Monday, July 22, 2013

JLL Predicts Increase in Mexico Hotel Investments

Real Estate News | Latin America Vacation News
JLL Predicts Increase in Mexico Hotel Investments

JLL Predicts Increase in Mexico Hotel Investments

By  | June 20, 2013 7:58 AM ET

Hotel investment in Mexico is expected to increase in the next two years, thanks to new financial vehicles, consultancy Jones Lang LaSalle predicts.

Traditionally, the Mexican hotel market is dominated by local investors. But the development of Fideicomiso de Inversión en Bienes Raíces (FIBRAs) should help spur more foreign interest, JLL forecasts.

FIBRA operate similarly to real estate investment trusts (REITs), offering an easy financial vehicle and specific tax advantages to investors. Two FIBRA focused on Mexico hotels were formed last year--FIBRA Hotelera Mexicana and Fibra Inn--and more FIBRAs are expected this year, JLL reports.

"FIBRAs offer a strong investment play for the hotel investment market in Mexico," said Clay Dickinson, executive vice president of JLL's hotels & hospitality group. "More capital means hotel asset prices will likely increase fueling more transaction activity through FIBRAs, while freeing up banks to redeploy capital as these loans are repaid."

(Note: FIBRAs are different than the fideicomiso used by foreign buyers to purchase residential property along the coast.)
Hyper Smash

The emergence of Certificados de Capital de Desarrollo (CKDs) should also fuel more hotel activity. The CKDs are "comprised of securities that allow investors to participate in private equity projects through long-term public funds," which will be used for both investing in existing hotels and developing new ones, JLL reports.

Mexico City's hotel market is expected to see the largest initial impact from the new liquidity, followed by Cancun and the Riviera Maya. The Cancun and Riviera Maya region has traditionally attracted the most investor interest, generating $900 billion in transactions in the last decade.

Mexico hotels are reporting steady growth in revenue per room and average daily rates, JLL reports. In Cancun the revenue per average room increased 12 percent in 2012 and is up 15 percent in 2013.
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Brazilian property developer sees 30% growth in profit

Brazilian property developer sees 30% growth in profit

Date added: 22th July, 2013 at 10:42
Categories: Property News

The largest Brazilian property developer PDG Realty has announced a 30 per cent increase in net revenue over the year to June.

Profit during the second quarter of 2011 stood at 1.71 billion reais (£657.66 million), with a net income up 12 per cent at 247.51 reais and adjusted earnings before interest, tax, deductions and amortisation up 19 per cent at 442.16 million reais.

In the year to June, launches grew 14 per cent to 2.05 billion reais and contracted sales expanded by 17 per cent to 1.82 billion reais.

As many as 42 per cent of the units built in this time were part of affordable housing projects, many of which were eligible for the government's Minha Casa, Minha Vida (My House, My Life) programme.

In the second quarter of 2010, 68 per cent of low income units built by PDG qualified for the social housing scheme, while 23 per cent of domiciles were suitable in the three months to June 2011.

Affordable housing projects have been very profitable for one Brazilian propertydeveloper, with Rubens Menin Teixeira de Souza, owner of Belo Horizonte-based homebuilder MRV Engenharia & Participacoes, telling Bloomberg that constructing abodes for the less wealthy in the population was one of the factors that led to him becoming a billionaire.

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Hotel Developers Returning to Mexico and Caribbean

Real Estate News | Latin America Vacation News
Hotel Developers Returning to Mexico and Caribbean

Hotel Developers Returning to Mexico and Caribbean

By  | July 19, 2013 10:54 AM ET

As investor interest returns to the Caribbean and Mexico, the region's total active hotel pipeline has more than doubled in the last six months, according to STR Global.

The research firm's active pipeline for June includes 131 hotels totaling 21,957 rooms, compared to only 50 hotels with 9,495 rooms in the region's active pipeline last December.

Only five hotels with 354 rooms opened in the region in 2012, STR reports.

"Banks are slowing coming back to feeling comfortable to lending on hotels," Jan Freitag, senior vice president, strategic development for STR, told WPC News. "There a lot of people trying to create projects but what they are needing is the money." 

The region's total active pipeline includes projects in the construction, final planning and planning stages. More than 10,000 hotel rooms are currently under construction, led by 4,025 rooms under construction in Mexico, STR reports.  

