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Is the real estate boom cooling off?
International Herald Tribune
FRIDAY, OCTOBER 14, 2005
Paris: The stampede is over
From his office on the fashionable Rue du Faubourg St.-Honoré, Ludovic Guespereau, the owner of C.B.G. Immo, a real estate agency, said he thought that the buying stampede of the past several years was over.
"For the past five years, clients would come, look at one apartment and make a bid," said Guespereau, describing a market so hot that clients, sensing others on their heels, felt pressured to bid. Since mid-June or July, that has changed. "Clients are seeing five apartments, and then they wait and take time to make up their minds," Guespereau said. "They think it over."
Similar dynamics are emerging in other Paris neighborhoods where wealthy foreigners are a significant presence. That foreign dimension gives Paris property a special edge: as one of the world's most popular destinations, the city has attracted investors who buy and fix up apartments to rent to tourists on a short-term basis.
"Ninety percent of our clients say, 'I want to buy a sweet little pied-à-terre I can stay in four weeks a year and rent out 80 percent of the time,"' said Adrian Leeds, who publishes The French Property Insider, a newsletter for English-speaking expatriates.
The French, too, have been snapping up small investment properties as an alternative to the stock market, spurred by tax breaks for landlords who rent out furnished apartments. As a result, Mitch Rose, a real estate agent at Groupe Mobilis on the Left Bank, said there was now a glut in small furnished rentals.
So despite mortgage rates in the 3.6 percent range, and huge demand in a city where regulations choke new building, prices are stagnating in top neighborhoods. Statistics published this month by the Chambre des Notaires de Paris - the organization of officials who handle the paperwork on property transactions - show the average price of apartments in the Fifth Arrondissement was up 4.6 percent for the year that ended on June 30, but fell more than 4 percent during the three months from April through June.
By contrast, prices in the trendy and more affordable 10th Arrondissement, around the Canal St. Martin, rose 18.8 percent.
At the top end there is a tug of war between sellers in denial and cautious buyers. "Toward the end of last year we were almost embarrassed to say 8,000 to 8,500 per square meter for a good apartment," Rose said. "Now we quote 9,000 to 10,000, and it is sometimes not quality. People think they can get top dollar for a mediocre apartment. The fact is, they can't."
Geof Lewis, a retired high-technology executive who has property in San Francisco, has been looking for an apartment in the Sixth for two months. "I made a low bid, although it was not accepted," he said, adding that he remained optimistic: "The market is softening." - Sharon Reier
Hong Kong: Bucking the trends
Hong Kong has a real estate market that has zigged as most of the rest of the world has zagged. Residential real estate prices fell by two-thirds from 1997, when Britain handed over the territory to China, until the end of the SARS epidemic in 2003.
The question now is whether real estate worries elsewhere, and rising interest rates in Hong Kong, will bring a sudden halt to the local market's spectacular rebound in the past two years. The rebound has seen some apartments nearly triple in value, approaching valuations last seen at the top of the real estate bubble in 1997.
Speculation that the Hong Kong dollar might be revalued along with China's currency produced heavy investment in Hong Kong real estate and other assets during 2004 and through most of the first half of this year. Local banks were awash in deposits and eager to find borrowers, so they kept mortgage rates low even though the Hong Kong dollar is pegged to the U.S. dollar, which usually keeps Hong Kong and American interest rates closely linked.
All of this changed on May 18, when the Hong Kong Monetary Authority changed the currency peg in a way that made it much more costly to bet on currency appreciation, and ruled out any appreciation no matter what China did. Speculative money flowed out of the territory's banking system, and interest rates have risen close to U.S. levels since then, discouraging real estate buyers.
Prices stopped rising and were flat in the third quarter, said Kenneth Tsang, the head of research for southern China, Hong Kong, Macao and Taiwan at Jones Lang LaSalle, the property consulting and brokerage company. Many sellers kept quoting higher prices while buyers were leery of paying them, resulting in a steep drop in the number of transactions.
