France – Not Only for Tourists, But for Real Estate Investors

France has always been a popular tourist destination, but in recent years it has also become a hot spot for property investors. With its rich cultural heritage, beautiful landscapes, and world-renowned cuisine, France offers a lot of potential for those looking to invest in property. In this article, we will explore the benefits of investing in property in France and the GMG mortgage options available for investors.

Rental Income Potential

One of the main benefits of investing in property in France is its strong rental market. There is a high demand for rental properties, particularly in popular tourist destinations like Paris, Cannes, and Nice. According to SeLoger, the rental yield for apartments in Paris ranges from 3.2% to 4.2%, which is considered high compared to other major cities such as New York and London. In Cannes and Nice, rental yields can range from 3.5% to 5%, depending on factors such as location, property type, and seasonality. Additionally, the French government has implemented policies to support the rental market, such as tax incentives and subsidies for landlords.

Price Appreciation Outlook

Another advantage of investing in property in France is its potential for price appreciation. While property prices in some parts of France are already high, there are still many areas that offer more affordable options for investors. According to the National Institute of Statistics and Economic Studies, property prices in France have been increasing steadily since 2015, with a 3.9% increase in 2021 and a 3.8% increase in 2022. In Cannes and Nice, property prices have increased by an average of 4-5% per year over the past decade, according to French Property. Additionally, the French government has implemented policies to encourage foreign investment in the real estate market, such as offering tax incentives for long-term investors.

Low Cost of Living

France is known for its high standard of living, but it also has a relatively low cost of living compared to other developed countries. This can make it an attractive option for investors who want to keep their expenses low while they are managing their properties.

Mortgage Options for International Investors

GMG offers a range of mortgage options for international investors looking to invest in property in France. With a team of experienced mortgage advisors, GMG can help investors find the right mortgage for their needs. GMG offers both fixed and variable rate mortgages, and investors can choose from a range of repayment terms.

In addition to mortgage options, GMG also offers a range of other services to help investors navigate the French property market. This includes legal and tax advice, property management services, and assistance with the purchase process.

Overall, France offers a lot of potential for property investors looking for a stable market with strong rental demand and the potential for price appreciation. Paris, Cannes, and Nice, in particular, offer investors the opportunity to invest in growing tourist destinations with world-class attractions and stunning natural beauty. With GMG's mortgage options and other services, investors can navigate the French property market with confidence.

Get in touch with us to learn more about investing in France, properties available to purchase through our partners and about GMG's financing solutions for foreign national investors today at [email protected].

5 Reasons to Invest in Japanese Real Estate

5 Reasons why Japan Real Estate Is a Good Investment 

In recent years, Japan has become an attractive destination for property investors due to its stable economy, low crime rates, and high standard of living. With its rich cultural heritage, stunning landscapes, and bustling cities, Japan offers a lot of potential for those looking to invest in property. In this article, we will explore the benefits of investing in property in Japan and of course GMG mortgage options available for investors. 

1. Surprisingly High Rental Income Potential 

One of the main benefits of investing in property in Japan is its strong rental market. There is a high demand for rental properties, particularly in popular tourist destinations like Niseko. According to Japan Property Central, the rental yield for apartments in central Tokyo ranges from 4-5%, which is considered high compared to other major cities such as New York and London. In Niseko, rental yields can range from 4-8%, depending on factors such as location, property type, and seasonality. Additionally, the Japanese government has implemented policies to support the rental market, such as tax incentives and subsidies for landlords.

2. Price Appreciation Outlook

Another advantage of investing in property in Japan is its potential for price appreciation. While property prices in some parts of Japan are already high, there are still many areas that offer more affordable options for investors. According to the Japan Real Estate Institute, property prices in Japan have been increasing steadily since 2013, with a 2.7% increase in 2021 and a 2.9% increase in 2022. In Niseko, property prices have increased by an average of 3-4% per year over the past decade, according to Niseko Property. Additionally, the Japanese government has implemented policies to encourage foreign investment in the real estate market, such as relaxing visa requirements and offering tax incentives for long-term investors.

3. Low Cost of Living 

Japan has a reputation for being an expensive country, but it also has a low cost of living compared to other developed countries. This can make it an attractive option for investors who want to keep their expenses low while they are managing their properties. 

4. Mortgage Options for International Investors 

GMG offers a range of mortgage options for international investors looking to invest in property in Japan. With a team of experienced mortgage advisors, GMG can help investors find the right mortgage for their needs. GMG offers both fixed and variable rate mortgages, and investors can choose from a range of repayment terms. 

