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International

[London Calling] ‘Mike Mulligan and his Steam Shovel’ New Development Edition

June 9, 2014 | 10:41 am |

mikemulliganss

I read Mike Mulligan and his Steam Shovel nearly every night to my 4 sons when they were younger (probably an unnecessary qualifier). It was also my favorite children’s book as a kid.

As it turns out, this story preempted current London construction methodology (h/t boingboing.net).

So, many of the squares of the capital’s super-prime real estate, from Belgravia and Chelsea to Mayfair and Notting Hill, have been reconfigured house by house. Given that London’s strict planning rules restrict building upwards, digging downwards has been the solution for owners who want to expand their property’s square-footage.

mikemulligandig

This trend reflects the appraisal concept of highest and best use for the equipment despite the inherent wastefulness. Does it make sense to leave the equipment in the basement? With all the concern in the US about below grade empty oil tanks and the environment, I wonder how this practice is allowed, cost effectiveness aside.

Given the exceptional profits of London property development, why bother with the expense and hassle of retrieving a used digger – worth only £5,000 or £6,000 – from the back of a house that would soon be sold for several million? The time and money expended on rescuing a digger were better spent moving on to the next big deal.

You really need to read the book.

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Contrary To Popular Belief, The World Has Manhattan All Wrong

May 18, 2014 | 11:00 am |

nycsubway1969timelife
[Source: Time-Life]

Today, when I speak to friends and relatives in other parts of country, I find a consistency in the image Manhattan currently conveys and it’s completely skewed. Here’s a little background.

1985 to 1995 [Wild West] I moved to Manhattan in 1985 and it was perceived by outsiders as a very dangerous place. “Manhattan-bashing” was in vogue. My relatives in the Midwest saw Manhattan as a place where tourists were getting mugged and stabbed in broad daylight (It didn’t help that my father was mugged twice in Midtown outside of our office in broad daylight on a weekday). They feared for our lives.

1996 to 2000 [Dot Com Boom] Manhattan now had “Silicon Alley” as well as NASDAQ – which was soaring. Midwesterners were caught up in the stock market frenzy as evidence by conversations of trades of Microsoft and Caterpillar stock over potato salad and cheeseburgers and bottles of Faygo.

2001 to 2008 [9/11 to Development Boom to Lehman] The 9/11 tragedy struck New Yorkers hard but the subsequent rise of NYC from the ashes into an eventual new development housing boom was simply amazing. The Manhattan housing boom peaked in 2008, two years after the US housing market had peaked. This period ended with the collapse of Lehman Brothers and access to credit worldwide immediately evaporated.

2009 to 2010 [Collapse and Rebound] There was a surprisingly rapid improvement in the regional economy in the year following Lehman’s collapse and housing rebounded faster than expected.

2011 to 2014 [Playground of Wealthy Foreigners] Manhattan and Brooklyn become a favorite safe haven for international investors to park their money in real estate.

But now we stuck with a Manhattan housing market exaggerated stereotype (represents 90% of media coverage) in 2014:

  • Most sales are all-cash transactions.
  • Most purchasers are made by foreign buyers.
  • Most sales are millions of dollars (i.e. $5M and up).

When in fact, the 2014 Manhattan housing market reality is:

  • 45% of sales are all-cash transactions.
  • Foreign buyers are a small part of the market – i.e. 60% of all sales are co-ops and foreigners don’t purchase them.
  • More than half of all sales are below $1M (i.e. $5M+ is way up in the top 5%).

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[Global Top 20] Highest Priced Closed Residential Sales List

May 14, 2014 | 11:15 am | bloomberglogo | Radio |

5-14-14globallist
[click to expand]

After all the hoopla over the recent $147M sale in The Hamptons, I compiled a list of the highest priced sales around the world I could think of. It’s not comprehensive since all the sales are in the US or UK, and there are a few out there that haven’t closed yet.

Here’s a very brief Marketplace Radio piece on this phenomenon.

Please share if you know of others!

A few takeaways:

  • The media coverage to actual sales ratio is staggering.
  • There can’t be more than a few dozen, a few hundred or perhaps a few thousand that would be considered buyers in this space at any one time.
  • These sales are a pop culture-like distraction from the growing issue of access to affordable housing in the US.

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Stories on Chinese Overtaking Russian Home Buyers in Manhattan is Purely Anecdotal

May 4, 2014 | 4:21 pm |

russiavschina

I’m not saying the US isn’t seeing an uptick in buyers from China, especially housing markets such as Manhattan. After all, there is a global trend where money is chasing stability and safety. US real estate has been a key beneficiary of this trend.

