Leon Clarke, Author at Amora Escapes

Property Tax Not on Horizon, but Speculation Unlikely

Leon Clarke — Wed, 31 Jul 2024 14:05:30 +0000

When homebuyers are active, property tax is one factor that weighs heavily on their mind. So, it came as little surprise when all eyes turned to a recent legislative plan that made no mention of property tax.

Some in the housing market thought the much-discussed property tax would not be levied nationwide in the near future. This in turn sparked speculation. Could people buy homes for investment purposes?

But then, when I chatted with my friends to find out, it quickly became clear that homebuyers are becoming rational. For them, it seems, a home is a place to live in, not something to be bought just to resell later for a tidy profit.

“I’d not buy a property purely for investment, even if there is no tax. But I may buy a small flat for my family to live more comfortably and conveniently,” said a friend of mine whose family currently live in a leased apartment close to her son’s middle school.

“Since property prices are unlikely to rise substantially, I think the era of buying properties purely for investment purposes is now history. The possible property tax would only be considered in case of families buying or exchanging homes for living concerns,” said another friend who has no plan to buy any residential property in the near future.

This kind of conversations came after the Standing Committee of the 14th National People’s Congress, the nation’s top legislature, did not include property tax in its recent legislative plan. It is widely believed this special taxation will not enter legislative process at least before 2025, according to a report in 21st Century Business Herald.

James Macdonald, head and senior director of Savills China research, said the exclusion of real estate tax legislation from the 14th National People’s Congress legislative plan signifies a postponement rather than a cancellation of the legislative process.

The introduction of property tax has faced delays on multiple occasions in the past, with the most recent (perceived) delay likely being attributed to the current market conditions, where imposing additional taxes or costs might not be advisable.

However, looking to the future, property taxes hold the potential to offer substantial benefits. They can establish a dependable revenue stream for local governments, encourage responsible land use and enhance funding for essential local services, said Macdonald.

Chen Sheng, president of the China Real Estate Data Academy, said now is probably not the best time to introduce property tax, given the overall market condition and the mounting pressures developers are facing. Any tax now may cause market fluctuations.

“I think legislative procedures for property tax may be more likely when developers’ operations are stabilized, and the market sees an uptrend, or at least recovers to a stable condition,” Chen said.

The main purpose of levying real estate tax is to prevent investment speculation, but in the current market situation, the principle of “houses are for living in and not for speculative investment” still applies. So, whether the relevant legislation appears in the plan or not, this will not change the real estate fundamentals, said Shaun Brodie, head of research on the China market with Cushman & Wakefield, a global real estate services firm.

The ongoing real estate policy adjustments and optimization, such as relaxing housing loans, reducing interest rates for first homes and eliminating restrictions on purchases and sales, are intended to gradually meet residents’ needs for essential housing and promote the steady and healthy development of the real estate market, Brodie said.

Source : ChinaDaily

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Average house price-to-earnings ratios improved last year amid wage growth

Leon Clarke — Tue, 26 Mar 2024 14:59:32 +0000

House prices have become more affordable since 2021, but remain in line with pre-coronavirus pandemic trends, the Office for National Statistics said.

Housing affordability improved in three-quarters (75%) of local authorities across England and Wales in 2023, compared with the previous year, according to the Office for National Statistics (ONS).

Affordability worsened in just under a quarter (24%) of local authorities and remained the same in 1%, the ONS said.

Average house prices increased in just over two-thirds (69%) of areas compared with 2022 – but average earnings increased in a bigger proportion of areas, at 88%.

Kensington and Chelsea in London was the least affordable area last year, with an average house price-to-earnings ratio of 34.3.

(PA Graphics)

The most affordable was Burnley in Lancashire, with an average house price-to-earnings ratio of 3.7.

In 2023, 7% of areas typically had homes selling for less than five times the average earnings of workers. This was an improvement compared with 2022; however, in 1997, 88% of areas had this ratio.

The report said: “Therefore, affordability remains considerably worse than at the start of the series.”

Looking at England, in the 12 months to September 2023, the average home sold for £290,000, while average full-time earnings were £35,100.

This means that, in England, full-time employees could expect to spend 8.3 times their earnings on purchasing a home in their local authority area.

This represents an overall improvement in affordability compared with 2022, when the average home in England cost around 8.5 times the average wage.

In Wales, the average home sold for £196,500 in the 12 months to September, while the average workplace-based full-time wage was £32,400.

This gave an affordability ratio of 6.1, down from 6.4 in 2022.

House sales prices have become more affordable since 2021, but remain in line with pre-coronavirus pandemic trends, the ONS said.

The affordability ratio doubled in England from the start of the records in 1997 to 2007.