In addition to mortgage options, GMG also offers a range of other services to help investors navigate the Japanese property market. This includes legal and tax advice, property management services, and assistance with the purchase process. 

Overall, Japan offers a lot of potential for property investors looking for a stable market with strong rental demand and the potential for price appreciation. Niseko, in particular, offers investors the opportunity to invest in a growing tourist destination with world-class skiing and stunning natural beauty. With GMG's mortgage options and other services, investors can navigate the Japanese property market with confidence.

5. GMG Concierge Program

We have a large list of exclusive secondary properties in Tokyo and Yokohama with very good return profiles which can be shared with you upon request.

Meanwhile we have extensive relationships with real estate developers with new projects which we can show as well in Niseko, Tokyo and Kyoto.  

Get in touch with us to learn more about access to our property portfolio as well our Japan mortgage options for foreign national investors at [email protected]

5 Reasons Why U.S. Housing Prices will not Crash but Surprise us!

1. Lack of investment by homebuilders

According to data from the U.S. Census Bureau, fewer homes were built in the U.S. in the 10 years following the 2008 financial crisis than in any decade since the 1960s.

From 2010 to 2019, a total of 6.8 million new privately-owned housing units were completed in the U.S., significantly lower than the 9.7 million units completed in the 2000s and the 8.6 million units completed in the 1990s.

A major reason for the drop in new housing construction following the 2008 financial crisis was partly due to the housing market crash, which led to a decline in demand for new homes and tighter lending standards (Dodd-Frank).

2. Higher input costs

Additionally, builders faced various challenges during this period, including higher land and labor costs, regulatory hurdles, and a shortage of skilled workers for construction.

These issues are only more pronounced now with higher wages, higher input prices such as lumber, concrete, etc., and of course, financing costs as of last year!

3. Massive lack of housing supply to meet demand

Last year, Freddie Mac published an article, “Housing Supply: A Growing Deficit,” noting as of the fourth quarter of 2020, the U.S. had a housing supply deficit of 3.8 million units.”

Meanwhile, the National Association of Realtors projects that the housing deficit is closer to 6.8 million homes.

Lastly, a report published by the Fed last year, “Volatility in Home Sales and Prices: Supply or Demand?” find that a 30% increase in the monthly number of homes coming onto the market would have been necessary to keep up with the pandemic-era surge in demand​.

4. TikTokers need more space at home

However, there is a new dynamic that has arisen over the past 3 years, which is how labor is defined and its impact on housing. Many workers are now choosing to work from home, and also, the younger entrants into the labor force are now earning income from alternative methods, all requiring some “extra space” at home and not an office to go to (TikTok, Amazon sales, Crypto trading, etc.) – this is all very supportive of housing demand.

5. Stability

The stability of the U.S. housing market cannot be underestimated. Post-COVID, when mortgage rates were lowered to historically low levels, most homeowners took the opportunity to refinance their homes to take advantage of the interest rate savings. Fast forward to today, 50% of all mortgages outstanding are under 4%, fixed for 30 years​; 40% of all homes are owned free and clear, and nearly 100% of all borrowers have mortgages lower than the current rate!

Will we see a crash? NO!

We feel given the structure of the supply-demand landscape, there is no impending crash, but we feel the market will be supported faster than expected.

In summary, whether you say we are 4M units short, 6M units short, or 30% short – we are short, making this a great opportunity to start building your U.S. rental portfolio, given rental income and yields will continue to rise.

5 reasons why Texas is a GREAT state for property investment

Note: From March 14-19, we will be showcasing single-family homes near Dallas, Texas, for sale. Starting at $390,000, these are great starter homes for those looking to build their investment portfolio. They are even more attractive when you take advantage of our 75% financing and property management services. Click here to sign up or learn more.

In the report, we want to highlight why Texas is an attractive state to own an investment property in. 

Many know Texas as the home to many famous sports teams and a popular 80s soap opera.

However, it's also the state that has been the most gentrified over the past few years and will continue to, in our opinion. Texas has an underappreciated diverse, and robust economy, with numerous industries, including oil and gas, technology, healthcare, and manufacturing. This has resulted in job growth and a steady influx of new residents, which drives housing demand.

Let's start with our 5 reasons to own investment property in Texas

1. Strong Economic Growth: 

Over the past decade, Texas has also consistently ranked among the fastest-growing states in the U.S., driven by a number of factors, including a business-friendly environment, a growing population, and a diversified economy – all positive factors contributing to a strong real estate market. 

