Overseas Property Trends

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Hong Kong is one of the most competitive real estate markets on earth.  Financial Secretary John Tsang told the New York Times that property prices had risen by 120% since 2008.  Obviously, that hasn’t been matched by an increase in income anywhere, let alone in Hong Kong, so while expatriates might be in a stronger buying position than natives, they are still priced out of the market.  If you want a Hong Kong apartment, you don’t stand a ghost of a chance – unless you’re willing to share with a ghost.

That’s because Hong Kong’s residents are Chinese enough to share that country’s abiding fear of the supernatural.  Where else in the world is there a word for ‘a house haunted by the ghost of a former resident, who has died an unnatural death’?

In Hong Kong, though, ‘hongza’ means just that.  Hongza sell for significantly less on the open market, and one Hong Kong business, Ng Goon Lau, has made a career and a modest fortune, in buying hongza at a discount and letting or reselling, often to expatriates desperate for accommodation and less superstitious than Hong Kong natives.

That’s not hard.  Other cultures have two-or three day festivities, or a Day of the Dead; in Hong Kong, an entire month is devoted to the Hungry Ghost Festival.  Every summer, spirits are believed to visit the city and need to be fed and entertained.  The city’s main daily English-language paper, the South China Morning Post, even hired monks to cleanse the newsroom after staffers reported seeing ghosts in the bathroom.  According to Niall Fraser, deputy news editor at the paper, ‘everybody seemed quite happy’ with the result, and the ritual ‘seemed to do the trick’ – the ghosts weren’t seen again.

As a measure of the difference that ghosts can make to Hong Kong people, it’s convincing.  But more convincing still are the figures.  Mr. Ng said that he usually expected a ‘death discount’ of 15-20%, less if the property was merely adjacent to a funeral home or cemetery, more if a previous occupant had died there in suspicious circumstances.  He said the discount could go as high as 33%, a dramatic reduction that assured Mr. Ng a healthy profit margin for several years.

Mr. Ng started in the hongza business when a workman working on Mr. Ng’s own house was killed in an accident.  Since that time, he’s segued from his old business, shark fin sales, into the newly profitable haunted-house business.  And one thing that helped him was the cash from his old business.  Most Hong Kong banks share the same superstitions as the general population and won’t offer any kind of mortgage on hongza.

But there’s been a sharp reduction in his profit margins recently.  Mr Ng is shocked: the death discount has dropped to as little as 5%, cutting deeply into his profit margins.  The inroads made by other agencies spotting a profitable market, together with the pressure on prices from the market at large, has meant that Mr. Ng was able to purchase only one hongza in 2012.  ‘The market is crazy now,’ Mr. Ng says.

The upside is that Mr. Ng, though he must pay more for hongza now, can ask his tenants or buyers to do the same.  He hopes to rent hongza at market value now, and expects to continue to make a profit on his haunted houses: ‘they’re still more profitable than shark’s fins,’ he says.

It seems the only thing that can drive Hong Kong people out of a property is ghosts – and the only thing that can drive out the ghosts is a boom!

Photo credits: Timothy via Flickr

 

 

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Forking out for sunshine holiday homes has burned property investors as house price plunged in the recession, according to a damning new report.

The idea of opening up to the masses what was once a luxury exclusively available only to the wealthy has proved to be an expensive mistake for hundreds of thousands of Brits who dreamed of a place in the sun, say property consultants Savills and HolidayRentals.co.uk in their study.

They say the holiday home investment model is ‘broken’ and actually doubt the market existed.

The market took off in 2000, when UK-owned properties abroad were valued at £10bn.

By 2007, estimates put the number of UK-owned overseas holiday properties at 500,000 with a value of about £58 billion with markets in Spain, Florida, Cyprus, Bulgaria and Dubai taking the bulk of the money. For Bulgaria and Dubai, property prices have fallen through the floor by up to 75% and the banks have stopped lending to foreign investors.

With plunging prices, little hope of locals buying homes on holiday developments and lack of rental income, few investors have any hope of recouping their losses by selling at the bottom of the market when most owe more than their properties are worth.

At the start of the boom, 80% of the UK’s second-home owners financed their overseas property from their own wealth.

