Global Property Guide - News and Discussions
Property investment in Australia attracting more Asians, despite hurdles
Foreign investment in residential property in Australia is growing rapidly, despite restrictions. Australia's Foreign Investment Review Board (FIRB) grave permission for 11,668 residential property purchases by foreigners in 2012-13, an increase of 19% on the previous financial year, according to the FIRB. All non-residents must: Obtain permission from the FIRB before buying residential property in Australia. Are not allowed to buy an established (previously occupied) house. May be allowed to buy an unoccupied new dwelling, if the FIRB feels that the Australia's housing stock has increased i.e. purchases of houses by foreigners will not cause shortages for the natives. Temporarily establishing residence in Australia for the purpose of buying a house is not a viable alternative to obtaining FIRB permission, since temporary residents must sell their property if they leave Australia.
"Foreign investment in the Australian residential real estate sector fetched AU$17 billion (US$15.21 billion) last financial year. Investment in commercial properties was AU$35 billion (US$31.33 billion). Nearly 12,025 purchases by foreigners of commercial real estate were approved, including offices, shopping centres and hotels. Investment in commercial properties was also 19% higher than the previous financial year," according to the FIRB report.
Asian investors are widely believed to be driving up Australian housing prices, by buying homes for children studying in Australia.
Chinese citizens are now the largest group of foreign investors. Chinese investment in Australia's residential and commercial properties increased by 42% during the last financial year. Total investment from Chinese buyers was AU$5.9 billion (US$5.3 billion) compared with AU$4.9 billion (US$4.39 billion) and AU$4.4 billion (US$3.94 billion) from Canadian and American investors respectively. American investment in Australian property slumped by 85% during the latest financial year.
A recent survey by HSBC, the UK and Asian-based bank, confirms that Australia is a favourite destination for affluent Asians buying properties overseas.
Out of 7,245 affluent individuals surveyed in seven Asian nations, 18% of Indians, 9% of Chinese, 19% of Singaporeans and 26% of Malaysians had invested in Australian property.
Of affluent Asians looking to buy in Australia in the coming year, 25% are planning to buy in Queensland, 23% in the Australian Capital Territory, 20% in Victoria, 18% in New South Wales and 16% in Western Australia, the survey found.
Instead of investment, several other factors including availability of good education, better health system, comparatively cleaner environment and better living standards are believed to be attracting Affluent Asians.
China residential property "cooling" still pretty hot!
China's housing price rises slowed in January and February, the first slowdown in 14 months. This suggests that the Chinese government's efforts to cool the property market over the past four years are finally showing results. However, this 'cooling' is only a slowing of price rises - i.e., residential property prices are still rising at a rapid rate. Average new home prices in China's 70 major cities rose 9.6% in year-on-year to January, easing from the previous month's 9.9% rise. Prices in Beijing rose 14.7% year-on-year to January, compared with a 16% increase in December, according to data released by the National Bureau of Statistics. "Because of the effects of a series of government measures, including tightening curbs in some cities and an increasing supply of affordable housing, the market environment and pricing expectations were relatively stable," Liu Jianwei, a senior statistician at the National Bureau of Statistics, said in a statement accompanying the data. "Tightening credit conditions and easing pressures from housing inventories also helped home sales to drop, which in turn eased the home price rises further in some cities," the statistician added. Adding force to the NBS's data, two private surveys show similar trends for February. Prices of new homes in 288 major cities rose 9.08% year-on-year to February, down from January's annual rise of 9.39%, according to E-House China - the slowest gains for 10 months. China Real Estate Index System (CREIS)'s survey showed prices rose 10.8% in February from a year earlier, easing from 11.1% annual gains in January. Since April 2010, China has imposed a slew of measures to cool property prices, amid fears of a property bubble. The measures include higher down payments, limits on the number of houses that people can buy, the introduction of a property tax in Shanghai and Chongqing, and the construction of low-income housing. China's central government last year told local governments to take firm measures. In response, Shanghai told banks to stop issuing loans for third home purchases. Beijing announced that single residents would be allowed to purchase only one home. The easing has raised fears of a slowdown in GDP growth, as China's housing market and property lending are crucial to the national economy.
Record rise in home loan approvals in UK
Mortgage assistance schemes for first-time home buyers caused a record rise in home loan approvals in the UK in January, the highest in six years, according to the British Banker's Association (BBA).
Mortgage lending by BBA members was 38% higher year-on-year to January. The number of approved, but not-yet-lent mortgages, saw a 57% increase.
The figures put mortgage approvals at their highest since September 2007.
"Approvals for new purchases have climbed quite significantly and are now at their highest point since September 2007. Mortgage borrowing continues to rise compared to a year earlier as mortgage assistance schemes help first time buyers and housing chains more generally," said BBA statistics director David Dooks.
