US market regains its lustre
Forecasters are wary of calling the bottom of property cycles, for obvious reasons. But what's happening in the United States has many hoping for the best.
Martin Bernhard, of Credit Suisse Global Real Estate Research, thinks that home prices, having fallen to pre-bubble levels in practically all markets, will now stabilise. 'Homes are very affordable again from an historical perspective when compared to incomes,' he says. 'Moreover, the current low interest rates make housing attractive.'
He feels that an uncertain labour market and high indebtedness in general will continue to deter owner-occupiers, but the resultant demand for rental properties is good news for investors. Bernhard's view is that the US residential market offers good value in many cities, adding that the west coast (San Francisco) and New York luxury residential sector 'always have robust international demand'.
Although it's his job to be optimistic, Lawrence Yun, chief economist of the National Association of Realtors (NAR), says there are reasons to believe that the US housing recovery is on the right track. 'Jobs are coming back, people are buying homes, and home prices are stabilising,' he says.
After six years of housing market gloom, Yun sees a shard of light appearing at the end of the tunnel. He points to NAR data that shows sales of established homes reached a 10-month high in November 2011, while the pending sales index (where contracts have been signed but not yet settled) reached the highest level in 19 months.
Concluding that 'clearly something is brewing out there', Yun says buyers are seizing the day, confident the worst is over. And with new home starts at their lowest since the end of the second world war, according to Yun, all indications point to an impending shortfall in years to come.
American housing's still-low prices and a forecast improvement in the supply-demand imbalance, tipped further in homeowners' favour by rising rentals, has caught the eye of overseas investors, too.
Yun's top pick for this year is Miami, Florida, where he expects price appreciation of 10 to 12 per cent this year. The reason, he says, is international buyers, who in one month alone (October last year) are said to have accounted for more than 68 per cent of all residential sales in Miami-Dade County - most paying in cash. It has also been reported that more than 25 per cent of all residential sales in Florida last year were to international buyers.
Peter Zalewski, principal of Miami-based real estate consultancy Condo Vultures, says they can't resist a bargain. Based on his figures that there were 31,500 condo resales in South Florida in 2006 at a median price of US$229,900 (or US$208 per square foot), compared with 51,000 last year at a median price of US$85,000 (or US$78 per square foot), this equates to a 63 per cent price drop after the wheels fell off.
'Lenders have filed more than 300,000 foreclosure actions against South Florida properties since the beginning of the real estate crash in 2007,' Zalewski says.
Given the recent level of market activity, Zalewski says oversupply from the boom years could be sold out by the end of 2012. With distressed inventory on the east side of the state decreasing, investors driven by returns are looking beyond the coast to places such as Orlando, Tampa and Southwest Florida, he says.
Asians were not the first overseas investors to grab Miami bargains - but they're on the bandwagon now.
'Buyers from Asia have been somewhat sparse in South Florida, but now that the market is showing signs of stabilising, investment groups from Asia are stepping forward with projects,' Zalewski says, citing the proposed massive World Miami casino complex, planned by Malaysia-based Genting Group, and the six-tower Brickell CitiCentre announced by Hong Kong's Swire Properties.
He still sees Miami as one of the top picks for this year.
'The situation in the Miami area is unique compared to most US markets,' he says, adding that foreign buyers - increasingly Europeans concerned about the value of their currency - are propelling the market and this shows no signs of slowing down. 'South Florida was the first US market to crash, and it is South Florida again that is signalling the newest trend of a recovery.'
According to hits on TheMoveChannel.com website, Michigan is the present chart-topper for overseas buyers interested in US property. Managing director Dan Johnson says that, like Florida, it is another area of 'knockdown prices'.
'America's foreclosure-filled market gives buyers the chance to invest in cheap property with the promise of high return, making it one of the most popular destinations in the closing months of 2011,' Johnson says. 'Michigan's renovated homes, free of landlord duties, were ideal in November for those looking to help re-house displaced families while benefitting from guaranteed tenants.'
New York may be far from the cheapest market in the US, but Hong Kong's Tim Murphy, CEO and founder of IP Global, feels the Big Apple will shine this year. The Association of Foreign Investors in Real Estate named New York as the world's most attractive investment market for a second year in a row.
Murphy says New York is poised to benefit from the overall economic recovery. 'New York is a huge financial capital, with a huge lack of supply. It is always the first city to show signs of life after recession.'
Hence, Asian investors are 'enjoying investing in New York', Murphy says. 'The good properties are being taken up, and our view is that in a year or 18 months from now, people will be kicking themselves if they didn't take a look at New York.'