The research shows that by the market’s peak in 2007, cash buyers had fallen to 20%, with 80% of buyers taking advantage of overseas mortgage markets.

To make matters worse, many holiday home purchases were funded by taking equity out of UK homes, leaving the investors facing debt problems on both sides of the Channel. Under EU laws, creditors in other EU countries can pursue their losses through UK courts.

A lack of regulation in the property sales industry is also blamed.

Buyers speculated with borrowed money, believing that capital rising property prices would allow them to sell at a profit while rental income covered mortgage payments. Unfortunately, the recession has killed off the model as holidaymakers stayed at home rather than spending out on airfares and apartment or villa rental.

The market, according to the report, was fuelled by low cost airfares, too much liquidity in the mortgage market and that investors took little or no heed of professional, independent advice before signing contracts – and in some cases have not even visited the country where they bought property.

“Even where developers guarantee a gross income yield for a period of two or three years, the net yield is often swallowed by high service charges. In many instances, a net income yield of less than 2% is not uncommon,” said the report.

“There is an average price premium of 37% for property that is served by low cost airlines. Medium distance destinations from the UK, such as the Canary Islands and Cyprus, show the strongest link between house prices and the accessibility of low cost airlines. While this has opened up many new opportunities for buyers, it leaves destinations served by single carriers particularly exposed to the withdrawal of that service.”

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Centaline Property Agency Ltd. in Hong Kong reported about a possibility of a home prices rebound as early as this year. According to the agency’s research there has already been an increase in pricing in four of Hong Kong’s biggest mass housing estates where prices for property are below 1.3 million. Right now the prices in these estates are above the levels we saw last year in September which is a healthy sign for a possible market rebound.

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With the current UK economic slowdown, the British pound is taking a nose dive as we speak (currently GBP/EUR 1.19 and GBP/USD 1.49 – a record low against the Euro). The current state of the weak British pound is putting a large number of foreign holiday property owners in a very tight financial spot as their mortgage payments keep increasing due to the exchange rate while increasing flight costs prevents them from visiting their property as often as they did a few months ago.

ed_mcmahon_interview.jpgAmerican comedian, game show host and former anchor man on “The Tonight Show”, Ed McMahon is currently on the verge of losing his Beverly Hills mansion due to his inability to make mortgage repayments.

Real estate magnate, Donald Trump is reportedly stepping in to buy Ed McMahon’s mansion in a bid to lease it back to McMahon to ensure he maintains his standard of lush Beverly Hills living.

According to the LA Times, Mr. Trump explained that his -conviction’ for helping Ed McMahon was that, “When I was at the Wharton School of Business … I’d watch him every night. How could this happen?”‘. it ‘would be an honor’ to ‘help’ McMahon

Perhaps the reason for the shrewd buy was due to McMahon slashing the price on his Beverly Hills house by $1.9 million, to $4.6 million.

Photo credits: Alan Light (Flickr)

The Irish Independent had an article this Sunday that attracted our attention. With the massive increase in property values in Ireland recently, many Irish home-owners have jumped on the worldwide buy-to-let market abroad. Particular favourites have been the USA, Spain and Bulgaria.

All these markets are taking a beating at the moment, particularly the American market. GE Money Home Lending subsidiary “British Mortgages Abroad” recently pulled out of the Florida market and are not accepting any more mortgage applications on properties in Florida

Plans are proceeding , despite vehement opposition in France, to build a Louvre in Abu Dhabi. The building will, for want of a better word be, “unusual.” A shallow dome that looks rather like an escapee from some low-budget 60’s science fiction movie. With geometric openings causing patterns of light to bounce around the interior, I can almost see the likes of Matisse and Van Gogh turning in their graves.

No doubt, I am not the only one to see the irony of the whole situation, and as I discussed in “Cultural Oases in Abu Dhabi part one,’ the Guggenheim seems to have come to some arrangement whereby none of the works on display in their museum outpost will ‘offend local sensibilities,’ and I wonder if the Louvre has come to the same arrangement. If so, I have the same question to pose:’Dude, like what are you gonna hang on the wall, man?’