Realestock Blog

A combination of low property prices and increased overseas investment from Asian investors seems to be heating up the Japanese investment property market.

Japan was just one of the countries seriously affected by the global economic downturn in 2009, and that downturn was reflected in reduced demand and dropping real estate prices. The urban land price in Japan’s six largest cities dropped by almost 8% in 2009, reflecting the flood of Japanese real estate investment funds leaving the market in the wake of the recession and a sharp decline in building permits following the adoption of tough new building regulations at the end of 2008. In 2010, the price of residential land in Japan fell 3.4%, still dipping, but much more slowly. 2010 marks the 19th straight year of property price declines in Japan, a still-lingering after effect of the spectacular 1980s real estate bubble collapse. 

However, the Japanese economy is looking up – thanks to a combination of stimulus and tax reforms, the economy in Japan is starting to improve and has shown moderate growth. Low interest rates combined with attractive expected annual income yields of 4.5% – 5% a year have caused a new influx of foreign investors from other Asian countries. 

While still priced relatively highly, Japanese property is seen as a very stable investment despite dropping prices. Asian investors were much less hard hit by the global crisis than their American or European counterparts, giving them money to invest in assets like real estate. However, the booming Asian markets in Beijing, Singapore and Hong Kong are much more high risk, and have lower rates of return due to the volatile level of growth in those areas.  Adding in the unpredictability of possible financial policy shifts from the Chinese government to tame the extreme levels of speculation and inflation in the Chinese real estate market, and Japan’s steady and stable market becomes much more attractive.

In 2010 Asian firms made over $370 million dollars of real estate investments in Japan, almost doubling the amount of deals made in 2009.  As more middle class Chinese look to invest and diversify their assets, the prestige and safety of owning Japanese property is bringing more and more investors into the market.

Sources: Asian Investors Shop in Japan, The Wall Street Journal; House Price Falls in Japan Accelerate, Global Property Guide

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The rest of the world is just starting to see a real estate recovery, but China is way ahead. According to Bloomberg, four of the country’s top banks have stopped lending to real estate developers to tame surging home prices. The Industrial & Commercial Bank of China, China Construction Bank Corp, Bank of China and the Agricultural Bank of China have all met their allotted government lending targets for the year.

According to the Chinese Statistics Bureau, property development is up over 36.5% year on year, with lending in the first 10 months of the year topping 3.81 trillion Yuan (about 574 billion US dollars). All four state owned banks have denied the report, saying they are still lending to developers at a normal pace. Two of the banks have reported they are still lending if the projects are of high quality, but did not give further details on what that might mean.

Fueled by stimulus spending last year, the Chinese economy has gone into overdrive. China aimed to lend 7.5 trillion Yuan this year, but had lent over 6.9 trillion Yuan before November. Regulators are starting to worry that the surge in credit could drive the Real Estate boom into a bust, and have begun working to reign back the real estate industry.  In April, the Chinese government raised minimum mortgage down payments and interest rates, and tightening lending controls. On Monday, the country announced new limits on foreign real estate investment. Foreigners will be limited to owning a single residence, and companies will only be allowed to purchase properties they intend to use. 

Overall, China’s rapid growth has predictably lead to some rapid inflation. Food prices have seen double digit jumps, and inflation is sitting at 4.4% right now, and the government is battling to keep it from spreading to other sectors.

Sources: Bloomberg, Business Week, Market Watch

Photo: Peter Morgan

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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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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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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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