However it is important to realize that there is no US data from independent sources that links overseas nationalities with residential real estate purchases. Why?…because of long time concerns in the US about fair housing laws and by extension, the gray area of tracking nationalities to housing purchases although it is the norm outside the US.

When any housing trend is discussed, it is important to understand where the source of the trend came from. I’d really like housing market followers to appreciate that the trend analysis on the foreign buyer subject bantered in the media as of late is literally based on nothing. There has been an outpouring of coverage of the topic over the past few months, but the sourcing is only from real estate brokerage anecdotes because that is all there is for reporters to work with. I was interviewed for some of the following articles but disagreed with the general story premise, and I assume that is why my view wasn’t inserted.

Whichever stance you take on this particular trend – that Russians used to dominate the Manhattan housing market and how the Chinese have taken their place at the top – there really is no wrong answer, because there are no facts. All sourcing on the topic to make that point are from real estate agents referring to their opinion, often based on their past few transactions.

Russia
I first noticed this new new storyline when Russia invaded Crimea. Would the Russian position as the number 1 foreign buyer of real estate in Manhattan now go away? The brokerage community, or at least a couple of real estate agents claimed this to be the case.

I have no evidence to the contrary even though there are huge capital outflows from Russia that began with the Russian invasion of Crimea. In my view, the real estate agents were confused by the high profile sales by Russian buyers (think of Russian Oligarch buying 15 Central Park west for $88M) and perhaps has some direct feedback in some of their own transactions. However I don’t think Russians were ever the top homebuyers in Manhattan, just the highest profile.

If we have learned anything from the current Manhattan new development boom, it is the fact that high profile, high end transactions are not a proxy for the balance of the market much like a handful of high profile Russian purchases are not a proxy for some sort of Russian real estate dominance.

Manhattan Real Estate Feels a Russian Chill [NYTimes]

China
Now that the Russians are “out” (see previous) of the top spot, that must mean that the Chinese are “in.” Check out the headlines to this storyline although much of these articles build on the Reuters piece (linked below) which is based on real estate agent anecdotes. A slew of brokerage PR driven stories on the Chinese are now dominating the real estate headlines in New York City.

Perhaps this uptick as something to do with recent closings at well published Chinese buyer favorites like One57 and perhaps the fact that China is poised to become the world’s number 1 economy.

NY real estate firms woo Chinese buyers [China Daily] The Chinese take Manhattan: replace Russians as top apartment buyers [Reuters]

U.S.CHINA’S RICH BECOME BIGGEST FOREIGN APARTMENT-BUYERS IN MANHATTAN [Al Jazeera]

Who are the dominating the foreign buyers of Manhattan real estate?
Anecdotally I think it remains Canadians but is dominated by Europe (UK, France, Germany, Italy, Spain, Ireland, etc combined) because they are still the largest tourism group. Brazil doesn’t get enough respect since they are the 3rd highest source of tourism to NYC. This list is 2 years old but I doubt China has passed Europe or even come close but this is, shall I say, “anecdotal.”

From NYC & CO., here are New York City’s top international sources (2012 figures):

  1. Canada 1,063,000
  2. United Kingdom 1,033,000
  3. Brazil 806,000
  4. France 667,000
  5. Germany 605,000
  6. Australia 595,000
  7. PR China (excl. Hong Kong) 541,000
  8. All Middle East (incl. Israel) 478,000
  9. Italy 449,000
  10. Mexico 387,000
  11. Eastern Europe 384,0000
  12. Spain 380,000
  13. Japan 328,000
  14. South Korea 281,000
  15. Argentina 272,000
  16. Ireland 224,000
  17. India 215,000
  18. Israel 203,000
  19. Netherlands 203,000
  20. Sweden 190,000

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Canadian Housing Prices Now Pushed Up Same Way as US

May 4, 2014 | 1:28 pm |

gandmUSvCanadaprices

I was reading Tara Perkin’s piece in The Globe and Mail about the record price spread between the US and Canadian housing markets and saw one of the most startling housing charts of late (above). To be clear, this chart doesn’t adjust for the exchange rate but the article says the Canadian/US existing home price spread would be large – closer to 50% than 66% – still huge.

The article cites Bank of Montreal’s chief economist Doug Porter as saying:

“The main takeaway is that, contrary to all expectations, the Canadian housing market has just kept on rolling in 2014 even as the U.S. housing market has paused for breath (after a steep climb out of the dungeon),” he writes in a research note. “Put it this way, how many pundits a year ago were calling for Canadian home prices to rise faster than their U.S. counterparts in any single measure?”

Yes, true, but this is probably another good reason not to rely on anything published by a lender’s “chief economist” title due to their inherent bias toward the interests of their employer. What I find fascinating about the Canadian housing market is the proliferation of the false rationale that prices are being used as a measure of housing health. For the US counterpart, think Miami and Las Vegas circa 2005 when prices were skyrocketing and sales were falling.

