Jan222016
Why do politicians want foreign investment in real estate?
Foreign investment costs politicians nothing, and it provides them tangible and taxable assets.
Have you ever gone to an Irvine new home model center and seen buses of foreign tourists on a shopping spree? I have, and I suspect many others have seen the same thing. Anecdotally, Irvine homebuilders report 80% or more of their sales are to foreign nationals, particularly the Chinese. These buyers are purchasing homes largely as investments, and in the process they crowd out or price out a local working family who wants to buy a home. Given this strongly negative consequence to rampant foreign buying, why do politicians support it?
First, politicians care about large voter blocks, and the only people upset by this problem are the small percentage of people in the homebuying process. Existing homeowners don’t complain about high prices because they want the prices to move even higher. Renters don’t care because it doesn’t impact them directly.
Second, financially the activity of foreign buyers benefits the community. These people are paying for houses with money from outside the community. The asset is fixed in place and easily taxable, so politicians like it. Further, if it’s a commercial property, the asset is a tax revenue generator from the businesses operating therein. When someone offers to build something at no cost to the local community, something that generates positive tax revenue, no sane politician will oppose it. The result is a very permissive attitude toward foreign investment in real estate.
How permissive? Until recently, politicians didn’t even care if the money was legal or not. If foreign money from drug kingpins or arms dealers wanted to fund construction or acquisition of US real estate, their money was welcome. Most countries don’t even tax the capital gains when the foreign owners sell. Free money is highly sought after.
As wealthy Brazilians snap up Miami real estate, few benefit
Tuesday, 19 Jan 2016
Facing a teetering economy at home, wealthy Brazilians have been pouring money into what they increasingly see as the safest place to invest: South Florida real estate.
So are Argentinians, Colombians, Mexicans, Venezuelans, French and Turks—almost anyone with money to shelter, a direct flight to Miami and a shaky economy to flee. …
And almost no developer expects the demand to stop.
When times are booming, nobody expects the music to stop. But why is this money entering US real estate? Is it due to strong fundamentals, a sustainable cause, or ephemeral circumstances that could change at any moment?
Yet Miamians as a whole have scarcely benefited from the glitz. Wages have actually dropped for Miami workers in the past year. Area unemployment tops the national average. Miami contains the largest share of renters in the country who devote over 30 percent of their pay to housing – the level the government deems burdensome.
The same could be said of Los Angeles. Local wages have barely budged since 2012, yet house prices are 66% higher.
“We’re not seeing the benefits of that income being disposed of in the local economy,” said Ned Murray, associate director of Florida International University’s Metropolitan Center. “That impacts local businesses, and we’re losing opportunities to create year-round housing for our workers. They’re moving out.”
This is the problem when there is an excess of foreign capital entering a market. Rather than benefit the local population, higher prices ends up hurting them. This is one of the main reasons London decided to start taxing capital gains to discourage excessive foreign investment.
No fewer than 126 residential towers are planned for construction in South Florida. One sign of the scale of wealth from abroad is that the majority of foreign purchases are being funded with cash, not debt.
While this has all the signs of a bubble — and it may end horribly for the foreign investors — one key difference is worth noting. Since this bubble is fueled by equity, our banking system is not at risk. Many individual borrowers may get caught up in a collapse, but it’s not a systemic problem like the debt orgy of the Great Housing Bubble.
Last year, foreigners spent $6.1 billion on Miami-area real estate – 36 percent of all such investment, according to the Miami Association of Realtors. Nationally, foreigners account for just 8 percent of sales.
That’s an astounding number, particularly considering how badly condo prices crashed in Miami just a few years ago.
The influx has been sudden enough that the federal government has announced plans to monitor home purchases exceeding $3 million in Miami and New York City. Starting in March, the government will temporarily require title companies to identify buyers of property. Authorities have grown concerned that money launderers may be using anonymous holding companies to stash money in high-end real estate.
(See: US cracks down on money laundering in real estate)
The average luxury condo price in Miami Beach has surged 35 percent from a year ago to $3.7 million, according to the real estate brokerage Douglas Elliman.
That certainly looks like a bubble in search of a pin.
Downtown Miami is similarly “beginning to shift, but the question is, to whose benefit?” said Arden Shank, executive director of Neighborhood Housing Services of South Florida. “It doesn’t benefit the people who have been there for a long time.”
Unless they happen to by condo owners, then the increased value of their holdings is quite a windfall.