But Tsang and other analysts continue to predict that prices will rise further in the next 12 months because Hong Kong's economy is booming along with China's, and the supply of new apartments is limited.
Tsang predicted that mass market and luxury apartment prices would rise 5 percent to 10 percent by next autumn. John Saunders, the head of regional property research at CLSA, a unit of Crédit Agricole of France, forecast that mass market apartment prices would climb by 8 percent to 10 percent, while luxury apartment prices would appreciate 10 percent to 12 percent.
Few apartment buildings were started in the past few years because of low prices, so only 20,000 apartments are expected to come on the market annually for the next four years in a market where annual growth in demand has averaged 40,000 apartments over the past 15 years, Saunders said. "We still have a market that is woefully undersupplied," he said. - Keith Bradsher
Ireland: The boom's delayed effect
When it comes to housing, Ireland may finally be adjusting to the economic boom of the 1990s, which transformed a grim country with persistent unemployment into a thriving European hub in less than a decade.
Instead of emigrating, young couples stayed in Ireland, earned generous incomes and demanded a fresh supply of residential property for the first time in living memory.
House prices soared at an annual rate that peaked, in 1998, at nearly 30 percent. That left home buyers facing an average sticker price of more than 265,000, or $319,000, but the bubble still has not burst. House prices rose 6.2 percent in the year through August, and several factors persuade economists that the market will remain buoyant.
In the next two years, Irish citizens who participated in a one-time government-sponsored savings plan will receive an average of 13,800 each.
That will lift demand by 16,000 new homes, according to a projection by Austin Hughes, chief economist with Irish Intercontinental Bank, which has a mortgage loan book of 8 billion.
And while few immigrants, who are an increasingly essential part of the Irish work force, are buying homes now, they will begin to do so over the next decade as families and ethnic communities settle and integrate.
This year, builders are expected to match 2004's total of 77,000 new homes - which, in a country of four million, means 19 houses for every 1,000 people, Hughes pointed out, compared with three houses per 1,000 in Britain.
There is also a political imperative to keep churning out, and selling, new houses. Revenue from stamp duty, the national tax on property transactions, is likely to exceed the Treasury's own forecasts by almost 30 percent, or 600 million, this year. "The government is doing very well out of it," Hughes said. - Brian Lavery
Japan: A race for high yields
Real estate prices are far from peaking in Japan, where the market is only beginning to crawl out of its slump of a decade and a half. Land prices in central Tokyo have edged up 0.4 percent so far this year, according to a government survey announced in late September. Nationally, though, land prices generally are still on a downward trend. Residential land prices fell 3.8 percent, while commercial real estate dropped 5 percent.
But such price statistics mask a significant market trend, according to Daisuke Fukushima, a real estate analyst for Nomura Securities in Tokyo. He said that developers, real estate funds and institutional buyers were aggressively picking up land and properties that are regarded as useful and that produce ample yields, like office buildings and apartment houses in central Tokyo near major train stations.
"This year, prices are up 50 percent and as much as 80 percent" from a year earlier for such hotly pursued properties, he said.
Driven by investment flows from banks, individuals and foreign investors, real estate funds are racing to buy up properties that pay yields of 4 percent to 5 percent, an attractive return compared with government bonds, which are yielding 1.5 percent.
The competition to buy high-value real estate is fierce, Fukushima said, and investors' money is now flowing into quality properties in regional centers like Nagoya, Osaka and Fukuoka. Analysts including Fukushima said Japanese real estate was going through an extreme phase of polarization, in which productive property rises in value while less attractive properties lose value. - Miki Tanikawa
London: A gentle landing?
Dire predictions of property crashes have become as common in London as Indian restaurants in recent years. But with every worrisome property forecast has come another bump in prices - so much so that housing costs have soared 165 percent over the past decade. Some studies have suggested that housing in London is overvalued by 35 percent or more.