The government's Help to Buy scheme makes it possible to buy a new-build or existing home priced up to £600,000 with as little as a 5% deposit. UK policy makers, including prime minister David Cameron, have dismissed concerns that Help to Buy might cause a housing bubble.
House prices continue to surge in the UK. The average price of a home was 9.4% higher year-on-year to February, the strongest rate of annual growth since May 2010, according to Nationwide.
'Demand continues to be supported by record low interest rates, improved credit availability and rising consumer confidence thanks to the healthy gains in employment recorded in recent quarters,' said Robert Gardner, Nationwide's chief economist.
'Price growth is being supported by the fact that the supply of housing remains constrained, with housing completions still well below their pre-crisis levels, which was already insufficient to keep up with the pace of household formation,' he added.
Less than 110,000 new homes were built in last year, 38% below the number built in 2007.
In January 2014, the number of houses for sale in the UK hit a new low, while potential buyer numbers continued to surge, according to the latest Royal Institution of Chartered Surveyors (RICS) report.
New immigration rules to impact Canada's housing market
The Canadian government's decision to axe a 28-year-old visa scheme for immigrants will have a substantial impact on the housing markets in Canada, especially in Vancouver and Toronto, experts say. Canada scrapped its Immigrant Investor Program earlier this month. The scheme was particularly popular with wealthy real estate investors from mainland China. Under the program, foreign investors with a minimum net worth of C$1.6 million (US$1.44 million) were granted Canadian residency in return for making an interest-free loan of C$800,000 (US$726,720) to the government for five years. The government returned the principal amount in instalments over five years. Canadian Finance Minister Jim Flaherty announced recently that the Immigrant Investor Program had been scrapped. 'For decades, it has significantly undervalued Canadian permanent residence, providing a pathway to Canadian citizenship in exchange for a guaranteed loan that is significantly less than our peer countries require. There is also little evidence that immigrant investors as a class are maintaining ties to Canada or making a positive economic contribution to the country,' the minister wrote in the 2014 budget report, adding that immigrant investors pay significantly lower taxes over a lifetime than other categories of economic immigrants. Nearly 65,000 applications for Canadian residency under the Immigrant Investor Program were pending when the scheme was axed. Of the total applications, 45,500 were from mainland Chinese. Nearly 40,000 of these investors were likely to buy residential property in Greater Vancouver over the next six years, according to a report published in the South China Morning Post. There was no direct reference to the decision's impact on the housing market in the budget report. Experts, however, said that after scrapping of the scheme, Chinese investors who were making a beeline to buy properties in Canada, particularly in Vancouver, will be attracted towards residential markets in other counties, including Australia and the U.S. Canadian Imperial Bank of Commerce's (CIBS) deputy chief economist Benjamin Tal says his own research shows there has been a "significant softening" in activity in high end home sales in Vancouver, Canada's most expensive city. 'It definitely has impacted the high end of the market. It is not that activity is going down, it is simply not rising," the economist was quoted as saying. Canada's government has been taking measures to cool down expensive housing market for the past few years. One of the factors inflating the market was large-scale investments from wealthy Chinese. The Canada Mortgage and Housing Corporation (CMHC) tightened mortgage lending in 2013 by limiting guarantees it offered to banks and other lending companies, in an attempt to control rising housing prices. Earlier tightening steps included reducing maximum amortization periods from 30 years to 25 years, and reducing the maximum loan-to-value (LTV) ratio from 85% to 80%.
Singapore's foreign real estate investment curbs won't be relaxed anytime soon
The Singapore government's measures to cool down the property market have succeeded, but it is too early to relax them, said Finance Minister Tharman Shanmugaratnam while unveiling the 2014 national budget in the Singapore parliament recently. 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 the 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 stability of Singapore government and the country's robust economy has attracted large numbers of foreign investors. The government is not engineering a hard landing, added Shanmugaratnam, but given the increase in prices in recent years, it was too early to start relaxing. 'Our cooling measures are aimed to moderate the market and prevent the property prices from getting too far out of line with incomes...The government will continue to monitor the property market and adjust the measures when necessary,' the minister said. The government recently also raised the minimum cash down payment for individuals applying for a second housing loan to 25%, from the previous 10%. 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 government's policies are partly a response to low interest rates. "The restrictions were imposed as the continued buoyancy of the property market reflects the very low interest rate environment and continued income growth in Singapore,' said the Inland Revenue Authority of Singapore. 'These factors supported a record level of housing transactions, particularly from investment demand. Housing prices have also shown signs of reaccelerating in recent months. Price increases, if not checked, will run further ahead of economic fundamentals and raise the risk of a major, destabilising correction later on.'
