With the drop in demand owing to global economic crisis, rents for office spaces in Dubai Free Zones have also dropped considerably, noted an industry analyst.
The Research Analyst at CB Richard Ellis, Mohammed Faheem, said that the average rates of privately managed buildings in the free zones have dropped from the Dh.240-380 per sq ft range, to Dh.92-180 per sq ft during the first quarter of this year, thereby indicating a 52 to 61 percent drop.
This is a clear indication of decrease in demand. The free zones included in the survey were the Media City, Internet City, Dubai Silicon Oasis, Knowledge Village and Jumeirah Lake Free Zone.
Rents within the various zones vary from one another with few zones implementing rate restrictions to stimulate demand from occupiers. The buildings managed by free zone authorities have rents in the range of Dh.170-190 per sq ft.
The Dubai International Finance Center (DIFC), the special economic zone located in the central business district of the city, has fared much better, standing out above the rest of the prime locations in Dubai, with average rents ranging from $115-123 per sq ft. This is mainly because DIFC is a popular location among companies seeking to move in to Dubai.
Although, the lower rent rates in few of the free zones in Dubai, makes it more attractive, it really depends on the motive of the free zone managers. The rents are affected within the free zones mainly because the authorities have a different agenda than the commercial landlords, says Nicholas Maclean, Managing Director, C B Richard Ellis.
Tuesday, 5 May 2009
Multiple entry visa for property owners in UAE
Property owners can now enter UAE on a multi-trip entry visa, which permits them for a stay of up to six months, according to a new decree issued by the Interior Ministry.
This move is hoped to improve the local economic environment and offer all fundamentals that would help ensure prosperity and economic growth in the country. The multiple-entry permit can be renewed under certain conditions.
The regulation forms a part of the efforts by the UAE government to introduce adequate regulations to boost the local economic sector and offers all factors that aims to contribute to the growth and prosperity of the local markets and be of benefit to the public.
This initiative would benefit people seeking to bring in their families to the UAE, and this emphasizes the keenness on the part of the government to provide them with family stability.
A new clause has been added to the Article 33 of the new regulation, which states that owners of built-in properties are allowed to stay for a six-month period, after which, the owner can depart to his home country or stay in any of the GCC countries. He can however, enter the country again, after meeting the necessary criteria.
Another new article of the new regulation, states that the owner must submit a multi-trip entry visa, with respect to the property, under the following conditions.
* The property should be a built-in property, and should not include owners of vacant lands.
* The title of the property should be obtained from the Property Registration Authority in the emirate, by the owner. Also, the house or the apartment should be wholly owned by the owner.
* The cost of the unit should not be less than Dh.1million. The unit should have the capacity to accommodate the members of the family. The owner can include his spouse and children's details in the visa application, and attach an insurance cover for himself and his family, which would be valid during he period of their stay in the country.
* The fixed income of the owner should not be less than Dh.10,000 or its equivalent in foreign currencies, whether inside or outside the county, although the visa doesn't offer the owner the right to work within the country.
The permit would be considered invalid if any of the above terms are not met. The regulation would be effective from its date of issuance.
This move is hoped to improve the local economic environment and offer all fundamentals that would help ensure prosperity and economic growth in the country. The multiple-entry permit can be renewed under certain conditions.
The regulation forms a part of the efforts by the UAE government to introduce adequate regulations to boost the local economic sector and offers all factors that aims to contribute to the growth and prosperity of the local markets and be of benefit to the public.
This initiative would benefit people seeking to bring in their families to the UAE, and this emphasizes the keenness on the part of the government to provide them with family stability.
A new clause has been added to the Article 33 of the new regulation, which states that owners of built-in properties are allowed to stay for a six-month period, after which, the owner can depart to his home country or stay in any of the GCC countries. He can however, enter the country again, after meeting the necessary criteria.
Another new article of the new regulation, states that the owner must submit a multi-trip entry visa, with respect to the property, under the following conditions.
* The property should be a built-in property, and should not include owners of vacant lands.
* The title of the property should be obtained from the Property Registration Authority in the emirate, by the owner. Also, the house or the apartment should be wholly owned by the owner.
* The cost of the unit should not be less than Dh.1million. The unit should have the capacity to accommodate the members of the family. The owner can include his spouse and children's details in the visa application, and attach an insurance cover for himself and his family, which would be valid during he period of their stay in the country.