The metro area’s unemployment rate is 5.5 percent, compared with 5 percent nationally. Average hourly earnings have dipped 0.4 percent to $22.57 from a year ago. By contrast, the national average wage has risen more than 2 percent in that time. Census Bureau data show that high rents burden 66 percent of Miami tenants, compared with 52 percent nationwide.
This is a huge problem because potential homebuyers can’t save for down payments with high rents; politicians haven’t don’t much to solve that problem either.
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Should real estate “farmers” be banned?
Amid complaints of ‘constant harassment,’ New Jersey town moves to ban real estate solicitors
Residents of a neighborhood in Toms River, New Jersey are so tired of being “constantly harassed” by real estate agents who go door-to-door in their neighborhood offering to buy their homes that they are pushing for a ban of real estate solicitation in the town.
According to a report from the Asbury Park Press, the Toms River neighborhood of North Dover is inundated with “aggressive” real estate solicitors who repeatedly knock on people’s doors and ask them if they want to sell their house.
And it’s gotten so bad that the town’s leaders are considering banning real estate solicitation in the neighborhood for five years.
So what makes this neighborhood so hot? Here’s the Asbury Park Press with more on the situation:
The explosive growth in the Orthodox Jewish community in neighboring Lakewood has led real estate agents from that community to seek homes in nearby Toms River, Jackson and southern Howell.
Residents of North Dover have responded by moving to form a neighborhood watch group they say is aimed at making sure township codes are enforced in their area, in addition to working to share information and deter crime. They insist they are not anti-Semitic, but are only concerned with the quality of life in their still-rural neighborhood.
The town already placed tighter restrictions on real estate solicitation in November, but the town is now considering banning real estate solicitation altogether thanks to some overly aggressive agents.
Goldman Sachs earnings dented by RMBS settlement
Punishment was not severe enough to match the crime
Goldman Sachs recorded net revenues of $33.82 billion and net earnings of $6.08 billion for the year ended Dec. 31, 2015, with diluted earnings per common share dropping to $12.14 compared with $17.07 last year.
The recent $5 billion settlement billion between Goldman Sachs and the federal government over claims related to toxic mortgage bonds sold to investors in the run up to the financial crisis managed to put a dent in the banks earnings, according to the earnings release.
However, this doesn’t come as too much of a surprise since a briefing.com note said that the bank announced it would take a $1.5 billion charge in the Q4 following its settlement.
The note added that while the impact will chop earnings down by $1.5 billion, it does remove a massive over hang in terms of legal expenses.
Under the terms of the settlement, Goldman Sachs will pay $2.385 billion civil monetary penalty, make $875 million in cash payments and provide $1.8 billion in consumer relief.
Jobless claims post highest reading since July 2015
Jobless claims increased to 293,000 filings for the week ending Jan. 16, an increase of 10,000 from the previous week’s level, which was revised down by 1,000 to 283,000, the U.S. Department of Labor said.
As a result, the 4-week moving average jumped to 285,000, an increase of 6,500 from the previous week’s average, which was revised down by 250 to 278,500.
Analysts with Econoday commented on the report saying, “Jobless claims may have already hit their lows, at least that’s the emerging trend for initial claims.”
Econoday estimated a reading of 275,000 for the week, with the high-end estimate at just 285,000. Instead, filing rose to the highest reading since July.
Econoday analysts noted that while there were no special factors affecting the data, volatility in this series is not unusual at the start of the year.
The last major jobs report from the Bureau of Labor Statistics said that December job creation grew by 292,000, cementing the growing strength of the labor market.
Utah real estate company charged with operating $28 million Ponzi scheme
How do people think they can get away with stuff like this?
A Utah real estate investment company offered investors the promise of a guaranteed return on their investment in “turnkey” houses, but instead bilked more than 250 people out of $28 million by operating a Ponzi scheme, the Securities and Exchange Commission said Thursday.
According to the SEC, Marquis Properties fraudulently represented that it sells interest in “turnkey real estate properties, promissory notes secured by real properties, and joint venture agreements to purchase real properties.”
The SEC said in its complaint that Marquis, the company’s president and chief executive officer, Chad Deucher, and its executive vice president, Richard Clatfelter, Deucher and Clatfelter represent that Marquis locates, purchases, renovates, and sells single family and small multi-family homes in “lucrative areas” of the country.
According to the SEC, Deucher and Clatfelter tell investors that Marquis has “proven renovation crews, property managers and realtors on the ground” to assist with all stages of the project, thereby eliminating the need for direct involvement.
Additionally, the SEC said that Deucher and Clatfelter represent to investors that they will receive “guaranteed return of principal and returns” from their investment in the form of rental income, interest payments, and/or profits from the sale of properties.