Mortgage applications drop in US, student debt blamed
Loan applications for housing purchases fallen alarmingly in the U.S recently, a development which experts fear will negatively affect the housing recovery and the overall economy. Mortgage applications saw a steady decline in February. The Mortgage Bankers Association reported that applications for the week ending February 14, 2014 had dropped by 4.1% from one week earlier, after falling 2% from the previous week. Mortgage originations dropped $97 billion to $452 billion from the third quarter to the fourth quarter of 2013, while student debt increased to $1.08 trillion, up $53 billion, a report prepared by the Federal Reserve Bank of New York stated. Average student debt per borrower in U.S. is nearly $24,810. Rising student debt is preventing first time buyers from purchasing houses, leading to a fall in house loan applications. "Student debt is likely to have a dampening effect on young peoples' ability to borrow for a home, and that's going to impact the housing market and the economy at large. It is a cause of concern for us," said David H. Stevens, chief executive of the Mortgage Bankers Association. Some federal rules enforced last month are also likely to have a bearing on the home loan qualification criteria. The rules discourage mortgage lenders from approving loans for people whose total monthly debt exceeds 43% of their monthly gross income, thus rendering many young adults unable to qualify for a mortgage. The housing sector has been hit hard by a recent drop in housing starts due to harsh weather conditions. The number of house starts dipped 16% in January compared to December. It was 2% lower year-on-year to January. New home starts in January were at a seasonally adjusted annual rate of 880,000, below December's revised estimate of 1,048,000. House permits - which indicate future construction of new residential buildings - also dipped by 5.4% in January compared to December.
Golden visa schemes for non-EU investors gaining momentum
Spain has started issuing residency permits to non-EU nationals in return for real estate investments of ?500,000 ($670,000) or more, almost five months after introducing a law to this effect. A businesswoman from Shanghai became one of the first foreign investors to receive this residency permit after she invested ?520,000 to buy flats in Barcelona and Madrid.
Spain is one of the several European countries to have introduced schemes by which residency permits are granted to wealthy foreign real estate investors, in return for buying prime properties. Other countries are Portugal, Greece, Hungry, and Cyprus.
These residency permits aim to bolster ailing European countries, increase employment and boost real estate.
The investor has to retain the property in order to continue enjoying residency benefits. In Greece and Hungary, the minimum value of the property has to be ?250,000 ($335,000). In Spain and Portugal, the minimum investment is ?500,000 ($670,000), while it is ?300,000 in Cyprus.
In Portugal, more than 330 visas were issued within one year of the scheme's launch, fetching ?225 million. In the first three weeks of January, 2014, Portugal granted a total of 49 fast-track golden visas and received investments of ?27 million. Investors, mainly from China, Russia, Brazil, Angola, South Africa, and India, are applying for Golden Visas in Portugal, with Chinese topping the chart by a big margin.
Discontent with the current political set-up in China, the fall in real estate prices in Europe and the depreciation of the euro are some reasons behind growing Chinese interest in European property.
Mainland Chinese investment in Europe tripled last year as insurers, developers and private individuals joined the country's sovereign wealth funds in seeking to diversify their assets outside Asia, according to research firm Real Capital Analytics (RCA).
Property speculation forces Malaysian government to control bulk sales
The Malaysian government will soon require property developers to obtain permission before making bulk sales of more than four units. The move is aimed at curbing rising property speculation, and to give ordinary individuals an equal opportunity to buy houses. The Ministry of Urban Wellbeing, Housing and Local Government is currently formulating guidelines to this effect and likely to implement them in a month's time, minister Datuk Abdul Rahman Dahlan said. The guidelines aim to discourage big investors and property investment clubs from making bulk purchases of properties. Rising property prices fuelled by easy financing have been a cause of concern in Malaysia recently. After the guidelines are implemented, a developer will have to obtain prior approval from the Controller of Housing to make bulk sales of more than four units. "Speculators are not breaking any laws, but a check on such bulk purchases is necessary as they could create fluctuation and inflate the property market. They also deprive ordinary house-buyers of equal opportunities," said the minister, stressing that housing prices should be determined by demand and supply, not by unhealthy speculation. He said the ministry is talking to Real Estate and Housing Developers' Association of Malaysia and various other stakeholders in the industry before announcing the new guidelines by next month. "In order to curb speculative activities by 'property investors clubs', my ministry will establish a comprehensive database of house buyers so that we can identify the number of houses owned by an individual and take the necessary steps to curb unhealthy speculation," he said. Opposition leaders lauded the government's plan to curb property speculation, but stressed that any measures should not hurt the property market. The government last year doubled the Real Property Gains Tax (RPGT) to 30% for properties disposed of within three years of acquisition. It forbade banks from offering financing via Developers Interest Bearing Schemes (DIBS), where the developer paid the interest on buyers' loans during construction of a project. DIBS-financed projects have tended to be significantly more expensive than others, as their prices include financing costs and reflect future property values. According to some, the schemes distorted the market, and in any case, added to buyers' liquidity. The government announced earlier this month that it would offer financial aid of up to RM30,000 ($10,000) for each unit built under the MyHome scheme, i.e. housing units for those who earn less than RM3,000 ($1,000) a month and set aside a budget of RM300 million ($100 million) for the massive project.
