Realestock Blog

Ah January – a time for prognostication. Everyone channels their inner Nostradamus and attempts to make sense of the swirl of information around them – trying to figure out what’s relevant and what’s not. Sure there are tons of prediction lists that come out at this time of year, but we at Realestock are going to try something a little different with ours - we’re actually going to hold ourselves accountable. In December of 2011, we’re going to look back and try to determine which of our predictions were right, which were so-so, and which were so very, very wrong.

So what do we think will happen in real estate this year? We’ve boiled it down to 6 firm predictions:

1. The market will stay flat, but people will still look towards a recovery, and every small rise and fluctuation will start people talking all over again. The markets are looking up, and stocks are rising, but job growth is still looking slow and that means we don’t think the market is going to leap up towards previous levels. The CREA is predicting Canadian home sales to fall by 7.3% overall in 2011 and we agree with them.
2. Low prices means affordable prices – those who can buy houses will continue to do so, driving modest sales and making starter homes attractive. Due the excesses of previous years, people will be a lot more conservative in their choices – looking to stay well within their means and choosing more affordable homes.
3. Renting will be cool again. Yes, really. Even with low rates and affordable prices, many will opt to rent for longer to save up bigger down payments to keep their mortgages low and affordable in the long term. People have learned the lessons from the disasters of Adjustable Rate Mortgages in the US, and we think people will wait longer to avoid being caught by sudden rate hikes.
4. Governments will continue to keep interest rates low and mortgages attractive – even in places with hot real estate markets like British Columbia – we think rates will stay right where they are in some places and very gently rise in others to avoid unbalancing a slow economic recovery.
5. It’s tough out there for mortgage brokers and real estate agents. And it will continue to be. Sorry guys.
6. Realtors and developers and brokers will get smarter – not work harder to stick it out. In order to differentiate themselves in a tough market, real estate experts will continue to blog, tweet and socialize themselves into a market position. Social media aggregation will be a big trend this year, with more and more companies using neat tools like these social media hubs to collect all their content together and make their lives easier.

Sources: Top 10 Real Estate Predictions for 2011, Elizabeth Weintraub; BCREA Housing Forecast; 2011Real Estate Outlook, Jerry Barker; 2011Canadian Real Estate Market Forecast and Prediction, Kurt Hemmerling

Picture: KayVee.Inc

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Want to get in on a hot market? Look no further than New York City.

In the third quarter of 2010, real estate sales in the city surged in a big way. Sales were 26% percent higher than at this time in 2009, and 11% higher than they were in the second quarter of the year. Bolstered mainly by strong condominium sales across the city, Manhattan lead the way with a sales increase of 25% above the second quarter of the year. Brooklyn was not far behind, with condo sales doubling in that borough. 

“The entire market is improving,” said Michael Slattery, Senior Vice President at the Real Estate Board of New York (REBNY). “There is generally an improving mood out there… Interest rates are low and prices are stabilizing.” According to figures provided by REBNY, NYC real estate prices rose considerably in 2010.  Across NYC the average increase was 7% over 2009 prices - the average price of a home in NYC is now a jaw dropping $854,000.

On the commercial front, the news was even better. Despite falling rents, the market is strongly up. During the first nine months of the year, commercial property investments in Manhattan totaled $9.4 billion dollars, an incredible 168% increase over the $3.5 billion in commercial property transactions completed in all of 2009. Although the overall vacancy rate edged up to 10.9% new retailers are eagerly picking up leases, particularly as discount retailers like TJ Maxx, Forever 21 and Syms are aggressively expanding to take advantage of current market conditions. 

While experts like Slattery have noted that sales and transactions tend to dip in the fourth quarter due to holidays and cold weather, the rapidly growing market and historic low rates may continue to fuel the NYC real estate market’s return to normalcy.

Photo: Jose Wolff, Flickr

Sources: The New York Times, HousingWatch.com, Crain's New York Business, MarketWire, NuWireInvestor

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The Chinese real estate sector could be in for a big shakeup soon. Many pundits are predicting that the government is getting ready to introduce a property tax. 