Texas has outperformed the national average in terms of GDP growth.  

Insight: The Bureau of Economic Analysis, as of 3Q2022:

Real GDP growth rate for Texas was 8.7% vs. the national average of 3.2%. 

Personal Income growth +6.9% vs. national average +5.3%! 

People in Texas are seeing their wages grow more, and their companies are growing faster than the rest of the nation by a long shot!

2. Affordability:

Compared to other major U.S. cities, Texas cities like Houston, Dallas, and Austin are generally more affordable in terms of housing costs, which can make them attractive to investors looking to get more for their money.

Texas has a lower cost of living than the national average, which can make it an attractive destination for people looking for a more affordable place to live. 

Insight: According to data from the Council for Community and Economic Research, as of March 2023, the cost of living in Texas was approximately 8% lower than the national average.

Mostly from housing, 15% lower, Food, 9% lower, Transportation, 7% and Healthcare, 4% lower than the national average. 

Housing costs, in particular, tend to be more affordable in Texas compared to many other parts of the country, which can be an important consideration for people looking to buy a home or rent an apartment.

3. Business-Friendly Environment: 

Texas is known for its business-friendly environment, with low taxes, a favourable regulatory climate, and a pro-growth mindset which now leads the nation in the number of Fortune 500 companies that have made the state their headquarters.

In just 2021 alone, 62 companies relocated their HQs to Texas from 17 other states and 3 countries, with Tesla being the most notable.

This steady stream of businesses and corporations relocating to the state brings with them jobs and new residents.

There is no individual income tax in Texas and no corporate income tax. State sales tax of 6.25% is also lower than the national average of 8.20%.

4. Landlord-Friendly State:

Texas is known for its strong protection of property rights, which can be attractive to landlords. 

Quick eviction: Landlords have a legal right to evict tenants who fail to pay rent or violate the lease terms with a quick eviction process compared to other states, which can be helpful to landlords who need to regain possession of their property quickly.

Limited tenant protections: Compared to other states, Texas has relatively few laws protecting tenants' rights. For example, there is no limit on security deposits, and tenants have limited legal recourse if their landlord fails to make necessary repairs.

Freedom to set rent: Landlords in Texas have the freedom to set their own rent prices without being subject to rent control or other restrictions.

5. Strong Rental Market: 

Texas cities have strong rental markets, with demand driven by a combination of population growth, job growth, and a relatively high number of renters compared to homeowners. 

This can make investing in rental properties in Texas a lucrative option.

Insight: According to data from Zillow as of February 2023, the median rent in Texas increased by 5.8% over the past year and will continue to increase to 8.4% as of May 2023, according to the Dallas Fed report. 

I hope this report helps shed some light on why Texas has been and will continue to be one of the most popular states to own an investment property in.  

As we mentioned at the beginning of this report, we are bringing brand-new single-family homes in Dallas, Texas, through Asia from March 14-19. If you want to learn more, please click this link and register.

How will Singapore’s & Hong Kong’s property markets develop in 2023, & what other factors will determine the two cities’ appeal as financial hubs?

Singapore and Hong Kong’s property market will do well in 2023 for similar as well as different reasons.  

For Hong Kong, a place where my family is originally from and where I spent over 20 years of my career, I feel like the market is coming from a low base of price, sentiment, and liquidity as a result of many reasons that we all know about. 

I think a small uptick in sentiment will get local buyers to become active again, and the political overhang during COVID seems to have been lifted with the new pro-active administration.  

At the end of the day, Hong Kong’s competitive strengths is from its long history of promoting free trade and open markets. Capital markets will pick up, foreign companies and executives will move back, providing support for the overall property sector. 

Singapore’s reputation has benefitted greatly from having a systematic approach to dealing with COVID. 

Its pragmatic and meritocratic approach to running the country is its core strength, and the world is taking notice. 

It’s no secret how well Singapore has created an environment for top overseas talent and families to be attracted to safety, ease of travel, good schools, true multi-cultural society, attractive living options, and great food! 

With recent programs to attract top foreign talent and family offices, the top end of the real estate market has been very hot, with new record prices being mentioned almost every day. This will continue to support the real estate market, and now with the countries all opening up, prices will continue to remain strong as affluent families look for options to move here – company setups, employment, education, and at the very high-end, setting up family offices.   