UK housing shortage, first time buyers, pushing prices up
There is a shortage of homes in the UK housing market, according to the latest Royal Institution of Chartered Surveyors (RICS) report. Their evidence?In January 2014, the number of houses for sale hit its lowest point, while potential buyer numbers continued to surge across the UK. However supply may increase during the traditional spring bounce, according to some agents surveyed. Prices in the UK housing market moved 9% higher during the year to January, helped by first-time buyers. A typical home now costs £14,000 more than in the same period last year. January saw the 13th consecutive monthly price rise, while the rise during the month was 0.7 percent. The average cost of a home in January 2014 was just under £176,500. Annually, prices have risen 8.8% during the year to January, the highest rise since May 2010. There were 73,700 borrowers across the UK buying their first house during the last three months of 2013, representing a 32% increase over last year, according to the Council of Mortgage Lenders. First time buyers have increased more than any other type of buyer, note Connells, the property valuation company. This is perhaps the most important reason for spike in the housing demand. In addition, rising home prices in many parts of the country are driven by shortage of properties, according to RICS' global residential director, Peter Bolton. While increased activity in the property segment during the New Year is pretty much a norm, January 2014 was nearly a stampede, according to John Bagshaw, Connells' corporate services director. "The seasonal rebound between December and January has been significantly stronger than we usually experience," he said. An important factor is the government schemes, the Funding for Lending and Help to Buy schemes, which have been accessed by a large number of first time buyers. In addition, lenders are today more confident than during the past years, and therefore willing to target new buyers, according to Bagshaw. According to the RICS report, the level of homes sold was 21.1 per chartered surveyor over the three previous months, which represents a considerable increase over the same period in 2013, when the figure was just 16. The future outlook is appears positive with transaction numbers and future prices likely to increase over the next three months. Yet, some analysts are worried about the strong start to 2014 leading to a likely bubble. They had expected the Bank of England to take a timely action to prevent the bubble. The figures appeared worrisome to the housing charity Shelter, who look forward to "bigger, bolder" ideas from the government to provide affordable homes. However the government is focused on an election victory, hence its artificial measures to boost to the UK's already-overvalued property market. The Bank of England has also assured the government that there will be no official interest rate increase before the elections.
New Zealand banks' loan portfolio is 60% housing loans
An external shock could trigger a major correction in housing prices in New Zealand, an international rating agency's new report has warned, causing a crisis for New Zealand's banking system. House prices in New Zealand are sensitive to developments in the economies of China and Australia, its two biggest trading partners, a report prepared by Standard and Poor's has warned. "Persistent house price inflation in New Zealand could trigger the risk of a sharp property price correction sometime in the future, particularly if there is an external shock to the economy...We are of the view that a hard landing in China could potentially have a material impact on the New Zealand banking system," noting that house price corrections could trigger significant bank credit losses. A hard landing in China could result in a huge deterioration in the terms of trade, weakening the country's export earnings and business and consumer confidence, and impacting labour market and household debt-servicing ability, says the report. Residential property loans account for about 60% of total lending by the banking sector in New Zealand. Continuously rising home prices been a cause of concern in New Zealand, forcing the Reserve Bank of New Zealand to come up with loan-to-value ratio (LVR) restrictions on mortgage lenders in October, 2013. Banks have been restricted from issuing more than 10% of new residential loans to customers who have a loan to value ratio (LVR) of more than 80%, i.e., generally customers should at least deposit 20% of the home's value. The last couple of months saw a cooling of the New Zealand's housing market, with prices falling in December and January, and sales down in December, according to the Real Estate Institute of New Zealand (REINZ). Quotable Value reported last week that the nationwide residential values had increased 9.6% year-on-year to January.
Against all odds, Spanish families are wedded to home ownership
Spanish families remain enthusiastic about home ownership, despite an upsetting unemployment rate, a five-year-long housing bust, and limited means of credit.
Data recently released by the Bank of Spain suggests that Spanish families continue to hold on to their cultural legacy with 83% of them being proud owners of their own homes, a percentage that is one of the highest in the world. Nearly 27% percent of the Spanish families own a second or holiday home, according to the Bank of Spain, despite the fact 27% of them have mortgage debts due on their primary home.