But most signs point to a stabilizing market in which prices will rise nominally in the near future. The real estate agent Savills in London predicts sale-price inflation of about 4 percent a year over the next five years. "There's room for renewed growth in the housing market, even though I admit there's a lot of negative sentiment floating around right now," said Jim Ward, research director at Savills.
Most specialists say prices have flattened out over the past year in Britain, and particularly in London, partly because first-time home buyers have been priced out of the market. New entrants made up 38 percent of the market in 2002, and nearly half of the market 10 years ago, but they account for less than 29 percent today.
A drop in demand from investors has also had an impact. So far in 2005, the number of purchases by people who intend to rent out the houses, rather than live in them, has fallen 50 percent from a year earlier.
Solid employment rates and healthy household incomes have also helped to keep what some fear may be a price bubble from bursting. The Bank of England has also helped to temper the property market with increases in interest rates, which are now at 4.5 percent. - Shelley Emling
Moscow: Mortgage novelty
The tempestuous real estate market in Moscow is maturing, providing both lenders and home buyers with a feeling of stability as well as growth, analysts say. Moscow is not quite the boomtown it was in the first years of the millennium, when housing prices were surging 50 percent a year after the 1998 crash. Yet the residential market is still steadily increasing by 1 percent or more a month, according to Guy Emes, director of MosProperties.
Analysts generally do not expect any market softening here in response to the U.S. downturn. The most significant trend on the Russian horizon is the arrival of the home mortgage. So far they have been used very little because restrictions made them nearly unattainable by potential buyers and there was little protection for banks. All of that has changed under new mortgage laws, according to analysts, and a new generation of Russians may not be living with their in-laws much longer.
The outlook for 2006 points to further strong growth. There is still a boom in the development of land for construction near Moscow. As the wealthy carve more high-end luxury developments out of the forests close to the city, land prices have increased as much as 500 percent, according to Emes.
St. Petersburg's housing market is on the same steady trajectory, as are many cities elsewhere in Russia, where percentage increases are huge but the actual cost of apartments and homes is low compared with Moscow. An apartment in a Russian city of a million people that cost the equivalent of $20,000 last year could cost $40,000 this year.
What is likely to soften is the market for commercial development. So many huge malls and complexes will be finished in Moscow next year that there will be a plethora of new offices and prices should go down in the next two to three years, according to Marti Wilan, development director for Asterra, a real estate consulting company in Moscow. - Nora FitzGerald
Spain: Trending downward
Recent forecasts from economists say Spain's booming housing market is likely to cool this year. A study from the real estate appraisal organization Cohispania said prices would show growth of 12.3 percent for 2005, a drop from 17.5 percent last year.
Spain's central bank said construction of residential housing during the third quarter appeared to be lower than during the first half of the year, and real estate agencies report that selling homes is taking longer than it did a year ago.
But the market has been showing signs that the sharp slowdown that some predicted early in the year was unlikely. After softening in early 2005, demand for mortgages reached its highest level in three years during the second quarter, and it was not expected to weaken over the short term, according to a report released this month by Spain's central bank.
In Barcelona, housing prices appear to be increasing faster than they were at this time last year. A recent study by Idealista.com said prices were up 3.5 percent in the third quarter from a year earlier.
Several general factors have contributed to the Spanish city's strong residential market. "There has been a housing boom but not a building boom, and that's why prices are so high," said Cameron Millalieu, owner of barcelonahomesearch.com, a local agency.
He noted that there was little land left to build on, with the sea on one side of the city and mountains on the other. There is also more employment and thus more money to spend on housing.
Growth in apartment prices across Barcelona, however, is decelerating. By Millalieu's estimates, the market surged 25 percent in the year ending in May 2003, followed by rises of 17 percent and 10 percent in the next two 12-month periods. For the year ending in May 2006, he sees a further drop of 5 percent, with the slowest growth coming in wealthier areas. - Renwick McLean and Judith Rehak
News source
International Herald Tribune
FRIDAY, OCTOBER 14, 2005
Paris: The stampede is over
From his office on the fashionable Rue du Faubourg St.-Honoré, Ludovic Guespereau, the owner of C.B.G. Immo, a real estate agency, said he thought that the buying stampede of the past several years was over.