While most people in the world regard property taxes as a way of life, in officially Communist China there’s no government taxes on the books for private property ownership because originally there was no private property ownership at all. However, things have changed dramatically in recent years - market demand and rampant speculation have fueled a huge real estate industry, and have helped push the Chinese economy into overdrive – annual growth is over 8% a year (as opposed to the 2 or 3 percent that more established economies grow at during boom year).  

So why introduce a property tax then when it could weaken one of China’s strongest economic sectors? According the Financial Time’s Geoff Dyer, there are a lot of good reasons to get the Chinese middle class acquainted with tax:

A property tax is the favored policy tool of many a reform-minded economist. It would help reduce the rampant speculation in the real estate sector by introducing a cost for holding empty property. And it would help develop a reliable source of income for cash-strapped local governments - one of the key long-term policy challenges for Beijing.

While any property tax rolled out would likely be very minimal at first, “a small annual levy on second or third homes in the luxury sector”, there are still fears that is could prompt a massive sell off and scare away speculators – one of the key factors in the ever increasing property prices.  

In April, Beijing rolled out a series of much needed measures to cool overheated home prices, and since then, speculation that a real tax is coming has intensified. "There are several plans on the table. While we don't know which one will be chosen, it is more likely to be implemented by New Year's Day," a market source said in an interview with the Hong Kong Standard. "Such a move does not require National People's Congress approval, only the State Council's, so the time frame is shorter."

Meanwhile, commercial real estate in China remains strong, even with high vacancy rates.  The Wall street journal has reported that China’s insurance regulator has just amended the rules that govern how insurance corporations invest their assets. Chinese insurance companies are now allowed to invest up to 10% of their assets into commercial real estate – a move which could introduce as much as 460 billion yuan ($68.5 billion USD) of potential demand into the commercial real estate market.

Sources: 

Does Beijing's Clampdown on Property Still have Force? - Geoff Dyer, The Financial Times

Property Tax Revisions Loom as Prices Continue to Spiral - Beth Ye, The Hong Kong Standard

Insurers are Likely to Boost China Property Demand - Aaron Back, The Wall Street Journal 

Picture:

Lensfodder, Flickr

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What do you get for a million?
A lot! For $999,900 dollars you can pick up a two level penthouse suite with spectacular downtown views. A spacious 1860 sq feet offering puts similar priced Vancouver offerings to shame. Better yet, this property is in the heart of downtown - a few blocks from Queen Street, incredible night life, world class restaurants, and the Bay Street financial district.
Downtown Toronto Penthouse
Size: 1860 sq ft
Bedrooms: 2 + den
Bathrooms: 3
Price: $999,900 CAD

What do you get for a million?
A spacious three double bedroom, 2 bathroom apartment overlooking the water in Auckland’s Viaduct Basin – which sounds sort of unappealing, but the Viaduct Basin is one of the swankiest parts of Auckland’s Central Business District (or CBD to the locals) housing the newest, most upscale apartments and best restaurants in the city.
Auckland Ocean View CBD Apartment
Size: 2260 sq ft
Bedrooms: 3
Bathrooms: 2
Price: $1,055,000 NZ Dollars, approx $787,053.25 CAD

What do you get for a million?
Property is at a top premium in Washington DC, so for those wanting to live closer to where the political action is happening, an apartment in Dupont Circle, part of the “Old City” would be more to most people’s liking. Dupont Circle is home to numerous Embassies, countless historic residences, and the Capital Pride LGBT pride Festival.
Dupont Circle Apartment
Size: 1416 sq ft
Bedrooms: 2
Bathrooms: 2.5
Price: $998,000 USD, approx $1,053,249.50 CAD

What do you get for a million?
A two bedroom apartment, overlooking the Thames River, across the way from Canary Warf, in Rotherhithe – a district in inner southeast London. Although quiet and suburban in nature, Rotherhithe used to be the site of the Surrey Docks, which were largely filled in during the 1980s, to be replaced by modern housing and apartments.
Thames Riverfront Apartment
Size: 904 sq ft
Bedrooms: 2
Bathrooms: 2
Price: £595,000, approx $956,385.63 CAD