In 1997, a home in England was worth around three-and-a-half times the average wage, but by 2007 buyers faced paying just over seven times their salary typically to buy a home.

In Wales, affordability ratios doubled from 1997 to 2005 and peaked at 6.6 in 2007. Since then, they have remained between 5.5 and 6.5, with a less pronounced increase and decrease in the past three years than in England, the ONS said.

Mortgage rates have jumped amid increases in the Bank of England base rate, meaning that some existing homeowners could have a payment shock when their deal expires.

Recent signs that inflation is cooling have raised expectations around the potential for the Bank of England to start cutting the base rate in the months ahead.

Source: LBC

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Buying Property in Asia? Real Estate Specialists Give Their Investment Tips

Leon Clarke — Thu, 21 Dec 2023 12:07:41 +0000

Hong Kong’s property market has plunged nearly 20% since its peak, and it may be a good time for homeowners to buy — but investors might want to think twice, according to Peter Churchouse, chairman and managing director of real estate investment firm Portwood Capital.

With property prices in the city down 15-20% since their peak, Churchouse said now may be a good time to buy a property in Hong Kong if you’re looking to own a home, but investors hunting for yield should look at Australia and New Zealand instead.

Investors and homeowners have different priorities, Churchouse pointed out.

For homeowners looking to buy, “prices down this much is probably not a bad time to look to be buying” if you can afford to pay mortgage and down payment, he said Tuesday on CNBC’s “Squawk Box Asia.”

“There’s still a bit of downside risks … but perhaps the worst is over.”

Home prices in Hong Kong dropped for four months straight. The official housing price index stood at 339.2 in August, down 7.9% from a year earlier and 4.2% lower from April peaks.

“Hong Kong is probably the easiest place in the region to buy, and I would think that Japan is probably a close second,” he said.

Buying elsewhere in the region is “fraught with all sorts of difficulties and legal issues … There are all sorts of banana skins,” Churchouse warned, explaining that home buyers in other countries either have to be a resident, permanent resident or an employee.

“Often, you can’t own property as an investor,” he added.

Jeff Yau, Hong Kong property analyst at DBS Hong Kong, said prices in Hong Kong are expected to continue plummeting and could fall by another 10% in 2024.

In October, the Hong Kong government cut stamp duties for property buyers to help boost the city’s slumping real estate market.

Among the relaxed levies, the stamp duty that non-permanent residents have to pay for property and another levy imposed on additional properties purchases by residents will each be halved to 7.5%.

Despite the positive news for homebuyers, demand may not bounce back in full force as the higher cost of financing will remain a hurdle for potential homeowners, said Henry Chin, Asia-Pacific’s head of research at CBRE.

Best rental yield

For investors looking for high rental yield, “Hong Kong is not the place,” Churchouse said. “The yield today is less than the cost of capital, less than the interest rate you’re paying on your loan.”

Rental yield in Hong Kong is currently below 3%, while the effective mortgage rate exceeds 4.1%, implying a “negative rental carry,” DBS Bank’s Yau said.

“If the investors have their first property, they still need to pay New Residential Stamp Duty of 7.5% if they buy a second property,” Yau said. “It is not a good time to buy property for investment.”

Where can investors find good rental yield?

“The best yield in markets in this region, I tend to think, are Australia and New Zealand,” Churchouse said. Yield for residential property or commercial property there may be as high as between 6-8% — “maybe even higher,” he added.

In Japan as well, it’s common to find rental yields of about 5% or 6%, he added.

In a country where interest rates are “very, very low,” he said, “You can get a rental yield that higher than your interest costs in Japan.”

Source : CNBC

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US Existing Home Sales Slump to More Than 13-year Low in October

Leon Clarke — Tue, 19 Dec 2023 03:26:24 +0000

US EXISTING home sales dropped to the lowest level in more than 13 years in October as the highest mortgage rates in two decades and a dearth of houses drove buyers from the market.

Existing home sales tumbled 4.1 per cent last month to a seasonally adjusted annual rate of 3.79 million units, the lowest level since August 2010, the National Association of Realtors said on Tuesday (Nov 21). Home resales are counted at the closing of a contract.

October’s sales likely reflected contracts signed in the prior two months, when the average rate on the popular 30-year fixed-rate mortgage jumped to levels last seen in late 2000.

Economists polled by Reuters had forecast home sales would slide to a rate of 3.90 million units. Sales fell in the Northeast, West and the densely populated South, but were unchanged in the Midwest. Home resales, which account for a big chunk of US housing sales, plunged 14.6 per cent on a year-on-year basis in October.

“Prospective home buyers experienced another difficult month due to the persistent lack of housing inventory and the highest mortgage rates in a generation,” said Lawrence Yun, the NAR’s chief economist.