Prices for high-end residential homes in Singapore are around $3,000 psf which is really what Hong Kong was in the late-90s, so there is a considerable amount of upside for Singapore real estate if that is how you want to look at the 2 markets. 

My personal opinion is the competition portrayed often by media between Hong Kong, and Singapore is unwarranted. Once all countries in Asia open up in earnest, Hong Kong and Singapore will be connected more so than ever and will part of one ecosystem with China, in my opinion. 

The custodial and wealth management business will continue to move to Singapore, and families will move here and take advantage of the strong school systems and safe environment to raise a family. 

Meanwhile, Hong Kong will still be the centre for capital markets. The biggest market cap companies in Asia ex-Japan are Chinese companies, and naturally, they will be listed in Hong Kong given that the HKD is a freely traded currency as China’s capital account is still closed, all things equal. However, Singapore is at the cutting edge of many industries like healthcare and medical research, blockchain, education, and much more. 

For more information, get in touch with us at [email protected]

USA #1 Destination, Says Knight Frank APAC Outlook 2023

In our first article of the year, we want to reference the recently-published “Knight Frank’s APAC Real Estate Outlook 2023”.

This report is particularly relevant given that their target audience and readers of UHNWI, HNW, and Global Family Offices are the same as ours. We work with private banks, client advisors, external asset managers, real estate agencies, and family offices all around the globe as their real estate financing and property-sourcing partner.

KNIGHT FRANK APAC REAL ESTATE OUTLOOK 2023 SAYS --> U.S.A. #1!

One glaring takeaway from the Knight Frank report is that out of the Top 10 Locations for a 2nd Residence for Asian and/or UHNW buyers, U.S.A. is their top choice! 

Here is the list in order of preference:

1 – U.S.A.!!!!

2 – Australia

3 – New Zealand

4 – United Kingdom

5 – Singapore

6 – South Korea

7 – Taiwan

8 – Japan

9 – Indonesia

10 – France

PEOPLE ARE FINALLY NOTICING WHAT WE HAVE BEEN SAYING -> U.S.A.! 

While we have been way ahead of this thesis, having been on our journey the past 5 years promoting the benefits of owning U.S. real estate, what we find interesting is that: 1) global real estate behemoths like Knight Frank are promoting U.S. Real Estate and 2) the Asian and UHNW clientele have chosen U.S.A. as their favourite destination for owning a second home.

WHY INTERNATIONAL INVESTORS ARE FAVOURING THE U.S.A. vs. R.O.W.? 

Over the past 12-24 months, what has been clear to us from conversations with our clients, in the eyes of an international investor is that:

1) real estate is finally an inflation hedge, 2) the U.S. is a safe haven, especially for real estate, 3) having more USD exposure has economic benefits, 4). while they may not want to live there permanently; having a base in the U.S. has benefits (U.S. Family Office, U.S. Trust, etc.), 5) the age of children who were born during the start of the latest economic boom (say around the time China entered the W.T.O. in 2001) are now entering high school/university. The U.S. still has the best for both globally, 6) the U.S. tax regime is not as complicated as perceived, 7) they would appreciate help finding the property, advising on tax and corporate holding structure, and arranging a property management company.

KNIGHT FRANK’S REPORT ECHOES WHAT OUR CLIENTS ARE SAYING TOO! 

In their report, the top 3 themes influencing investment strategy are 1) mitigating higher inflation (69%), 2) income security (67%), and 3) focusing on safe haven markets (55%).

While this is consistent with what our clients tell us, Education is also an important theme. This is assumed given Education is what drives price appreciation, which in turn creates a safe haven market.

GMG HIGH-NET-WORTH REAL ESTATE ADVISORY

We launched this in 2022, and we have grown our capabilities due to demand from our end-clients and global partners, private banks, family offices, external asset managers, and client advisors.

Residential Real Estate Financing: U.S.A., Mexico, Canada, U.K., France, Spain, Portugal, Dubai, Singapore, Hong Kong, Thailand, Philippines, Japan, Australia

Global Bridging Loans: U.S.A., Canada, U.K., Australia, Singapore, Hong Kong, Thailand, and Philippines.

Asia Institutional Structured Real Estate Debt Financing: US$50M minimum (<$50M case-by-case basis), Construction, Development, Singapore, Hong Kong, China, and Australia.

Global Property Sourcing*: U.S.A., Canada, U.K., Spain, Dubai, Singapore, Hong Kong, Thailand, Philippines, Australia, and Japan. 

Global Property Extended Services*: Expat and/or Foreign National Tax and Holding company advice, Property, and Personal insurance.