* The fixed income of the owner should not be less than Dh.10,000 or its equivalent in foreign currencies, whether inside or outside the county, although the visa doesn't offer the owner the right to work within the country.
The permit would be considered invalid if any of the above terms are not met. The regulation would be effective from its date of issuance.
Wednesday, 29 April 2009
40% decrease of Dubai property in Q1 2009 - Colliers International
Colliers International, the global real estate consultancy, has released the Dubai House Price Index (HPI) for Q1 2009, which indicates a decline in the overall index of 41% for the first 3 months of 2009. The index, compiled using mortgage transaction data from financial institutions accounting for 60% of the mortgage market in Dubai, also demonstrates a 34% year-on-year decline between Q1 2008 and Q1 2009. At the end of Q1 2009, property prices in Dubai had returned to approximately the same level as those recorded in Q2 2007.
John Davis, CEO, Colliers International, said, "Negative sentiment is the key factor driving the decline in the Index and the availability of finance continues to impact the market. End-users are concerned about job security and therefore unwilling to enter the market, even if finance is available to them, while the price/yield gap is tempting professional investors to wait for further declines. On a more positive note, the Index remained unchanged in March 2009. However, we would caution that it is too early to say whether the halt in the decline of the Index can be sustained, especially over the traditionally quieter summer months."
Colliers' analysis also highlights a key change in Dubai real estate market as professional investors, focused on the yield generated by a property, became the primary purchaser type as end-users and speculators fell away from the market. The HPI also analyses the trends for prices achieved for completed properties as opposed to properties still under construction.
John Davis, CEO, Colliers International, said, "Negative sentiment is the key factor driving the decline in the Index and the availability of finance continues to impact the market. End-users are concerned about job security and therefore unwilling to enter the market, even if finance is available to them, while the price/yield gap is tempting professional investors to wait for further declines. On a more positive note, the Index remained unchanged in March 2009. However, we would caution that it is too early to say whether the halt in the decline of the Index can be sustained, especially over the traditionally quieter summer months."
Colliers' analysis also highlights a key change in Dubai real estate market as professional investors, focused on the yield generated by a property, became the primary purchaser type as end-users and speculators fell away from the market. The HPI also analyses the trends for prices achieved for completed properties as opposed to properties still under construction.
Dubai Property prices are expected to fall by 70-75%
A recovery in the property market in Dubai is unlikely this year with some analysts predicting further steep falls in real estate prices.
The latest analysis from UBS Bank predicts that house prices in Dubai could plunge by up to 70% from their peak levels in 2008.
Analysts said that the real estate sector in Dubai will face a substantial glut next year while demand will continue to be weak as many of the expatriates who drove the property boom in recent years are losing their jobs and are returning home.
"In our view, we are still in relatively early stages of the property downcycle in UAE, and we believe risk-reward profits are not yet compelling for investors to consider market re-entry, hence, continued price declines are expected," said UBS.
UBS expects the average house price in Dubai drop to about Dh500 per square foot this year, compared to its peak of Dh1,850 in the fourth quarter of 2008. Prices have already fallen by 25% cent to about Dh1,400 per square foot.
It also predicts a further decline in Dubai's expatriate population which will fall by 8% this year and 2% in 2010. "We would not be surprised to find Dubai residential vacancy rates reach between 25% and 30% by the end of 2010," it said in its report.
UBS has also downgraded Emaar Properties, Union Properties and Aldar Properties, saying the UAE's property market fundamentals have weakened in the first quarter of 2009.
It cited existing investors defaulting on payments, insignificant incremental financing for both infrastructure projects and mortgage issuance and an increase in project cancellations
Dubai residential property prices have fallen by up to 42% over the last six months and have further to fall further to fall, according to the latest report Colliers International.
Ian Albert, Colliers' regional director said that speculators had largely quit the Gulf market and debt financing was unavailable, leaving only professional investors who only want nearly complete or income generating property investments.
The latest analysis from UBS Bank predicts that house prices in Dubai could plunge by up to 70% from their peak levels in 2008.
Analysts said that the real estate sector in Dubai will face a substantial glut next year while demand will continue to be weak as many of the expatriates who drove the property boom in recent years are losing their jobs and are returning home.
