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Les Calvert is the owner of overseaspropertymall.com and many other property and travel related websites. Les writes news and articles on the overseas property market for leading websites, trade magazines and newspapers.

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Lisbon Skyline at Nighttime

Lisbon Skyline at Nighttime

Portugal’s Parliament voted to press ahead with a record austerity budget that would add taxes to pay, purchases and property.  It’s the most far reaching set of tax hikes in modern Portuguese history, and it is being bitterly opposed by parliamentary Socialists, organized labour and street protests.  It also faces a challenge in the Portuguese constitutional court where it may be declared illegal.

Portugal’s Parliament is about to pass one of the most hard-hitting austerity budgets in its history.  Confounding the assumption that taxation goes with spending, the budget offers both severe cutbacks and record tax hikes.

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Germany is Europe’s healthiest economy and has remained relatively immune to the plague of defaults and debt that has swept across the rest of the EU.  But a different danger might be facing Germany.

Brandenburg Gate in Berlin, Germany

As the economies of Spain, Ireland, Greece and even the USA suffered, investors in property there withdrew their cash and looked for places to invest it.  Meanwhile, Germany continued to rebuild swathes of old slum and rubble left over from the days of its division.  Foreign business investors built flagship buildings in Berlin, like the €600m Sony Center, whilst local businesses spread into areas that had previously been run down and rejuvenated them driving property prices up in the process.  Prices rose about 5.5% nationwide last year, causing German Bundesbank President Jens Weidmann to describe the rate as ‘something we will need to watch’ in a statement.

Stefan Sebastian, head of the Institute for Real Estate Finance at the University of Regensburg, says prices are going up because of ‘fear of inflation and fear of currency reform.’  Kai Carstensen, an economist at the Ifo Institute in Munich, echoes Mr Sebastian’s views, saying that while Germany is in a better position to protect itself against a bubble than the US or Ireland, ‘if we learn from the US experience, we should be cautious, even if we up to now aren’t in a bubble.’  Mr Carstensen points out the commonality of the optimistic belief in being the exception, too: ‘When I talk to politicians, they always say, well, it’s different.’

Many experts think the danger signs of a bubble are in place in Germany; ironically the country could be a victim of its relative stability and prosperity.  Unemployment is at its lowest in decades, and interest rates are at rock bottom.  Germans are typically not a homeowning nation in the way Americans or English people understand the term.  Home ownership in Germany runs at about 43%, but as interest rates make savings accounts look unappealing and loans seem to beckon by contrast, that might be set to change.  Whether it indicates a long-term trend or not, Germans are buying more property.

As a result, property prices are being pushed upward by domestic demand on one side and foreign investment on the other.  And the pressure isn’t just on existing property.  There’s been an upswing in German construction too, with new housing construction permits up 9% between September 2011 and March 2012 compared with the same period a year earlier.

However these two types of purchasers are likely to have very different experiences.  German mortgage lenders typically offer much lower loan-to-value (LTV) mortgages than are on offer in the US or even the UK, where 90% or even more LTV mortgages are returning after the 2008 crash.  In Germany, a typical mortgage is more likely to require a 20% deposit and as a result these purchasers are likely to ride out a downturn more equitably.

Investments for profit, based on the belief that prices and demand will rise inexorably, are much more problematic both for their investors and for the wider economy if a bubble should burst; indeed this was the very factor that hit the Irish and Spanish economies so hard.

So are investors in trouble in Germany?  While some experts claim to see the warning signs of a bubble, others say there’s no cause for alarm just yet.  The actual price increase has some local hotspots.   In Berlin, prices have risen nearly 20% in the last year, and protests about housing costs and gentrification are common.  Overall, though, prices are only 20% higher than they were at reunification in 1990, and the recent rises make up for a long preceding period of stagnation.  Ulrich Kater, the chief economist at Deka Bank, rejected the idea of a bubble in Germany: ‘If you define a bubble as the price is only high because investors believe that prices are going to be higher in the next year’,’ he said, ‘then you have no bubble in Germany.’