Other Financing Solutions: Share financing, Crypto financing (case-by-case), and Luxury watch financing.

*Introductions to carefully-selected partners to include by not limited to developers, real estate agents, lawyers, and accountants. 

THE GMG STORY

Founded in 2019 by Donald Klip and Robert Chadwick to provide solutions to international clients looking to secure real estate financing in countries where they are not residents, typically for investment purposes or a second home. We have now grown to a team of 25, spread across the world, offering financing solutions to every major country in the world with over 300 lending relationships globally. 

Reference: Knight Frank APAC Outlook 2023 Report

“On the Ground”…. in Niseko

This is the first of our series of Country Focus reports where we highlight locations where we see most of our international mortgage loan demand – namely: the UK, Canada, Portugal, Spain, France, Dubai, Thailand, Singapore, and Niseko!   

Niseko has been Asia's little secret for over 10-15 years now. Referred to as the “Aspen of Asia” with some of the best, if not the best, powder snow in the world, known as "pow" for those “in the know”. It's also foreigner-friendly towards real estate with no restrictions on owning property, even freehold. 

GMG launched the world's first mortgage options for Niseko 2 weeks ago, and we have had over 100 loan requests and 40 submissions! More below on our program.

Historically, Niseko investment interest was from local Japanese buyers looking for vacation homes outside the more well-known areas – Nagano, Hakuba, etc. but that all changed when International hotel brands began building a presence in Niseko, such as Park Hyatt in Hanazono, which was completed in 2019. 

Another aspect of Niseko's growth was driven by local realtors bringing awareness and new developments to the international markets, namely Mitsui Fudosan, Japan's largest real estate agency. Other global agencies have put their hat in the ring, and results have been spectacular, with property prices doubling since 2015! 

Ask us about our Niseko Concierge Service - where we offer access to Niseko property developments directly through homebuilders and realtor partners.

Demand has been driven by the usual suspects, affluent families in Singapore, Australia, Hong Kong, Philippines, Thailand, and China, but we are certainly seeing more demand from Europe and even North America – at least from our mortgage demand. 

An article by Japan Property Central on October, 3, 2022, they say "A 2.5-year closure to inbound travel hasn't slowed investment in Niseko's ski resort market with the Nikkei Shimbun reporting that the 'Aspen of Asia' has seen over 20 billion Yen (approx. US$138 million) in known real estate purchases by foreigners each year."

If you compare with other world-class ski resorts around the world, Niseko is also significantly more affordable, averaging approximately $9,000 per square meter vs Courcheval 1850 at $25,000 per square meter and Aspen at $24,000 per square meter! 

Meanwhile, let's not forget about the food! There are about 20 restaurants in Niseko with Michelin stars. Some well-known restaurants are Toya (2S), Kamimura (1S), Asperges (3S), Bistro Kutchan Sakuba (1S), Rakuichi Soba (Michelin recommendation), and many more. 

Opening-up

After an extended period of restrictions, in October 2022 the Japanese government lifted most of it pandemic-related restrictions. Tourists can now visit the country without a visa and are no longer required to go through a travel agency. There is also no cap on the daily number of foreign arrivals. According to the Japanese real estate agents, property transaction volumes have already climbed back to 50% of pre-pandemic levels.

This would be an excellent time to take advantage of the pent-up demand for vacation especially area of the Autumn and Winter holiday season.

Affordability 

The Japanese Yen has weakened considerably against major currencies, dropping in the past few weeks to the lowest it has been against the US Dollar over the past 24 years, giving international buyers more purchasing power than before, especially Hong Kong buyers whose currency is pegged to the USD.  

GMG Niseko Mortgage

As an international financing specialist, GMG develops innovative loan programs for our clients globally. Our newly-launched Niseko loan program has been a year in the making! Finally, there are now financing options for Niseko properties for both onshore and non-resident borrowers, both Japanese citizens, and foreign nationals.   

Borrowers can obtain up to JPY 1 billion in financing with high 70% loan-to-values and long 20-year terms for the purchase or refinancing of investment properties with rates between 2-3% (indicative). For more information visit our Niseko Landing Page.

For anything Niseko-related, please contact Leonard Lee, MD of Business Development at [email protected].

Why Rents Increase in the “Bizarro World”

The "Bizarro World" references Bizarro Superman, a supervillain who lives in a world where everything is opposite. Here's a great explanation from the TV show Seinfeld. 