The Canadian government tightened credit conditions a year ago and sales fell sharply:

This time last year it was far from clear when and if the Canadian housing market would emerge from the sales slump that ensued after former Finance Minister Jim Flaherty tightened the country’s mortgage insurance rules.

Focus on March 2014 v. March 2012 in the following chart:
canadahomesales3-2014

With Canadian home buyer’s access to credit now reigned in, sales fell sharply yet housing prices continued to rise. But Canadian housing prices are rising now much like they are in the US, based on restricted access to credit that keeps inventory off the market. And we’re not talking about household debt.

New housing inventory entering the market in Canada is now falling which is continuing to goose (sorry, Canadian geese pun) prices higher.

canadahomelistings3-2014

The Greater Fool Theory Applies to the Canadian Housing Market

A theory that states it is possible to make money by buying securities, whether overvalued or not, and later selling them at a profit because there will always be someone (a bigger or greater fool) who is willing to pay the higher price.

Of course from our past experience in the US, it’s not surprising to see every outpouring of Canadian housing market bubble concern met with an equal outpouring of Canadian housing bubble denial.

Please stop using housing prices as a measure of housing health. It was obviously flawed logic when applied in the US during 2003-2006 and now it has become apparent it was flawed during the 2012 to 2013 US run up.

Housing price growth doesn’t reflect good housing market health in Canada either.

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How Real Estate Brokers Can Negotiate With Foreign Buyers, Illustrated

March 29, 2014 | 12:33 pm |

Saw this visual over at Business Insider that shows how communication patterns differ around the world – from Richard D. Lewis’s book “When Cultures Collide“.

3-14communicationpatterns
[Source: Crossculture.com Click to expand]

I haven’t read the Lewis book yet but I’ve always been fascinated by the topic of communication and linguistics – another book got me interested in the topic: That’s Not What I Meant!: How Conversational Style Makes or Breaks Your Relations with Others by Deborah Tannen circa 1992. I’ve read it three times.

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New Record of Foreign-owned Assets in the United States

March 27, 2014 | 4:06 pm | wsjlogo |

3-14commerceForeignInvestors

According to the WSJ Real Time Economics Blog there are the record investment gains. This is good news/bad news…and:

has worried some economists, because it makes the U.S. more vulnerable to major shifts in the global economy. But it also could show strengthening confidence in the American economy.

These gains are largely due to the rising US stock prices rather than more investment. However in the housing sector, I do think rising property values are attracting even more new capital for investment – whether for new development or unit purchases. We can see this in markets like New York City and Miami. Foreign investors seem to be chasing safety and a long term equity play.

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[Knight Frank] Ukraine Was Weakest Property Market Yet Global HPI Jumps To Record

March 19, 2014 | 2:00 am |

kf3-14ghpi

Knight Frank just released their Global House Price Index which showed record results:

Growth of 8.4% in 2013 represented the highest annual rate of growth since our index started in 1995.

Dubai lead the way with a 34.8% jump in prices Y0Y while Ukraine rounded out the bottom in 56th place with a 25.9% decline over the same period. The US was ranked 9th overall.

The full report is now available and chock full of great info and insight.

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Real Estate Jargon Watch: Gazumping

March 17, 2014 | 8:00 am |

Every so often I hear this particular word used in real estate and I cringe. It is both awful and heartbreaking because it instills fear in the hearts of buyers in a market devoid of adequate listing inventory but yet is equally annoying.

Gazumping:

when a seller (especially of property) accepts an oral offer of the asking price from one potential buyer, but then accepts a higher offer from someone else. It can also refer to the seller raising the asking price at the last minute, after previously orally agreeing to a lower one. In either case, the original buyer is left in the lurch, and either has to offer a higher price or lose the purchase.

It’s widely used in the UK and Australia but not that popular in the US. There is “Ghost Gazumping” in the UK and “anti-gazumping” laws in Australia.

However given NYC’s global connections, I hear it used more than I’d care to and find it absolutely annoying. We need a replacement word or phrase as soon as possible (aside from “the seller screwed us despite accepting our offer and went with a higher one.”)

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Safety First: Explaining Flood of Asian Investors Into Western Real Estate

March 15, 2014 | 12:50 pm | kflogo |

This is a good interview with Alistair Elliott, senior partner and chairman at Knight Frank by Josh Noble of FT about the buying binge of Asian investors in many major global cities like London, Vancouver, Sydney and New York City…”mature financial cities.”

Institutional investors come first, then developers and then private investors. The phenomenon is at it’s very early stages.

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