"In our view, we are still in relatively early stages of the property downcycle in UAE, and we believe risk-reward profits are not yet compelling for investors to consider market re-entry, hence, continued price declines are expected," said UBS.
UBS expects the average house price in Dubai drop to about Dh500 per square foot this year, compared to its peak of Dh1,850 in the fourth quarter of 2008. Prices have already fallen by 25% cent to about Dh1,400 per square foot.
It also predicts a further decline in Dubai's expatriate population which will fall by 8% this year and 2% in 2010. "We would not be surprised to find Dubai residential vacancy rates reach between 25% and 30% by the end of 2010," it said in its report.
UBS has also downgraded Emaar Properties, Union Properties and Aldar Properties, saying the UAE's property market fundamentals have weakened in the first quarter of 2009.
It cited existing investors defaulting on payments, insignificant incremental financing for both infrastructure projects and mortgage issuance and an increase in project cancellations
Dubai residential property prices have fallen by up to 42% over the last six months and have further to fall further to fall, according to the latest report Colliers International.
Ian Albert, Colliers' regional director said that speculators had largely quit the Gulf market and debt financing was unavailable, leaving only professional investors who only want nearly complete or income generating property investments.
Tuesday, 7 April 2009
New regulation likely for termination of off-plan contracts in Dubai
The Dubai Land Department has amended the Article 11 of Law No.13 regulating the Interim Real Estate Register, and this will be released in 15 days time. Once, released the new regulation is hoped to introduce provision for cancellation of contracts, and is hoped to benefit the market.
The department had already issued an internal circular during November 2008, wherein the circular stated that in case of termination of an off-plan contract, the developer can retain 30 percent of the contract value (30 to 70 percent of the amount paid), and that this would be applicable to amounts exceeding 30 percent.
However, in case of termination of contract, the developer of the property will retain the amounts paid by the buyer, until the real estate is sold.
The Director-General of Dubai Land Department, Sultan Butti bin Mejren, has said that the revised article would establish new grades for properties and developers, and would be more than the 30-70 rule, currently applicable.
The Law No.13, Article 11, which is currently applicable states that a developer is required to keep the Land Department informed, if a buyer breaches a sales contract. Thereafter the department would notify the purchaser personally or by registered mail or email, giving him one month time to fulfill the contractual obligations. At the end of the term, the developer can cancel the contract and refund the sum paid by the buyer, after deducting an amount not more than 30 percent of the total value of the unit.
The department had already issued an internal circular during November 2008, wherein the circular stated that in case of termination of an off-plan contract, the developer can retain 30 percent of the contract value (30 to 70 percent of the amount paid), and that this would be applicable to amounts exceeding 30 percent.
However, in case of termination of contract, the developer of the property will retain the amounts paid by the buyer, until the real estate is sold.
The Director-General of Dubai Land Department, Sultan Butti bin Mejren, has said that the revised article would establish new grades for properties and developers, and would be more than the 30-70 rule, currently applicable.
The Law No.13, Article 11, which is currently applicable states that a developer is required to keep the Land Department informed, if a buyer breaches a sales contract. Thereafter the department would notify the purchaser personally or by registered mail or email, giving him one month time to fulfill the contractual obligations. At the end of the term, the developer can cancel the contract and refund the sum paid by the buyer, after deducting an amount not more than 30 percent of the total value of the unit.
Monday, 6 April 2009
Discount for Dubai property? Easy!
New property in Dubai could now be snapped up for huge discounts after agents said some prices have fallen by as much as 70 per cent in 12 months.
Some brokers also believe the correction will continue into this year and will reach a level similar to prices seen in 2005, before a full recovery starts.
Earlier this year many real estate companies began to introduce flexible payment plans, discounts, and revised prices for people who had already put down deposits.
Even some of the plushest property in the emirate has been hit, with brokers claiming in February that some real estate schemes on the man-made Palm Jumeirah island had dropped by 50 per cent.
Quoted by the Khaleej Times, Mohammed Khan of real estate brokers New World Capital said: “We have already seen prices plummet across Dubai’s property sector by 50 to 70 per cent to the level of 2005.
“We expect the plunge to continue for the next six to eight months to bring prices down to their original level five years ago.”
