In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040.

Doing nothing about these underwater mortgages could encourage more walk-aways, dealing another blow to the fragile US economy.

‘People like me are beginning to feel like suckers,’ Mr Koellmann said. ‘Why not let it go in default and rent a better place for less?’

After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan-modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.

New research suggests that when a home’s value falls below 75 per cent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

In a situation without precedent in the modern era, millions of Americans are in this bleak position. Whether, or how, to help them is one of the biggest questions the Obama administration confronts as it seeks a housing policy that would contribute to the economic recovery.

‘We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale,’ assistant Treasury secretary for financial stability Herbert M Allison Jr said in a recent briefing.

The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 per cent of the mortgage balance.

They are stretched, aggrieved and restless. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June – about 10 per cent of all Americans with mortgages.

‘We’re now at the point of maximum vulnerability,’ said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. ‘People’s emotional attachment to their property is melting into the air.’

Suggestions that people would be wise to renege on their home loans are at least a couple of years old, but they are turning into a full-throated barrage. Bloggers were quick to note recently that landlords of an 11,000-unit residential complex in Manhattan showed no hesitation, or shame, in walking away from their deeply underwater investment.

‘Since the beginning of December, I’ve advised 60 people to walk away,’ said Steve Walsh, a mortgage broker in Scottsdale, Arizona. ‘Everyone has lost hope. They don’t qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old.’

Mr Walsh is taking his own advice, recently defaulting on a rental property he owns. ‘The sun will come up tomorrow,’ he said.

The difference between letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call ‘house arrest’.

Using credit bureau data, consultants at Oliver Wyman calculated how many borrowers went straight from being current on their mortgage to default, rather than making spotty payments. They also weeded out owners having trouble paying other bills. Their estimate was that about 17 per cent of owners defaulting in 2008, or 588,000 people, chose that option as a strategic calculation.

Some experts argue that walking away from mortgages is more discussed than done. People hate moving; their children attend the neighbourhood school; they do not want to think of themselves as skipping out on a debt. Doubters cite a Federal Reserve study using historical data from Massachusetts that concludes there were relatively few walk-aways during the 1991 bust.

The US Treasury falls into the sceptical camp. ‘The overwhelming bulk of people who have negative equity stay in their homes and keep paying,’ said Michael S Barr, assistant Treasury secretary for financial institutions.

It would cost about US$745 billion, slightly more than the size of the original 2008 bank bailout, to restore all underwater borrowers to the point where they were breaking even, according to First American.

Using government money to do that would be seen as unfair by many taxpayers, Mr Barr said. On the other hand, doing nothing about underwater mortgages could encourage more walk-aways, dealing another blow to a fragile economy. ‘It’s not an easy area,’ he said.

Source : Business Times – 4 Feb 2010

It’s interested in commercial property but chairman says buying land not easy

Hong Kong-listed developer Hang Lung Properties aims to invest US$2-3 billion over the next couple of years into China if it finds good opportunities in the country’s commercial property sector, a top executive said.

Although Hang Lung expected robust retail sales in China, second-half turnover would likely fall short of the HK$9.7 billion (S$1.7 billion) logged in the fiscal first half ended Dec 31 as the earlier part of the financial year saw strong sales in Hong Kong residential property, chairman Ronnie Chan told Reuters on the sidelines of the PERE Forum: Asia yesterday.

‘If I had the choice, I would love to invest in another US$2-3 billion worth of projects (in China), but land acquisition is just so difficult,’ Mr Chan said. ‘I will just have to see what kind of land I can buy.’

In October last year, Mr Chan said Hang Lung aimed to invest HK$4-5 billion in new commercial property projects in China, after committing around US$5 billion in Chinese projects as of mid-2009.

Hang Lung, which entered China in 1992, has developed two major shopping complexes in downtown Shanghai and largely focuses on office and retail projects in the mainland. In Hong Kong, where it is based, the company has a mix of residential and commercial properties.

Hang Lung, which has no debt in its net cash position, had set a target in 2003 to acquire land for 18 commercial projects in China by the end of 2009 at a total cost, including development, of HK$40 billion.

Mr Chan said office rents were under pressure in China as fast-rising property prices damped yields, although its shopping malls were performing strongly as domestic consumption was robust after the Chinese government doled out billions of dollars in stimulus during the global downturn.

‘We surprised ourselves,’ Mr Chan said. ‘We thought retail would be hurt because of the financial crisis.’

In the office space, Hang Lung was eyeing second-tier Chinese cities for rental growth, expecting rental income from China to surpass Hong Kong in the next two years when projects in Shenyang and Jinan cities are complete, he said.

Mr Chan said he saw few opportunities beyond Greater China so far, even as some Asian companies were eyeing distressed properties in Western markets such as the United States. ‘I have three problems with the United States: One, the economy is going too slow. Two, you’re playing the cycle only and the cycle is not on an upward trend. Three, it’s highly tax-related,’ Mr Chan said. ‘You can make money, but only one time.’

Hang Lung’s shares yesterday closed up 1.4 per cent, compared with the Hang Seng Index’s 2.2 per cent gain.

Source : Business Times – 4 Feb 2010

This is due to more supply here as building increased ahead of the IRs

A bungalow on Singapore’s Ocean Drive, a stretch of luxury homes lined with Bentleys and Ferraris, sold for a record S$30 million in October. In Hong Kong, a duplex one-third the size went for almost three times as much the same month.

