It’s not just low interest rates and low inventory, it’s global liquidity.
That means that if you thought buying a house was hard pre-pandemic and felt priced out, these last few months have done absolutely nothing for you. It’s a seller’s market. Not just in Florida and Massachusetts, but across most of the world.
I have a friend who is renting a house in Panama. And while Panama was always pretty expensive because it is dollarized, the rent there for two bedrooms was double my mortgage.
My brother is looking for a house in Massachusetts. I went with him a few days ago to look at an Open House. There were at least five couples waiting to check it out. The broker tells me that it will go for at least $25,000 over asking and it was under 1,000 square feet and the master bedroom had no bathroom and…no closet! What is this, New York City? Tokyo? San Francisco?
In a world awash with liquidity and Bitcoin riches, everyone is buying real estate right now just to put their money somewhere. A lot of the buyers are second home investors.
Low inventory here and elsewhere is also pushing rents higher at precisely the wrong time.
“In Sao Paolo, the rental housing prices rose by an average of 3%, the biggest year over year rise in almost five years,” Rentberry CEO Oleksiy Lubinsky tells me in an email.
Over the past month, on the Rentberry website, the average rent for a studio apartment in New York — locked down and facing protests that only recently ended — increased by 8% to $2,150. The average rent for a 1-bedroom apartment increased by 6% to $2,490 in a city with nothing happening.
“Miami saw a mostly upward trend in the rental market, too,” Lubinksy says, adding that one-bedroom rentals increased by 2.3%. Overall, Miami rents continue to rise, making the city the 8th most expensive place to rent, according to Rentberry data. The website is like a global search engine for rental and residential/commercial property worldwide.
If you wanted to know, rent is up 8.7% in St. Petersburg. No more masks. It’s like the Florida of Russia now, by the looks of its housing market and its “over it” attitude regarding SARS2.
Here at home, housing prices have soared throughout the pandemic. That’s fine for those looking for equity loans, or selling. It’s helped push people’s wealth to record highs as housing is always a key part of an Americans core assets. All of this points to a strong economic recovery in 2021, but it does not bode well for renters and house hunters who are priced out.
The price of a median single-family home is up slightly more than 15% in less than 12 months in the U.S., according to the National Association of Realtors.
“A typical homeowner in 2020, just by being a homeowner, they would have accumulated around $24,000 in housing wealth,” Dr. Lawrence Yun, a senior economist at the National Association of Realtors, was quoted saying by ABC News last week.
Global demand is booming due to low interest rates. That’s another thing that’s pushing prices through the roof.
No House Flipping In China
People in several major Chinese cities signed more rental contracts than usual over the Lunar New Year break, according to the subscription service of Caixin Global, a China business daily.
The total number of rental contracts it facilitated in 18 cities hit a six-year high.
Average monthly rents in the cities climbed to 61.7 yuan ($9.53) per square meter, representing a 6% increase from the week prior. The 18 cities include the country’s four biggest municipalities — Beijing, Shanghai, Tianjin and Chongqing.
Some China cities are taking restrictive measures to crack down on real estate speculation amid surging housing prices. People have so much money, they don’t know where to put it other than third and fourth homes.
Housing authorities in the eastern China city of Hangzhou actually banned buyers of new residential properties from selling out within five years. Despite a series of restrictions, housing prices started 2021 in China at record highs.
In Brazil, the residential market has been recovering for the past four years, driven by low interest rates for home buyers. As a result, home builders have successfully tapped capital markets for resources that are now being deployed into new houses, focused on the upper middle segment in southeastern Brazil, according to a report by Imeri Capital.
I’m looking to buy in the southern state of Santa Catarina, actually. Brazil is great right now for expats and foreigners looking for tropical vacation homes. You can buy half a million dollar properties for under $150,000, though for that you will need to speak the language and deal with the local brokers and sellers otherwise you’re getting soaked with “gringo pricing”.
Unprecedented low inflation and interest rates present real estate investors with a macro backdrop that favors real assets. Property markets have been recovering faster than rental markets, including in hard-hit economies like Brazil, but have not peaked yet. Cap rate spreads remain high despite economic slowdowns and restrictions in Brazil and elsewhere.
One of the biggest standouts in the opposite direction has been India. They’ve been one of the hardest hit by the pandemic and their housing market has done poorly.
According to Knight Frank, housing sales in the top 8 Indian cities fell by a massive 54% year over year in the summer months to a decade low. New homes built also fell by a sharp 46% to 60,489 units in those cities, though that is picking up now. These numbers from Knight Frank are from July. I suspect India is turning the corner and joining the party.
