A report from News Corp on California. “The secluded longtime home of Arnold Schwarzenegger has hit the market, with $15 million (US$11m) price hopes. In 2013, the house was sold for US$12.9 million. The home is now being sold by its current owners for less than they bought it for. Located in L.A.’s Pacific Palisades neighbourhood, it was the family home for Schwarzenegger and Shriver and their four children from 1986 — until the couple split up after Maria reportedly discovered that Arnold had fathered a child with the family’s longtime maid.”
The Real Deal. “As the pandemic drags on, New York’s foreclosure moratorium is starting to crack. On Nov. 12, an Orange County judge ruled that Wilmington Savings Fund could foreclose on and sell the home at 6 Turtle Knoll in Monroe. The ruling came as a surprise, given that its owner had filed a hardship declaration, which is supposed to keep people in their homes even if they fail to make their mortgage payments.”
“But in this case, the borrower wasn’t a person: it was a corporation. In March 2018, Pamela Lee established 6 Turtle Knoll LLC. The following year, she took out a $332,500 mortgage to buy the property, listing the shell company as the borrower. Further, in her application for the loan, Lee specified that 6 Turtle Knoll was an investment property and wouldn’t be her actual home.”
“Wilmington Savings Fund bought the note in May 2019, three months before Lee allegedly stopped paying her bills. The courts began chipping away at foreclosure protections as early as May. A state judge on May 14 allowed First Republic Bank to foreclose on a condo at 444 East 57th Street, as ‘neither the owner nor the mortgagor of the premises is a ‘natural person,’’ the order read.”
“Ten days later, a secondary mortgage lender received permission to foreclose on a condo at the Plaza despite the owner’s hardship declaration, as the technical owner and mortgagor was an LLC.”
The Bonner County Daily Bee in Idaho. “Sandpoint is about to gain its newest eyesore in the form of ‘luxury condos’ going up at the corner of Fifth and Cedar. I couldn’t help but laugh out loud after looking up the real estate listing, and felt better about myself once I envisioned the type of mutant ego it must take to spend $1.6 million for a small apartment with stunning views of a surplus store, a Domino’s pizza joint, a gas station, and the booming noise of truck traffic along Fifth Avenue.”
“Shame on our city leaders for approving and capitalizing on this elitist monstrosity — all three stories of it — stuffed onto a shoebox lot and blocking sight of the artistic murals on the historic Fosters Crossing building. If this is the ‘affordable housing’ they are tirelessly campaigning for then I definitely need a raise. Dollar by dollar, we are losing the heart and soul of our city. Sandpoint doesn’t need million-dollar condos with ten-dollar views.”
From Punch. “Real estate experts and building professionals say low demand has led rising number of vacant luxury apartments in Nigeria including the expensive areas of Ikoyi and Victoria Island in Lagos State. The National Publicity Secretary, Nigerian Institution of Estate Surveyors and Valuers, Saheed Makinde, while stating that many apartments in Ikoyi were currently vacant, said, ‘With the aftermath of Covid- 19, global recession and high inflation rate, the demand for luxury apartments in Nigeria has reduced. You will see a lot of them (luxury apartments) in Ikoyi that are vacant and are in the market for sale. The fact remains that luxury apartments in high brow areas are always on the increase when there is a boom in the economy especially when a lot of expatriates are in the country.’”
The Sydney Morning Herald in Australia. “Depending on which economists you are following, the official cash rate could be going up as soon as next year or 2024. But while there is rampant debate among economists about exactly when the Reserve Bank is likely to make its next moves, and no one knows for certain exactly when a change will happen, there is widespread agreement that the next step is upwards.”
“Homeowners with a mortgage and those with plans to take one on in the next few years would be wise to take a bit of time to consider what this means for them.As Reserve Bank governor Philip Lowe said last week, household debt and prices have been growing at double-digit rates while incomes are growing much more slowly. Earlier this year the Australian Prudential Regulation Authority stepped in with some changes to lending rules to limit riskier loans and Dr Lowe said more may be done if this trend continues.”
