A report from Al-Monitor on Lebanon. “‘Our dream was to have a nice home so we could decorate the way we wanted,’ Nour, not her real name, told Al-Monitor. ‘So we went searching for houses back in 2014.’ The young couple entered the housing market just after a real estate boom, when the sector constituted more than 40% of all banking loans in Lebanon. The bank told the couple that the loan would be at zero interest, and, ‘If there is a change in the interest, it will be $2 or $3, maximum $4, a month,’ Nour would later remark, ‘We didn’t understand back then what was happening.’”
“‘In 2018, we went to the bank to sign the [annual] new schedule of payments, and we saw it would be $126 [extra] each month,’ Nour said. In April the following year, the couple had an extra $500 a month added to their payment, leaving them with a monthly mortgage debt of nearly $2,000, and no knowledge of why it was happening. ‘Our wage in Lebanon is like $1,000 [a month],’ Ahmed said. ‘What do [bank officials] want? We need to live. We have a kid. How much is this house going to cost us, like $1 million?’”
“The new housing being built was expensive with the average value of real estate more than doubling in 10 years, from $48,000 in 2007 to $103,000 in 2017. This contributed to reducing local demand, thus houses staying on the market, including by 2018 approximately $9 billion worth of empty, predominantly luxury, apartments.”
From Bisnow on Dubai. “Where the Arabian Desert meets the Persian Gulf, this city-state seemingly emerges from nothingness. But the value of Dubai’s real estate is plummeting. For the development community, defaulting on a loan was punishable with jail time. That often meant the only way to handle a failed Dubai project was to book a one-way ticket out and never return. ‘There are so many development dinosaurs still lurking around the city from the last crash,’ said Marwan Aboudib, a partner at Dubai city innovation incubator Tekuma. ‘People filed [for] bankruptcy and were chased out of town. You’d see Ferraris simply abandoned at the airport.’”
From Reuters on Nigeria. “Idris Salako, commissioner for the Lagos state ministry for physical planning and urban development, said the government wants to make the city ‘a 21st century economy and destination for investment.’ ‘A lot of structures that are uncompleted or abandoned in the city may be distressed and not fit for habitation,’ he said in a phone interview. ‘Some of them are on drainage channels or unoccupied because of high rent or sales value.’”
The New York Times. “Money is so cheap — a 20-year mortgage can be had in Paris or Frankfurt at a rate of less than 1 percent — that borrowers are flocking to buy apartments and houses. And institutional investors, seeing a chance for lucrative returns, are acquiring swaths of residential real estate in cities across Europe. In some parts of Europe, said Jörg Krämer, the chief economist at Commerzbank in Frankfurt, valuations have already returned to or exceeded levels that preceded the Continent’s debt crisis a decade ago, igniting concerns that the property boom could end badly.”
“The head of a local renters’ group said investors were ‘betting on concrete gold.’ ‘The risks are real, because negative interest rates in Europe are cemented,’ Mr. Krämer said. ‘What’s important for the economy as a whole is to prevent the emergence of a dangerous new bubble.’”
“With little room to maneuver, the European Central Bank recently called on politicians in euro countries to take bolder steps to prevent asset bubbles from growing. ‘This is all new territory,’ Matthias Holzhey, the head of Swiss real estate at UBS said. ‘Some caution is warranted because in the past, no one really forecast a house price crash,’ he said. ‘Headlines always said prices are rising, but there’s no bubble,’ he added. Until there was.”
The Irish Times. “‘What degree of #groupthink is needed to believe that this is consistent with a chronically undersupplied market,’ John McCartney, director of research at estate agents Savills, tweeted last week. He was talking about slowing house prices – the latest official figures suggest they are now rising by just 0.9 per cent on an annual basis, the lowest level in 12 years – and slowing rents.”
“Figures this week show Dublin rent inflation has slowed from 9.6 per cent a year ago to 6.6 per cent. McCartney’s point is that inflation is slowing in both channels of the property market because supply is catching up with demand despite endless suggestions that we’re way off ever meeting the level of demand required. McCartney is a bit of a maverick in the estate agents sector and regularly gets hauled over the coals for not talking up the market from an investors’ perspective, which many in his bailiwick seem constitutionally obliged to do.”
The Free Press Journal on India. “Former Chief Economic Adviser Arvind Subramanian has called the current economic slowdown as the ‘second wave’ of the Twin Balance Sheet (TBS) crisis which will soon turn into a ‘Great slowdown.’ Subramanian said in a draft working paper for the Harvard University’s Centre for International Development, ‘Clearly, this is not an ordinary slowdown. It is India’s Great Slowdown, where the economy seems headed for the intensive care unit.’”
“Towards the end of June 2019, there were a total of 10 lakh houses accounting for Rs 8 lakh crores in top eight cities of India. Soon the downfall was realised and many banks and mutual fund firms stopped lending to NBFCs. On which Subramanian and the former head of the International Monetary Fund’s India office Josh Felman argue, ‘In some ways, this may have been India’s version of the US housing bubble.’”
The Sydney Morning Herald in Australia. “NSW construction companies collapse at levels not seen elsewhere in the country with more criminal misconduct allegations made against them than in other states. Administrators found evidence of wrongdoing in 561 construction industry businesses that failed in NSW in 2017-18, reflecting a pattern of ‘phoenixing’ that is difficult to prosecute because it is not illegal in all cases. Illegal ‘phoenixing’ occurs when company directors move assets from one company to another to avoid debts or liability for issues like building defects leaving creditors with the bill when the company is liquidated. It costs the economy up to $5 billion each year.”
“On Monday, the Herald detailed the broken business model in the NSW building industry that experts say has reached epidemic proportions: developers and builders creating $2 companies to carry out apartment projects, taking the profits and then shutting them down before they can be pursued in court over any defects bill. Less than 11 cents in the dollar was recouped from insolvent companies in 97 per cent of cases over the past 3 years.”
The Globe and Mail in Canada. “Over his career, Ed Rempel, an independent fee-for-service financial planner in Toronto, has seen several housing-market cycles, including the market crash in the late 1980s. ‘I knew people who were multi-millionaires with a house and four or five rental properties. A few years later, they declared bankruptcy. All the properties went down and were worth less than the mortgage. And all the rents went down, they were negative cash flow. They lost everything. There was no diversification,’ he says.”
From The Oregonian. “The Evergreen International Aviation empire, once one of Oregon’s largest employers, had its ups and downs before crashing into bankruptcy. Flying almost the same course has been the fairy-tale estate the company’s late founder, Del Smith, erected alongside the Willamette River in Dundee. More than $18 million was poured into the 46.6-acre property at 22111 Riverwood Road and yet no one stepped up to buy it after Smith died in 2014 and the asking price dropped from $6 million in April 2017 to $5 million in August 2017.”
“Two years later, on Aug. 21, the property was put on the auction block and an offer to buy it ‘as is’ was accepted. The transaction was completed Dec. 16, 2019. The price: $3 million.”