"For the past five years, clients would come, look at one apartment and make a bid," said Guespereau, describing a market so hot that clients, sensing others on their heels, felt pressured to bid. Since mid-June or July, that has changed. "Clients are seeing five apartments, and then they wait and take time to make up their minds," Guespereau said. "They think it over."
Similar dynamics are emerging in other Paris neighborhoods where wealthy foreigners are a significant presence. That foreign dimension gives Paris property a special edge: as one of the world's most popular destinations, the city has attracted investors who buy and fix up apartments to rent to tourists on a short-term basis.
"Ninety percent of our clients say, 'I want to buy a sweet little pied-à-terre I can stay in four weeks a year and rent out 80 percent of the time,"' said Adrian Leeds, who publishes The French Property Insider, a newsletter for English-speaking expatriates.
The French, too, have been snapping up small investment properties as an alternative to the stock market, spurred by tax breaks for landlords who rent out furnished apartments. As a result, Mitch Rose, a real estate agent at Groupe Mobilis on the Left Bank, said there was now a glut in small furnished rentals.
So despite mortgage rates in the 3.6 percent range, and huge demand in a city where regulations choke new building, prices are stagnating in top neighborhoods. Statistics published this month by the Chambre des Notaires de Paris - the organization of officials who handle the paperwork on property transactions - show the average price of apartments in the Fifth Arrondissement was up 4.6 percent for the year that ended on June 30, but fell more than 4 percent during the three months from April through June.
By contrast, prices in the trendy and more affordable 10th Arrondissement, around the Canal St. Martin, rose 18.8 percent.
At the top end there is a tug of war between sellers in denial and cautious buyers. "Toward the end of last year we were almost embarrassed to say 8,000 to 8,500 per square meter for a good apartment," Rose said. "Now we quote 9,000 to 10,000, and it is sometimes not quality. People think they can get top dollar for a mediocre apartment. The fact is, they can't."
Geof Lewis, a retired high-technology executive who has property in San Francisco, has been looking for an apartment in the Sixth for two months. "I made a low bid, although it was not accepted," he said, adding that he remained optimistic: "The market is softening." - Sharon Reier
Hong Kong: Bucking the trends
Hong Kong has a real estate market that has zigged as most of the rest of the world has zagged. Residential real estate prices fell by two-thirds from 1997, when Britain handed over the territory to China, until the end of the SARS epidemic in 2003.
The question now is whether real estate worries elsewhere, and rising interest rates in Hong Kong, will bring a sudden halt to the local market's spectacular rebound in the past two years. The rebound has seen some apartments nearly triple in value, approaching valuations last seen at the top of the real estate bubble in 1997.
Speculation that the Hong Kong dollar might be revalued along with China's currency produced heavy investment in Hong Kong real estate and other assets during 2004 and through most of the first half of this year. Local banks were awash in deposits and eager to find borrowers, so they kept mortgage rates low even though the Hong Kong dollar is pegged to the U.S. dollar, which usually keeps Hong Kong and American interest rates closely linked.
All of this changed on May 18, when the Hong Kong Monetary Authority changed the currency peg in a way that made it much more costly to bet on currency appreciation, and ruled out any appreciation no matter what China did. Speculative money flowed out of the territory's banking system, and interest rates have risen close to U.S. levels since then, discouraging real estate buyers.
Prices stopped rising and were flat in the third quarter, said Kenneth Tsang, the head of research for southern China, Hong Kong, Macao and Taiwan at Jones Lang LaSalle, the property consulting and brokerage company. Many sellers kept quoting higher prices while buyers were leery of paying them, resulting in a steep drop in the number of transactions.
