Irish government cuts taxes to stop property prices falling
Brian Cowen, the Irish finance minister, has moved to stimulate the country’s housing market in his annual budget, cutting the tax paid on house sales in a bid to prevent a hard landing for the economy. The move comes amid new evidence that house builders are slowing down their activities in the face of lower demand, as buyers hold off in anticipation that prices will fall further.
The tax moves announced yesterday cut the tax on house sales from a flat 9% to 7% for houses under £485,000, which is the great bulk of houses in Ireland. Mr Cowen described his move as a ‘step change’ in the operation of the tax system on residential property.
Prices fell by 1.3% in October, according to the latest figures from the Irish Life & Permanent TSB house price index. House prices in the 12 months to the end of October were down 4.7% - with anecdotal evidence suggesting the price falls are much closer to 10% in some areas of the country.
Construction has been a big driver of the Irish economy, accounting for 13% of economic output. However, the slowdown has seen bodies like the construction industry federation predicting that as many as 20,000 jobs could be lost.
Ireland built a record 88,000 houses in 2006, compared with 155,000 in England and Wales - a region with 13 times the population. House completions this year are expected to reach 80,000 but industry experts predict this could fall to 25,000 in the first half of 2008.
Housing demand has been fuelled by strong economic growth, with the economy at near full employment. However, official growth forecasts have been progressively cut, with the central bank now predicting gross domestic product to increase by 3.5% next year compared with a peak in 2000 of 11%.
Eunan King, economist with NCB stockbrokers, believes underlying demand remains strong and points out that half the 70,000 new jobs created in the past 12 months have been taken by immigrants from eastern and central Europe, all of whom need to be housed.
Demographic movement in Europe continues to head northwest
Between 1st of January and the end of November this year, over 188,000 Bulgarian visas were issued to Russian citizens, representing the largest annual amount in history, according to Bulgaria’s Deputy Foreign Minister Milen Keremedchiev. The number of Russians coming to Bulgaria has risen by 12% compared to 2006.
Next in the statistics were Turkish citizens, with almost 83,000. Third were Macedonians with over 76,000 documents issued by the consular services, while Ukrainians had 56,000 visas issued to them.
Bulgaria and Romania joined the EU on 1 st of January 2007 and there are already complaints of labour shortages, especially in agriculture and construction. In Romania, for example, where construction workers earn an average €200 a month, many have left for Italy, where they earn €1,500 a month. Romanian nurses earning €150 a month can earn up to €2,000 a month in Switzerland.
This movement has left shortages that are being filled by Ukrainians, Turkish and Russian citizens. But if you go further east there are even more citizens leaving countries like Tajikistan to go to countries like Russia. At least 400,000 people move from Tajikistan to Russia each year, earning 10 times more than the usual $30 to $35 a month at home. In April 2007, Russia set a quota on the number of migrant workers, banned them from working as market traders, and made employers more responsible for ensuring that migrants are legal.
Russia’s Federal Migration Service (FMS) sets quotas on the number of migrant workers allowed in various areas. The quota for Moscow was 750,000 in 2007 but the city government wants that reduced to 250,000 in 2008 and proposes that migrants carry new secure ID cards at a cost of $500 each. In addition, the city of Moscow wants to reduce the number of migrants from countries that do not require visas to enter Russia to between 50,000 and 60,000.
The FMS reported that 600,000 work permits were issued to foreigners in 2006, and 800,000 are likely to be issued in 2007. About 90 percent went to nationals of the Commonwealth of Independent States.
Meanwhile, Finland aims to attract immigrants and guest workers from Russia. Finland has about 47,000 Russian-speaking immigrants, accounting for a third of all immigrants in the country. Finland and Sweden are the only two EU-15 countries that did not restrict labour migration from Bulgaria and Romania this year and 11% of Swedish residents are immigrants.
Also, 9 of the 10 countries that became EU members in 2004 will join the so-called Schengen zone on 31 st December 2007, ( Cyprus will keep some border checks in place). Switzerland is also set to join Schengen, making 13 EU countries a border-free area. Slovakia, Poland and Hungary are hiring more border patrol agents and installing high-tech devices to detect intruders at their eastern borders.