The rate on the popular 30-year fixed-rate mortgage averaged 7.31 per cent in the final week of September, before peaking at 7.79 per cent in late October, the highest level since November 2000, according to data from mortgage finance agency Freddie Mac.

Though it has since retreated following data this month showing the labour market cooling and inflation subsiding, the rate averaged a still-high 7.44 per cent last week.

There were 1.15 million previously owned homes on the market last month, down 5.7 per cent from a year ago. At October’s sales pace, it would take 3.6 months to exhaust the current inventory of existing homes, up from 3.3 months a year ago.

A four-to-seven-month supply is viewed as a healthy balance between supply and demand. With supply still tight, multiple offers were the norm in some areas, keeping house prices on an upward trend. The median existing house price increased 3.4 per cent from a year earlier to US$391,800, the highest for any October.

Properties typically remained on the market for 23 days in October, up from 21 days a year ago. Sixty-six per cent of homes sold in October were on the market for less than a month.

First-time buyers accounted for 28 per cent of sales, as they did a year ago. This share is well below the 40 per cent that economists and realtors say is needed for a robust housing market.

All-cash sales accounted for 29 per cent of transactions compared to 26 per cent a year ago. Distressed sales, including foreclosures, represented only 2 per cent of transactions, virtually unchanged from the prior year.

Source : TheBusinessTimes

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Hong Kong’s Property Prices Won’t Pop Any Time Soon. Here’s Why

Leon Clarke — Sat, 02 Dec 2023 15:34:48 +0000

Hong Kong’s leader John Lee this week eased the city’s decade-old residential property cooling measures — but questions remain on whether it’s enough to boost market sentiment and low transaction volumes for the private housing sector.

“Although relaxation of property restrictions was highly anticipated, the BSD [buyers’ stamp duty] cut from 15.0% to 7.5% surprised us; the other relaxations were in-line,” Citi’s Ken Yeung wrote in a note.

He doesn’t expect the move to reverse downward trend in Hong Kong’s property prices as interest rates remain high.

According to data from real estate agency Midland Realty, the second-hand property market average turnover ratio between 2017 and 2023 stands at 3.7%. That’s compared with 8.7% before the cooling measures took effect in 2010.

Buggle Lau, chief analyst at Midland Realty told CNBC the average turnover ratio in 2022 to 2023 are at historic lows, as property prices have corrected down by nearly 20% since their peak in August 2021.

He expects the policy address will give property prices “a chance to stabilize” and for volumes to pick up.

For the market to fully recover, both in terms of price and volume, interest rates will have to come down next year, the property analyst said.

He expects a further 5% downside on prices in the first half of next year should there be a rate cut.

Homeowners’ struggles

Hong Kong homeowner KC Mok has been trying to sell his apartment before his family immigrates at the end of the year — a popular reason for people selling their property in recent years.

The 41-year-old told CNBC that his 707 sq. ft. 3-bedroom apartment is currently listing at $9.5 million Hong Kong dollars ($1.21million), 20% lower than his purchase price in 2019.

He said many people have been viewing his place, but the only offer he received so far is a mismatch.

“Now when we come to selling the apartment, we found that the value of the apartment [is] already like $2 million dollars less, so a little bit depressed but we have to leave so it’s the timing maybe,” Mok said, acknowledging that the latest cooling measures “will help a little bit” for his situation.

Meanwhile, 33-year-old Kitty Yiu considers herself “lucky” as she sold her apartment and started renting in February, just before property prices fell and interest rates rose.

Yiu gave birth to her firstborn earlier this year and needed a bigger home to accommodate her growing family.

“To be honest, we are still in a struggle to see whether we should buy a new flat, like to buy a flat again,” she said.

“I think the price at this moment is still high, even if it’s having a downward trend, but for me I think it’s still overpriced,” said Yiu who doesn’t think the latest policy relief would increase her appetite to purchase a house.

Unlike Mok and Yiu, Eugene Law faces the struggle of rising mortgage rates as a new homeowner.

Together with his mother, Law, who is 30, purchased a flat at pre-construction in 2021 and moved in last year. His mortgage rate started at 1.9% and is currently at 3.375%. That means he needs to pay an additional HKD $6,000 ($767.09) per month for the interest, which he says makes him feel “so bad.”

″[It was] unexpected … because I expected the HIBOR may rise but I didn’t expect the prime rate will also rise, and also in a very high percentage.”

Prospective homebuyers in Hong Kong can choose to peg their mortgage rate with HIBOR or prime rate – known as the “H Plan” and “P Plan.” HIBOR refers to the interest rate for interbank borrowing, while prime rate is determined by individual banks.