Five other countries reported more than 200 rooms under construction: Dominican Republic (2,475 rooms), Bahamas (2,271 rooms), Puerto Rico (709 rooms), Aruba (320 rooms), and Jamaica (238 rooms).

"Bankers and owners are again interested in this area and they [developers] feel the current existing properties aren't serving the needs well and they can make money by providing a better property," Mr. Freitag told WPC. "There's always a local developer who says 'hey I can make this work.'"

Out of all rooms under construction for the Caribbean and Mexico, 4,000 rooms are in the luxury segment. Including all phases, the region's pipeline includes over 7,000 rooms in the luxury market. 

"We expect in the future, 2014 and beyond there will be an uptick in construction because there will be more interest and more financing for new properties," Mr. Freitag said.  

New construction will mostly affect specific markets or submarkets, "when you suddenly have two or three more properties, that can certainly impact the local competition," he said. 

The Caribbean is in an increasingly competitive global market. A recent Caribbean report by TravelSat showed Caribbean destinations need to analyze their competitiveness compared to other global destinations.

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Wednesday, July 17, 2013

Chinese Property Developers Go West


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What are upscale Chinese homebuyers looking for in the United States?

Great locations in New York, Los Angeles or San Francisco. Properties in shiny new developments. Crash pads for kids to use during college – even if those kids are currently in preschool.

It also helps if property developers reach out to Chinese customers with staff who speak Mandarin and information in their language. So it’s natural that residential developers from China are starting to tap into the growing Chinese market in the United States. But the strategy also provides an opportunity for diversifying developers’ investments amid fears of a property bubble back home.

“Chinese developers are losing confidence in the domestic market and are now seeking to find more secure returns in a place like the U.S.,” said Ben Carlos Thypin, director of market analysis for research and consulting firm Real Capital Analytics Inc.

A deal in San Francisco may offer a taste of what’s to come, analysts say. China Vanke, the mainland’s biggest developer of residential properties, said in February that it is partnering with American property developer Tishman Speyer on a project for two luxury condo towers in San Francisco that will have 655 residences and bay views.

China Vanke will own a 70 percent stake in the $620 million project, which will be marketed to mainland Chinese buyers, according to a Credit Suisse research note entitled “First Project in the US: Reconfirming a Trend.” In April, as part of its expansion, the company also took a stake in a condo project in Singapore.

Such international deals are still an experiment for China Vanke.

“We still don’t know what price they’ll be selling at, what the margin will be, what the profitability is,” said Jinsong Du, Head of Asian Real Estate Research at Credit Suisse. If such properties prove lucrative, Chinese developers may pursue their geographical diversification on a bigger scale, he says.

After years of red-hot growth in China’s property market, the Chinese government is trying to cool things down and curb speculation, partly by forcing buyers to make higher down payments and limiting how many properties they can own in China.

That’s one reason more Chinese are buying homes abroad, particularly in Sydney and Melbourne in Australia and New York, Los Angeles and San Francisco in the United States. Adding to the appeal, the U.S. home market is still discounted from its 2006 peak, the yuan is strong, and owning a U.S. home is viewed in China as both a solid investment and a point of pride.

Chinese buyers spent some $9 billion buying U.S. homes in the year up to March 2012, according to figures from the National Association of Realtors. Among foreign buyers, only Canadians buy more U.S. homes than the Chinese.

Meanwhile, Chinese developers interested in opportunities abroad are finding they need a competitive advantage to differentiate themselves from local players. That’s where their knowledge of Chinese homebuyers comes in, said Chris Brooke, chairman and CEO for China at CBRE Group Inc., the world’s biggest commercial real estate services firm.

“Targeting Chinese consumers is probably something that will be replicated by others or replicated by Vanke – they can target the product toward a consumer they really understand,” Brooke said.

Vanke’s model of teaming with a local partner also makes sense, especially for residential developments being built from the ground up, where local knowledge is especially important, he said.

The China Vanke deal drew attention for its size, though it was not the first of its kind. China’s Xinyuan Real Estate Co. Ltd. last year purchased a site in Williamsburg, Brooklyn, for $54.2 million. It plans to build housing there, partly to “capture a large demand from China for quality residential product in the United States,” Chairman and CEO Yong Zhang said at the time.

