debt ratio goes up if the yields are lower than loan payment. While leverage does boost operating returns, particularly if the investor can agree with the bank to pay the interest accrued on the loan with minimal coverage of the principal debt, if the property price goes down when the loan agreement is due to be renewed, the bank will demand proportional additional capital to secure the loan and an additional guarantee collateral or margin call. Experts predict that interest rates, that are at an all-time low in many countries, will rise in 3 to 5 years and when they do, property will lose value. Remote property management: foreign investments remove the investor on direct management of the day-to-day operations, undermining control and clear insight into how it is managed. While it is better for investors to have control operations, in this instance, the only way to reduce risk is to engage a property management company. Transaction structure and taxation can also present risks for investors. There are various structures to minimise taxes that can boost yields but lack transparency and increase holding risks for example shareholder loans or registration via third party companies. These strategies attract the attention of tax authorities who may demand additional taxes and penalties if not structured correctly. The increased transparency requirements for the global banking system, OECD and countries can lead to double taxation in cases of non-compliance with these new measures. For example, the new rules of Russia on Controlled Foreign Corporations have lowered the taxation thresholds for revenue earned overseas and even include profits earned by companies owned by family members of their citizens. The risk calculation Risk is a choice that can pay off or put down an investment. Taking risks brings home higher yields, but also decreases liquidity and capitalisation rate growth potential. On the other hand, shying away against risk guarantees lower yields but, assuming the investor has chosen a popular property segment and location, often comes with property that is easier to sell on and better growth in value. Risk or lack of it are, in fact, two sides of the same coin, and were this coin to be tossed, success would largely depend on the quality of the due diligence and investment strategy. Country risks
    Economic rising inflation currency volatility changes in commodity markets reducing GDP, slowing production and shrinking exports decreasing purchasing power of the people
    Social and political political, economic, financial mismanagement changes to legislation/taxation negative population growth
    Project risks
    Added Value buying overpriced land or property budget deficit schedule delays discounted property sale price permit risk
    Rental business negative impact of local development plans property in bad condition tenant issues short-term lease agreement high LTV ratio remote management transaction structuring
    So if you are considering investing in property, ask not "How big are the yields?" rather "What are the risks and how can I sell this property in the future?" George Kachmazov, Tranio

    US to curb inflow of illicit money into luxury real estate

    US to curb inflow of illicit money into luxury real estateThe US government will start tracking secret buyers of high-end properties to prevent the flow of illicit money into luxury real estate in America.

    The government will require title insurance companies to record the identities of buyers and submit the information to the Treasury, to create a database which can be shared with law enforcement agencies, who will then investigate suspicious deals and bring to book those involved in money laundering.

    The focus will be on sales paid for in cash and conducted using shell companies.

    The Treasury Department officials announced recently the initiative will be initially launched in Manhattan and Miami-Dade Country, considered to be hubs of overseas real estate investors, particularly for the luxury property segment, and then rolled out to other major cities in the coming months, officials said.

    Under the initiative, the federal government will make it mandatory for real estate companies to disclose details of cash transactions in property deals. "We are concerned about the possibility that dirty money is being put into luxury real estate," said Jennifer Shasky Calvery , the director of the Financial Crimes Enforcement Network, the Treasury unit running the initiative.

    If Treasury officials find many sales involved suspicious money, they will develop permanent reporting requirements across the country, Calvery said.

    Developers luring Hong Kong's buyers with rebates, as a slowdown looms
    Developers in Hong Kong are feeling the pinch. A slowdown is slowly spreading into the Hong Kong residential property market. Many developers are offering rebates, discounts and other incentives to lure home buyers, including incentives like stamp-tax rebates and first and second mortgages. Why? Because the supply of housing stock has increased - while demand has fallen. A softening economy in mainland China hasn't helped, and restrictions imposed by Hong Kong's government have also weighted down Hong Kong's residential markets. This has been one of the world's fastest moving property markets over the past 12 years. The previous slowdown was as long ago as 2003. Then, developers slashed asking prices to get the properties off their hands. They are trying to avoid a similar move this time. Experts say that if developers were to write down the value of their properties, it would send a negative signal about the market's condition - which they want to avoid. However some property experts believe price cuts may soon become a reality. JP Morgan believes that home prices are likely to fall 5% to 10% over the next three years in Hong Kong. "2016 will be a more difficult year when compared with 2015. Home prices could see a decline," said Cusson Leung, head of conglomerates and property research at JP Morgan. He added that a number of negative factors could affect the performance of Hong Kong property market, such as credit leverage and capital flow. Experts also predict an increase in the number of foreclosures in the next one year as more and more borrowers are likely to be unable to service their mortgages.