What does a million get you?
A 1910 apartment in Berlin’s 4th borough, Charlottenburg-Wilmersdorf featuring oak floors, high ceilings and incredible period details. Charlottenburg was the commercial centre of West Berlin during the Cold War, and is still the main shopping centre of Berlin, offering major hotels, theatres, bars restaurants and attractions for tourists such as the world famous Berlin Zoo.
Period Luxury Apartment in Berlin
Size: 1367 sq ft
Bedrooms: 2
Bathrooms: 1
Price: €785,850, approx $1,073,958.30 CAD

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Real Estate investment has taken a real beating in the past two years. With sluggish markets just beginning to claw their way back, the question the smartest investors are asking is not, “what properties are for sale” but “where is it worth buying?”

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Well known for having the hottest real estate market in Canada, Vancouver defied market trends, with the average prices increasing despite the worldwide recession. Famous for incredible mountains, a strong economy and being an olympic host city.

What do you get for $1,000,000?

If you’re looking for a home to call your own in Vancouver without moving to the suburbs or the rougher east side, and all you have to spend is a million, you’ll be looking at a fairly modest house pretty far away from downtown. The better bet is on a condo - in the million dollar price range, you can get yourself a two bedroom sub-penthouse in the tony Yaletown district.

Trendy Sub-penthouse Condo - Vancouver

Size: 1049 sq feet

Bedrooms: 2

Bathrooms: 2

Price: $999,900 CAD

Tokyo, Japan

The original housing bubble economy, Tokyo real estate is expensive because the city is incredibly crowded - over 8 million people live in the city proper, but adding all the outlying suburbs and towns that are connected by the massive rail network swells that number to a mind blowing 30,000,000 people. With so many people wanting to live in a limited area, real estate is valued above all else.

What do you get for $1,000,000?

A surprisingly large apartment in Kagurazaka - a neighbourhood in the classy, ultra-modern and fashionable Shinjuku Ward of Tokyo. Kagurazaka boasts tree-lined streets, some of the best traditional Japanese restaurants in Tokyo, and lots of of history - the area was home to geisha and artists in the 18th century. Watch out for the extra fees though - parking, building management and maintenance fees are an extra $1,300 a month!

Modern Family Home - Tokyo

Size: 125.55 sq m (1,351 sq feet)

Bedrooms: 3

Bathrooms: 1

Price: ¥89,500,000 (or about $1,002,129 CAD)

Seattle, Washington, USA

Seattle - the home of high tech companies such as Amazon and Microsoft, and the birthplace of the global obsession with good coffee. Despite its high tech industry, Seattle is delightfully down to earth, filled with funky, hole in the wall eateries and friendly people.

What do you get for $1,000,000?

A brand new apartment right the middle of downtown with a waterfront view - and only a few blocks from the internationally famous Pike Place market. The Fifteen Twenty-One Second Avenue condominiums have floor to ceiling windows, high end appliances and all the amenities that you’d expect to have in a million dollar apartment in one of the best and most exciting parts of Seattle.

Brand New Downtown Digs - Seattle

Size: varies (from 1,787 sq feet)

Bedrooms: varies

Bathrooms: varies

Price: $1,000,000 USD + (or about $ 1,032,680 CAD +)

Paris, France

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Luxury real estate sales in Canada are soaring, breaking pre-recession sales records as buyers are capitalizing on low interest rates and increasing economic confidence.
RE/MAX released its first quarter Upper End 2010 Report on Monday, showing a marked increase in luxury home sales in markets across Canada. The report noted that, "Canada's sound banking system, political stability, and strong dollar are attracting foreign investment -- and that is spilling over into high-end residential real estate.”