Like New York and San Francisco, Los Angeles County also has a large Chinese community. May Hsu, a Sotheby’s International realtor in the area, thinks a Chinese-targeted community in affluent areas like San Marino or Arcadia “would definitely be a seller.”

Chinese buyers often have specific desires when it comes to U.S. property.

Patrick ONeill, founder of Hong Kong-based O’Neill Group, which helps
Chinese buyers find U.S. properties, says some clients look for inexpensive investment properties to rent out, while others typically spend between $1 million and $3 million for a place to use for themselves or their families.

Buyers from the mainland often prefer newly built properties to older ones. Sometimes they’re looking for a prestigious brand name, like Ritz Carlton or Mandarin Oriental, or what O’Neill calls “A+” locations.

“They all say, ‘I want Upper East Side, Fifth Avenue,’” O’Neill said. “Everyone knows these sorts of marquee locations, though budget constraints will often shift them into something else.”

Many purchases are tied to children’s education – parents might plan for their child to live there during college or after graduation. Often, they’re thinking way ahead.

“Chinese families will say, ‘I think my children might go to school there,’ and I’ll say, ‘Oh, how old are your children?’ and they’ll say, ‘4-years-old,’” O’Neill said. “We hear that quite often.”

Photo of Williamsburg Bridge courtesy of Shutterstock and photo of 201 Folsom Street project with China Vanke courtesy of Tishman Speyer.

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Calls for Scottish stamp duty reforms to be copied across the UK

Britain’s most-hated tax is about to be overhauled – but only if you live in Scotland.

Home nations: Could a change in housing tax north of the border herald similar moves in England and Wales?
Home nations: Could a change in housing tax north of the border herald similar moves in England and Wales?  Photo: Alamy
Britain's most-hated tax is about to be overhauled – although only if you live in Scotland.
However, there are hopes that the replacement of stamp duty north of the border, which will see the end of the hugely unpopular system of "highest rate of tax on the whole amount", will be copied in the rest of the country.
"There's a referendum on independence coming up," said Ray Boulger, an expert on the housing market. "It will be an open goal for Alex Salmond if he can say to Scottish voters: look, we abolished this immensely unfair tax as soon as we had the power to do so but the Westminster government is happy to keep it." To neutralise this threat, the Coalition could announce its own changes to stamp duty before the general election, Mr Boulger added.
Stamp duty is hated for two reasons. First, the amounts involved can be huge, preventing some families from moving when they need a bigger home and making it harder for people to move when they are offered a job in another part of the country.
Second is the unique way in which it is levied. Unlike income tax, say, where higher-rate taxpayers pay 40pc only on that slice of earnings above the threshold, stamp duty is charged at the higher rate on the entire sum if it is above one of the thresholds.
This gives rise to huge jumps in the tax bill at the various thresholds – £125,000, the level at which 1pc stamp duty becomes payable; £250,000, where the rate rises to 3pc; £500,000, above which 4pc is charged; £1m, where the rate is 5pc; and £2m, at which the rate becomes 7pc.
For example, if you buy a home for £249,999, just below the £250,001 level at which stamp duty rises from 1pc to 3pc, your tax bill comes to £2,500. But pay £250,001 and the cost shoots up to £7,500 – an increase of £5,000.
A bill passed by the Scottish Parliament last month scraps this system, replacing it with one that works like income tax. This will get rid of the sudden jumps in tax bills at each threshold. The new law is due to take effect in April 2015.
How likely is it that the Westminster government will follow Holyrood's lead?
Jeremy Leaf, a north London estate agent and housing spokesman for the Royal Institution of Chartered Surveyors, said the change in Scotland was "very good news" for the prospect of a similar move in the rest of Britain. "There's nothing better than showing a new system works in a place so close to home – it's like having a pilot scheme on your doorstep," he said.
Keith Denholm of Allied Surveyors Scotland said the reform to stamp duty north of the border was "long overdue" and would be relatively easy to introduce in the rest of the UK.
Mr Boulger, who works for John Charcol, the mortgage broker, said Scotland's move "must make a similar change elsewhere in Britain significantly more likely". He added that a decision was possible before the general election in 2015.
"There's a good chance that the Government will announce a review in this year's autumn statement or next year's Budget," he said. "This would allow it to announce the scrapping of the existing system before the election."
He pointed out that the Chancellor had reduced the top rate of income tax from 50p to 45p because he believed that higher tax rates discouraged economic activity. "If he really believes that, how can he argue against a reform of the stamp duty system that is bound to allow more people to move house, boosting activity in all sorts of areas, from DIY retailers to removal companies?" Mr Boulger said.
The effect of stamp duty on the housing market has become more acute since the financial crisis. When first-time buyers could get 100pc mortgages, saving up the stamp duty didn't take too long. Now, however, deposits of at least 10pc are required, with the stamp duty on top. Falls in house prices since the pre-crisis peak have also wiped out the equity in many people's homes, so their savings are needed for a deposit when they move to another property and cannot be used to pay stamp duty.
Paul Gallagher, a tax partner at Ernst & Young Scotland, which wrote a report on the new regime, said the Scottish Government had spent a lot of time and effort looking at land taxes around the world in order to come up with the best system. "We would expect the Treasury and HMRC to be looking at it," he said.
A spokesman for the Treasury said it had "no plans" to change the stamp duty regime in the rest of the country.