In a low interest rate environment, the prime rate is usually the more popular choice as it is considered more stable, and easier for the mortgagor to make financial plans.

Despite regretting the timing of his purchase, Law said the latest easing of policy would not have affected the decision.

Risks for Hong Kong property

A recent report from UBS showed Hong Kong is the 6th overvalued city on their Global Real Estate Bubble Index. Zurich, Tokyo and Miami are the top three.

“Biggest risk [to Hong Kong’s property market] will be [a] pro-longed high-rate environment, and hence further mortgage cost increase. Longer run will be geopolitical risk,” said UBS’s china property market Mark Leung in an email to CNBC.

While describing the current sentiment as “a bit weak,” he expects the policy address would release sizable purchasing power from non-local expats who are waiting to become permanent residents.

With the second-hand market bid-ask spread remaining high and many homeowners not willing to sell their properties at a discount, Leung said he expects little room for property prices to reverse the downward trend.

For the primary market, he expects developers will now be more willing to cut prices in order to boost sales and “recycle cash, given higher interest rate environment.”

“Price-wise should be muted, as we think developers may be aggressive in price setting, hence cap the price rebound potential,” he added.

Source : CNBC

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‘Not Spooked’: Cbus Chairman Wayne Swan Doubles Down on Property

Leon Clarke — Sat, 11 Nov 2023 13:23:03 +0000

Cbus chairman Wayne Swan says the $85 billion fund’s property portfolio has proven resilient to higher interest rates and the fallout of the pandemic even though plummeting office valuations have led other investors to abandon commercial real estate investments.

While the value of Cbus’ property option fell by 2.8 per cent in the three months to September 30, the former Labor treasurer said the investment had delivered average annual returns of 14 per cent since ts inception.

“We’re not spooked by, if you like, the high inflationary, high interest rate environment,” Mr Swan told The Australian Financial Review Super & Wealth Summit on Tuesday.

“We’re really going back to something that we’ve had for most of the time of our existence. It’s been the last 10 years which have been dramatically different,” Mr Swan said.

Surging bond yields and high vacancy rates have squeezed commercial property valuations, particularly in the office sector, which is suffering higher vacancy rates relative to retail.

Some superannuation funds wrote off as much as 15 per cent of their extensive unlisted office property investments in their end-of-financial year valuations.

Industry super fund QSuper handed back the keys to a prime New York City midtown office tower this month after its investment went under water just 2½ years after valuing the asset at $US540 million ($855 million) on its books.

Other super funds have also flagged investment write-downs related to global property exposures, particularly in the office sector which is suffering higher vacancy rates relative to retail.

Cbus chair and former federal treasurer Wayne Swan speaks at the AFR Super & Wealth Summit on why couples need to be allowed to receive financial advice.

But Mr Swan doubled down on property. Cbus is the only super fund so far to sign on to Labor’s $500 million Housing Australia Future Fund and Mr Swan said the fund was looking to beef up its real estate portfolio.

“We’d like to do more [social housing]. The nation demands that we all do more to get social and affordable housing in place,” he said.

‘Discriminatory’ advice laws

As the $3.5 trillion superannuation sector faces criticism from both regulators and the Albanese government for being ill-equipped to support workers transition to retirement, Mr Swan put the onus back on legislators.

Cbus chair and former federal treasurer Wayne Swan speaks at the AFR Super & Wealth Summit on why couples need to be allowed to receive financial advice.

He said stringent restrictions on super funds advising members “discriminate very badly” against funds like Cbus whose members have low balances, meaning they will receive a part-pension in retirement.

“We need to have a situation where we can provide financial advice to couples, but you can’t do that at the moment, and the social security system works on couples,” he said.

“So our members who are going to be part-pension and part-superannuated need to get advice from us as early as possible on a couple basis. But you can’t do that under the current rules.”

Michelle Levy’s review into financial advice, finalised in December 2022, recommended super funds be able to offer advice taking into account a member’s “personal circumstances, including their family situation and social security entitlements”.

Assistant Treasurer Stephen Jones has said financial advice capabilities will be extended to superannuation funds, but has not detailed the specifics of what the new system will look like.

Source : FinancialReview

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Edmonton City Council Approves Tax Subclass to Crack Down on Derelict Properties

Leon Clarke — Fri, 20 Oct 2023 13:15:29 +0000

Mulai tahun 2024, Kota Edmonton akan memiliki kemampuan untuk membebankan tarif pajak yang lebih tinggi kepada pemilik rumah di lingkungan yang sudah matang yang propertinya dianggap terlantar.

Dalam rilis berita yang dikeluarkan Rabu sore, pemerintah kota mengumumkan bahwa dewan kota telah menyetujui subkelas pajak baru untuk menangani properti tempat tinggal yang “menunjukkan tanda-tanda pengabaian yang serius, bobrok, mengalami kerusakan parah atau tidak dapat dihuni.”