According to Wayne Schrader, a RE/MAX Broker/Owner and specialist in luxury properties on Vancouver Island, consumer confidence is playing a big part in the rallying sales.
“Markets are picking up and turning the corner,” said Schrader. “People are realizing the big recession didn’t materialize in Canada, and at the same time, prices have come down and are much more attractive.”
The Conference board of Canada echoes Schrader’s sentiments - its economic forecasts predict the Canadian economy will grow at a healthy 3.2% in 2010. An upswing in the economy makes the current market conditions even more attractive, as buyers take advantage of the current low interest rates, noted Schrader.
But why have sales increases have been so sharp, in some cases bettering years that were fueled by the white-hot real estate markets of the time? According to Schrader, and the report, they key is balance.
High end property prices have softened from their previous peaks explained Schrader, which can make luxury real estate look like a better investment for some buyers.
“Ample opportunity and a good selection of product exists, and savvy purchasers are taking advantage of favourable conditions,” said the report.
According to the Elton Ash, Regional Executive Vice-President of RE/MAX in Western Canada. the luxury “segment of the market was hardest hit when the recession took hold, yet its comeback has been fast and furious.”
Comparative sales figures back up Ash’s statements. In the first quarter of 2009, high end property sales had slumped - only 411 properties classified as “upper end” were sold by RE/MAX across Canada. This year, the number has leapt to 1,111 - an increase of more than 170%.  Comparing that to 2008’s first quarter sales of 894 high end properties shows overall sales in Canada are still up almost 24% over pre-recession numbers.

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In the last three weeks I've covered the ground from West to East accross Europe - on the hunt for depressed economic conditions. They seem to be more rare than the sighting of the Loch Ness Monster. From London to Paris to Budapest - Picadilly to the Champs Elysees - and East to Andrássy Avenue in Budapest - the crowds fill shop floors and busienss workers I've spoken with say "...business is good..."

What struck me was the numbers of people traveling and buying. The other thing that was apparent is whether you're used to walking down (or shopping - not my favorite pass time - but I do like to walk in and see the business models) New York's 5th Avenue or Robson Street in Vancouver, the main stay stores are all broadly distributed accross these European Cities.

In my estimation, this is the "grass roots" recovery - where consumer confidence is voted by the ringing of cash registers and count of shopping bags.

What's different? US Media reported loosing $10 Billion last year - while online media companies like Google, Bing, Yahoo, Face Book all contemplate how to take on the new role of media and get "content" that is relevant.

There has never been a more clear Connected Market than what we're witnessing today. With online media and content driven by users and giants alike - and distribution channels boasting globalized brands shipping to markets all over the world, the connections are inseperable. The evolution of The Connected Market Space is obvious in the main stream retail and media - the Connected Market Space emergence for entrepreneurs is comming fast for those ready with the recovery here.

Information moves fast - the world is connected. Financing is returning to the scene. From retail to real estate - the market is on the move - I give it 18 - 24 months before the "window of opportunity" closes by the "smart money".

Heading back in a couple of days - with a lot of insight from the world scene.

Tim

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Yesterday, I spoke about the first mistake any developer can make in project marketing and sales. As I said, I've seen a lot of developments stall or self-destruct at the hands of a developer who felt like he or she "knew it all." I told you about my friend the hotelier, who became a developer, then a travel "guru," then a marketing and sales "expert" capping off this illustrious and varied career with a stint as a financial products broker. His development is still just a patch of dirt.

Continuing in the same vein of "knowing it all," today I'll tell you what I've seen happen to developers who entrust their marketing efforts to brokers and sales people. Until recently, I've seen a lot of luxury brokerages trick developers into thinking that they were the total solution - a sales and marketing firm. I'll show you why sales and marketing under one roof make ineffective and wasteful bedfellows.

Mistake #2 - Hiring a Sales Agency and Branded Real Estate Broker to do a Marketers Job. In recent years, marketing real estate projects was more than just a lucrative enterprise for those who were doing the marketing - it was pure profit, plain and simple. There is a good reason for that - the best marketers got the job done.

When a luxury brokerage brand steps in and decides to become a marketing company they begin to over-leverage. Sure, they can leverage off their brand name for what seems like a quick win and surefire success, but this also means that they are leveraging off their core business. When brands experiment and begin to "know it all" (not unlike the hotelier I described yesterday), the Developer takes the hit. With a big name and a willingness to take an even bigger budget, I've watched developers dump literally millions of dollars of untraceable fancy print ads and ineffective web sites - all the while the brokers and agents who should have been motivated by selling the project, were lining their pockets with marketing dollars.