    Indonesia changes rules for luxury tax on apartments and houses
    Indonesia real estateIndonesia's luxury tax on apartments and houses will henceforth be based on value, instead of size, according to the latest ministerial decree. The new regulation targets small but expensive apartments and houses that used to go untaxed, particularly in upscale neighbourhoods of Jakarta. There are have also been reports that foreigners have been buying properties through proxies in large numbers, avoiding paying taxes. Under the new regulation, a 20% luxury tax on the sales price will be applicable on houses with a sale price of 20 billion rupiah (US$2.04 million) or above. Earlier, houses of 350 sq m or larger were subjected to a varied amount of luxury taxes. The luxury tax applies to also apartments priced at 10 billion rupiah (US$1.02 million) or more, as opposed to the earlier threshold of 150 sq m minimum size. The Indonesian government has been under pressure from the builders and developers' lobbies not to change the way luxury tax is applied. The real estate association was also against the new rules. 'We have suggested to keep calculating the luxury tax by land size and building size because it is fairer. If the tax is calculated according to price, in 10 years the price wouldn't be applicable anymore,' Theresia Rustandi, vice-chairman of Real Estate Indonesia was quoted as saying. However Finance Minister Bambang Brodjonegoro has insisted on several occasions that the old rule was not fair, because it left small but expensive apartments and houses untaxed. The new rules come close on the heels of the government's plan to give foreigners the right to own and trade apartments in Indonesia, under a law likely to be introduced by year-end. Foreigners are currently barred from directly obtaining properties in Indonesia. Under the new law, foreign investments in apartments that cost at least Rp 5 billion (US$186,000) will be legitimate under the "right-to-use" category, though not under the 'right-to-own' category, which is reserved to Indonesians, Land Affairs and Spatial Planning Minister Ferry Mursyidan Baldan said recently.

    A prison cell could be your new home, if you're a foreigner illegally buying property in Australia
    Australia property newsForeigners can be jailed and will pay tougher penalties if they are caught buying properties illegally in Australia, under a new law. Those who breach Foreign Investment Review Board rules that govern property purchases by foreigners may now have to pay up to $135,000 (US$98,919) or spend three years in prison - or both! Previously, the maximum penalty for offenders was only $90,000 (US$65,947). Meanwhile, companies illegally acquiring properties will now have to pay fines of up to $675,000 (US$494,593). 'New civil penalties supporting divestment orders and ensuring people who break the rules do not profit from their actions also come into effect...These include forfeiting any capital gains made on divestment of a property and fines for third parties who knowingly assist foreign investors to break the rules," said Treasurer Scott Morrison. Under the new order, foreigners applying for permission to buy a housing property will have to pay an application fee. An application for permission to buy a property valued at $1 million (US$732,750) and below entails a fee of $5,000 (US$3,664). A property worth above $1 million will have an application fee of $10,000 (US$7,327). For every million dollar increment on the property value, there will be $10,000 (US$7,327) additional to pay. The Australian government recently initiated investigations into over 500 properties in Australia bought by foreigners, suspecting them to be illegal transactions. More than 1 billion Australian dollars (US$713 million) worth of properties are now under the spotlight. The government warned foreign buyers earlier this year that if they didn't come forward and disclose unlawful transactions by November, they would face three-year jail terms, plus large fines. Now, the jail term has become law. Permission before buying comes from Australia's Foreign Investment Review Board (FIRB). Foreigners are not allowed to buy an established (previously occupied) house. They may buy an unoccupied new dwelling, but only if the FIRB feels that the purchase will not add to the shortage of properties available to native Australians.