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Pacific Edmonton Elm Development Revived by Developers in Dubai

Development in Dubai froze or stalled in many cases following the 2008 crash. But gradually, Dubai’s property market has started to recover and stalled or partially shelved projects are return.  Dubai’s property market has climbed steeply this year  while it did not make gains comparable to the pre 2008/9 boom years, but still represented among the sharpest gains in the property sector globally this year.

This week three of Dubai’s stalled projects were restarted: two in Jumeirah Lakes Towers and one in Business Bay.  They have been revived under the Dubai Land Department’s (DLD) Tanmia initiative.

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Hathaway Berkshire, the company owned by tycoon Warren Buffet, has bet heavily on a resurgence in the housing market.  The company has agreed to lend its trusted brand to a new venture with Brookfield Asset Management.

The conglomerate will be the majority owner of a network of franchised real estate agencies through its HomeServices of America subsidiary.  Brookfield will contribute its network of more than 53, 00 estate agents, responsible for $72 billion of residential real estate sales last year.  HomeServices of America acquired the business from Prudential Financial, but did not acqure the rights to the Prudential name.  The realtors will begin to offer services under the name Berkshire Hathaway HomeServices from next year.

The move represents a significant investment of cash and credibility in the housing market.  Mr Buffet told CNBC last month that he confidently expects the US housing market to continue ‘inching ahead.’  Mr. Buffet expressed the opinion earlier this year that the US economy was in for a ‘steady and substantial comeback,’ but told CNBC that right now there was ‘no question’ that global growth was slowing Mr. Buffet told Becky Quick on CNBC’s Squawk Box on October 24.

Mr. Buffet, who famously told shareholders in Berkshire Hathaway in 2011 that he was looking for a ‘major acquisition’ and that ‘our elephant gun has been reloaded, and my trigger finger is itchy,’ told Ms. Quick that his company wouldn’t be attempting leveraged buys, saying that ‘it doesn’t factor into our thinking… we’re buying on an all equity basis.’

Mr. Buffet has reasons to be bullish on the housing market.  After years of falling sales and decreasing economic output, the US housing market is resurging.  That’s because reduced prices and record low interest rates are tempting homebuyers back into the market.  The housing market has responded, too: housing starts rose faster in September than at any other time since July 2008, after seasonal adjustments.  And Mr. Buffet told his shareholders in February that the housing market would improve, pointing to figures that showed the number of new households being formed exceeding the number of new house starts and explaining the phenomenon: ‘people may postpone hitching up during uncertain times, but eventually hormones take over.’

Home Service is the second largest full service residential brokerage firm in the US, built up by buying up real estate brokerages from around the country following the initial acquisition with the Midwestern utility company in 1999.  It’s one of over 70 different companies forming the Hathaway Berkshire conglomerate, and only one of the ways Mr. Buffet’s companies are betting on the US housing market’s buoyant future.  Berkshire has also acquired a brickmaker and this month agreed to pay $1.5 billion for a portfolio of home loans from Residential Capital, the bankrupt mortgage lender.  The offer will need to be approved by the bankruptcy court and Residential Capital’s creditors may also challenge it.

Mr. Buffet’s attempts to have a finger in every pie the housing market can offer presumably indicates his faith that exposure to the property market can help his company achieve what he wrote his shareholders was his ‘primary objectives of redundant liquidity and unquestioned financial strength.’ Mr. Buffet has plenty of evidence on his side, from post-Sandy analysts predicting a boom in construction on the East Coast to premium realtors in California who are seeing sales and prices rise together.  But he has been wrong before.  In last year’s letter to shareholders Mr. Buffet made the same predictions and ‘I was dead wrong.’  This year, he looks more likely to be proven right.

Hurricane SandyL Beach 92nd Street between Shorefront Parkway & Holland Ave

Hurricane Sandy has the undesirable distinction of being one of the ten most expensive hurricanes in US history.  In the days before Sandy impacted, it was forecast to be ‘large, slow-moving and no doubt very costly.’  While it wasn’t anything like as destructive as Katrina, which cost $125bn by some estimates, Sandy is expected to cost upwards of $50bn in damage and hundreds of thousands of homeowners are expected to file insurance claims for flood and wind damage, according to the Consumer Federation of America.  Whole blocks of property were totally destroyed, the subway was knee-deep in water and even the New York Stock Exchange was in the dark, closed by the weather for two days running, for the first time ever.