Spain went through one of the worst housing crashes between 2007 and 2012. The country is yet to recover from the ramifications.
Spain, Europe's fifth-largest economy, has witnessed a drop of up to 40% in home prices since 2007. Unemployment remains high. Access to credit is restricted. So home prices are expected to fall a further 10% to 15%. Home prices inSpain fell by 16% year-on-year to November, 2013, according to the National Statistics Institute. Home prices are still declining at a rate of 4.1% on a monthly basis.
About 584000 dwellings are vacant in Spain, waiting to be sold, the government estimates.
About 90% of the Spanish families owned some sort of property in 2011, and dwellings accounted for 84% of the household wealth. Half of all households in Spain have some sort of debt to pay with the average value of debt being ?42,900.
Young families are especially burdened: 81% of young families, i.e., where the main bread earner is under 35 years old), have property-related debts.
Recent months have witnessed an improvement in foreign investment in Spanish real estate. In addition, the recovering economy is boosting sellers' confidence.
Foreign buyers and lax policy inflating London housing bubble, warns Ernst and Young
The Bank of England should consider imposing a formal limit on mortgage to income multiples to avert a possible risk of housing bubble in London, an Ernst and Young (EY) ITEM Club special report has advised the policy makers in the UK. While the housing sector in the rest of the UK is headed for healthy growth, London is beginning to show signs of 'bubble like conditions', the report prepared by a highly regarded group of economists has said. The prices of residential properties are escalating at an alarming rate amid an acute shortage of supply and strong demand in London. The average house price in London is expected to reach nearly £600,000 by 2018, over three times that in Northern Ireland and the North East, according to the report. The international interest in the London's housing sector has also contributed to rising prices. Affluent foreign investors are making a beeline to buy prime and high-end housing properties in London. The better returns on investment compared to other parts of the world and a weak pound are some of the factors attracting investors from all over the world. The report advises the Bank of England's Financial Policy Committee (FPC) to prevent people in London from borrowing more than three times their annual income as income multiples are now back to pre-financial crisis levels. Lenders in London have become very relaxed about income multiples and mortgages are usually more than three times the average salary. The report has good news for the housing sector in the rest of the UK. The report said that housing sector is riding on the back of various government support schemes, improved credit conditions, rising employment and an accelerating recovery in the wider economy. It seems to be in much better shape than before the financial crisis in 2008. The report forecasts that UK house prices will grow by 8.4% this year and 7.3% in 2015, before coming down to around 5.5% a year thereafter. Housing prices are expected to rise at an average rate of 6.5% annually over the next five years. There will be increase in the housing transactions (over 1.36 million people are predicted to move home in 2018) due to the projected growth in the house prices in UK, which will boost the confidence of house owners and improve their spending power. House price rises will also have a positive impact on the economy as related industries and businesses stand to benefit, the report has concluded.
India's big leap to property market transparency
India has become the seventh country in the world to release a Housing Start Up Index (HUSI), recording the number of housing starts, and measuring the sector's impact on the economy. The index has come up with interesting trends. Housing construction has declined between 2009 and 2011 in big cities like Kolkata, Chennai and Bangalore, but grown in small cities Dehradun, Bhopal and Hubli. Clearly India's property boom followed a classic pattern - starting in the bigger cities, then spreading to smaller towns. The HUSI is a major step forward in bring transparency and predictability to India's vast housing sector, which contributes 10% to India's gross domestic product (GDP), and employs, directly or indirectly, 30 million people. The HUSI is useful as a leading economic indicator, and a major tool for industries to plan and strategize, including steel, cement, construction, labour and home appliances. Canada, USA, Japan, France, Australia and New Zealand are the other six countries which release a HUSI on a regular basis to evaluate the trends in the housing sector, and analyze its impact on sectors like banking, mortgage and infrastructure and construction industries. The first HUSI in India, released on February 3 by the Ministry of Housing and Urban Poverty Alleviation, and the Reserve Bank of India (RBI), records house starts in a total of 27 cities between 2009 and 2011. The number of cities will go up to 300 in coming years. The RBI set up the Technical Advisory Group which developed the HUSI in 2007. "These indicators help policy makers and administrators understand the future focus and thrust areas in terms of not only housing provision, but also all the associated infrastructure and civic amenities," said Housing and Poverty Alleviation Minister Girija Vyas.