Marketing is a science - and a bit of an art. Marketing drives sales, sure, but as with any science or art (or both), this is something that is best left to experts, not amateurs (think about giving a High School Physics student the keys to the Hadron collider!). In my many years of working with the real estate industry, I've never once seen a brokerage bring in a graphic designer or copywriter to close the deal on a multimillion-dollar home; so why should the opposite make any more sense? The reason commissions exist is to get the sales team to work hard to close the sales, this is what they know and this is what they (should) do. The marketing team brings in the leads and brands the project; this is what they are paid to do. When both teams are working in their core capacity, the result is success. When the incentive model and expertise gets muddled - the result is millions spent, and a project bankrupt due to a wasted budget. I've seen this happen on a number of occasions.

Do yourself a favor. The next time a real estate brokerage says they can market your project, thank them for their enthusiasm, and offer them 2% more on the back end - so long as they carry the marketing load on the front end. Or spend your money wisely and get a marketing group and resources that brings in Quality, Quantity, and Qualified leads. Send the sales guys these leads so they can actually close the sale and earn their commission - the way they were supposed to get paid.

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In the last few weeks, there have been plenty of discussions in terms of whether the new US Government financial stability plans are beneficial or yet another example of throwing away good money after bad (as my grandmother would say). Everyone has an opinion on the various stimulus packages that have been brought forward from both the current and previous administrations.

I have trouble deciding who should be bailed out, and who shouldn’t. No one wants to reward irresponsible behavior with a ton of money, but conversely, there are people who are underwater on their homes through no fault of their own. Many people make snap judgments on people who took out subprime mortgages, but frankly, these people need to get off their high horses. If someone offered you the chance to have something that you thought you could (just) afford, in a housing market that seemed to be on the up, many people would take the chance. Two or three years ago, your average Joe could not have predicted that there would be mass unemployment and an unprecedented drop in home prices.

Bailing out the big banks, mortgage companies, and other corporations leaves a bad taste in everyone’s mouth. Who could forget seeing the CEOs of the big three squirm in their seat when asked whether they would be selling their private jets and returning home via a commercial airline? However, as time goes on, jobs are being lost, houses are being foreclosed, and stock prices are shooting down, something needs to be done.

President Obama’s current packages seem to be taking a different technique from the last administration. While the Republicans’ strategy was more to encourage consumer spending and the growth of businesses, the Obama administration seems more aimed at directly helping consumers, particularly homebuyers.

In the last month, three new strategies have been launched by the administration: The $8,000 tax credit for first time buyers, and the Making Home Affordable Refinance and Modification options. These are available to the following buyers, and are summarized as follows (more in depth information can be found at http://www.recovery.gov) :

$8,000 First Time Buyer Credit. You may be eligible if:

- You are a first time buyer.

- if you have a single income of up to $75,000, or a combined income of up to $150,000 (this will mean you receive the full tax credit of $8,000)

- You bought your home on or after the 1^st of January, 2009, up to the 1^st December, 2009.

Home Affordable Refinance. You may be eligible if:

- The mortgage is on your primary residence

- The loan on your home is a conforming loan, controlled by either Fannie Mae or Freddie Mac

- You are current on your mortgage payments (meaning you haven’t missed a payment by more than 30 days in 12 months)

- You are not ‘underwater’ on your mortgage –(meaning you cannot owe more than 105% of the cost of your home. (But 80% - 105% is OK))

For those not eligible for this plan, there is also the Home Affordable Modification. You may be eligible if:

- The home is your primary residence

- You owe less than $729,750 on your mortgage

- You are in some kind of trouble with your mortgage that is beyond your control at this point: e.g

1) Your mortgage rates were increased significantly

2) Your income has been significantly reduced since you got your current loan

3) You have suffered a hardship that has increased your expenses (e.g. medical bills)

- You began your mortgage before January 1, 2009

What is your view on these packages? Will they help? Will they benefit the economy as a whole, or are they just a temporary band aid over the real issues? What do you think? Will the cost of these measures be more or less than the cost of many, many foreclosures? Feel free to comment below.

The views expressed on the blog portion of this site represent only the opinions of the author and may not necessarily be the opinions of Realestock.com

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