Polish mortgage market grows in value by 60%
The total value of all mortgages granted by Polish banks in the first three quarters of 2007 increased by more than 60% compared to the same period last year.
The leading mortgage lender in value terms was PKO BP, which sold housing credits worth PLN 11bn (€3bn) between January and September, up 67% on the previous 12 months, according to Parkiet, which bases its information on data obtained from the 11 biggest Polish banks.
Bank Millennium was in second place with sales rising by over 70% year-on-year. The most impressive performance was achieved by Noble Bank which increased the value of mortgages more than eighteen times.
However, the third quarter of 2007 may be one of the last quarters in which banks can expect such spectacular results, Parkiet added. This is because banks have recently declared their intention to tighten up lending criteria and also plan to raise their mortgage rates in 2008.
Albanian capital choking on its own growth
Albania’s capital, Tirana, is becoming a victim of its own phenomenal growth, as the city’s environmental problems multiply. Local residents are complaining that the dust and pollution in the city, often makes it hard to breathe.
Its population that has more than tripled in the last 15 years to nearly 800,000, fuelled by internal migration, which has lead to a construction boom unprecedented in its history, Tirana is a city that faces an increasing menace to public health as respiratory diseases multiply and cancer rates reach alarming rates.
Studies have shown that 56,000 tonnes of dust are generated in Albania’s capital every year, 70kg for each of its residents. Most of this dust is produced by small particles, known as particulate matter, or PM10, which have been found to be a major cause of cancer.
According to the Ministry of Health more than 1,400 cancer cases are directly linked to increased levels of environmental pollution in Albania, the majority of them in the capital. A study published in October by the World Health of Organization found that air pollution alone was responsible for more than 200 deaths every year.
The local authorities are being blamed by environmental groups for not considering the harm done to the environment when repeatedly issuing new building permits for apartment blocks.
However, Albania’s Deputy Minister of the Environment, Taulant Bino, has argued that a major cause of the worsening pollution in Albania’s capital is to do with the large number of aging vehicles that are crowding its streets.
During the communist era the private ownership of vehicles was banned, and only a select few among senior officials had a car. Now more than 100,000 cars are registered in Tirana alone. Most of them are more than 10 years old, running on diesel and poorly maintained.
But whether the pollution is caused by old cars or construction, the situation is certainly something that a property investor should take into account before investing in the city.
Worldwide News
Fewer apartments on the market cause prices to rise in Tokyo
House prices are rising as a result of less property being put on the market in the metropolitan area of Tokyo, according to a new study by the research company, ‘Real Estate Economic Institute'.
The report highlighted how the number of houses on the market dropped by 19.8% in September compared to the same period of 2006, with 5,202 new apartments being put on the market, of which 35% were sold, compared with 23% in 2006.
The average price of an apartment has risen to Yen 44.81m (€270,000), up 7.5% on an annual basis, while the average price per metre is equal to €3,500, up 5.8% compared to 2006.
The report looked at the area known as the ‘Great area of Tokyo’, which includes the Kanto plain, the metropolises of Tokyo, Yokohama and Kawasaki and the prefectures of Kanagawa, Chiba and Saitama, which have a total population of 35m people.
New ‘Destino’ resort latest in wave of Mexican development
Construction has started on a new resort development called ‘Destino’, (Spanish for ‘Destiny’), on the Baja peninsula of Mexico. The project will ultimately include 2,500 new homes built on 550 acres overlooking the Pacific, along with retail space, restaurants, a hotel and various recreational facilities.
The development is located at Salsipuedes Bay, north of Ensenada and about an hour and a half drive south of San Diego. According to developer Mar y Cielo Development, the first phase of the project will be completed in early-2009. The master plan for the development, by Newport, California-based RMN Design, calls for a blend of Mexican and Mediterranean influences.
“Destino will include not only a boutique hotel, spa, and restaurants, but also a seaside village with shops, cafes, and a wine tasting center”, Luis Miranda, director of marketing, reportedly said, adding: “The idea is to make Destino is a community reminiscent of Mediterranean towns.”