Huge reduction in Greek property transaction tax, now down to 3%
Property transactions in Greece are now taxable at 3%, under the new law which came into effect this January. This is a huge reduction from the 8% on the first ?20,000 of the property's value and 10% for amounts beyond the first ?20,000 under the previous tax regime. Where will the lost money come from? The new unified property tax will shift the burden to ownership. It will apply not only to residential and commercial properties, but also to vacant lots, sports fields, farms and agricultural land. All property taxes including temporary emergency taxes are now unified, and the taxation base expanded to cover all types of real estate, whether income-generating or not. Greece has been deep in recession for the past six years and has had to be bailed out by the EU-ECB-IMF troika. The recently passed tax measure is part of a series of structural reforms that it has agreed to undertake as condition for availing from a ?240 billion rescue package from the troika. Passage of the measure was met with much resistance locally since it would be affecting a larger proportion of the population. Before, only those with relatively big landholdings were taxed. Now almost everyone will have to share in bearing the tax burden. Greece has an 80% home ownership rate, one of the highest in the world. While the new unified property tax hews close to the model prescribed by the troika - one where burden is shifted from transfers to ownership - for 2014 it is expected to generate only ?2.65 billion in revenue, lower than the ?2.90 billion collected under the old tax regime. To cover the budget shortfall, the government will cut planned investment spending. Property prices have already dropped by 32% over the last four years, according to the country's central bank. The new property tax law could drive them further down. "This law leads to the collapse of the [property] market, instead of reducing the excessive taxation which has already stalled transactions," complained Ioannis Revithis, the head of Greece's real estate agent association Omase. Foreign buyers of course benefit from a market collapse. "Over-taxation causes property devaluation, which works to the advantage of foreign investors who want to buy at very low prices,' said Michalis Georgiou, an Omase member. '2014 will be a crucial year for real estate. Prices will further drop by up to 20%." Already, foreign buyers and investors from non-EU countries are being offered Greek residence permits for purchasing or renting property worth over ?250,000. Greece now holds the EU presidency. 'At the end of the Greek presidency, Greece will be back on its feet and Europe will have taken a major step to exit its crisis,' promised Prime Minister Antonis Samaras. 'What was once Europe's 'weakest link' will be a symbol that Europe works, Europe can, and Europe will make it.'
Coming to Vietnam, a game changer for foreign investors?
Proposals to open Vietnam to foreign property investors are being pushed by Nguyen Tan Dung, Vietnam's Prime Minister. At the present it is difficult for foreigners to buy property in Vietnam, and impossible for any other purpose than to actually live in them, i.e., buy-to-let deals are not allowed. No date has yet been set for the National Assembly to vote on the new proposals but it is expected that, if passed, they would come into effect from July 2014. Important proposals include: Any foreigner in Vietnam with a visa valid for 3 months or more will be allowed to buy property As well as the condominium units now available for foreign ownership, town houses and villas (with up to 500 sq m of land) will also become available Foreigners will, for the first time, be allowed to own more than one property, and will be allowed to lease to tenants The current leasehold ownership limit of 50 years will be extended to either a straight 70 year period, or a 50 year period with the right to extend by a further 50 years "Allowing for a 50-year lease plus a further 50 years, or straight 70 years lease and allowing the right to lease out are all game changers for foreign investors," says Marc Townsend, managing director of CBRE Vietnam. Official figures indicate that the luxury market is picking up. For example, Da Nang, frequently described as the next high-end luxury focal point in Asia, is showing signs of increased buyer activity at the top end of the market. Properties starting from $200,000 all the way up to $3,000,000 or so have been selling at an encouraging rate for the past few months. Figures from the Ministry of Planning have shown that foreign investors have targeted the top end of the market in Vietnam in previous years, so the new activity in Da Nang may well be driven, in part, be speculation of a demand-fuelled boom in prices once the new real estate proposals come into effect. Peter Ryder, CEO of Indochina Land, a company that has recently launched a large top end development in Da Nang has stated 'Right now we're at an inflection point with supply and demandandhellip;.. but I see demand outstripping supply within the next 12 months.'
How to give Indonesia's booming property sector a headache
After a 3-year period that has seen residential property prices rise at an annual rate of 30 - 40% in its main urban centres, the Indonesian government has introduced new regulations to avert an unsustainable boom in property prices. The two most noteworthy policies relate to the amount of leverage that can be used to purchase 2nd properties, and a new waiting period when buying off-plan houses and apartments.
The regulations have already had an impact on sales:
"The correction in growth in the sector this year was due to the issuances of new regulations concerning the housing sector, such as a Loan to Value (LTV) policy and a waiting period to receive ordered housesandhellip;" said Eddy Hussy, the head of the Indonesian housing developers association, Indonesian Real Estate (REI).
In addition to the new regulations, the effective mortgage interest rate (known as the Bank Rate Benchmark), has risen to 7.5% making mortgage repayments more expensive and putting further pressure on price rises to slow. Furthermore, a general election is looming this year and there is some concern that it may cause instability.
