Why Real Estate Can Give You Dreams…or Nightmares

They call it an investors dream. But it’s already turning into a nightmare for some.

New Zealand social media was aflame this week. It’s become blatantly obvious that the local real estate is being marketed as a speculator’s delight. Unfortunately for the actual citizens, this trend is only going to get bigger.

What gives? 3 News reported:

A radio advertisement being broadcast in Malaysia and Singapore targeting Auckland’s overheated housing market is causing outrage…

The ad, for All Property Solutions Singapore, says New Zealand is very affordable because there’s no stamp duty, no land tax and generally no capital gains tax.’

Which is true, there isn’t.

The Antipodes is going to continue to see what people in places like London, New York and all across Asia have known for a while. And that’s rich foreigners buying up the place and leaving locals with the dregs.

It was only last week that the Australian Financial Review ran a story about an Australia lawyer setting up a property scheme in Singapore. Her business is to help foreign buyers in Hong Kong, Singapore and China get around the investment rules on Australian housing.

Now, to be fair, the lawyer had not yet found clients. But the broader point was her position on it all. And that is it’s perfectly possible to set up the right legal structure. All the foreign investor needs to do is put up the money.

Or, as the article put the gist of it all:

Real estate agents and whistleblowers in the property market have warned that non-residents are using trust structures and other methods to slip past Australia’s foreign investment regime.’

Of course, there’s plenty of legitimate money coming in too. One interesting story I picked up this week was on Australia’s modular home park industry.

If that doesn’t sound familiar, one of the trends in the last couple of years is for permanent housing where buyers pay for the house, but not the land. A lot of caravan parks are going this way. For the buyer, this drops their upfront housing cost, but means they pay rent for the land component.

Apparently, one of the largest home park owner and operators in the US, Equity Lifestyle Properties, is eyeing this space in Australia.

One of the most notable features of Equity Lifestyle Properties is its Chairman, Sam Zell. The man is a billionaire and has been active in real estate and investment markets, collecting the rent for something like fifty years.

US private equity group Blackstone already has a foot here in Australia. They might be dipping another toe in soon. They’ve seen how profitable it is in the United States already.

The Wall Street Journal reported on that this week:

Investors are betting the industry’s fortunes will continue to improve. In the 12-month period ended in March, the total return for the three public manufactured housing REITs was 44%, the best performance of any REIT category.’

Baby boomers in America find this type of housing particularly attractive. No doubt the same will hold true for those here in Australia. Over at Cycles, Trends and Forecasts, we reported on this trend back in October of last year.

A Bloomberg article at the time showed the effect the demand for more affordable retirement was having on high-amenity locations. Baby boomers were buying manufactured houses located in trailer park type estates. Some were unlocking the equity in their home to free up cash. Others couldn’t afford anything better.

Not only that, listed corporations are increasingly becoming the landlord in these cases. These corporations are hungry for more of these sites. It’s an attractive situation for them as, like all good property investors, they can collect the rental income and the uplift in land value over time.

In fact, the whole story is modest example of how you can translate knowledge of the real estate cycle into stock market ideas.

Cycles, Trends and Forecasts is not a stock tipping service. But we suggested subscribers give some thought to Lifestyle Communities [ASX:LIC] last October. It was $1.90 then. It hit a high of $2.69 last week before dropping back this week. It still looks promising from here.

Why? Economist Fred Harrison noted in his 1983 book The Power in the Land that historically builders make their profit in the first half of the real estate cycle from capital improvements on the land, and in the second half from the land itself.

The secret’s all in the timing. Put it to your advantage here.

Callum Newman+,
for Markets and Money

Join Markets and Money on Google+

Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect.

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money