This reminds me of the world we live in now; mortgage rates double in 10 months, and yet, rental yields continue to increase double digits, year-on-year. 

I have been telling our clients over the past few months that it is a great time to be owning a home in the U.S. for investment income. Most of us have lived through a few economic cycles, and for most of my career, 30-year fixed rates were between 6-7%, which is when I got my first mortgage in 2006, similar to where rates are now.  

However, back then, you owned homes almost as leveraged equity, not like what it's meant to be, more similar to a bond. 

When academics say real estate is an inflation hedge, that is a peculiar concept since we have not really seen any inflation since the 70s, so not many of us know what that means in real life.    

Till now….

This world is very different. Good or Bad, the fact is that there are significantly more people who need housing, millennials are unable to afford homes, and the rising rates have squeezed out the marginal buyer, and all of the above need to live somewhere. 

My colleagues hear me say this ad nauseam, 

"We will be in a world where 30-year fixed-rate mortgages are 7%, but rental yields are 10-15% very soon".

I will try to explain why in this report. 

A few days ago, on October 13th, Redfin reported that the Median U.S. Asking Rent rose 9% year-over-year in September to $2,002, the slowest growth since August 2021 and the first single-digit increase in a year. Sure the article makes it sound bearish.

Wait a minute? (sound of car screeching on the pavement).

Mortgage rates have doubled since the beginning of the year, and yet rents are still rising 9% a year. (As recent as May, rents rose +18% year on year!)

While visually, it does look like rents are falling, but that was from an outlier peak of 18% in May….my personal view is anything that has growth in this world is POSITIVE!

In some cities like Oklahoma City and Pittsburgh, rents rose by more than 20% year-on-year (not a typo). More below. 

THE PROBLEM – HOUSING SHORTAGE

A housing shortage is not something you can really see. We hear it on the news or read it in the papers, and we think…how can that possibly be an issue. 

Can't homebuilders just build more homes? 

The NABM/Wells Fargo Housing Market Index dropped three points to 46 in September, the lowest reading since May 2014!  

Meanwhile, "Application to Build" declined to 1.52M units, the lowest since 2020. 

Number of Building Permits (SAAR)

One could also conclude with higher borrowing costs, homebuilders are discouraged from starting new projects, which is not helping the undersupply situation. 

Another aspect of this is the financial incentive.   

Like many other issues in the U.S. economy, there has been a focus on shareholder returns, dividends, share buybacks, etc., and hence the underinvestment in housing development since the Financial Crisis in 2008.  

In fact, fewer homes were built in the U.S. in the 10 years following the 2008 financial crisis than in any decade since the 1960s! Think about that for a moment! 

In the normal world, high mortgage rates tend to bring down values, and of course, there are some parts of the U.S. that are seeing a relatively faster decline in home prices, like San Francisco. I would argue that is city-specific, as the local economy hollows out and the homeless situation and cost of living is untenable for most. 

Across the nation, there are indeed fewer sales and more price cuts on listed homes. 

However, in this "Everything-is-weird" economy, the doubling in mortgage rates hasn't caused home prices to fall as much as you would think, all things equal.   

In fact, I really don't think we are going to see any substantial collapse in home prices in the coming years because many owners bought when mortgage rates were low and can simply stay put through this phase of the economic cycle. 

Also, there was less speculation, and investors put more equity in the properties during a time of tight supply. This will keep many families locked out of homeownership and forced to rent.

Here are some mind-blowing data points: Around half of all mortgages outstanding are under 4% fixed for 30 years, and about 40% of all homes are owned free and clear. Think about that for a moment!

Last month, Philly Fed President Patrick Harker discussed his recent research report with most major news outlets, "Unpacking Shelter Inflation", September 2022, that the housing shortage is a key inflation driver. Read: "…housing shortage…"

In another research report by the Fed, "Volatility in Home Sales and Prices: Supply or Demand?", Anenberg and Ringo, June 2022, write:

"We find that a 30% increase in the monthly number of homes coming onto the market would have been necessary to keep up with the pandemic-era surge in demand. Since new construction typically accounts for about 15% of supply, our estimates imply that new construction would have had to increase by roughly 300% to absorb the pandemic-era surge in demand. This is a very large, unrealistic impulse to housing supply in the short-run, suggesting that policies aimed at reducing bottlenecks to new construction would have done little to cool the housing market during Covid-19."

Read again: "…new construction would have had to increase by roughly 300% to absorb the pandemic-era surge in demand."