Property developers have responded by cutting back on new developments. Where existing developments still have unsold units the sentiment seems to be one of wait-and-see. PT Ciputra Property director Artadinata Djangkar expects that property sales will pick up again later this year, but not until the 4th quarter when the election is out of the way.
Fitch, the international rating agency, does not expect a serious collapse in the real estate market and has noted that the rapid price rises over the last few years came off the back of a severe slump. They also note that affordability in the market today, whilst low, is not as bad as it is in other areas of Asia.
The government policy to increase the loan to value (LTV) ratio is an interesting move. Indonesia is quite different to most countries in respect to how its property market works. Whereas people in most countries resort to borrowing money from the bank in order to pay for a new property, the traditional model in Indonesia has been to rely much more on savings and other assets to fund a purchase. This probably explains why the government has targeted 2nd properties since these are much more likely to be purchased by speculators using highly leveraged positions.
In Indonesia's booming market, speculators have been ordering off-plan properties and using highly leveraged funds to pay the developers. On completion some months later, they take ownership of the new property and immediately sell it for a profit. If the market falls then there's a real danger that they won't be able to pay off their debts.
The LTV policy combats the over-reliance on borrowed money, the waiting period forces the speculators to hold on to the property for a given period of time before selling it on.
For foreign investors, any purchase comes with some extra risk. Foreigners cannot own freehold property, but there are some limited leasehold options with a maximum 25 year lease.
There is no shortage of foreign buyers who have bought properties under someone else's name e.g. a spouse or a business partner. Obviously, such purchases are not legally valid. Despite the risks, many investors are watching closely, and more than a few have noticed that the Rupiah has depreciated by almost 30% against the US Dollar over the past 12 months, making investment relatively cheap.
Qatar takes major initiatives in U.S. property market
When the recession struck back in 2008, construction projects within Washington and mainland U.S. suffered a major blow in terms of investment. However, with the real estate market finally on the path to recovery, foreign interest in the region has returned.
A prominent example in this regard is that of Qatar. Strong investments started back in 2010 when the country's real investment arm made a $650 million investment in the City Center. The net worth of the project was $1 billion, making Qatar a major stakeholder.
In 2010, Qatar invested in D.C. real estate for the first time. Since then, it has systematically increased its money spread in the region.
After the $650 million investment, the next move was in Chicago, where the Al Faisal Group (one of Qatar real estate investment arms) bought the Radisson Blu Aqua hotel last year.
Qatar's mode of investment has been to invest in real estate and expand the infrastructure. This can be seen with the buying of Current TV for a price tag of $50 million. After that, they used that real estate to launch Al Jazeera America, indicating a distinct model.
Expansion, New Investments and Analysis
Qatar's new target is the airport based real estate in the U.S. The first indication of this is the news that the Qatar Airways is looking to increase its service through the inclusion of Dallas, Miami and Philadelphia in its destinations. Furthermore, Qatar would be buying 50 Boeing 777 airplanes; a clear indication of expansion in the area.
The residential portion of the $650 million project (as described above) has opened just a few days back and looks to be a promising investment for Qatar. The main backer behind this investment is the Qatari Diar Real Estate Investment Co. A mammoth project, the investment is definitely going to give a higher ROI to Qatar.
An independent analysis from Elika Real Estate is indicative of micro changes that are affecting real estate investment in prominent areas such as Washington and New York. One change highlighted by them is the presence of a new mayor in City Hall. According to them, the change is important since the mayor elect is planning for mandatory inclusionary zoning.
This is going to lead to affordable housing for developers, a justification for the investment. Furthermore, the chance of increasing interest rates in 2014 makes investment right now more feasible.
Earlier in 2013, Khalid al-Subeai, Chief Executive of the First Investor (bank that financed the investment for City Center project) said that the interest in the U.S. real estate market is on the grounds that it offers attractive fundamentals in the coming years. It is also an important segment in the Qatar's investment portfolio in the real estate sector.
According to strategic analysts that specialize in the Middle East affairs, the investments are also a method for Qatar to pose itself as a regional power. Qatar is a small country and by making such huge money flows, it is generating financial and political ties with the U.S. Such investments also lead to interdependencies, in which the U.S. would be able to defend Qatar against its regional neighbors.
Political intentions aside, the investment in the real estate especially areas such as New York and Washington would strengthen the property economics in U.S. and add firepower to recovery measures.
Saudi crackdown on expat workers pushing property prices up
Residential property prices in Riyadh, Jeddah, Madinah and other major urban centres in Saudi Arabiahave been rising unabatedly due to limited available land as well as to the increasing cost of imported building materials. Making matters worse, there is now also a shortage of construction workers resulting from implementation of "Nitaqat," the campaign for the Saudisation of the labour market.