Singapore’s luxury-home prices won’t match Hong Kong’s because an increase in building ahead of two casino projects in the city-state will see nine times the number of new apartments going up over the next three years than in Hong Kong, according to real estate broker Savills Plc.

Singapore’s high-end home prices rose 4 per cent in 2009, while Chinese buyers fuelled a 45 per cent jump in Hong Kong, Savills said.

‘Hong Kong has some unique factors which drive the super luxury market, particularly mainland buyers who have been very aggressive,’ said Simon Smith, Savills’ Hong Kong-based head of research and consulting. ‘We will always see some dramatic prices in Hong Kong that you wouldn’t necessarily see in Singapore.’

Luxury property prices in Singapore are about 19 per cent below their 2007 peak, according to a Goldman Sachs Group Inc report published Jan 13.

They may rise about 15 per cent this year, though still remain 7 per cent below their highs by the end of 2010, Goldman said. Hong Kong luxury prices, which have surpassed their mid-2008 peak, will rise 15 per cent in the next six months, Colliers International Ltd forecast in January.

Two integrated resorts (IRs) are being built in Singapore with casinos, hotels, restaurants and attractions that the government hopes will help lure 17 million visitors and triple annual tourism revenue to S$30 billion by 2015.

Genting Singapore Plc unit Resorts World Sentosa opened part of its $4.5 billion project at Sentosa last month, while Las Vegas Sands Corp said it may open the Marina Bay Sands at downtown in April after construction delays.

To make the economy less dependent on electronics manufacturing, the Singapore government in April 2005 overturned a ban on casinos that had been in place since independence in 1965. Resorts World and Marina Bay are the only two casino developments approved and the government has said there will be only two gaming operators for 10 years.

‘The integrated resort is a stale story by now,’ Tay Huey Ying, a Singapore-based director of research and consulting at Colliers, said at a property seminar on Jan 13. ‘I do not foresee a great impact. We will need another growth story to bring the foreigners back to Singapore.’

In contrast, the number of casinos in Macau, the world’s biggest casino hub and the only Chinese city where gambling is legal, more than doubled to 33 in 2009 from 2002, when tycoon Stanley Ho’s casino monopoly ended. Residential prices will increase as much as 15 per cent in the city this year, according to a Savills report on Macau published on Jan 27.

Sands China Ltd, the Macau unit of Las Vegas Sands, will open most of its stalled resort in Macau by December 2011, adding 300,000 square feet (27,871 sqm) of gaming space to the 849,000 square feet it already has, the company said.

More than 130 apartments around Singapore’s Marina Bay and 900 apartments at Sentosa Cove have yet to be put on sale. City Developments Ltd, Singapore’s second-biggest property developer, and YTL Corp, Malaysia’s biggest builder, are among those preparing to put more homes on the market this year.

About 11,000 condominiums and apartments in the prime districts, or two-fifths of the total supply in Singapore, will come onto the market over the next three years, according to Savills. This compares with 1,260 luxury homes in Hong Kong over the same period.

‘In Singapore, we’re going to see slightly elevated levels of supply in 2011 and 2012, which would moderate price growth,’ said Savills’s Mr Smith.

Henderson Land Development Co, the Hong Kong-based builder controlled by billionaire Lee Shau-kee, in October sold a 6,158 sq ft duplex apartment in the city for a world record price of HK$88,000 (S$15,960) per square foot (psf) in a transaction worth HK$439 million. Luxury homes in Hong Kong are defined as those costing at least HK$10 million or bigger than 1,000 square feet.

The 17,115 square-foot bungalow sold on Sentosa island fetched S$1,753 psf. Prices reached as high as S$5,262 psf in 2007, a peak in Singapore’s property market. Singapore luxury homes are defined by Savills as those with an average price of between S$1,900 and S$2,000 psf in the city-state’s prime districts.

Surging prices have raised concerns of a property market bubble in Hong Kong. The government tightened down-payment requirements for luxury homes for the first time since 1991 and suspended mortgage insurance for rental properties in October.

Singapore’s government said in September it will push for more sites to be sold and will bar interest-only mortgages for uncompleted housing projects. Still, authorities aren’t likely to clamp down too much on the luxury end of the market, said Donald Han, the Singapore-based managing director of Cushman & Wakefield, a real-estate advisory company.

‘The high-end market is less of a concern, it’s more of a private playground for the rich,’ Mr Han said.

Foreigners can buy condominiums and apartments in Singapore, though Sentosa Cove is the only place where they are allowed to own landed homes.

Wealthy Malaysians and Indonesians have been the main buyers of luxury properties in the city-state. Now rich buyers from Russia, Norway, Sweden and Austria are showing interest in the high-end of the market, as well as Asian celebrities and professional golfers, said Kemmy Tan, director of international real estate at YTL Singapore Pte, which is developing 13 villas at Sentosa Cove. Mr Tan wouldn’t give any names.

To help sell the villas, Mr Tan has made sure the elevator to the basement car park of each villa is big enough to fit a Rolls Royce Phantom, which measures 5.6 metres (18.4 feet) long.

‘Most of the cars here are Bentleys, Lamborghinis and Ferraris,’ said Jason Yeo, general manager at site operator Sentosa Cove Resort Management. ‘Of course, you have the normal cars like Mercedes and BMWs too.’

Source : Business Times – 4 Feb 2010