Can you avoid the dreaded duty?

The perceived unfairness of the current stamp duty system, especially the sudden jumps in tax bills at the thresholds, has led some people to look for ways to avoid it. Here are some of the tricks used either now or in the past.
Selling fixtures separately
Anything that brings the purchase price of a home below a stamp duty threshold will have a big effect on the tax bill. So some buyers persuade sellers to charge for fixtures such as curtains, carpets and kitchen appliances separately in order to bring the price of the property itself below a stamp duty threshold. This is perfectly legal as long as the fixtures are priced reasonably, but sometimes inflated prices have been agreed to squeeze the house price into a low tax band.
Cash under the table
Even simpler is agreeing an artificially low price for the official transaction and topping it up to the real price with an undeclared payment to the seller. This is outright tax evasion and therefore illegal.
Using a company
You used to be able to avoid stamp duty by putting your home into a company, then selling all the shares in the company to the new owner, rather than the property itself. This was often used for high-value homes. However, the Treasury has now clamped down on the practice.
Selling two or more leases
You can divide a property into separate legal entities so that each is priced below a stamp duty threshold. For example, a house could be split into two leaseholds and a freehold, with the new owner simply buying all three.

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Further Progress on Housing Finance


Phillip Swagel is a professor at the School of Public Policy at the University of Maryland and was assistant secretary for economic policy at the Treasury Department from 2006 to 2009.
The House Financial on Services Committee will hold a hearing on Thursday to consider draft legislation for housing finance reform put forward by its chairman, Jeb Hensarling, Republican of Texas, that would end the taxpayer backstop on mortgages now provided through Fannie Mae and Freddie Mac and wind down the two companies over five years. Under the proposal, private investors rather than taxpayers would fund mortgages and take on the risks and rewards of housing investments.  
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Perspectives from expert contributors.
New rules would foster increased use of covered bonds, under which a pool of private assets rather than a government guarantee protects investors against losses. The legislation further seeks to ensure that smaller banks continue to play a role in housing finance. The Hensarling approach thus has the desirable features of moving to a housing finance system driven by private incentives while protecting taxpayers and ensuring the participation of banks of all sizes.
The government role in the new system would be sharply defined, with regulators focused on oversight and setting standards rather than providing insurance. The Federal Housing Administration would continue to guarantee mortgages under the Hensarling proposal but would focus on first-time home buyers with moderate incomes.
Currently, the Federal Housing Administration is involved with loans of up to $729,750, which is difficult to square with the agency’s mission to expand sustainable homeownership. As documented by Joseph Gyourko, a professor of at the Wharton School of the University of Pennsylvania, the agency has financial troubles of its own. (I testified about the need for its reform at a hearing in February of the Senate Banking committee). The Hensarling bill includes changes that would address this situation.