Here is yet another report, this time by Freddie Mac. "Housing Supply: A Growing Deficit", Kater, May 2022. I give a little more weight to Freddie Mac since they are actually buying the loans. Their thesis is that:

"As of the fourth quarter of 2020, the U.S. had a housing supply deficit of 3.8 million units. These 3.8 million units are needed not only to meet the demand from the growing number of households but also to maintain a target vacancy rate of 13%. Between 2018 and 2020, the housing stock deficit increased by approximately 52%."

Read yet again! "…U.S. housing supply deficit of 3.8 million units."

I always take stuff like this with a grain of salt because academics look at things from a 10,000 ft altitude and through the lens of an Excel spreadsheet, but the gist is that every Think Tank in the world seems to claim there is a shortage of housing supply and since they have a few more tools (and PhDs) at their disposal for this that I do, I will take their conclusions at face value.  

Here is a neat graphic from The New York Times, The Housing Shortage Isn't' Just a Coastal Thing Anymore" Badger and Washington, July 2022.

The Housing Shortage has Spread to More Parts of the Country.

Source: Up for Growth analysis of U.S. Census Bureau and U.S. Department of Housing and Urban Development data. Shortage percentages reflect estimated housing units needed to meet demand as a share of existing housing units. Metros with a surplus have enough housing for existing residents.

Let’s look at recent city-specific rental prices:

Top 10 HIGHEST Year-on-year Change in Median Asking Rent (%) *

Top 10 LOWEST Year-on-year Change in Median Asking Rent (%) *

Top 10 HIGHEST Median Asking Rent *

Top 10 LOWEST Median Asking Rent *

* From Redfin News: "Rental Market Tracker: Rents are Growing Half as Fast as They Were 6 Months Ago," by Lily Katz, October 13, 2022 Methodology - Redfin analyzed rent prices from Rent.com across the 50 largest U.S. metro areas. This analysis uses data from more than 20,000 apartment buildings across the country.It is important to note that the prices in this report reflect the current costs of new leases during each time period. In other words, the amount shown as the median rent is not the median of what all renters are paying but the median cost of apartments that were available for new renters during the report month. Currently, Redfin's data from Rent.com includes only median rent at the metro level. Future reports will compare median rent prices at a more granular geographic level.

DEMAND IS DIFFERENT NOW

Single-person households accounted for 80% of the new household units that have formed since 2020. Think your one-man Crypto trader or Tik Tok marketer. Meanwhile, the number of Gen Z adults living alone almost doubled from January 2020 to early 2022 (sounds like a lot of COVID breakups), likely using the stimulus income to get started. The point here is that the way labour formation is defined now makes this current real estate cycle and how it interacts with the overall economy very different from past cycles.   

Another quirk of the world we live in is Video Conferencing. While we can imagine a world where we go back 5 days a week but in reality, my view is that how we work has changed forever and there are clear benefits for being able to Zoom. What this has done is artificially increased the living space needed (globally). That is to say, adding a corner or a room just for Zoom calls etc, driving up demand for overall living space.

SUMMARY

In summary, the makeup of the labour market, as well as the supply demand imbalances in real estate, are very supportive of higher rental prices and rental yields over the long term. 

As a non-resident buyer of U.S. real estate hoping to earn income, this is the perfect storm and has only happened BECAUSE rates are rising.    

We may see rates come down in the future where borrowers can easily refinance into a lower rate, but what if prices do not come down or there is a sudden price surge next year? These are all crystal ball-type guesses but what I want to leave with you in this report is that the lack of supply is a major long-term driver of higher rental yields, which is positive for any U.S. real estate investor.

U.S. real estate is considered a safe haven for many – low entry price point, no stamp duties, ease of gentrification, available tax deductions, USD income, ease of travel, quality of schooling, and the list goes on.  

If you have any questions about this report or about anything U.S. real estate or mortgage related, please feel free to reach out to me directly at: +65 9773 0273 or email me at [email protected].

“Ex-post, Ex-ante” + Family Office uses bridge loan to buy Retail/Office building

"Ex-post, Ex-ante" + Family Office uses bridge loan to buy Retail/Office building
"Ex-post, Ex-ante" + Family Office uses bridge loan to buy Retail/Office building

Ex-post

The worsening energy crisis in Europe has taken the front page of most media channels this week as the Nord Stream 2 pipeline, a 1,200 km natural gas pipeline from Russia to Germany, remains close, which is driving the Euro to a 20-year low vs. USD. The BBC reports that the annual energy bill for a typical UK household is £1,971. From 1 October, however, that's due to rise 80% - to £3,549!!! Can you imagine paying USD4,000 a month for electricity?! The new incoming PM, Ms. Truss, will certainly be making this a top priority. We really hope for a mild winter in Europe for everyone's interest. 

