The global luxury housing market blows cold
Three years after the outbreak of the global financial crisis, developers began to sell the first batch of “ultra-luxury” apartments in the One57 project. This building is located on the south side of Central Park in New York. It is a 90-story, smooth-line glass curtain wall building. Designed by French architect Christian de Portzamparc.
This move was a sensation. Half of the apartments were sold within 6 months, each selling for millions of dollars. In 2013, a consortium led by hedge fund manager Bill Ackman agreed to buy a 13,500-square-foot high-end apartment in the building for $91.5 million.
Ackerman told an interviewer that he had no plans to move into this apartment. Instead, after hosting a few parties there, he and his friends plan to get rid of them at a higher price. Another apartment was sold for more than $100 million.
However, the situation is different today. Developer Extell is selling the remaining One57 apartment at a steep discount. Last year, a buyer bought an apartment after cutting off the asking price of US$12.7 million. It is expected that another apartment that was sold for US$21.4 million will be auctioned next week.
The situation shows that a cold wind is blowing through the "Billionaire Road" (referring to the new skyscrapers south of Central Park, which have reshaped the New York skyline in recent years) and the once-hot luxury housing market in other parts of New York.
High-end developers in other cities are also feeling this cold wind. From Vancouver to Shanghai, the global super-luxury boom, which has lasted for five years and changed the landscape of many cities, seems to come to an end with a global oversupply. In New York and London alone, real estate agents tried to sell tens of thousands of high-end apartments when prices fell sharply.
Andrew Gerringer, managing director of The Marketing Directors, a New York residential real estate consultancy, said: "We are in an unprecedented number of luxury homes. No one knows how many billionaires and oligarchs will patronize, but in fact this market Is very limited."
The luxury building boom has brought too many residential buildings, and political factors have become detrimental to the industry. China has taken action to curb capital outflows, and low oil prices and sanctions have affected sales to Russian buyers. Cities around the world are imposing new taxes on overseas homebuyers and intensifying scrutiny of money laundering through high-end real estate. With the chronic shortage of affordable housing, the mayors of London and New York regarded the dazzling residential buildings as a symbol of inequality.
Extell president Gary Barnett hopes that for high-end real estate developers, the party is not over. He said: "The whole world really wants to have a foothold in New York."
Spread wealth
The luxury housing market boom began shortly after the financial crisis broke out in 2008, when real estate developers noticed that the world's wealthy people are growing, and their interest in real estate and other hard assets has also risen.
“In the past 10 years, we have seen different countries gain huge wealth in East Asia and the Middle East,” said Winston Chesterfield, director of the research institute Wealth-X. “This audience is spreading its wings and spreading across the globe. Fly around, looking for apartment units, especially in major cities."
Wealth-X added that in the 10 years ending in 2015, the number of people with assets of $30 million or more increased by 68% to 21,600. According to data from Capgemini, in 2015, the population of "high-net-worth individuals" with slightly lower assets (people with investable assets of US$1 million or more) reached a record 15.4 million, up from 10.9 million in 2010 people.
A series of eye-catching home purchase transactions made people notice this trend. In 2011, a company related to the family of Russia's potash rich Dmitry Rybolovlev bought an apartment at 15 Central Park West Road for $88 million, the highest in New York at the time. In the same year, Roman Abramovich, the Russian owner of Chelsea Football Club, bought a 17th-century mansion near Kensington Palace in London for £90 million.
Frederick Peters, chief executive officer of Warburg Realty, a Manhattan real estate company, said: "After Russian buyers are buying luxury homes, people expect that we will usher in a more in-depth market."
It's not just Russians. London real estate agents have found a lucrative market among the newly rich in Asia. They have launched road shows in Beijing, Shanghai, Hong Kong, Kuala Lumpur and Singapore to promote lower-priced (but still expensive by local standards) properties.
As central banks’ quantitative easing programs push up global asset prices, these buyers are seeing their wealth expand. In a low-yield world, the quest for higher returns has prompted a large amount of money to flow into real estate.
As banks withdrew from the real estate loan market, hedge funds and private equity groups began financing real estate. In order to satisfy their investors, they need the higher rates of return provided by the luxury real estate sector. Many buyers (such as Ackerman) view real estate as an investment, not housing. Another factor is that the wealthy people in China, Russia, and Middle Eastern countries that have been hit by the "Arab Spring" have moved their funds out of the country by rushing to seemingly safe assets.
"A lot of real estate is based on escaping capital," said Jonathan Miller, president of Miller Samuel, a New York consulting firm. "We are building the world's most expensive safe. You just need to put your valuables in it and never patronize it. "
However, this flow of funds may dry up quickly. For example, according to the National Association of Realtors (National Association of Realtors) data, in the year ending March 2016, buyers from mainland China, Hong Kong and Taiwan spent US$27 billion on buying a house in the United States, but real estate agents said , As China’s outflows of funds face more stringent scrutiny, the number of mainland Chinese buyers is declining.
Falling oil prices and sanctions after Russia invaded eastern Ukraine and annexed Crimea have hit Russian buyers. In 2014, the ruble fell by 43% against the dollar. “When Russia invaded Ukraine in 2014, it coincided with the peak of new developments in New York,” Miller said. Peters added that the number of Russians buying properties in New York that year "nearly dropped to zero." The result is that new housing is slow to sell while demand is cooling. The numerous cranes on the skylines of cities such as New York have made potential buyers realize that they have the ability to bargain with developers.
Miller estimates that there are more than 12,300 unsold condominiums in Manhattan that are either built, under construction, or planned, and annual sales are about 1,400. The data for London is similar: According to data from data provider Molior London, since 2014, the number of new housing starts in London has exceeded the sales by 13,500 units.