Mortgage interest rates will rise with any overhaul that brings in private capital, but this reflects that the system is now undercapitalized with taxpayers at risk. Before the financial crisis, private-label mortgages bundled into securities without a then-implicit guarantee provided by Fannie and Freddie had interest rates from 0.5 to 1 percentage point higher than loans backed by the two government-sponsored enterprises.
It is hard to know quite how much rates would rise without a government backstop, but the housing market is in an upswing and affordability remains high, so it seems likely that the housing sector would continue to recover even with higher rates from both changes in housing finance and the Federal Reserve’s eventual normalization of monetary policy.
The proposal for a fully private system contrasts with the bipartisan legislation introduced a few weeks ago by Senators Bob Corker, Republican of Tennessee, and Mark Warner, Democrat of Virginia, in which a government guarantee would kick in on covered mortgage-backed securities after private investors have first taken losses equal to 10 percent of the value of mortgages receiving the guarantee.
The Corker-Warner approach involves charging insurance premiums for the government guarantee, so the interest rate difference between the two systems ultimately depends on the insurance pricing. In general, though, a fully private system would be expected to involve greater changes in interest rates and the availability of mortgages with long-term fixed interest rates.
Note that the Corker-Warner proposal’s 10 percent first-loss private capital is much closer to the House bill than it would seem just from comparing the required private capital shares of zero (the situation now) to 10 percent (Corker-Warner) and 100 percent (Hensarling). The total losses of Fannie and Freddie in the financial crisis were about 4 percent of their assets, so the 10 percent capital level in the Corker-Warner proposal makes the government guarantee very far back; this is an immense amount protecting taxpayers. The proposals are different, but they share the common ground of seeking to put substantial private capital ahead of taxpayers.
One might expect considerable pressure for Congressional action in the event of a future housing crisis in which private investors hesitate to take on housing risk and American families find it costly to obtain financing. In the Hensarling approach, Congress could always enact legislation that provides a guarantee on new mortgages but not on old ones.
This would be along the lines of a proposal by Harvard professors David S. Scharfstein and Adi Sunderam (though they would have the government offer insurance on a modest share of mortgages even in normal times, to maintain the capacity to scale up when needed). This implies that the proposed new housing system would not be resilient to future crises; the Corker-Warner approach explicitly takes into account the inevitability of future financial market convulsions.
A further challenge for the House approach to housing finance reform is to avoid inadvertently recreating the implicit guarantee of the previous system, under which policy makers provided a retroactive guarantee when the crisis hit. Securities backed by Fannie and Freddie were about $7.5 trillion of the $57 trillion in total credit market debt in the United States in early 2013, with another $2.5 trillion in home mortgages not tied to government enterprises.
The Treasury and the Federal Reserve both intervened to stabilize money market mutual funds in fall 2008, when those funds were less than $4 trillion of the then $51.8 trillion in credit market debt. Policy makers judged that a lockup of this aspect of United States financial markets would have an untenable negative impact on the economy. Given the considerably larger size of the mortgage market, one might reasonably expect a similar intervention in a future housing crisis. In this case, government intervention could be seen as latent and unpriced.
Even with these challenges, the draft legislation from the House Financial Services Committee represents an important step toward an eventual reform of housing finance that better protects taxpayers and the economy from the misguided incentives and risks of the previous system. The Hensarling bill provides a comprehensive and thoughtful proposal for a fully private system that serves as a benchmark in the policy debate. 
The Obama administration has not yet weighed in with its preferences for reform. Engagement from the administration would be the natural next step.

Seattle’s Foreseeable Housing Bust


By DAVID LEONHARDT


David Streitfeld reports from Seattle, where house prices are falling:
At the peak, a downturn in real estate in Seattle was nearly unthinkable. In September 2006, after prices started falling in many parts of the country but were still increasing here, The Seattle Times noted that the last time prices in the city dropped on a quarterly basis was during the severe recession of 1982.
Two local economists were quoted all but guaranteeing that Seattle was immune “if history is any indication.” A market-risk index from PMI Mortgage Insurance gave the odds of Seattle prices dropping at a negligible 11 percent.
These days, the mood here is chastened when not downright fatalistic. If a recovery depends on a belief in better times, that seems a long way off.
When we last listed the price-to-rent ratios in major metropolitan areas, Seattle’s was near the top of the list. Only in the Bay Area of Northern California and in Honolulu were house prices higher, relative to rents.
A sky-high price-to-rent ratio is perhaps the single best sign that an area is in a housing bubble. Real-estate agents, homeowners and even home buyers can tell a lot of stories to justify the bubble — stories about central cities or good school districts being immune to bubbles — but eventually people will realize that renting is a much better deal and more will do so.
There is no such thing as a market price that cannot fall.

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