    Government cooling measures lead to Singapore housing market's worst performance in 13 years
    Government cooling measures lead to Singapore housing market's worst performance in 13 yearsWeighed down by government cooling measures, residential property prices in Singapore have fallen 8.2% from their peak in September, 2013 - a decline in values for eight consecutive quarters, according to rating agency Fitch. It's the residential property market's worst performance in the past 13 years. In the latest APAC SF Chart of the Month, Fitch says the biggest factor responsible for decline in value is government cooling measures followed by low immigration rates and the skewed demand and supply ratio in the housing markets. The report suggests that supply currently outnumbers demand, leading to slowdown in the number of properties being sold. As a result, Singapore - once a hot property market for foreign as well as domestic investors - is slowly turning into a buyer's market. "Singapore experienced significant growth in immigration up until the global financial crisis in 2008andPrime;, the report says, adding that high immigration rate boosted the demand for housing. In response to the demand, property supply increased greatly in the last seven years, but the foreign resident immigration has slowed from 4% at the end of 2013 to 2.1% in September 2015, contributing to the slowdown in capital growth. The biggest reason behind the drop in residential property values, particularly in the luxury property segment, is increasing vacancies. The Singaporean government has imposed several restrictions on home buyers. Debt is capped at 60% of a borrower's income. Real estate taxes have also been increased. The government recently raised the minimum cash down payment for individuals applying for a second housing loan to 25%, from the previous 10%. The government increased the additional buyer's stamp duty (ABSD) on private and public housing for foreign real estate investors from 10% to 15% in January, 2013. Foreign buyers pay ABSD, introduced for the first time in December, 2011, in addition to standard stamp duty rates. These rules are also applicable foreigners on long-term passes (called 'permanent residents'), but they pay at a lower rate of 5%. Singapore residents have also been brought under ABSD's ambit, having to pay 7% ABSD when buying their second home. The government also introduced a Seller's Stamp Duty on industrial properties for the first time, to discourage speculative activity in the industrial market. The Singapore government is unlikely to relax cooling measures in the near future. Singapore's Finance Minister, Heng Swee Keat, stressed upon the importance of these measures at length at an event in November, which seems to indicate that these measures are going to stay for a while.

    New Zealand's rural housing markets to boom, following immigration policy changes
    New Zealand housesNew Zealand's already-pressured rural housing markets are likely to be boosted by new immigration policies, under which migrants who say they are prepared to live and work outside Auckland will get 30 points credited to their application from November 1, up from the previous 10. A skilled migrant needs 100 points to obtain a residency permit. Points for immigrants on entrepreneur work visas will double to 40 if they set up business outside Auckland. Many believe that the immigration policy was altered in view the Auckland's housing crisis, which is being blamed on increasing number of people migrating to New Zealand's largest and most populous city. Auckland's population increased by 34,000 in just one year due to migration. Prime Minster John Key has downplayed fears of pressure on housing in provincial New Zealand due to change in immigration policy. He said that it was unlikely to have an impact on the Auckland's housing markets. 'I don't think it'll have a dramatic impact. We're not arguing the case this is the answer to the challenges that the Auckland housing market are facing.' The opposition parties are however accusing the government of sabotaging rural New Zealand. New Zealand First leader Winston Peters said more than 1100 immigrants were arriving every week. 'This puts pressure on the rental and housing market and forces Kiwis to compete with tens of thousands of people coming here on work and student visas...Don't blame the immigrants or the foreign buyers for what they are doing, blame those in this country who encourage it,' he said. Property prices in New Zealand have continued to surge at a record pace. Property values are now rising at their fastest pace in eight years, driven by the overheated Auckland housing market, according to state-owned agency Quotable Value. Property values are now about 27% above the previous market peak in late 2007. 'We are now seeing a definite upward swing in market activity in the upper North Island...This is especially evident in Hamilton, but also in Tauranga, Whangarei, and the Franklin, Hauraki and Waikato districts," said QV spokeswoman Andrea Rush. 'Net migration remains at record highs and there are now incentives for new migrants to move to areas outside of Auckland, so this coupled with record low interest rates is likely to see continued upward pressure on home values as we move towards spring,' he added.