The focal points of the damage done by Sandy are sadly apparent from photos and news reports that show rides from Rockaway Beach floating in the sea, beachfront housing levelled and Breezy Point, in Queens, tragically destroyed.  Joe Sitt, who owns property across New York, said in an interview for Fox News that many of his properties in New York were severely damaged.

Some analysts think Sandy will act as a drag on the American housing market.  Lawrence Yun, chief economist of the National Association of Realtors, is one of them: ‘this will definitely create a negative in the short term,’ he says.  ‘The bottom line is we clearly anticipate a slowdown, but it will be temporary.’

Yun expects a regional drop along the East Coast, a ‘noticeable, measureable impact’ large enough to pull the national sales statistics down from November onward.  Pending home sales will be delayed or in some cases collapse altogether, sellers will take damaged properties off the market and buyers will hold off making purchases.

The immediate effects on the wider economy involved the Nasdaq index falling by 0.58% and the Dow Jones losing 32.72 points during Wall Street’s closure, and there is to be some support for those whose homes have been damaged.  Two of the country’s biggest mortgage lenders €“ both bought out by the government in 2008 have pledged to offer help to those borrowers who live in designated disaster areas.  Freddie Mac and Fannie Mae said they ‘strongly encouraged’ servicers to help affected borrowers with Freddie Mac-owned homes by suspending foreclosure and eviction proceedings, as well as late fees, for up to 12 months.  The mortgage giants also asked their servicers not to report forbearance or delinquency caused by the disaster.

While some experts propose a downturn in the housing market as a result of Sandy, others point up the economic effects of the inevitable rebuilding program.  As Chris Christie told journalists that ‘we’ll rebuild it – no doubt in my mind,’ contracts for lumber futures on the Chicago Mercantile Exchange rose to their highest permitted level, and remained there for the rest of the day as investors sought to capitalise on the upcoming spike in demand for building materials.

However, the boost for the construction industry is only forecast: the property damage and weakening of infrastructure is here already, and consumer spending is lowered and likely to remain so.  As Stephen East, an analyst with International Strategy and Investment Group in Saint Charles, Missouri, remarks, ‘it will take prospects in the region a couple of weeks for home purchases to return to the forefront of buyers’ minds.’

The boom for construction might have an unexpected benefactor though; the state government, responding to descriptions of the event as a ‘wake-up call,’ is considering building flood defences or levees, bringing federal money into the state construction sector to the tune of $29bn.

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Craig McParlan

A Merseyside man was found guilty of claiming over £14,500 in benefits including Jobseekers’ Allowance and Housing Benefit, while he was co-owner of a holiday home and a block of flats.

Craig McParlan, 50, of Kestrel Court, Blundellsands, pleaded guilty to three counts of theft when he appeared before Sefton magistrates in Bootle. The court heard that McParlan had claimed Jobseeker’s Allowance and Housing Benefit despite being a co-director with his parents of a property company that owned a property on the Spanish Island of Majorca, as well as a block of flats in Crosby – one of which was occupied by Mr. McParlan.

Sue Cain, prosecuting on behalf of Sefton council, said the fraud began in September 2008, when Mr. McParlan began claiming Jobseekers’ Allowance.  He went on to claim housing and council tax benefits in January, 2010.  In total, Mr. McParlan dishonestly obtained £6,097.82 in Jobseekers’ Allowance and £7,482.42 in housing benefit and £1133.49 in council tax benefit, for a total of £14,713.73.

‘The claim was made on the basis he had no discernible capital and Jobseekers’ Allowance was his only form of income.  The applicant signed a statement that this information was complete,’ Ms. Cain explained.  In fact Mr. McParlan had seven undeclared bank accounts in addition to the properties.  ‘These matters were dishonest from the outset,’ Ms. Cain went on.