According to the Khaleej Times, Khan mentioned a number of real estate schemes which have seen price drops, including villas at the Garden Homes project at AED 6 million ($1.6 million), down from AED 15 million ($4 million) a year ago.
Also mentioned were falls in property prices at Jumeirah Lake Towers, which were selling at AED 700 ($190) per sq ft of real estate compared to previous levels of AED 1,500 ($407) per sq ft
Some brokers also believe the correction will continue into this year and will reach a level similar to prices seen in 2005, before a full recovery starts.
Earlier this year many real estate companies began to introduce flexible payment plans, discounts, and revised prices for people who had already put down deposits.
Even some of the plushest property in the emirate has been hit, with brokers claiming in February that some real estate schemes on the man-made Palm Jumeirah island had dropped by 50 per cent.
Quoted by the Khaleej Times, Mohammed Khan of real estate brokers New World Capital said: “We have already seen prices plummet across Dubai’s property sector by 50 to 70 per cent to the level of 2005.
“We expect the plunge to continue for the next six to eight months to bring prices down to their original level five years ago.”
According to the Khaleej Times, Khan mentioned a number of real estate schemes which have seen price drops, including villas at the Garden Homes project at AED 6 million ($1.6 million), down from AED 15 million ($4 million) a year ago.
Also mentioned were falls in property prices at Jumeirah Lake Towers, which were selling at AED 700 ($190) per sq ft of real estate compared to previous levels of AED 1,500 ($407) per sq ft
Dubai property authorities to clarify default rules
A new real estate law amendment is to be introduced in Dubai to clarify what happens when a property buyers defaults on payments.
At present Article 11, Law 13, states that if a buyer defaults on a sales contract the developer can cancel the contract and return the buyer's money minus 30%. But there has been confusion over whether the law applies to 30% of the money paid to date or 30% of the total amount due.
The Dubai Land Department is expected to release an amended Article 11 this month introducing new provisions for the cancellation of contracts. 'We will release an amendment to Article 11 in the coming weeks. It is something good for the market as it is more comprehensive and detailed,' said the department's Director General, Sultan Butti bin Mejren
'The revised article will set new grades for properties and developers. It will be more than the 30-70 rule which is now applicable,' he added.
Meanwhile the Real Estate Regulatory Authority has clarified confusion over its new rental index. A spokesman denied reports that it was not going to be issued in April and confirmed it will be published this month and will reflect falling rent values.
It is expected to include lower rental values to take into account the current slowdown in the property market.
In a statement Mohammed Khalifa bin Hammad, the director of Real Estate Relationship Regulation at Rera, said the index was being updated as a result of data collected through the online rental contract registration programme.
At present Article 11, Law 13, states that if a buyer defaults on a sales contract the developer can cancel the contract and return the buyer's money minus 30%. But there has been confusion over whether the law applies to 30% of the money paid to date or 30% of the total amount due.
The Dubai Land Department is expected to release an amended Article 11 this month introducing new provisions for the cancellation of contracts. 'We will release an amendment to Article 11 in the coming weeks. It is something good for the market as it is more comprehensive and detailed,' said the department's Director General, Sultan Butti bin Mejren
'The revised article will set new grades for properties and developers. It will be more than the 30-70 rule which is now applicable,' he added.
Meanwhile the Real Estate Regulatory Authority has clarified confusion over its new rental index. A spokesman denied reports that it was not going to be issued in April and confirmed it will be published this month and will reflect falling rent values.
It is expected to include lower rental values to take into account the current slowdown in the property market.
In a statement Mohammed Khalifa bin Hammad, the director of Real Estate Relationship Regulation at Rera, said the index was being updated as a result of data collected through the online rental contract registration programme.
Sunday, 1 February 2009
TARP - Troubled Assets Relief Program
TARP allows the United States Department of the Treasury to purchase or insure up to $700 billion of "troubled" assets. "Troubled assets" are defined as "(A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability; and(B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress."
In short, this allows the Treasury to purchase nonliquid, difficult-to-value assets from banks and other financial institutions. The targeted assets can be collateralized debt obligations, which were sold in a booming market until 2007 when they were hit by widespread foreclosures on the underlying loans. TARP is intended to improve the liquidity of these assets by purchasing them using secondary market mechanisms, thus allowing participating institutions to stabilize their balance sheets and avoid further losses.
