A new trend seems to be emerging in certain property circles. Several times in the past six months I have seen evidence of hardened investors who have always pursued an offplan investment strategy considering a radical change.

The profitable strategy of the past decade is fairly simple on paper – find a reputable builder, reserve an apartment in a great location which will be built in 2-4 years time, negotiate preferable payment terms and wait for capital appreciate during the construction stage. Definitely not as easy as it sounds, but hundreds of thousands of people have been doing it successfully.

Times are changing though, and these same hardened buyers are now pursuing a new strategy with equal vigor – instead of offplan apartments or condo hotels in emerging markets, they are snapping up completely finished properties in developed markets at discounted prices.

Why? The credit crunch. Developers are struggling to sell excess stock, which means they are under pressure from the banks that financed them. This forces them to drop prices dramatically to stimulate supply and boy are they doing it. I’ve seen prime urban properties in very wealthy cities selling cheaper than an offplan resort in an area with a fraction of the income per capita.

The property section in Torcana.com has plenty of examples for any who have time to look through them.

Kind Regards

Colin Murphy

Torcana Ltd

Tags: distressed property, distressed property developers, Overvalued Irish land, profitable strategies, Torcana
Posted in General Opinion |

There’s quite a lot I can’t figure out about Ireland these days. Perhaps I’m spending too much time in Spain.

For example, why is the government so preoccupied with protecting the level of house prices when most of the people trying to sell are buy to let investors and property developers? Why are major banks cutting mortgage lending by 80% while average house prices have only fallen 20-30%?

It’s a big problem in Ireland that people don’t seem to see foreclosures and fire sales as a necessary evil to stimulate demand and reduce supply. There is simply no way to recover quickly without it.

It reminds of of how the French always seem to sympathise with business owners rather than consumers.

Let me give you an example of how a more ruthless banking system can help stimulate a devastated property market. The property bubble in Orlando, Florida started in late 2006, and the banks were absolutely ruthless with people who got caught out - mostly investors and developers, but yes, ordinary people too.

The numbers of foreclosures increased dramatically, and the asking prices for them just kept falling and falling, first by 20%, then 40%, and eventually, in early 2009, by 70-75% from peak levels. Initially, the supply rocketed and demand fell off a cliff.

Without a doubt, a weaker banking and political system or a stronger lobbying group would have put a stop to it. Didn’t happen like that though. You keep dropping prices, you get rid of the rot in the system, and eventually, guess what? People will start buying again.

Let’s compare Orlando housing activity in April 2009 with April 2008

- House prices have fallen 37%
- 48% more homes were sold
- 50% of all homes sold were distressed priced or bank owned
- Properties are selling 15% quicker
- There is 20% less inventory than a year ago

Source: Orlando Realtors Association

In an ideal world of course, we would politely request points 2, 4 and 5 above. But I can’t see that happening somehow.

All comments welcome.

Kind Regards

Colin Murphy

Director

www.torcana.com

Tags: distressed property, Florida Foreclosure services, mortgage lending, Orlando Sentinel, Overvalued Irish land
Posted in General Opinion, USA Property |

While Irish taxpayers will understandably be galled at the thought of paying for non performing property loans; I don’t really see what difference it makes whether the loans based on the purchase of Irish or foreign land. The purpose of the National Asset Management Agency or the “bad bank” as it’s more commonly known, is to provide certainly about Irish banks balance sheets by removing assets whose value is worrying investors.

This should give investors a measure of confidence, as the government is effectively forcing the banks to write down the value of the loans before taking them over. However, they’ll be concerned about the (vague) levy that could be charged back to the banks (and hence their investors) if the Irish government makes a loss on these assets down the line.

I actually think the worst performing loans are going to be those given to purchase scandalously overvalued Irish land (a prime example being the Jurys Ballsbridge site in D4). I don’t see why they wouldn’t be able to recoup a decent percentage of loans given to purchase in places like Florida and Birmingham (given time), although I’d imagine most of the Eastern European loans (a very small percentage of the total) will simply be written off.

Kind Regards

Colin Murphy
Director
Torcana Ltd

Tags: Budget 2009, Irish government, National Asset Management Agency, Overvalued Irish land, Torcana
Posted in General Opinion |