“‘Households in Australia already have high levels of debt relative to income. I think we’re building up medium-term risk if we are in a world where household debt is consistently growing [this much faster than incomes],’ Dr Lowe said. ‘That’s problematic.’”
“He also had a warning for borrowers. ‘What the Reserve Bank is trying to do at the moment is get inflation back to 2.5 per cent and interest rates normalised,’ he said. ‘We’re trying to get interest rates up over time. We’re in no hurry, we’re patient, but if we’re successful interest rates will go up. People who are borrowing today need to remember that.’”
“Indeed, they do. For someone with a $1 million mortgage, which is increasingly the case for new Sydney and Melbourne buyers, repayments at a typical 2.31 per cent interest rate would be $4401 a month. This is for principal and interest repayments. To ensure your housing costs stay below 30 per cent of your overall budget, which is a generally accepted rule of thumb for affordability, this household would need to be bringing in at least $14,670 a month.”
“But if interest rates rise, it is clear our theoretical household would need to dig a lot deeper to pay for the roof over their head. At a 3.31 per cent rate these repayments jump more than $500 a month to $4915. Add another 1 per cent to this rate and the repayments become $5461. At this point, a household needs to bring in more than $18,203 a month to be comfortable under the 30 per cent guideline.”
“Doomsayers will be quick to warn this will leave many unable to afford repayments and could result in price falls in some areas.”
From Bloomberg. “There are two types of scary borrowers in China. The first kind has good-looking assets but it’s unclear how much debt they have hidden away. Think Evergrande. The second has a lot of debt but no assets to shore up their ability to repay, but they have the political connections some hope will help bail out the first kind. Regulators might let white-knight developers take over assets without having the projects’ debt affect their own leverage ratios and risk crossing the three red lines. That would be a relief. But will anyone take the bait? Even the richest real estate magnates might have second thoughts because of the hazards lurking underneath.”
“Developers start owing their suppliers money, often in the form of commercial paper. They also do pre-sales, which require consumers to pay the full price of a home long before it’s ready for possession. In short, developers end up borrowing from everyone. So, when a new corporate buyer goes shopping for a development project, many creditors already have claims on it. Sometimes, the financing is so complex even the seller does not know how much money it owes.”
“When sellers fail, white knights can’t quite disentangle themselves. For instance, in January 2020, Shimao Group Holdings Ltd, China’s 10th largest builder by sales last year, came to the rescue of struggling Fujian Fusheng Group, promising a joint venture to develop its projects. That came at a steep cost. This month, as sell-offs spread to the better-known names, traders dumped Shimao’s bonds, worrying that it’s on the hook for private debt issued by Fusheng. Last week, Shimao lost its investment-grade S&P rating. In this environment, a white knight would have to be extra cautious. One bad move, and the saviour itself would need to be saved.”
“There has been another option: bailouts from provinces and municipalities. These routinely set up shell companies to build roads and re-purpose farmland to residential use to stimulate the local economy. They are the debtors of the second type. Few of these so-called local government financing vehicles (LGFVs) are profitable or have assets that can make money, but investors don’t look at their cash flow. They focus instead on how much political support these vehicles can get to remain viable. So, unlike developers, LGFVs have no trouble tapping onto the onshore bond market.”
“For example, the Guangzhou-based developer China Aoyuan Group was offered 2 billion yuan in loans from a local LGFV: the collateral was the developer’s headquarters, guaranteed by the chairman, according to a report by Redd. In addition to owning toll rights of roads to nowhere, LGFVs can provide creditors empty apartment blocks, too. LGFVs are a crisis waiting to happen.”
“Desperate times demand desperate measures. Even investment-grade builders like Country Garden Holdings have seen their bonds tumble, a sign that contagion risk is real. China has to find a workable solution to fix its crisis of developer debt. And time is running out.”