    Housing starts and permits reach record levels in US
    New York propertyGroundbreaking and permits to new build new homes have surged steeply in the US, reaching the highest level in the past eight years, according to the U.S. Commerce Department. This is the strongest recovery in housing starts since 2007-08 financial crisis. Groundbreakings on new homes surged 26.6%, and permits to build new homes went up 30% year-on-year in June. Economists say an increase in both starts and permits could help ease the demand for housing, in the face of limited supply. There were 1.174 million housing starts (seasonally adjusted, annual rate) in June, up from June 2014andprime;s rate of 927,000. Permits for June reached an annual rate of 1.343 million (seasonally adjusted, the highest level since July 2007, when housing permits stood at 1.361 million. "This month's reading is in line with recent data showing stronger sales in both the new and existing home markets as well as continued job growth... However, builders still face a number of challenges, including shortages of lots and labor.," the National Association of Home Builders' chief economist David Crowe said. Housing starts for multi unit buildings have witnessed a particularly large boost. Starts on buildings with five or more units shot up by 28.6% in June, to an annual rate of 476,000 (seasonally adjusted). Experts believe that the main reason behind increase in starts is that people who were forced to sell their homes in 2007-08 financial crisis are back in the market, looking to be homeowners again. This has boosted the demand for comparatively cheaper housing. Builders are trying to meet this demand through multifamily housing projects. The home ownership rate in the USA is currently 63.7%, the lowest in the past 20 years.

    Rate cut by Canada's central bank fuels housing bubble fears

    Canada real estateCanada's central bank has reduced its overnight lending rate to 0.5%, from 0.75%, to counterbalance slumping oil prices. In response, several Canadian banks have cut their prime rates.

    Toronto-Dominion Bank has cut its prime lending rate by 10 basis points to 2.75%. Royal Bank of Canada, TD Bank, Bank of Montreal, Bank of Nova Scotia and Canadian Imperial Bank of Commerce have cut also their prime lending rates by 15 basis points.

    The rate cut has come at a time when real estate markets in Canada are already overheating. The cut will lead to increased borrowing, which will result in faster property price growth.

    This is the second lending rate cut by the Bank of Canada this year. The central bank surprised economists in January when it reduced the rate to 0.75%.

    These interest rate cuts were followed by the highest number of monthly sales for several years in May and June, according to the Canadian Real Estate Association (CREA). there were 56,839 transactions by CREA members in June, up 11% from the same month last year.

    Home prices in Toronto and Vancouver continue to surge. The average cost of purchasing a condo, townhouse or low-rise property in Toronto has jumped 38% during the five years to June, according to the Canadian Real Estate Association.

    Credit agency Fitch Rating, however, says that the decision by the central bank to reduce its overnight lending rate by 25 basis points will not have much impact on borrowing.

    "Given the current rate environment, which has been at near-record lows for several years, Fitch does not expect the rate cut to have much impact on market mortgage rates, or on affordability for current borrowers," the company said in a release.

    Despite this, Fitch says it believes the Canadian housing market is still 20% overvalued, with what it described as "modest variation" across provinces.

    "However, a number of positive market factors are expected to moderate any negative price pressure. Most importantly, the Canadian mortgage market does not have significant exposure to riskier mortgage products that would be at high risk of default," said Fitch.

    "Expect a soft landing nationally, where the price growth that has characterized the country's housing markets for more than a decade will abate, with modest declines to follow," the company said.