‘When he was interviewed, McParlan said he did have an apartment in Spain registered in his name but that he was not the owner and it belonged to his father.,’ Ms. Cain continues.  In fact, ‘he owned the property in Spain and had an interest in the apartment block where he was living along with the additional bank accounts.’

David Kielty, defending, said although the properties were in McParlan’s name he had not benefitted financially from them.

Sentencing was adjourned until November 22 for probation reports.

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Swiss-franc-on-Swiss-flag

The economies of the world’s nations are ranked by the World Economic Forum (WEF) in terms of how competitive they are, releasing the results in a yearly Global Competitiveness Report. The Forum attempts to map out which of the world’s economies are most competitive and this year’s report contains more countries than ever before, offering data on 142 economies and thus remaining the most comprehensive document of its kind in the world.

But the report defines competitiveness in vague terminology.  Unfortunately, crisply definable figures like GDP or unemployment figures can’t give a clear idea of a concept like competitiveness. The report’s authors define competitiveness as ‘the set of institutions, policies, and factors that determine the level of productivity of a country’ and go on to explain that there are twelve ‘pillars of competitiveness:’ Institutions, Infrastructure, Macroeconomic Environment, Health and Primary Education, Higher Education and Training, Goods Market Efficiency, Labour Market Efficiency, Financial Market Development, Technological Readiness, Market Size, Business Sophistication, and Innovation.

While it’s obvious that complex, dynamic concepts require multiple inputs – the reasoning behind using the quality-of-life index rather than simple GDP/person type economic measurements in assessing how genuinely prosperous a nation is, for instance –  the report sometimes seems to fall into the trap of defining one nebulous concept in terms of another. The section explaining the Ninth Pillar, Technological Readiness, begins with the words, ‘in today’s globalized world,’ a phrase calculated to imply that the author has run out of things to say while there is still some paper left.  The odd fragment of waffle notwithstanding, the authors go on to make a serious attempt to define the way technological readiness contributes to an economy’s competitiveness. They stress the importance of ICT, referring to Manuel Trajtenberg’s concept of a ‘general purpose technology’ (like the steam engine) which comes to organize economic activity around itself.

The report works hard at being taken seriously, referencing scholarly works and crunching large amounts of data on economies grouped geographically, so that the Middle East and North Africa get a chapter to themselves. But what does any of this mean for Switzerland? Can we expect a world in which the dollar is replaced by the Franc, and everyone is seriously punctual in at least two languages?  Is Switzerland poised to replace the US as the world’s ringmaster?

The report itself explains that this is unlikely. For one thing, the Swiss economy remains tiny at the side of the US: its per capita GDP might be higher, at US$67,000 against the US’s US$47, 000, but that’s shared out among a much smaller population: 7.6 million Swiss aren’t going to out-produce 317 million Americans any time soon, no matter how good they get at it. The Swiss economy makes up 0.44% of the world’s total economic activity: disproportionate to population, maybe, but dwarfed by the 20% the US makes up.

Competitiveness is a measure of the quality rather than the size of an economy. The report aims to show which economies will perform better and offer nations the chance to learn from each other, as well as track general improvements in economic performance worldwide. So Switzerland’s ascension isn’t something for other nations to worry about straight away.

Of the top ten most competitive economies, six (or five if you don’t count the United Kingdom) were in Europe, and of the remainder three are Asian and the other is the United States.  High levels of prosperity are confined to the same areas of the globe as in previous reports, but gaps are narrowing and widening in unexpected areas. The possibility of the first sovereign defaults since the 1940s has contributed strongly to a widening between the chances of Europe’s member states: Greece languishes in 96th place. Meanwhile higher economic growth rates in Africa – an average of at least 5% with some nations putting in over 6% – mean that even nations that don’t make the podium are moving ahead faster than the advanced economies.