If you’re looking for a place in Mumbai, Rentberry has a 2,390 square foot 3 bedroom, 3 bath house going for — get this — $879,865!
I’ll take Les Pelicans in Miami for half the price. Then again, it is half the size.
Forbes contributor Ellen Paris, who writes about real estate, says the last few months have been like “Groundhog Day” for real estate.
Home price growth in the U.S. ended 2020 at their fastest pace in eight years. The results top off what was a record year for the housing market despite the pandemic, Amanda Fung from Yahoo! Finance reported on February 23.
The S&P CoreLogic Case-Shiller national home price index rose 10.4% in December versus a year ago and rose 9.5% from November. The 20-City Composite rose by 10.1% in December, up from the 9.2% gain in November. That beat consensus estimates.
Rentberry’s Lubinksy says that — by looking out the window in his offices in San Francisco — its the old, tired story of Silicon Valley riches pricing out the riff-raff.
“The steady rise of income for tech workers is the key factor driving an overall increase in home prices and sales in the Bay Area,” he says. “Based on the data we have, we predict 2021 home prices will grow around 5% in the U.S. The correlation of the strong stock market and the continued increase in home prices is a global phenomenon at the moment,” Lubinksy says.
Global real estate investors looking for rental property will bring the same liquidity to prime real estate in countries throughout the Americas, for example, making it harder for new families to buy a home as price spikes have no end in sight. A stronger dollar is helpful to American buyers, but this window could be closing in Brazil and elsewhere. And although it is closing, I don’t expect the Brazilian currency, for instance, to head to four to one anytime soon. It is still trading over 5.30 to the dollar.
GCP Raises $2.3 Billion for Logistics Real Estate Investments – BNN
(Bloomberg) — Real estate focused investment firm GCP said it closed a $2.3 billion fund that will be used to buy and operate warehouses tied to logistics and e-commerce.
The fund has already acquired about 25 million square feet of real estate and will will look to buy about 25 million more, GCP Chief Executive Officer Alan Yang said in an interview. Los Angeles-based GCP is aiming to own about 100 properties in the fund.
Yang said it’s GCP’s first discretionary fund and is unlike previous vehicles tied to specific investments.
GCP spun out of Singapore-based investment manager GLP in 2019 following Blackstone Group Inc.’s $18.7 billion acquisition of GLP’s U.S.-based assets. Yang, who was GLP’s chief investment officer, founded GCP after it took on $1.1 billion of GLP assets that weren’t part of the Blackstone deal.
GLP is a limited partner in GCP, alongside other investors including Goldman Sachs Group Inc. and several pension funds, according to people familiar with the matter who asked not to be identified because the information was private. Representatives for GLP and Goldman Sachs couldn’t be reached for comment.
Yang, who founded the firm with former colleagues from Blackstone where he worked earlier in his career, said he’s betting on e-commerce to keep driving the need for warehouses to help in the last-mile delivery of goods.
“Logistics 1.0 was about delivering wholesale goods,” Yang said. “Logistics 2.0 is now about retail and direct to consumer — getting goods to people’s doorsteps for the lowest price and least amount of time.”
The GCP fund will focus on real estate logistics, investing and acquiring warehouses and other facilities in key markets across the U.S., chiefly Seattle, Los Angeles, Miami, Portland and the northeast corridor via eastern Pennsylvania.
GCP also owns and operates Modlo, a logistics platform founded in 2019 that operates its properties and serves as its consumer-facing brand. Modlo’s clients include Amazon.com Inc., which leases a Seattle property that was custom-built for the e-commerce giant, Yang said. Other big clients include Keurig, Dr. Pepper, DHL and FedEx, he said.
Modlo’s staff — part of GCP’s total team of about 35 employees — also helps identify new assets for investment.
The logistics real-estate world already has some big players, including real estate investment trust Prologis Inc. and Blackstone, which created a company called Link to manage its U.S. logistics real estate.
One of GCP’s largest deals was a $308 million portfolio of properties in Pennsylvania and Central California that it bought from USAA. It has invested about 60% of the fund and will start raising its next one when 75% of it is deployed, Yang said.
“How we designed GCP and the fund is that it can go anywhere on the risk spectrum,” Yang said. “We’re agnostic to specific deal size or market.”
Yang said that the fund is targeting mid-teens returns for the fund.
©2021 Bloomberg L.P.