Developers want to sell as many off-plan properties as possible to help finance the construction; such sales are often a condition for developers to obtain construction loans. However, Savills said there will be more unsold units completed this year in London than at any time in the past 10 years. The real estate agency estimates that 58% of demand in London is for housing priced below £450 per square foot, but only 25% of properties under construction are at this price.
The Australian Population Research Institute said last year that there was an oversupply of high-rise apartments in Melbourne and Sydney. Approximately 22,000 apartments were completed in these two cities in 2016, and the same number of apartments will be completed in 2017. The consulting firm Phidar Advisory said Dubai’s “high-end” residential market was “oversupplied”. In Singapore, Maybank Kim Eng real estate analyst Derrick Heng warned last year that "a misallocation of capital to the real estate industry" led to oversupply.
Area overheating
Luxury home developers are offering huge discounts to potential buyers, from price discounts and tax incentives to gift cards, sports tickets and furniture. A property in North London flaunts that it will provide a free car to every buyer. Henry Pryor, a London real estate buying agent, said: "Apart from'buy one get one free', I don't know what else they can do."
This puts pressure on developers, especially those who purchase land after land prices have risen. In New York, Greene said that he received a panic call from the bank that their loans for some ultra-luxury apartment projects had expired, but the developers were unable to repay the loans due to low sales.
He did not specify which banks are facing problems. In recent years, most of the banks active in the New York condo market are overseas banks.
"These banks say,'How much rent can you receive for renting these houses?' But you need to get a rent of 50,000 to 100,000 dollars a month to make it worthwhile, and you cannot rent 50 at this rental price. A high-end condominium," Greene said, "3 or 4 years ago, they should have foreseen this situation."
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Greene added that some banks use "inventory loans" to replace construction loans that might have defaulted, which makes developers bear higher borrowing costs. Hedge funds also began to intensify their concerns last year. Miller said: "They are at a loss for oversupply."
In many cases, external equity investment means that the developer's profits are all dependent on the sale of the last few apartments in the building. He said: "The problem is not that (the developers) are going to go bankrupt, but that they will have to start adjusting their profit forecasts. If you just bought the land two years ago, it will be very nervous."
One57 and Extell, the developer of some other New York properties, soared bond yields listed in Tel Aviv last year, forcing Barnett to travel to Israel to reassure investors.
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Developers have another problem: the houses they build are used as a clear symbol of inequality and corruption. In Vancouver and Sydney, local governments use taxes to deter foreign buyers. The United States has taken measures to counter money laundering in the real estate sector: For example, luxury apartments in New York are linked to the 1MDB scandal in Malaysia.
A mansion for sale in Chongqing, China
In March of this year, New York Mayor Bill de Blasio chose to hold a press conference with the world’s tallest residential building-432 Park Avenue as the background, calling on the State of New York for condominiums that sell for more than $2.5 million. Sales are levied on a "luxury property tax." Standing next to a pensioner who claimed that he could not afford a house in New York, De Blasio said the building was "an example of showing off wealth."
Richard Wallgren, executive vice president of sales and marketing at Macklowe Properties, countered that 432 Park Avenue "brought huge taxes in New York City."
But Barika Williams, vice president of the Association for Neighborhood and Housing Development of New York, said: “People are frustrated...because there are a lot of new developments in their area, but they enter If you don't go, you can't afford it."
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As luxury housing developers struggled to cope with the market downturn, activists asked what these high-end residences brought to the surrounding communities?
Williams said: "Almost all of these new properties enjoy tax incentives in New York City and New York State. We have provided concessions and discounts to these projects. The question is, what do we ask them to do in return?"
"Singapore on the Thames" oversupply
The plot surrounding London's Battersea power station was once a busy industrial area, full of factories and docks.
Today, the 450-hectare Nine Elms area is busy again. Thousands of construction workers are constructing multiple apartment buildings, and there will be a total of 20,000 housing units, mainly high-end apartments, as well as office buildings and the new U.S. Embassy in the UK. Charlie Ellingworth, the founder of the buyer's agency Property Vision, calls this "Singapore on the Thames."
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Boris Johnson served as Mayor of London for 8 years until he resigned in 2016. He has attended a marketing event for Nine Elms held by supporters of Battersea Real Estate in Malaysia. After returning home, Johnson emphasized that high-end apartments in the area will provide funding for approximately 3,500 to 4,000 affordable housing units, two health centers and the London Underground extension project.
For decades, commercial developers had to build or fund affordable housing or community facilities in order to obtain planning permission. New York has a similar system called 421a. But this means that the development of lower-priced housing is linked to the state of the commercial market.
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At Nine Elms, analysts have long questioned the number of luxury homes planned. Property Vision's real estate agent Roarie Scarisbrick said: "It looks like there is a serious oversupply." Another developer, St Modwen, wrote down the value of its land holdings in the lot by 17% last year. The Battersea Power Station Development Corporation (Battersea Power Station Development Corporation), which developed the Battersea historic building itself, has applied for the postponement of the construction of 103 affordable housing units and is evaluating other affordable housing commitments. The company cited reasons including rising costs and economic uncertainty, saying that the projected internal rate of return has fallen from an earlier 20% to 8.2%. As Brexit casts a shadow on the British economy, other developers
It is also seeking to adjust its commitment to affordable housing.
Edoardo Mapelli Mozzi, chief executive of London developer Banda Property, said: “The private sector alone cannot deal with the issue of affordable housing. Otherwise, affordable housing can only be used if the high-end market is functioning well. Will be built."