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Opus Hong Kong – home of the most expensive apartment in Asia

The world’s second most expensive apartment isn’t in New York or Paris or Berlin, or even Tokyo.  It’s in Hong Kong, where Asia’s priciest living space and the second most costly in the world, after One Hyde Park, in London has gone on sale.  The apartment, a 6,755 square foot unit at the 12-unit Opus building in downtown Hong Kong, has sold for HK$430m – US$55m.  That’s a price of US$8, 130 per square foot.

Obviously, that’s a huge price per square foot and a huge apartment too.  But Hong Kong is an expensive place to live even if you’re not shopping for an Opus-style apartment.  The average Hong Kong apartment is 600 square feet, a much more modest proposal.  But buyers can still expect to pay HK$4.5 million for such a place – US$580, 135.  Compare that with Brooklyn heights, now one of the world’s stiffer-priced neighbourhoods, where New York centred blog Curbed.com found one couple paying US$1500 a month for a 240 square foot apartment, and it doesn’t seem so bad.  But Hong Kong’s prices are for family homes and the figure is an average across the city: New Yorkers willing to live in Ridgewood, or East Williamsburg, can hope for significantly lower rents.

But both major cities face similar pressures.  As a result of being key areas in their countries’ economies, there’s a premium on living in them.  The average Honk Kong income is HK$20, 200 pcm.  For two working Hong Kong residents to buy an apartment, then, they’d have to spend 18.6 years’ worth of salary, without spending a penny on anything else.  That’s in clear contrast to the rest of Asia, where prices are typically much lower.  Singapore households are typically looking at between three and seven years to pay off their property purchases , less than half Hong Kong levels.  Yet in the US, both would be considered out of reach: affordable’ there means three years or less.

As the housing market across Europe and American crashed hard after 2008, Hong Kong experienced the opposite.  Prices began climbing in the first quarter of 2009, quickly passed the levels of 1997, the previous market peak, and have risen quarter on quarter since then; a record every three months.  But incomes have not kept pace.  Average pay has risen by 15% in the same period as property prices have shot up 85%.  The result has been a ‘sandwich class,’ earning between HK$20, 000 and HK$30, 000; for these people to enter the property market, prices would have to fall by between 19% and 30%, according to Li Xueying Asia News Network (MCT).

Hong Kong faces a housing crisis in the making.  But it’s less like the US of 2008, where prices fell vertiginously, and more like the US now, where prices are rising but wages aren’t.  Some attribute this to mainland Chinese buying Hong Kong property: Mainlanders account for 40% of luxury home sales but only 10% of total home sales, and Hong Kong’s Chief Executive Leung Chun Ying has announced a law to bar foreigners from buying private housing, with the Hong Kong government in the process of figuring out the details.

Mr. Leung is thought to have made the move partly to deflect criticism from his rivals for having failed to combat the housing shortage since his election two months ago: however, the first result of his action has been a tumble in the Hong Kong stock market.  Meanwhile, academics have criticised the vagueness of the measure, which Mr. Leung is keeping sufficiently nebulous as to discuss neither the law itself, saying only that the government was drafting the legal framework, or its date of enactment, which he said would be ‘when necessary.’

In fact one major driving force of Hong Kong’s housing shortage is the lack of housing: 5, 000 too few homes a year for the last six years and a projected shortfall of 185, 000 homes by 2017, according to Eva Lee of investment bank UBS.  The other is the Hong Kong government’s lack of control over its own interest rates.  The Hong Kong currency is pegged to the US dollar, forcing officials to follow a monetary policy tailored to a totally different situation.  The Federal Reserve’s attempts to rekindle the US economy are seriously inappropriate to a market that’s  more in danger of overheating than going out.

If home prices continue to be the political flashpoint they are already developing into, the question is whether Hong Kongers will vent their unhappiness – supposedly on the increase on mainlanders, or whether they’ll rally behind the cry -˜the rent is too damn high!’

 

chinese-property-investors
Chinese property investors does not show the same interest in the US property market as before

The stream of foreign buyers that seemed to be filling the empty reservoirs of the US property market has dried up, according to Real Estate Economy Watch.  Just a few short weeks ago, in August of this year, the foreign buyer was hailed as the saviour of the flaccid US property market.  Prices rose as incomes stagnated, but the property sector was able to actually begin giving buoyancy to the economy as a whole, by employing realtors and construction industry workers as the sector expanded, apparently in a vacuum.