“(Ini) adalah alat baru dalam perangkat kota untuk mengatasi dampak berbahaya yang dapat ditimbulkan oleh properti perumahan yang terlantar dan bermasalah,” kata Cate Watt, manajer cabang penilaian dan perpajakan kota tersebut. “Mengelola properti terlantar sering kali menimbulkan biaya tambahan bagi kota dan tarif pajak yang lebih tinggi akan membantu menutupi biaya tersebut sekaligus mendorong pemilik properti untuk membersihkan rumah terlantar.

“Kami berharap hal ini akan berperan dalam meningkatkan semangat lingkungan yang sudah matang dalam jangka panjang.”

Kota tersebut mengatakan studi kasus terhadap 31 “properti bermasalah” yang berakhir pada tahun 2020 menemukan bahwa properti tersebut menghabiskan biaya sekitar $1,3 juta bagi kota tersebut untuk hal-hal seperti inspeksi dan penegakan peraturan, inspeksi kebakaran, kode keselamatan dan inspeksi kepatuhan pembangunan serta inspeksi dan tanggapan polisi.

“Itu kombinasi dari Edmonton Fire Rescue Services, EPS, peraturan daerah, kepatuhan pembangunan, pajak yang belum dibayar,” jelas Coun. Ashley Salvador. “Hal ini benar-benar berdampak buruk tidak hanya pada lingkungan sekitar, namun juga pada dompet kota.”

Pemerintah kota mencatat bahwa “properti bermasalah” didefinisikan secara berbeda dari “properti terlantar,” dan hanya beberapa dari 31 properti yang dianggap terlantar. Properti bermasalah dianggap sebagai properti yang menimbulkan risiko sosial atau keselamatan, seperti terkait dengan aktivitas kriminal atau risiko kebakaran.

“Keadaannya menjadi sangat buruk,” kata Salvador. “Dalam periode enam bulan menjelang pemilu, terdapat 281 kejadian terkait kebakaran di tipe properti tersebut.

“Dengan semua tindakan yang kami ambil sejauh ini, kami telah melihat 89 pembongkaran, 308 pengamanan, 238 perintah dikeluarkan dan penurunan drastis jumlah kebakaran di komunitas ini.

“Tindakan yang kami ambil telah berhasil dan saya pikir penambahan subkelas pajak properti untuk properti terlantar akan mendorong hal tersebut lebih jauh lagi,” kata Salvador.

Christy Morin, direktur eksekutif Arts on the Ave, berpendapat bahwa perubahan perpajakan akan membantu menindak properti terlantar di lingkungan Alberta Avenue dan di seluruh Edmonton.

“Mereka benar-benar merupakan bencana bagi lingkungan sekitar,” katanya. “Mereka menarik orang-orang yang salah dan sering kali justru menjadi sarang narkoba.”

Arts on the Ave adalah organisasi nirlaba yang bekerja untuk membantu menjadikan 118 Avenue sebagai distrik seni komunitas.

Morin mengatakan masyarakat telah “secara agresif meminta” dewan kota dan pemerintah selama bertahun-tahun untuk menemukan cara yang lebih efektif untuk mengatasi masalah ini.

“Kami telah melakukan revitalisasi kota selama 18 tahun. Dan 18 tahun yang lalu, kami melihat ada kota-kota – Atlanta – di Philadelphia, dan tempat-tempat lain yang benar-benar berusaha keras mengenakan pajak kepada pemilik properti terlantar ini dan hal ini membuat perbedaan besar dalam komunitas inti di kota-kota tersebut.”

Salvador mengatakan Edmonton adalah negara pertama di Kanada yang mengembangkan sub-kelas pajak untuk properti perumahan terlantar, namun mengakui yurisdiksi lain di AS telah melihat keberhasilan dengan pendekatan tersebut.

Perubahan UU Pemerintah Kota di tingkat provinsi beberapa tahun lalu juga membantu, kata Morin. Pada tahun 2017, Alberta mengubah undang-undang tersebut untuk memudahkan pemerintah kota mendorong pembangunan kembali properti brownfield – yang terkontaminasi, kosong, terlantar, atau kurang dimanfaatkan.

“Selain itu, terdapat satuan tugas yang dibentuk oleh Kota Edmonton untuk mampu melakukan tindakan tegas terhadap properti-properti terlantar ini dan kami telah melihat kesuksesan besar dengan ditutupnya properti-properti tersebut.

