It’s Friday desk clearing time for this blogger. “Sellers, at moments, were too aggressive with pricing. Price cuts on homes jumped in August, as some sellers realized they could not get their dream asking price. ‘Many buyers gave up,’ said Ellen Taracido, managing broker with the Collection Realty in Fort Lauderdale.”
“The One is about to cross the auction block, with a starting price set at $295 million and at no reserve. It’s a considerable cut from the initial $500 million developer Nile Niami planned to get for it once it was completed but, then again, The One is neither complete nor does it include many of the features he initially envisioned for it. As spectacular and luxurious as it is, needs to find a buyer. It simply must.”
“Niami, once hailed the king of mega-mansions in California, did get to see his dream home become real, though the price he paid for it is akin to the proverbial fall from grace. Betting big on the fact that California capped the size of mega-mansions after he got approval for The One, he dreamed too big and borrowed too heavily for the project. He also defaulted on those loans, to the point where he’s now $166 million in debt and the property has gone into receivership.”
“The Excelsior Hotel – a century-old landmark on Manhattan’s Upper West Side that was shuttered during the pandemic – has been sold for nearly $80 million to a developer that specializes in converting buildings to pricey residential rentals. Because the Excelsior failed to reopen by Nov. 1, a new city law called for the former owner, Harry Krakowski, to pay severance of $500 per week for 26 weeks for each of his employees.”
“‘Even though it’s billed as a law to help workers, this law will likely force hotels like mine to close, leading to thousands of workers losing their jobs permanently,’ Krakowski wrote. ‘This bill is forcing us to make the financial decision to sell our properties rather than lose more and more money every day waiting for tourists to come back so we can reopen.’”
“It’s very likely house prices, at least in Australia’s two biggest cities, will fall at some point over the next couple of years. That’s the view of three of the four major banks, whose businesses are skewed heavily to residential mortgages. ‘The flood of fixed rate hikes is likely to keep going as the cost of fixed-term funding continues to rise,’ warned RateCity’s research director Sally Tindall after CBA raised its fixed rates again. ‘Six months ago, there were 161 fixed rates under 2 per cent. Today there are just 87 and we expect this number to keep plummeting.’”
“This is far from the first boom prompted by falling interest rates, and it certainly won’t be the first to be ended by rising rates or regulatory limits on borrowing. The Reserve Bank recently reiterated something of a mea culpa for the nation’s unaffordable housing, admitting interest rates were the key contributor, although adding its hands were tied due to global economic forces.”
“Experience during housing crashes, such the US subprime crisis, also suggests that many of the first people to lose their homes would be among the less well-off in society. For those reasons, and the deep long-term economic damage that housing crashes cause, you can bet the Reserve Bank and governments will again be doing all they can to prevent anything more than another ‘orderly correction’ when house prices do start heading south.”
“The cumulative default rate of China’s high-yield dollar bonds is expected to rise to 42 to 45 per cent in the coming three to six months in 2022, from 38 per cent in 2021, said Jack Siu, Credit Suisse’s Greater China chief investment officer. ‘Maybe, a company collapses before it sees the dawn,’ said Wang Yifeng, an Asian credit markets veteran now leading a global credit fund. ‘When it comes to the risk of individual names, you may have to manage your concentration level, as everyone in the market mostly relies on guessing which one will become the next Evergrande or Kaisa.’”
“Citing weak sales and increased refinancing risks, rating agencies Fitch and Moody’s have also downgraded Shimao. Shimao’s sudden plunge – which has taken the group close to being a ‘fallen angel’ reduced to junk bond status – caught investors off-guard. For many months, Shimao’s onshore bonds were also traded at more heavily discounted prices than their offshore bonds, which suggested an asymmetry of information about the group. That compounded a general sense of unease over the company’s lack of visibility – a problem common to many Chinese property developers.”
“Investors were also spooked by reports that homebuyers who recently purchased 96 Shimao properties in Shanghai were not able to register for the transfer of ownership titles as the properties had already been pledged to one of Shimao’s lenders.”
“China Evergrande Group on Friday dialled back plans to repay investors in its wealth management products, in a move that highlights the deepening liquidity squeeze at the property developer that has failed to meet its offshore debt obligations. Evergrande, whose $19 billion in international bonds are deemed to be in cross-default by rating agencies after the developer missed a deadline to pay coupons earlier this month, did not pay offshore coupons due earlier this week.”
“Evergrande said in a statement posted on the wealth unit’s website on Friday that the company would ‘actively raise funds,’ and update the repayment plan in late-March. The situation is not ‘ideal,’ the statement said, as the development’s wealth unit tries to recover capital from the projects it invested in previously and, therefore, the original repayment plan was hard to implement.”
“Evergrande, in common with other heavily-indebted conglomerates, had issued high-yielding wealth management products to investors – a popular way of borrowing from mom-and-pop investors that sidesteps government lending restrictions. As the liquidity crisis deepened at Evergrande, the firm’s wealth unit in late September missed a payment on one of its products, leading to protests by investors who fear they will never get their money back. Some of its wealth investors had refused to accept the embattled company’s plan to provide payment with discounted apartments, offices, stores and parking units.”