But Tsang and other analysts continue to predict that prices will rise further in the next 12 months because Hong Kong's economy is booming along with China's, and the supply of new apartments is limited.
Tsang predicted that mass market and luxury apartment prices would rise 5 percent to 10 percent by next autumn. John Saunders, the head of regional property research at CLSA, a unit of Crédit Agricole of France, forecast that mass market apartment prices would climb by 8 percent to 10 percent, while luxury apartment prices would appreciate 10 percent to 12 percent.
Few apartment buildings were started in the past few years because of low prices, so only 20,000 apartments are expected to come on the market annually for the next four years in a market where annual growth in demand has averaged 40,000 apartments over the past 15 years, Saunders said. "We still have a market that is woefully undersupplied," he said. - Keith Bradsher
Ireland: The boom's delayed effect
When it comes to housing, Ireland may finally be adjusting to the economic boom of the 1990s, which transformed a grim country with persistent unemployment into a thriving European hub in less than a decade.
Instead of emigrating, young couples stayed in Ireland, earned generous incomes and demanded a fresh supply of residential property for the first time in living memory.
House prices soared at an annual rate that peaked, in 1998, at nearly 30 percent. That left home buyers facing an average sticker price of more than 265,000, or $319,000, but the bubble still has not burst. House prices rose 6.2 percent in the year through August, and several factors persuade economists that the market will remain buoyant.
In the next two years, Irish citizens who participated in a one-time government-sponsored savings plan will receive an average of 13,800 each.
That will lift demand by 16,000 new homes, according to a projection by Austin Hughes, chief economist with Irish Intercontinental Bank, which has a mortgage loan book of 8 billion.
And while few immigrants, who are an increasingly essential part of the Irish work force, are buying homes now, they will begin to do so over the next decade as families and ethnic communities settle and integrate.
This year, builders are expected to match 2004's total of 77,000 new homes - which, in a country of four million, means 19 houses for every 1,000 people, Hughes pointed out, compared with three houses per 1,000 in Britain.
There is also a political imperative to keep churning out, and selling, new houses. Revenue from stamp duty, the national tax on property transactions, is likely to exceed the Treasury's own forecasts by almost 30 percent, or 600 million, this year. "The government is doing very well out of it," Hughes said. - Brian Lavery
Japan: A race for high yields
Real estate prices are far from peaking in Japan, where the market is only beginning to crawl out of its slump of a decade and a half. Land prices in central Tokyo have edged up 0.4 percent so far this year, according to a government survey announced in late September. Nationally, though, land prices generally are still on a downward trend. Residential land prices fell 3.8 percent, while commercial real estate dropped 5 percent.
But such price statistics mask a significant market trend, according to Daisuke Fukushima, a real estate analyst for Nomura Securities in Tokyo. He said that developers, real estate funds and institutional buyers were aggressively picking up land and properties that are regarded as useful and that produce ample yields, like office buildings and apartment houses in central Tokyo near major train stations.
"This year, prices are up 50 percent and as much as 80 percent" from a year earlier for such hotly pursued properties, he said.
Driven by investment flows from banks, individuals and foreign investors, real estate funds are racing to buy up properties that pay yields of 4 percent to 5 percent, an attractive return compared with government bonds, which are yielding 1.5 percent.
The competition to buy high-value real estate is fierce, Fukushima said, and investors' money is now flowing into quality properties in regional centers like Nagoya, Osaka and Fukuoka. Analysts including Fukushima said Japanese real estate was going through an extreme phase of polarization, in which productive property rises in value while less attractive properties lose value. - Miki Tanikawa
London: A gentle landing?
Dire predictions of property crashes have become as common in London as Indian restaurants in recent years. But with every worrisome property forecast has come another bump in prices - so much so that housing costs have soared 165 percent over the past decade. Some studies have suggested that housing in London is overvalued by 35 percent or more.