In its latest crackdown, China intensifies focus on real estate – Aljazeera.com
After a years-long campaign to tame property prices, China is upping the ante to break a stubborn cycle of gains that’s made homes increasingly unaffordable.
In recent days, China jacked up mortgage rates in a major city, vowed to accelerate the development of government subsidized rental housing, and moved to increase scrutiny on everything from financing of developers and newly-listed home prices to title transfers. Echoing Xi Jinping’s famous words that “housing is for living in and not for speculation,” Vice Premier Han Zheng added that the sector shouldn’t be used as a short-term tool to stimulate the economy.
The intensified focus on real estate — an industry that was already under the scanner — mirrors broader crackdowns on businesses such as education that are seen as widening social inequities. As China’s economy slows and President Xi tries to increase the nation’s birth rate, the policies underscore the Communist Party’s growing resolve to respond to mounting dissatisfaction with hoarded wealth and narrowing avenues for advancement.
“China’s property sector has been one of the biggest sources of discontent and the government is hell bent on controlling prices so it doesn’t lead to social unrest,” said Beijing-based Liao Ming, a founding partner of Prospect Avenue Capital. “The measures echo the policy curbs in education in that they are aimed at easing public angst against inequity.”
While China has spent years trying to cool property prices, analysts say this round of crackdowns will be different. One clear signal came in Vice Premier Han’s comments on steering away from using real estate to provide short-term boosts for the economy.
“In the past, Beijing has consistently used the property sector to stabilize overall growth,” Nomura analysts led by Lu Ting wrote in a research note, adding that they expect Beijing to change its playbook. Policy makers won’t lift property restrictions this time partly due to concerns about a systemic financial crisis, the analysts wrote.
Another signal came from the unusually large number of government entities that vowed recently to strengthen measures on everything from project development and home sales, to rental and property management services. Eight policy bodies said in a joint statement that they would step up penalties for misconduct. In the line of fire will be developers that default on debt repayments, delay deliveries on pre-sold homes or elicit negative news or market concerns.
Local bureaucrats’ careers are on the line. Officials in cities that lack sufficient regulations and experience rapid price spikes will be held accountable, Zhang Qiguang, an official for the Ministry of Housing and Urban-Rural Development said on July 22.
On Monday, commentary from state-media Xinhua urged governments across the nation to keep home prices at a reasonable level and make it an urgent task.
“New residents and young people can’t afford to buy or rent good homes,” the editorial said. “Those problems are especially acute in cities with population inflow and metropolises.”
Investors have responded by selling property stocks, with the recent stream of news piling pressure on developers that were already being pressed to deleverage and meet China’s “three red lines” on debt metrics.
China Evergrande Group shares were little changed as of 14:13 p.m., after plunging more than 40% in just under two weeks. A Bloomberg Intelligence index of 33 major Chinese developers mostly traded in Hong Kong dropped for a fourth consecutive day on Wednesday.
China Chengxin International Credit Rating revised its outlook for the country’s real estate sector to negative from stable on Monday, citing concerns about policy tightening and weakened investor confidence.
“Owning property is one of the key ways in which income inequality has worsened in China so the clamp down will come and will be severe,” said Alicia Garcia Herrero, the Hong Kong-based chief economist for Asia Pacific at Natixis. The cost of mortgages will increase, particularly for those with multiple homes, as will things like property taxes, she estimated.
The policies are here to stay, Ren Yi, the social media commentator and Harvard University-educated princeling otherwise known as Chairman Rabbit, wrote in commentary online.
“The nation’s leaders are looking at this issue from a bigger point of view, property isn’t just a economic tool, it sits at the root of all social economic and political issues, and must be dealt with,” Ren said.
The Chinese government needs to maintain a delicate balance. The real estate sector accounts for 13% of the economy from just 5% in 1995, according to Marc Rubinstein, a former hedge fund manager who now writes about finance.
Policy missteps could have unintended consequences for the banking system. Chinese banks had over 50 trillion yuan ($7.7 trillion) of outstanding loans to the real estate sector, more than any other industry and accounting for about 28% of the nation’s total lending.
Of those loans, about 35.7 trillion yuan were mortgage loans to households and 12.4 trillion yuan were for property development, according to official data.
But all signs point to the government’s determination to ensure social stability, even if it spells near-term turmoil for capital markets. Just in June, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, warned against betting that property prices will never fall.
“Property is the single most important source of financial risks and wealth inequality in China,” said Larry Hu, head of China economics at Macquarie Securities Ltd. It “is worth watching.”
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