“Tetapi sekarang langkah selanjutnya adalah memberikan pukulan berat kepada mereka dengan pajak, dan memberi tahu mereka bahwa kita adalah komunitas yang hebat. Komunitas-komunitas ini tidak pantas membiarkan properti terlantar berada di lahan mereka selama bertahun-tahun,” katanya.

Setelah itu, Morin ingin melihat pendekatan serupa untuk mengatasi properti komersial yang terlantar.

“Ini hanya akan menjatuhkan bisnis Anda ketika Anda mempunyai tetangga sebelah yang duduk-duduk dan tidak melakukan apa pun.

“Seluruh gugus tugas ini dimulai pada tahun 2021, ketika komunitas kami di distrik Alberta Avenue mengalami lebih dari 200 kebakaran dan banyak di antaranya terjadi di properti terlantar ini.”

Salvador mengatakan dia ingin melihat hal ini diperluas melampaui lingkungan yang sudah mapan – di seluruh kota hingga ke semua properti perumahan dan komersial yang terlantar.

“Tidak dapat dipertahankan jika properti-properti ini terus berdiri di lingkungan kita dan menimbulkan risiko yang signifikan bagi masyarakat dan terus merugikan kota sebesar jutaan dolar.

“Tujuannya di sini adalah untuk memastikan bahwa properti tersebut mematuhi peraturan, dipertahankan, atau dijual kepada seseorang yang mau melakukan sesuatu dengannya,” kata anggota dewan kota.

Pemerintah kota mengatakan pada hari Rabu bahwa mereka memperkirakan akan memberi tahu sekitar 300 pemilik pada musim gugur ini bahwa properti mereka berisiko dianggap terlantar.

“Semua penilaian properti akan dikonfirmasi pada Januari 2024 ketika pemberitahuan penilaian dikirimkan melalui pos ke lebih dari 400,000 pemilik properti di Edmonton,” kata kota itu.

“Agar suatu properti dianggap terlantar untuk tujuan perpajakan, pemerintah kota harus menilai kondisi fisik rumah di properti tersebut, mencari bangunan yang kosong, ditutup papan, dianggap tidak layak huni atau ditinggalkan di tengah proses konstruksi atau pembongkaran. .”

Sumber: Berita Global

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Country Garden Wins Bond Extension in Relief for China’s Property Sector

Leon Clarke — Thu, 12 Oct 2023 03:10:55 +0000

Country Garden has won approval from its creditors to extend payments for an onshore private bond, according to sources and a document seen by Reuters, in a major relief for the embattled Chinese developer as well as the crisis-hit property sector.

Country Garden was seeking approval from its creditors to extend the maturity on a 3.9 billion yuan, or $540 million, onshore private bond in a vote that ended on Friday night.

An unprecedented liquidity crisis in China’s vast property sector is a major risk to a sputtering post-Covid recovery in the world’s second-biggest economy, which has rattled global markets.

Country Garden debt payment extension buys time for China’s largest private developer to avoid default, and is good news for financial markets and the Chinese government, which has announced a raft of measures to support the property sector.

The extension means the developer can repay the debt in instalments over three years, instead of meeting its obligations by Saturday. The bond is not publicly traded.

In Friday’s vote, 56.08% of participating Country Garden onshore creditors approved the extension, 43.64% opposed and 0.28% abstained, an official document shared with bondholders showed.

Country Garden did not immediately respond to a request for comment. The sources, who have direct knowledge of the matter, asked not to be named as they were not authorized to speak to the media.

China’s property sector, which accounts for roughly a quarter of the economy, has lurched from one crisis to another since 2021 after the authorities cracked down on developers’ debt-fueled building boom.

As Country Garden’s financial woes spiraled over the past month, Beijing has rolled out a string of support measures including cutting mortgage rates and removing some curbs on home purchases.

The authorities are set to take further action, including relaxing home-purchase restrictions as they scramble to tackle a deepening crisis in its massive debt-riddled property sector, Reuters reported on Friday.

Country Garden’s reprieve may give onshore bondholders some relief, but there is still a long way to go as China tries to defuse risks in the crisis-hit property sector and bolster the economy, analysts said.

“Sales in the biggest cities in China may see meaningful improvement over the next couple of months as Beijing cuts mortgage rates and makes them more easily available to buyers,” said Guotai Junan International’s chief economist Zhou Hao.

“However, how the improvement will trickle down to help the cash flow of developers remains to be seen. Plus different types of developers are likely to benefit from it very unevenly. Those with more projects in the first-tier cities may benefit first.”

The slump in the Chinese property market is driven by more fundamental factors than the cost of borrowing, including broader debt worries in the economy, white-collar workers taking pay cuts and a demographic downturn, analysts say.

Until this year Country Garden was the largest Chinese developer by sales. The company was considered financially sound compared with peers like China Evergrande Group, which defaulted on its debt in 2021.