The SEC complaint also states that Deucher and Clatfelter represent that investments with Marquis are “safe, low-risk, or risk-free” because the investment proceeds will be secured by a first deed of trust on property wholly owned by Marquis, and the investments will be “over-collateralized.”
But what Deucher and Clatfelter don’t tell investors is that the properties offered as collateral were often not owned by Marquis, were substantially encumbered, or were in uninhabitable or blighted condition, the SEC said.
Deucher and Clatfelter also allegedly don’t tell their investors that the company itself is insolvent and unable to make payments to its investors without the influx of new investor money.
“Because investors are being repaid from new investor funds, Marquis’ operation is a classic Ponzi scheme,” the SEC said in its complaint.
“Marquis does not appear to have legitimate business operations,” the SEC continued. “Marquis has had little income, if any, from business operations.”
The SEC also stated that Deucher used investors’ funds to pay his personal expenses, including at least $376,300 given to his wife.
San Francisco housing mania: Badly charred home that is uninhabitable sells for $186,000 over asking price.
I remember reading a book on the Dutch tulip bubble and could only shake my head thinking that people were trading property, jewels, and other valuables for what amounted to a basic plant that you can get at Home Depot at the checkout line. I’m sure when the mania was over many people must have thought “what in the world was I thinking?” You see that facial reaction in Las Vegas when someone hunkers out of a high roller room with empty pockets. Yet today in San Francisco, you have absolute craziness going on. The median price for a home is over $1 million dollars and most are pieces of crap. But someone is paying for this, right? Of course. Someone paid a lot for those tulips as well just like someone bought at the top AOL stock or any other failed investment. I guess my point is that human psychology still hasn’t changed much over this short historical period. Need proof in terms of housing? Housing values were up in the stratosphere just in 2007 and the mind had every useful reason to justify prices. Today we highlight a home in San Francisco that sold for more than $186,000 and was charred like a forgotten hot dog left on the grill by a Taco Tuesday baby boomer.
Oil rallies hard, but this is not the bottom
Oil surged above $30 a barrel temporarily in the biggest relief rally in three months, but crude has still not found a floor and U.S. economic data and earnings season could play a big role in driving prices in the near term.
Oil and other risk assets were boosted Thursday by dovish comments from European Central Bank President Mario Draghi, who said it would be necessary to review the central bank’s monetary policy stance in March. That sparked expectations of more quantitative easing from the ECB.
Crude settled up 4.2 percent Thursday at $29.53 per barrel after rising more than 6 percent earlier in the session. Traders also found a silver lining in an otherwise bearish U.S. government inventory report which showed a build in oil supplies and another big 4 million barrel build in gasoline supplies. Encouraging to bulls, however, was the increase in distillate demand and drawdown of 1 million barrels in distillates, or diesel and heating oil.
“Our view is that prices should average in this range for the quarter,” said Michael Cohen, head of energy commodities research at Barclays. “We don’t see levels below this as being sustained. This is in line with our forecast. We also think the market is prone to these types of moves, given the positioning.”
Equities and real estate bull markets continue to rage! The last forty-eight hours proves the S&P and house prices will soon double! TIC TOC!
LOL! Extrapolate that 48-hour trend to infinity!
Gartman: Why any stock bounce will be short-lived
Any bounce in U.S. stocks will be short-lived, widely followed market watcher Dennis Gartman cautioned on Tuesday.
The warning came as U.S. stocks were poised to open higher following data that showed China’s economy grew by 6.8 percent, easing fears of a more significant slowdown.
What has the publisher of The Gartman Letter concerned is the decline in money supply as measured by the St. Louis Fed’s adjusted monetary base.
“That’s the real money supply. As I like to say, that’s the stock from which the other soups of monetary aggregates are derived, and it has plummeted,” he told CNBC’s “Squawk Box.”
The biweekly reading of the adjusted monetary base showed it fell from $4.1 trillion in mid-October to $3.6 trillion just under two weeks ago. The next reading is Thursday.
Gartman acknowledged that the shortfall could be the result of the Federal Reserve adjusting the securities it holds in its portfolio, but he said that doesn’t change the fact that the money supply is falling.
So long as there is less money available and the economy is demanding more capital, that cash has to come from someplace — and it will most likely come out of equities, he said.
Michael Farr, president of investment advisory firm Farr, Miller & Washington, told “Squawk Box” there is still an “enormous amount of liquidity” in the markets.
If you are using 48 hours as a guide for bear and bull markets,your losses will be deeper than your pockets.