Meanwhile, the Yen is now close to a mind-boggling ¥145 vs. USD, a 24-year low! Oil at $82 is a very critical level and, technically speaking, could break lower, which could give some breathing room to the economy. Seeing Oil go from $120 a barrel in May 2022 to $85 now shows how volatile the world is and also how quickly demand can fall for the most popular commodities.

In the US, Nonfarm payrolls were +315,000 in August (seasonally slow) vs. +526,000 in September, slightly lower than expected but a big month-on-month decline. Meanwhile, unemployment is at +3.7%, slightly higher than expected. The tight labour market while companies are announcing hiring freezes is peculiar. Could this be a recession where employment is less affected? ISM Manufacturing for August was 52.8, unchanged from July – not the decline I was hoping for to give us a little breathing room. 

* Reference only. These rates are Conforming rates, not applicable to Foreign Nationals. 

Ex-ante

I'm really keeping an eye on oil prices…I have a sinking feeling that Oil is such a consensus overweight for most hedge funds (and institutions) that technical breakthrough support (say $80) will see a further decline in oil prices which is good news for everyone! European energy prices are now generally 15-20% of GDP, and someone has to pay for it – the public or private sector. If the public pays for it, it will have to run a fiscal deficit of 15-20% of GDP, so more debt on top of the already growing debt problem. The private sector gets tricky, especially for countries that have piled on loads of debt in a short period of time. One country that sticks out is Sweden, with over 150% of private debt to GDP. Nationally, Sweden's debt service ratio is 27% (highest on record). It appears Sweden, France, and South Korea are the most interest-rate sensitive countries, relatively speaking, according to BIS data. Watch this space. The negative soundbites on the European banking sector are going to get louder and more frequent.  

Buy now! Why now? 

We are in a perverse cycle where rising rates are actually squeezing up rental yields. The marginal buyer cannot afford to own given rate rises, and the Millennials also cannot afford and must rent – AND, to add to that, there is a 3.8M housing shortage according to the Fed. If you read last week's "Ex-post, Ex-ante," places like New York are seeing double-digit percentage increases in rents, BUT 39% of residents are looking to move given the high cost of living. It won't be long where we are in a world where rates are 7-8%, BUT rental yields could be 15-20% (some parts of Texas can net you low teens yield already).

Look at this chart below from a Bloomberg article (7 September) US household debt service ratio has fallen from around 13% at the time of the last housing crisis to 10% now, according to the Fed. The amount households are spending to service their mortgage debt has been cut almost in half, from 7.18% in 2007 to a recent 3.89%! 

LOANS OF THE WEEK!

1. Indonesia family uses bridge loan to purchase $5.4M Retail/Office to maximize cash flow

- Client was offered a bank loan at 5.75% but given that it is cash-flow based he would not be able to cover the 1.25x cash flow coverage typically required and would be able to get around 40% LTV. Our knowledge was valuable. We knew that California is a tough market as it is with very low CAP rates but the added increase in interest rates is making it even harder to achieve higher loan amounts.

- Our solution: Use a bridge loan with higher leverage, interest-only payment to get into the property. Then position the tenants for renewal of their lease agreements and refinance when rates come back, allowing for more leverage to be supported by the cash flow. Good news is the client is using this strategy to purchase more yielding assets in the US. Loan managed by our Head of Sales, [email protected]

2. Canada tech entrepreneur buys $1.25M condo in Miami

- Client wanted to start building rental portfolio in the US to earn income and to begin developing a credit footprint for future family and business opportunities. Given the nature of his business, he was not able to find bank financing in Canada and we were able to find a mortgage which used his Canada credit and income to qualify.  Funded in 43 days with the help of our Canada-based loan officer, [email protected]

3. UK family buys $850K Boston condo in son’s name to develop credit

- Client bought condo in son’s name to rent out while his son attends boarding school on the East Coast.  The intention is for him to stay in the condo upon graduation from university in 4-5 years or continue to rent out to bolster his income while starting out on his career, meanwhile developing US credit for himself.  Our UK-based loan officer provided a hassle-free experience throughout their mortgage journey, [email protected]

Schedule a call with us at [email protected] to find out more! 

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