While Country Garden’s liabilities are only 59% of Evergrande’s, it has 3,103 projects across China, compared with around 800 for Evergrande — making the company matter to systemic stability.

A default by Country Garden would have exacerbated the real estate crisis and put more strain on its onshore lenders.

The developer’s financial woes became public last month after it missed two dollar-coupon payments totalling $22.5 million, raising fears that the country’s deepening property debt crisis would spill over to the broader financial sector.

Country Garden still faces another major challenge next week, when the grace period ends for last month’s missed coupon payments worth a total of $22.5 million on the two offshore dollar bonds.

The developer also has dollar coupon payments on its other offshore bonds coming due each month for the rest of 2023. And it has onshore bond payments totaling 12.6 billion yuan by the end of the year, according to CreditSights.

Moody’s slashed Country Garden’s credit rating by three notches to Ca from Caa1 on Thursday due to worries it could be on the brink of default. It said the firm was facing tight liquidity and recovery prospects for bondholders could be weak.

Country Garden warned on Wednesday of default risks if its financial performance continued to deteriorate, and said it “felt deeply remorseful” for its record loss in the first half.

Source : CNBC

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Sydney’s Luxury Property Market Ranks Third in the World for Annual Rental Growth

Leon Clarke — Tue, 19 Sep 2023 11:39:30 +0000

Sydney’s most pricey rentals are set to get even more expensive, with the city’s luxury rental growth having shot up from 11.7% to 13.1% when compared to the last quarter, deviating from the worldwide slump in rental growth, according to Knight Frank’s latest report.

Prime rents down, but still elevated

Average prime rents in major world cities were increasing rapidly, with an annual growth of 7.5% in the 12 months to June, according to Knight Frank’s Prime Global Rental Index (PGRI) for the second quarter of 2023.

The PGRI provides quarterly reports of luxury lettings market patterns across 10 major city markets globally.

While the Q2 rate was below the 8.2% seen in Q1 this year and the 12.2% peak in Q1 2022, the present growth is still significantly higher than the norm. To illustrate, the pre-pandemic average annual growth of the 10 years to 2020 was 2.2%.

However, from the beginning of 2021, the market’s recovery from the early shock of COVID-19 has brought about an average growth of 6.6%, thrice the pre-pandemic average.

Knight Frank head of residential research, Michelle Ciesielski, said that the main factors behind the rental growth trend are a high demand from residents returning to cities post-lockdown, buyers being priced out of sales markets due to price rises driven by interest rate increases, and a scarcity of new supply caused by problems in construction throughout the pandemic.

The second runner-up in luxury rental growth

Sydney’s annual luxury rental growth of 13.1% was the third highest, according to the PGRI, behind London’s 14.4%, and Singapore’s 24.5%.

Knight Frank Prime Global Rental Index (Changes to Q2 2023)

Source: Knight Frank.

Luxury rents in the capital city experienced the most substantial growth over the past six months, at 8.7%, and the second highest growth over the past three months, at 3.2%.

“The overall index has risen by 23% from Q1 2021 to date,” Ciesielski said.

“Growth in specific cities has been even stronger, with New York, Singapore, and London seeing rental growth of 56%, 53%, and 51% respectively over the same period.

“While some of the PGRI growth hubs have seen a moderation in the pace of rent rises, including Singapore, London and New York, and the index overall shows a fall in the pace of rental growth, Sydney is seeing the opposite trend with annual growth increasing compared to the previous quarter.”

Ciesielski remarked that while rental growth will eventually stagnate, the dearth of new stock being delivered means that high rents will remain the norm.

Little hope on the horizon

“A chronic undersupply of rental homes currently extends to most parts of Sydney at every price point, and this continues to be reflected in the double-digit rental growth for luxury property being recorded,” said Knight Frank head of residential, Erin van Tuil.

“In affluent areas, there tends to be at least one home in the street having some type of renovation work done, and many take up a rental home while these works are being carried out. Construction delays over the past few years have meant these prime rental homes are required for double or triple the time than first expected while they wait for tradespeople and prime cost items from around the world to be delivered to finish the job.

“We continue to experience a skills shortage in Sydney, and this extends to the executive level who are most likely going to need a prime residential home provided when lured to work here. Elevated rents are being paid to secure a prime rental home until they settle into the city.

“In the past few months, there has been an increasing number of box office movies being filmed in Australia with actors and production crew using Sydney as their base, placing further pressure on the top end of our rental market.”

Source : ThePropertyTribune

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Commercial Real Estate Investors, Banks Buckle Up for Perfect Property Storm

Leon Clarke — Fri, 18 Aug 2023 00:15:46 +0000

LONDON/SYDNEY – Commercial real estate investors and lenders are slowly confronting an ugly question – if people never again shop in malls or work in offices the way they did before the pandemic, how safe are the fortunes they piled into bricks and mortar?