TARP does not allow banks to recoup losses already incurred on troubled assets, but officials hope that once trading of these assets resumes, their prices will stabilize and ultimately increase in value, resulting in gains to both participating banks and the Treasury itself. The concept of future gains from troubled assets comes from opinion in the financial industry that these assets are oversold, as only a small percentage of all mortgages are in default, while the relative fall in prices represents losses from a much higher default rate.
Another important goal of TARP is to encourage banks to resume lending again at levels seen before the crisis, both to each other and to consumers and businesses. If TARP can stabilize bank capital ratios, it should theoretically allow them to increase lending instead of hoarding cash to cushion against future, unforeseen losses from troubled assets. Increased lending equates to 'loosening' of credit, which the government hopes will restore order to the financial markets and improve investor confidence in financial institutions and the markets. As banks gain increased lending confidence, the interbank lending interest rates (the rates at which the banks lend to each other on a short term basis) should decrease, further facilitating lending.
The TARP will operate as a “revolving purchase facility.” The Treasury will have a set spending limit, $250 billion at the start of the program, with which it will purchase the assets and then either sell them or hold the assets and collect the 'coupons'. The money received from sales and coupons will go back into the pool, facilitating the purchase of more assets. The initial $250 billion can be increased to $350 billion upon the President’s certification to Congress that such an increase is necessary. The remaining $350 billion may be released to the Treasury upon a written report to Congress from the Treasury with details of its plan for the money. Congress then has 15 days to vote to disapprove the increase before the money will be automatically released.
The authority of the United States Department of the Treasury to establish and manage TARP under a newly created Office of Financial Stability became law October 3, 2008, the result of an initial proposal that ultimately was passed by Congress as H.R. 1424, enacting the Emergency Economic Stabilization Act of 2008 and several other acts.
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In short, this allows the Treasury to purchase nonliquid, difficult-to-value assets from banks and other financial institutions. The targeted assets can be collateralized debt obligations, which were sold in a booming market until 2007 when they were hit by widespread foreclosures on the underlying loans. TARP is intended to improve the liquidity of these assets by purchasing them using secondary market mechanisms, thus allowing participating institutions to stabilize their balance sheets and avoid further losses.
TARP does not allow banks to recoup losses already incurred on troubled assets, but officials hope that once trading of these assets resumes, their prices will stabilize and ultimately increase in value, resulting in gains to both participating banks and the Treasury itself. The concept of future gains from troubled assets comes from opinion in the financial industry that these assets are oversold, as only a small percentage of all mortgages are in default, while the relative fall in prices represents losses from a much higher default rate.
Another important goal of TARP is to encourage banks to resume lending again at levels seen before the crisis, both to each other and to consumers and businesses. If TARP can stabilize bank capital ratios, it should theoretically allow them to increase lending instead of hoarding cash to cushion against future, unforeseen losses from troubled assets. Increased lending equates to 'loosening' of credit, which the government hopes will restore order to the financial markets and improve investor confidence in financial institutions and the markets. As banks gain increased lending confidence, the interbank lending interest rates (the rates at which the banks lend to each other on a short term basis) should decrease, further facilitating lending.
The TARP will operate as a “revolving purchase facility.” The Treasury will have a set spending limit, $250 billion at the start of the program, with which it will purchase the assets and then either sell them or hold the assets and collect the 'coupons'. The money received from sales and coupons will go back into the pool, facilitating the purchase of more assets. The initial $250 billion can be increased to $350 billion upon the President’s certification to Congress that such an increase is necessary. The remaining $350 billion may be released to the Treasury upon a written report to Congress from the Treasury with details of its plan for the money. Congress then has 15 days to vote to disapprove the increase before the money will be automatically released.
The authority of the United States Department of the Treasury to establish and manage TARP under a newly created Office of Financial Stability became law October 3, 2008, the result of an initial proposal that ultimately was passed by Congress as H.R. 1424, enacting the Emergency Economic Stabilization Act of 2008 and several other acts.
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Saturday, 31 January 2009
A TARP In The Trillions?
How much to bail out the banks now? $3.5 trillion by one estimate.
A federal program to guarantee or buy bad assets from the ailing U.S. bank sector could come with a $3.5 trillion price tag.