I write that with full sarcasm alert on. I hope the absurdity of using hourly/daily movements in equities to prove your opinion on the long term health of the economy/housing, is blatantly apparent.
Sorry I missed it.Keep up the good work.Carry on.
“Have you ever gone to an Irvine new home model center and seen buses of foreign tourists on a shopping spree?”
I’ve only seen the busses once, but seeing a Chinese family with a translator is pretty common at new home sales offices. We can identify the houses likely bought in our neighborhood as investments, because they have no window treatments and delivery notices piling-up at the front door.
Are you concerned about the high percentage of investors?
It’s a very small percentage of the homes in our neighborhood, less than 5%. Many things concern me, but I’m not gonna get excited that base prices are up 10% since we signed a contract in May, and I’m not gonna get depressed if the value of my house is 10% less in a few years.
[which would be a 20% drop from peak]
China has announced a move to electronic currency.Inflow to OC will be different!
Simple… you can’t taper a ponzi.
Interesting concept. I’ve never really thought about that before. One of the surest signs of a Ponzi scheme is that it must continue to grow larger until it implodes.
So disappointed – no “tic toc” countdown to the “collapse”?
Politicians do not care who buys real estate. The cities and states love expensive property so they can increase taxes.
Yes. Once California politicians became constrained by Proposition 13, they all learned to fully embrace inflated house prices in order to boost the property tax base.
The 0.1%’s Marie Antoinette Moment
When you think you’ve seen everything imaginable in the “shameless” category, count on someone in finance to reach a new low.
The latest example comes from Davos. Private equity billionaire, Blackstone’s Steve Schwarzman is famed for his spending ($6 million 60th birthday party) and verbal excesses (comparing a proposal to end the carried interest tax loophole that made him super rich as opposed to merely rich to Hitler invading Poland). But those have either been to gratify his outsized ego or to defend his money machine. And although extreme, Schwarzman is hardly alone. In fact, Wall Street throwing tantrums over even small-potatoes threats to its profits is part of the new normal.
But Schwarzman at Davos has revealed himself to be utterly out of touch. His remarks in a Bloomberg interview:
What’s remarkable is the amount of anger, whether it’s on the Republican side or the Democratic side. Bernie Sanders to me is almost more stunning than some of the stuff going on on the Republican side, How is that happening, why is that happening? What is the vein in America that is being tapped into across parties that’s made people so unhappy? That’s something you should spend some time on.
For someone whose major business consists of investing in real-economy businesses, that’s an astonishing admission of cluelessness. Schwarzman is undeniably a fine actor; you have to be to get to the top of his heap. Yet his tone of voice, as well as the cluelessness of his remarks, say he is genuinely perplexed. Haven’t people like him managed to create the best of all possible worlds? Why doesn’t everyone see that?
Read his statement again, or listen to the segment. “What is the vein…that is being tapped into…that is making people so unhappy?” has a bizarre lack of agency. And it also suggests that the the unhappiness is somehow being created or cultivated aso opposed to is a long-standing, genuine sentiment that has finally found political outlets. As Clinton said, “It’s the economy, stupid.” Yet Schwarzman blandly intimates that populists on both sides of the aisle have managed to stir up such malcontent. Something must have failed on the messaging front.
And that’s before getting to the fact that his remarks confirm what clued-in Americans know well: the top wealthy lead lifestyles that are so disconnected from the rest of the public that they are dangerously out of touch. And elites who think they can remove themselves from the societies on which their lifestyles depend at no risk are kidding themselves.
It must be frustrating to know that the leading populist candidates for both parties can’t be bought off. It wasn’t supposed to be this way.
they can and they will be bought off if necessary
it won’t be necessary though
In Southern California, We’re all One-Percenters
You might be among the world’s richest people and not realize it
Most people these days know that global wealth is unequal, and becoming more so. But the latest statistics that illustrate these trends are still mind boggling, no matter how you look at them.
There are lots of ways of comparing the inequality of wealth — which is defined as people’s assets, like their savings and property, minus their debts. One is that the world’s richest 1 percent has more wealth than the rest of the globe combined, according to data from Credit Suisse.
Another is that, in 2015, just 62 people in the world had the same wealth as the poorer half of humanity – 3.6 billion people, according to a new report by Oxfam, the antipoverty organization, which makes calculations based on the Credit Suisse data.