    Indonesia to allow foreigners to buy luxury apartments
    JakartaThe Indonesian government is planning to give foreigners the right to own and trade apartments in Indonesia, under a new law likely to be introduced by year-end, Land Affairs and Spatial Planning Minister Ferry Mursyidan Baldan said recently. Foreigners are currently barred from directly obtaining properties in Indonesia. Under the new law, foreign investments in apartments that cost at least Rp 5 billion (US$186,000) will be legitimate under the "right-to-use" category, though not under the 'right-to-own' category, which is reserved to Indonesians. The government also aims to pocket luxury tax by legitimating these investments. There are reports that foreigners are buying properties through proxies in large numbers, avoiding paying taxes. 'The state will allow foreign nationals to have apartments in Indonesia for their lifetime, and the apartments may be bequeathed to their descendants or resold...However, the status of these apartments will fall under the right-of-use category, not the right-of-ownership category,' Ferry said. Under the right of use category definition, a lease holder's possession of the property expires in 25 years that can be extended 20 years or lifetime for the land's legally defined use. However, the land law also provides for the right of ownership - known in Indonesian as hak milik - that has no time limit but is applicable only to Indonesian citizens. While the regulation will allow foreigners to invest in apartments, they will still not be able to buy landed houses. Foreigners will be able to own the apartments for their lifetime and pass on to descendants as inheritance if they decide not to sell it. 'We will issue a government decree on foreign possession of property before the end of the year,' Ferry said. Ferry said the government had no intention to restrict the location of apartments available for foreigners to possess in Indonesia. 'Foreigners normally prefer living in South Jakarta areas like Kemang or in the Sudirman Central Business District so it's useless to restrict their purchase locations,' he said. Experts say that the regulation will stimulate demand in the country's luxury market. Some experts have warned the government to increase the threshold of the property's minimum value from Rp 5 billion because the shopping spree by foreigners may create a bubble situation in coming years.

    Bargain hunters looking for properties on Greek islands may be disappointed

    The Greek stock market may have hit rock bottom, but prominent Greek real estate brokers report a surge in enquiries for homes on the Greek islands. The agents say that most enquiries are from Europe and Middle East Asia. Many foreign buyers are eyeing vacation villas on the world famous islands of Mykonos and Santorini, as well as Port Heli, in hopes that their prices will plummet.

    Property prices in Greece have fallen 40% since 2007, according to Bank of Greece. Property prices on the island of Mykonos went down 30% before stabilizing last year. The island saw a brief spell of recovery in prices in 2014.

    However though enquiries have increased, there haven't been many sales

    Home owners on these islands seem unwilling to sell. They are watching developments and not lowering their asking price, real estate professionals report. They are opting to rent their properties, instead of selling at throwaway prices.

    European Leaders are still hoping to rescue Greece from its financial crisis. Greece needs to agree on the details of a new aid program before August 20, when the country is scheduled to make a payment of 3.2 billion euros on bonds held by the European Central Bank.

    Landlord tax-relief slashed to discourage Britain's buy-to-let frenzy
    A radical change is ahead for UK landlords. Tax reliefs favouring UK landlords have led to a steep increase in investment in buy-to-let properties in the UK, and have contributed to inflating property prices and rents, making housing increasingly unaffordable. Landlords are currently able to claim tax reliefs worth 40% or 45% of interest payments on buy-to-let mortgages. However under new rules, from April 2017, they will be able to claim maximum tax relief of only 20% of the interest payment. The change will be unfolded over the next four years. The landlords will also not be able to claim 10% of the rent against wear-and-tear costs. From April 2016, landlords will only be able to deduct costs they actually incur. Britain's two million buy-to-let landlords will be affected by these tax regulations. 'Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot,' Chancellor George Osborne said recently. Osborne added that how popular buy-to-let mortgages have become in Britain can be gauged from the fact that they now accounted for more than 15% of new mortgages, causing the Bank of England to sound warnings about the market. "So we will act. But we will act in a proportionate and gradual way, because I know that many hardworking people who've saved and invested in property depend on the rental income they get," he said. The government also announced a major tax relief to home owners who let a room in their own home to a lodger. Homeowners will be able to make tax-free income in rent up to 7,500 (US$11,548) from lodgers. Earlier, the tax-free limit was 4,250 (US$6,544). The change comes into effect from April next year. Advocates of affordable housing welcomed the announcement. They said that buy-to-let landlords were being given unfair advantage over regular home buyers. They hoped that the government would take more such measures to give home-buyers a level playing field.