In fact, the missing demand to fuel this expansion was coming from overseas.  US property is desirable as habitation as well as for investment purposes and prices and the dollar have fallen together.  As a result, Europeans, Asians and Latin Americans were inflating the US market as recently as June of this year.  A key feature of this phenomenon was the number of Asian buyers, particularly Chinese, as a newly-confident Chinese upper middle class rides the wave of Chinese economic expansion.

However, the stream of foreign buyers appears to have run dry.  According to real estate website Trulia, ‘investors want to buy when prices are at their bottom, but they’ll start to lose interest when prices rise 15%.’  Even in the key areas of focus for foreign investment, such as Florida, interest from foreign buyers has declined a bitter blow for the sunshine state that has seen interest from buyers decline over the last six years.  Foreign buyers have reduced in number over the last year, according to the National Association of Realtors: sales to foreigners went down 6% between June 2011 and June 2012.  That’s bad news for the rest of the US market, since Florida represents a significant proportion of all foreign real estate investment: 26% of all foreign buyers so far this year.

But it’s particularly bad news for Floridian sellers. The state relies heavily on tourism for its economic well-being, and foreigners were paying well over the odds and in cash.  Some 62% of all sales to foreigners were paid for in cash, and foreign buyers paid over the median price by a substantial margin.  The average US home sells for $167k, and in Florida that figure is more like $125k.  But foreign buyers of Florida properties were willing to pay an average of $195k – until they stopped.

Some experts pin the blame on the decline of the Euro against the dollar, part of a readjustment process as the effects of the financial crisis make themselves felt across the Eurozone after spreading there from the US.  However, other forces may be at work.  Chinese investors may prefer to buy closer to home, in Malaysia, where there is a large Chinese population, and in Hong Kong, where 40% of recent luxury home sales were to mainland Chinese.

Alongside the canniness of the Chinese investors whose cash made up 11% of the foreign-buyer market are the Canadian investors whose domestic market is cooling right now, and the US market in homes needs to be viewed within the economy as a whole.  There has been a slight jump in mortgage forclosures (though still fewer than a year ago) and unemployment has risen slightly over a similar period.  The rest of the US economy, in short, is suffering from a general failure to rise, and the leavening of a new Federal stimulus packaging is doing more for Hong Kong property prices than US wages and employment figures.

A deflating housing market could leave the US with nothing better to look forward to than Standard & Poor’s appropriately gloomy predictions of 2.2% economic growth in 2012 and 1.8% in 2013.

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The Reputation Institute has produced its list of 2012’s top cities by reputation.  According to Reptrak. RepTrak  destination studies dive deep into the emotional bond between stakeholders and destinations by quantifying the degree to which people Trust, Admire, Respect and have an Affinity for a city or country.  The company based its figures on a model that uses three groups of information: direct experience, what the city itself says and does, and what others say about the city.   In turn, the company measures three outcomes: advanced economy, appealing environment and effective government.   Thirteen categories, including ‘beautiful city’ and The data came from an online survey of the general public of G8 countries, and only those respondents who described themselves as ‘somewhat’ or ‘very’ familiar with the cities mentioned had their responses included.  The survey was conducted in April and May of 2012, asking 18, 000 people.

RepTrak argues that their data indicate that reputation directly translates into ‘hard’ benefits: according to the company, ‘a 5 point increase in place Reputation leads to 12% increase in Tourism Receipts and 7% increase in direct foreign investment.’ The Reputation Institute has published its list of the top ten cities in the world by reputation. Unlike liveability reports, the RepTrak report is intended to show how cities look in the eyes of the world.   The company covered three bases of a city’s reputation, advanced economy, appealing environment and effective government, to build a picture of a city as it appears in the eyes of the world.  Across April and May of 2012, 18, 000 people were polled from the G8 countries’ general public, and the result is below: the top ten cities in the world by reputation.