Destino is one of a wave of resort and multi-family developments breaking ground in Mexico at the moment, as investment capital flows into the country and properties there attract the attention of wealthy US, European and Asian buyers.
Down the Pacific coast near Puerto Vallarta, for example, the Punta Mita development, a low-density mix of upscale resort and multi-family properties and hotels on a 1,500 acre plot, has reported strong interest from both buyers and investors, in spite of recent turmoil in the world’s financial markets. Sales at Punta Mita in the third quarter of 2007 were $84.5m, up 34% compared with the same quarter in 2006.
Fundamentals for Indian real estate remain strong
India continues to benefit from foreign direct investment (FDI) into its booming information technology (IT) sector, as well as software development and call centres. To meet the surging demand from the IT sector, at least 590m sq ft of new office space needs be completed within the next five years, according to local reports.
These rapidly growing business sectors are enhancing wealth creation for the country’s labour force, which in turn has added to the demand for property. It is estimated that 70m Indians now earn a salary exceeding $18,000/year, a figure that is expected to double to 140m by 2011.
But the bulk of the housing demand is expected to come from the 300m middle-class Indians - predicted to rise to 600m by 2010 - that are spurring demand for housing and boosting retailing and retail development opportunities.
Between now and 2030, India will need up to 10m new housing units a year. A surging population, rising income levels, shrinking household sizes and rapid urbanisation are exacerbating the current housing shortage, which is already estimated at 20m units.
Statistics further reveal that while only 3% of homebuyers had a mortgage 10 years ago this has now grown to 95%. At the same time, the average age of homebuyers has fallen from 40-45 years to just 30.
The World Bank has forecast that India’s economy has grown by 9% this year. On current growth trends, a recent Goldman Sachs report has predicted that the country’s economy will overtake that of Japan by 2030 and will emerge as the third largest after China and the United States by 2050.
According to India’s Confederation of Real Estate Developers Association, the real estate sector can expect a capital injection of more than $7bn next year, of which foreign investors have committed more than 70%.
These include a wide range of ongoing and completed projects in major Indian cities such as Mumbai and Hyderabad. Royal Garden City, will be a fully integrated township in Bangalore that, when completed in 2015, will have 35,000 residential units. Other future developments planned include a 35-acre township near Hi-Tech City, a 125-acre residential project in Shamshabad in Hyderabad, and a 100-acre township, that will include a commercial complex, near Mumbai.
India has the largest concentration of wealth in Asia, over four times the net worth of China, according to Forbes magazine. This is exemplified by the collective net worth of India’s 40 richest people, which amounts to $106bn, compared to $26bn in China. Lakshmi Mittal, India’s richest man, alone has $23.5bn.
America’s credit crunch finally catches up with Manhattan
The slump in America’s residential property market has finally caught up with Manhattan. The few square miles of up-market central New York real estate is beginning to suffer the impact of this summer’s credit crisis. Wall Street bankers are delaying buying new apartments, aware that the country sits on the brink of recession.
The rest of the US was already feeling the chill of a cooling housing market, with property prices suffering their worst slowdown for 16 years, but Manhattan had remained resilient, buoyed by surging demand and limited supply. However, according to one chief economist at the property company Brown Harris Stevens – although residential property prices hit a record high in the third quarter of the year, estate agents are beginning to see a slowdown in activity as Wall Street bankers guard their bonuses.
However, property price growth in Manhattan has been strong over the past 12 months and in Q3 2007, the average sale price for a Manhattan apartment reached $1.3m (£640,000), 26% higher than for the same period in 2006.
Meanwhile, some areas in states such as California, Arizona and Florida, have reportedly seen prices fall by as much as 40% over the past two years. The states that suffered the sharpest falls were the same states that experienced the biggest property boom beforehand.
Last week President Bush sought to limit the number of Americans who look likely to fall behind with their mortgage payments and lose their homes by devising a plan with lenders to freeze the adjustable interest rate charged on a number of home loans.
However, Washington’s bailout plan has come too late for many. In Stockton, California, one in thirty-one households went into the foreclosure process in the third quarter of this year, according to RealtyTrac, with the number of homes falling more than 30 days into arrears with their mortgage up 30% nationally during the period.