These 62 people are very, very rich, to be sure, but it’s also true that the global bottom half is desperately poor. And for that reason, who really counts among the world’s richest — the top 100, the top 1 percent, the top 10 percent, etc. — is a matter of perspective. It depends on whether you’re judging yourself against your neighbors, your fellow citizens, or the entire world’s population. Compared with the rest of the world, a middle class American with a little bit of wealth looks quite privileged.
To be among the wealthiest half of the world last year, an adult needed to own only $3,210 in net assets (minus debts), according to the data. To be in the top 10 percent, a person needed to have only $68,800 in wealth. To be in the top percentile, the threshold climbed to $760,000, according to Credit Suisse.
This highlights by problem with focusing only on GDP. It is almost a worthless measure, because so many things relating to QUALITY OF LIFE are not captured.
In my home country, Hungary, you will live a better life on minimum wage ($385/mo or $2.40/hr) than in L.A. for $12 an hour.
With soaring rent, healthcare, food prices in the L.A. compared to Hungary, it’s impossible to make an apples-to-apples comparison based on wages alone regarding who lives a better life.
If you earn $35,000 per year that puts you in the top 1% globally speaking. So yes, middle class people in California are incredibly wealthy without most of them realizing it.
so we should tax them more…
because they need to pay their “fair share”
According to this logic, many Americans with their access to credit and negative asset balances are the poorest in the world!
The Fragile Forty & How The World Lost $17 Trillion In 6 Months
More than 50% of the “wealth” effect created from the 2011 lows to the 2015 highs has been destroyed (despite the world’s central banks going into money-printing overdrive over that period). Almost $17 trillion of equity market capitalization has evaporated in just over 6 months with over 40 global stock indices in bear markets.
http://www.zerohedge.com/news/2016-01-21/fragile-forty-how-world-lost-17-trillion-6-months
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Au contraire, the wealth wasn’t actually destroyed… nope; instead… people learned the hard way that the wealth they thought they had really didn’t exist.
Yes, but how do I know even if I really exist, much less my “wealth” which is just numbers in a database somewhere?
This chart should give Perspective something to celebrate:
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/01-overflow/20160120_dead_1.jpg
Wow Mellow Ruse that’s an interesting chart.
Am I reading it correctly that it’s showing sign of a “third” crisis in recent history?
Theory: ASSET PRICE INFLATION MARKS THE BEGINNING OF A GLOBAL BUBBLE CYCLE
Capital, trade, and rates across the entire globe are connected. We are in a global economy now, with global risks.
Low rates are caused by excess capital and low demand for investment.
Asset prices are inflated by low rates.
However, did assets become more valuable in an absolute sense? Definitely not! Excess capital in no way makes assets fundamentally more valuable.
OK, then asset prices inflated for no fundamental reason, now what?
Let’s say the economy picks up and there is no longer a shortage of capital. Rates also rise.
Do asset prices fall? Ironically, no. The booming economy creates more demand for these assets and they hold their values despite rising rates.
What just happened? A massive global asset bubble.
Why would all these wealthy foreigners want to buy in Miami if there is so much flooding that fish regularly swim down the streets?
Source: Obama quoting Al Gore at the Paris Climate Conference
http://dailycaller.com/2015/12/02/obama-claims-fish-swim-in-miami-streets-because-of-climate-change-theres-only-one-problem-video/
Miami needs a lot more sea rise to be put underwater. More than 50 years out.
Venice, on the other hand, could be screwed in 15-20 years.
Sea levels are rising about 0.1 in/yr. Over 20 years, that’s about 2 inches. The tides are more than that. How is Venice going to be screwed when it experiences 12 inch tides daily? If they are within 2 inches of being swamped, then they need to start thinking about building a series of locks.
Even the Italians could manage that – not personally, but they could contract the Germans to do it with borrowed German loans, that the Italians subsequently default on.
http://www.tide-forecast.com/locations/Venezia-Italy/forecasts/latest/six_day
As more carbon dioxide enters the atmosphere, the rise is accelerating.
Since 1990 it has averaged 0.14 inches per year.
And in Venice, this already happens: http://ocean.nationalgeographic.com/ocean/critical-issues-sea-level-rise/
The builders who build zillion dollar homes benefit when rich foreigners buy and if enough of them buy it sends values for that type of property up. You can bet that those builders are well connected politically and do donate to candidates who favor their industry.
http://www.afr.com/news/world/asia/china-tightens-controls-on-moving-money-overseas-20160120-gma7g3
I thought China was planning on relaxing controls not tightening
somebody come knock me up 😉
[…] Love Affair: Foreign investment in US residential real estate often drives prices up and makes neighborhoods un-affordable for existing residents. So why do politicians love it? Larry Roberts explains. […]