The campaign seeks to free up jobs for Saudi nationals, given a 13% unemployment rate, by regulating the entry of expatriates into the kingdom's labour market. Under the enabling edict, companies are required to hire a certain number of Saudi employees, based on the company's size.
Raids have been carried out on establishments harbouring aliens with no or improper documentation. Since March, almost a million foreigners have left or been sent home. Just last month, 137,000 illegal workers were rounded up and deported.
Foreigners comprise approximately two-thirds of Saudi Arabia's labour force. So the crackdown led to disruptions in vital services including delivery of drinking water, cleaning of streets, harvesting of crops and even chauffeuring for women, who are not allowed to drive in the kingdom. Expatriates who fear arrest have largely refrained from showing up at work. The construction sector in particular, reliant on cheap foreign labour, has been hard hit. Of the 200,000 firms operating as building contractors, about 100,000 have reportedly closed shop, according to local chambers of commerce.
Work on numerous construction sites has been temporarily shelved, at a time when the building sector is hard pressed to implement and complete projects worth SAR3 trillion (US$0.8 trillion) till 2020.
Even with "Nitaqat," very few Saudi nationals would likely apply for employment as menial construction workers. Thus, the companies in the sector will continue to hire foreigners, although some delays cannot be avoided since they also have to make sure that all pertinent paperwork in support of the arrangement are in order. Project cost overruns brought about by the delays will be passed on to consumers, thereby further adding to the rise in property prices.
Vietnam halts slow-moving housing projects
Vietnamese local authorities last month placed 524 new urban development and residential housing projects in 11 major regions on hold for falling behind schedule, according to the country's Ministry of Construction.
Projects with less than 30% of the assigned land cleared, and those where it has been determined that their investors are financially incapable of completing them, will remain suspended, get cancelled, or be replaced.
Vietnam can afford to be strict in the enforcement of sanctions for project delays because, according to the ministry, the commercial housing market is already saturated.
Besides, and more importantly, the government wants to rid the real estate industry of unscrupulous property developers who collect deposits from home buyers but who actually may not have the capability to finish their projects.
The Ministry of Construction's Circular 11/2013/TT-BXD, issued July 31, requires real estate projectsto regularly report to provincial construction departments on the progress of their projects.
The ministry has been holding consultations on planned amendments to the country's real estate business law to plug loopholes that currently allow developers, even those without constructionlicences, to sell future residential units after just building the basement of a housing project. Often, these developers have been found to have used the collected money for purposes other than completing the project.
Under the draft revised real estate business law, property developers must have both a constructionlicence and approved project dossiers before they can sell incomplete units. Moreover, their projects must have been guaranteed by financial institutions. Home buyers will make their payments through financial institutions which will ensure that the money is disbursed following an approved project schedule.
The ministry is expecting to have the new law on real estate business ratified by October next year.
New China property taxes to cool overheated housing market
China will fast track legislation of real estate taxes on a nationwide basis to control rising house prices, consistent with policy goals set in the Communist party's newly approved 60-point long-term reform plan. Housing demand brought about by rapid urbanization along with speculation has been driving prices up for both new and existing city homes despite sustained efforts by authorities at cooling down the overheating market. In October, China's National Bureau of Statistics said property prices in 69 of 70 major cities rose, with those in Beijing, Shanghai, Guangzhou and Shenzhen posting record year-on-year increases ranging from 16% to 21%. To date, measures that have already been set in place to curb speculative buying include a 20% capital gains tax on sale of second and subsequent homes; a 70% down payment requirement for purchases of second homes; a ban on mortgages for purchases of third and subsequent homes; a prohibition on pre-sales for high-end properties; and, a restriction on apartment sales to unregistered residents. On a pilot basis and only for high-end and/or multiple properties, real estate taxation has also already been implemented in Shanghai and Chongqing, starting January 2011. While details of the announced nationwide roll-out of the property tax, including when it will begin, have not yet been revealed, it is expected that the legislation will be aimed less at further raising local government revenues than at promoting social parity within the country. Thus, rates, scope and restrictions will likely be varied across China's cities, depending on their prevailing housing market conditions, in a way that will more evenly spread economic benefits. The reform plan also envisages further relaxation of restrictions on Chinese nationals wishing to invest in property abroad. This will give them an alternative to investing in the local property market, which drives home prices up and beyond reach of most end-use buyers. While the Chinese are now already top buyers of property in several countries, they are still being held back by the annual quotas on how much yuan they can exchange into foreign currencies. Real estate investment accounts for a sizable segment of China's GDP so a substantial slowdown in the property market would also decelerate the country's economic growth. For this reason, many expect that the nationwide roll-out of the property tax will be done gradually. China has until 2020 to fully carry out the measures laid down under the 60-point reform plan.