But most signs point to a stabilizing market in which prices will rise nominally in the near future. The real estate agent Savills in London predicts sale-price inflation of about 4 percent a year over the next five years. "There's room for renewed growth in the housing market, even though I admit there's a lot of negative sentiment floating around right now," said Jim Ward, research director at Savills.
Most specialists say prices have flattened out over the past year in Britain, and particularly in London, partly because first-time home buyers have been priced out of the market. New entrants made up 38 percent of the market in 2002, and nearly half of the market 10 years ago, but they account for less than 29 percent today.
A drop in demand from investors has also had an impact. So far in 2005, the number of purchases by people who intend to rent out the houses, rather than live in them, has fallen 50 percent from a year earlier.
Solid employment rates and healthy household incomes have also helped to keep what some fear may be a price bubble from bursting. The Bank of England has also helped to temper the property market with increases in interest rates, which are now at 4.5 percent. - Shelley Emling
Moscow: Mortgage novelty
The tempestuous real estate market in Moscow is maturing, providing both lenders and home buyers with a feeling of stability as well as growth, analysts say. Moscow is not quite the boomtown it was in the first years of the millennium, when housing prices were surging 50 percent a year after the 1998 crash. Yet the residential market is still steadily increasing by 1 percent or more a month, according to Guy Emes, director of MosProperties.
Analysts generally do not expect any market softening here in response to the U.S. downturn. The most significant trend on the Russian horizon is the arrival of the home mortgage. So far they have been used very little because restrictions made them nearly unattainable by potential buyers and there was little protection for banks. All of that has changed under new mortgage laws, according to analysts, and a new generation of Russians may not be living with their in-laws much longer.
The outlook for 2006 points to further strong growth. There is still a boom in the development of land for construction near Moscow. As the wealthy carve more high-end luxury developments out of the forests close to the city, land prices have increased as much as 500 percent, according to Emes.
St. Petersburg's housing market is on the same steady trajectory, as are many cities elsewhere in Russia, where percentage increases are huge but the actual cost of apartments and homes is low compared with Moscow. An apartment in a Russian city of a million people that cost the equivalent of $20,000 last year could cost $40,000 this year.
What is likely to soften is the market for commercial development. So many huge malls and complexes will be finished in Moscow next year that there will be a plethora of new offices and prices should go down in the next two to three years, according to Marti Wilan, development director for Asterra, a real estate consulting company in Moscow. - Nora FitzGerald
Spain: Trending downward
Recent forecasts from economists say Spain's booming housing market is likely to cool this year. A study from the real estate appraisal organization Cohispania said prices would show growth of 12.3 percent for 2005, a drop from 17.5 percent last year.
Spain's central bank said construction of residential housing during the third quarter appeared to be lower than during the first half of the year, and real estate agencies report that selling homes is taking longer than it did a year ago.
But the market has been showing signs that the sharp slowdown that some predicted early in the year was unlikely. After softening in early 2005, demand for mortgages reached its highest level in three years during the second quarter, and it was not expected to weaken over the short term, according to a report released this month by Spain's central bank.
In Barcelona, housing prices appear to be increasing faster than they were at this time last year. A recent study by Idealista.com said prices were up 3.5 percent in the third quarter from a year earlier.
Several general factors have contributed to the Spanish city's strong residential market. "There has been a housing boom but not a building boom, and that's why prices are so high," said Cameron Millalieu, owner of barcelonahomesearch.com, a local agency.
He noted that there was little land left to build on, with the sea on one side of the city and mountains on the other. There is also more employment and thus more money to spend on housing.
Growth in apartment prices across Barcelona, however, is decelerating. By Millalieu's estimates, the market surged 25 percent in the year ending in May 2003, followed by rises of 17 percent and 10 percent in the next two 12-month periods. For the year ending in May 2006, he sees a further drop of 5 percent, with the slowest growth coming in wealthier areas. - Renwick McLean and Judith Rehak
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