A report from the Honolulu Star advertiser in Hawaii. “A Hong Kong-based company with plans to develop an Atlantis-themed resort along with two other big hotel and residential projects in West Oahu has been trying to sell all three properties to address financial difficulties. The effort by China Oceanwide Holdings Ltd. raises uncertainty over whether the three projects, which involve three hotels and potentially 3, 000 residences on 550 acres of land at Ko Olina and the neighboring West Kapolei area, will be built as envisioned, and if so then when and by whom.”
“The Hawaii real estate sale efforts stem from a need to raise cash so Oceanwide can addresses issues with debt and resume construction on a more than $1 billion stalled high-rise project in Los Angeles. Mike Hamasu, director of research for local commercial real estate firm Colliers International, said it generally isn’t a good time to sell resort property in Hawaii given the corona virus -triggered downturn in tourism and an uncertain full recovery for the industry that some economists project will take a few years.”
“Yet Hamasu also said there are many well-capitalized investment firms looking for discounted property, especially distressed real estate available at fire-sale prices.”
From Inside Nova. “Home sales across Virginia remained solid if not spectacular in August, but the market seems to be returning to more seasonal ebbs. Lisa Sturtevant, chief economist for Virginia Realtors added, it ‘could also reflect a broader cooldown in some local areas,’ pointing to regions like the Northern Neck and parts of Southwest Virginia that had the sharpest July-to-August decline. ‘Several local markets in Central Virginia and Northern Virginia experienced a decline in median prices, including Arlington County, which had its sharpest price decline [7.8 percent] in more than three years.’”
The Orange County Register in California. “Los Angeles County’s homebuying cooled as prices and sales dipped slightly in August from July. It was the same across Southern California as prices dipped in August from July – first decline since January. Sales slowed, too. The number of Southern California homes for sale has been ticking upward steadily since February, rising 18% through August, Zillow figures show.”
The Los Angeles Times in California. “The pandemic economy pushed Southern California’s competitive housing market into such overdrive that a defining marker of wealth — the million-dollar home — has become the norm in a growing number of places. Homes worth $1 million or more now dominate communities from Altadena at the foot of the San Gabriel Mountains to West Adams in South L.A. ‘I don’t even have two bathrooms,’ said Alan Torres, a 35-year-old software engineer, who along with his wife recently paid $1.04 million for a two-bedroom, one-bathroom house in Echo Park.”
“Lenders will readily approve loans for a $1-million house for households with annual incomes of $150,000 or more, with solid credit, a 20% down payment and minimal other debts, said Jeff Lazerson, a mortgage broker in Laguna Niguel. Already, there are some signs the market is cooling as burned-out home shoppers call it quits. Ed Pinto, director of the American Enterprise Institute’s Housing Center, said mass defaults like those seen when the mid-2000s bubble popped aren’t a fear this time around, given far tighter lending standards.”
“‘We are not talking about a risk of mass foreclosures. We are talking about a risk of somebody buying a house at $800,000 or $900,000 and the price goes down 10% to 15%,’ he said. ‘As long as they don’t have to sell, it’s a paper loss.’”
The Philadelphia Inquirer in Pennsylvania. “Greg Wertman wasn’t surprised last week when a Philadelphia landlord shared a realization he’d had about his business. As president of HAPCO Philadelphia, the city’s largest landlord association, Wertman has heard it frequently over the last two years: ‘I need to get out.’ One in five landlords listed a property for sale in Philadelphia during the pandemic, according to a survey.”
“Researchers surveyed more than 2,500 rental property owners in Philadelphia and nine other U.S. cities: Trenton; Akron, Ohio; Albany and Rochester, N.Y.; Indianapolis; Los Angeles; Minneapolis; Racine, Wis.; and San Jose, Calif. Across the 10 cities, property sale listings were up for all landlords.”
The Steamboat Pilot in Colorado. “Steamboat Springs Planning Commission held the first of several discussions focused on where short-term rentals could potentially be restricted. Kari Riegner bought her home on Hilltop Parkway because she loves Steamboat and hopes to move to the city full time someday. But Riegner, who lives in Golden, knew she would only be able to afford her second home in Steamboat by renting it short term. ‘We wanted to be able to enjoy the community, but we don’t have a lot of money,’ Riegner said. ‘We can’t just purchase a property and just have it sit there.’”