Rising interest rates, stubborn inflation and squally economic conditions are familiar foes to seasoned commercial property buyers, who typically ride out storms waiting for rental demand to rally and the cost of borrowing to fall.

Cyclical downturns rarely prompt fire sales, so long as lenders are confident the investor can repay their loan and the value of the asset remains above the debt lent against it.

This time though, analysts, academics and investors interviewed by Reuters warn things could be different.

With remote working now routine for many office-based firms and consumers habitually shopping online, cities like London, Los Angeles and New York are bloated with buildings local populations no longer want or need.

That means values of city-centre skyscrapers and sprawling malls may take much longer to rebound. And if tenants can’t be found, landlords and lenders risk losses more painful than in previous cycles.

“Employers are beginning to appreciate that building giant facilities to warehouse their people is no longer necessary,” Richard Murphy, political economist and professor of accounting practice at the UK’s Sheffield University, told Reuters.

“Commercial landlords should be worried. Investors in them would be wise to quit now,” he added.

WALL OF DEBT

Global banks hold about half of the $6 trillion outstanding commercial real estate debt, Moody’s Investors Service said in June, with the largest share maturing in 2023-2026.

U.S. banks revealed spiralling losses from property in their first half figures and warned of more to come.

Global lenders to U.S. industrial and office real estate investment trusts (REITs), who supplied credit risk assessments to data provider Credit Benchmark in July, said firms in the sector were now 17.9% more likely to default on debt than they estimated six months ago. Borrowers in the UK real estate holding & development category were 4% more likely to default.

Jeffrey Sherman, deputy chief investment officer at $92 billion U.S. investment house DoubleLine, said some U.S. banks were wary of tying up precious liquidity in commercial property refinancings due in the next two years.

“Deposit flight can happen any day,” he said, pointing to the migration of customer deposits from banks to higher-yielding ‘risk-free’ money market funds and Treasury bonds.

“As long as the Fed keeps rates high, it’s a ticking time bomb,” he said.

Some global policymakers, however, remain confident that the post-pandemic shift in the notion of what it means ‘to go to work’ will not herald a 2008-9 style credit crisis.

Demand for loans from euro zone companies tumbled to the lowest on record last quarter, while annual U.S. Federal Reserve ‘stress tests’ found banks on average would suffer a lower projected loan loss rate in 2023 than 2022 under an ‘extreme’ scenario of a 40% drop in commercial real estate values.

Average UK commercial property values have already fallen by around 20% from their peak without triggering major loan impairments, with one senior regulatory source noting that UK banks have far smaller property exposure as a proportion of overall lending than 15 years ago.

But Charles-Henry Monchau, Chief Investment Officer at Bank Syz likened the impact of aggressive rate tightening to dynamite fishing.

“Usually the small fishes come to the surface first, then the big ones – the whales – come last,” he said.

“Was Credit Suisse the whale? Was SVB the whale? We’ll only know afterwards. But the whale could be commercial real estate in the U.S.”.

CUTTING SPACE

Global property services firm Jones Lang LaSalle – which in May pointed to a 18% annual drop in first quarter global leasing volumes – published data this month showing prime office rental growth in New York, Beijing, San Francisco, Tokyo and Washington D.C. turned negative over the same period.

In Shanghai, China’s leading financial hub, office vacancy rates rose 1.2 percentage points year-on-year in Q2 to 16%, rival Savills said, suggesting a recovery would depend on nationwide stimulus policies succeeding.

Businesses are also under pressure to slash their carbon footprint, with HSBC among those cutting the amount of space they rent and terminating leases at offices no longer considered ‘green’ enough.

More than 1 billion square meters of office space globally will need to be retrofitted by 2050, with a tripling of current rates to at least 3%-3.5% of stock annually to meet net-zero targets, JLL said.

Australia’s largest pension fund, the A$300 billion AustralianSuper, is among those on the sidelines, saying in May it would suspend new investment in unlisted office and retail assets due to poor returns.

Meanwhile, short-sellers continue to circle listed property landlords the world over, betting that their stock prices will sink.

The volume of real estate stocks lent by institutional investors to support shorting activity has grown by 30% in EMEA and 93% in North America over the 15 months to July, according to data provider Hazeltree.

According to Capital Economics, global property returns of around 4% a year are forecast this decade, compared with a pre-pandemic average of 8%, with only a slight improvement expected in the 2030s.

“Investors must be willing to accept a lower property risk premium,” Capital Economics said. “Property will look overvalued by the standards of the past.”

Source : Zawya

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