“AJ Summers, a Steamboat resident who said he lives near multiple short-term rentals and feels they have had a negative impact on the neighborhood as a whole, said paying off a second house should not fall on the shoulders of the neighbors surrounding the house. ‘I do feel sorry for people that bought houses thinking they could rent them out and pay for them that way, but we shouldn’t have to subsidize people’s second homes at the cost of our neighborhoods,’ Summers said. ‘You can’t run a hotel in a neighborhood.’”
From Bisnow. “Executives for a Chinese company that made U.S. commercial real estate transactions worth billions of dollars have been detained in China on unspecified charges. HNA Group Chairman Chen Feng and CEO Adam Tan have been detained by police in Hainan Province, China, where the company is based. They were detained ‘in accordance with the law for suspected crimes,’ the company said. The Hainan provincial government has found that billions of dollars were misappropriated as funds were moved among more than 2,000 HNA subsidiaries, affiliates and shell companies.”
“Despite selling assets, the company was still saddled with enormous debt when the coronavirus pandemic came, hitting its airline business especially hard. Following petitions from creditors, HNA and many of its subsidiaries were put under a court-led reorganization early in 2021. The arrests come at a particularly tumultuous time for China-based real estate investors.”
Two reports from the Globe and Mail. “The crisis at China Evergrande Group, one of that country’s biggest property developers, points to a problem much bigger than unsold apartments in second-tier Chinese cities. Stagnation in China would be bad news for businesses everywhere. In the years leading up to the pandemic, the Asian giant accounted for roughly a third of global growth, according to the World Economic Forum. A slowdown would not surprise skeptics such as Michael Pettis, a professor of finance at Peking University in Beijing, who has argued for years that China’s growth numbers are less impressive than they appear.”
“Prof. Pettis warned in an essay last month that as much as half the country’s reported growth in GDP over the past decade is imaginary wealth that exists only on paper. It is ‘the bezzle,’ to use the wonderful term invented by the late Canadian-born economist John Kenneth Galbraith. According to Prof. Pettis, much of this bezzle is associated with local governments’ desire to build big-ticket infrastructure projects that deliver little economic payoff.”
“‘The way this works is straightforward,’ he said. ‘Some entity, usually associated with the government and therefore lacking hard budget constraints, spends, say, $150 to build a bridge or a railroad that ultimately generates only $50 in additional economic benefits.’”
“So long as the builder of the project can carry the project on its financial statements at its original cost, the economy looks to be growing nicely. But because the project can’t justify its cost in reality, the growth is actually an illusion.”
“‘Authorities from small, lower-tiered cities would be intoxicated by [Mr.] Hui and his very visible political correctness and connections – welcoming his development projects and proposals with open arms,’ market analyst Shuli Ren wrote this week. ‘Warnings fell on deaf ears – and the developer-turned-conglomerate went on living out its nine lives.’”
“Some of this public perception played directly into Evergrande’s success, particularly when it came to selling consumer investment products and signing up people for new property developments. In multiple reports this week, retail investors spoke of believing the company simply could not default, owing to its political connections and reputation. This encouraged people to purchase products promising outlandish returns, with the assumption the investments were a safe bet.”
“Christina Xie, who works in export in bustling Shenzhen, told Reuters she had pumped her life savings into Evergrande investment products. ‘I was planning to use it for me and my partner’s old age. I worked day and night saving, now it’s game over,’ said Ms. Xie. ‘Evergrande is one of China’s biggest real estate companies … my consultant told me the product was guaranteed.’”
From The Guardian. “In May 2020, Chen (not his real name) decided to invest 300,000 yuan (£34,000) in property in the north-eastern Chinese city of Shenyang. ‘I thought the price was not too expensive and I had some extra money so I invested it,’ he said. ‘I thought it was going to be all right because Evergrande is such a big name and enterprise.’”
“Chen was following in the footsteps of countless fellow Chinese, getting in on a booming property market that had turned big cities such as Beijing, Shenzhen and Shanghai into some of the world’s most expensive, amid the huge transfer of the population from rural to urban areas. The value of home sales has fallen by 20% year on year in the wake of tougher regulation.”
“Some borrowed from friends and family, assuming their all-but-mandatory loan was safe. They are now among the hundreds picketing the company’s offices nationwide. Videos spread online, with crowds inside the lobby of Evergrande’s Shenzhen headquarters shouting for the return of money they earned with their own ‘blood and sweat.’ ‘Your conscience has been eaten by dogs,’ said one highly distressed woman. ‘We sold everything we had, both of our flats, so that we could buy property with Evergrande, because you were one of the world’s top 500 companies – I have nothing left,’ she told the camera.”