That would push the accumulated costs of rescuing the financial markets over the last year through various federal loan, stock purchase, debt guarantee and other programs close to $9 trillion and counting, with practically no end in sight for the bad news battering the banking industry.
That figure doesn't count the $825 billion economic stimulus plan also under consideration.
"We expect massive federal intervention into the financial sector from the new administration in the coming months," says Keefe Bruyette & Woods (nyse: KBW - news - people ) analyst Frederick Cannon, who calculated the $3.5 trillion figure, which is one-quarter of the banking sector's $14 trillion in combined assets.
So far, more than 200 banks have gotten $191 billion in relief from the $700 billion Troubled Asset Relief Program, according to Keefe Bruyette. About $90 billion of it went to just two banks, Citigroup (nyse: C - news - people ) and Bank of America (nyse: BAC - news - people ).
Just before leaving office, the Bush administration asked Congress to release the remaining $350 billion authorized under the TARP plan, which passed in October.
The new Obama administration will certainly use that money--and ask for more. "The ultimate costs of this crisis will be greater if we do not act with sufficient strength now," said Treasury nominee Timothy Geithner in his Senate confirmation hearing Wednesday. "In a crisis of this magnitude, the most prudent course is the most forceful course."
Geithner, the president of the Federal Reserve Bank of New York who has been in the crucible as the financial crisis erupted over the last year, told the Senators that the TARP needed "serious reform."
The new idea: A federal plan to buy up bank assets, relieving bank balance sheets of the need to constantly adjust deteriorating market values, could come in the form of an "aggregator" bank or other type of bad bank structure--a throwback to the 1980s real estate lending crisis--that would buy assets from banks.
This was former Treasury Secretary Henry Paulson's original vision for the TARP fund, but he switched course and decided to devote $250 billion to direct equity stake investments in banks before waffling again and heading back in the direction of asset purchases.
In November, and again last week, the Treasury agreed to guarantee more than $400 billion of assets at Citigroup and Bank of America.
The availability of federal bank bailout funds attracted other industries, including the automakers, who managed to get $17 billion under the program, and American International Group (nyse: AIG - news - people ), an insurer, which got $40 billion.
Regulators have been trying to calm panicked markets by emphasizing that most banks (98% of the industry according to Federal Deposit Insurance Corp. Chairman Sheila Bair) are well-capitalized.
That doesn't mean they don't need to raise more capital, however, a fact that just about every bank stock analyst has dwelled on in the last few months.
"There is a fear factor," Bair acknowledged in a television interview Wednesday. People don't know how bad the economy is going to get, what the outer limit on these losses could be."
A federal "bad bank" could warehouse billions in deteriorating assets and relieve banks of the need to continually shore up capital. It would come at a steep price to shareholders, however, potentially wiping them out.
But free from the burden on their balance sheets, banks could revive lending, regulators say, and get the economy humming again.
A federal program to guarantee or buy bad assets from the ailing U.S. bank sector could come with a $3.5 trillion price tag.
That would push the accumulated costs of rescuing the financial markets over the last year through various federal loan, stock purchase, debt guarantee and other programs close to $9 trillion and counting, with practically no end in sight for the bad news battering the banking industry.
That figure doesn't count the $825 billion economic stimulus plan also under consideration.
"We expect massive federal intervention into the financial sector from the new administration in the coming months," says Keefe Bruyette & Woods (nyse: KBW - news - people ) analyst Frederick Cannon, who calculated the $3.5 trillion figure, which is one-quarter of the banking sector's $14 trillion in combined assets.
So far, more than 200 banks have gotten $191 billion in relief from the $700 billion Troubled Asset Relief Program, according to Keefe Bruyette. About $90 billion of it went to just two banks, Citigroup (nyse: C - news - people ) and Bank of America (nyse: BAC - news - people ).
Just before leaving office, the Bush administration asked Congress to release the remaining $350 billion authorized under the TARP plan, which passed in October.
The new Obama administration will certainly use that money--and ask for more. "The ultimate costs of this crisis will be greater if we do not act with sufficient strength now," said Treasury nominee Timothy Geithner in his Senate confirmation hearing Wednesday. "In a crisis of this magnitude, the most prudent course is the most forceful course."
Geithner, the president of the Federal Reserve Bank of New York who has been in the crucible as the financial crisis erupted over the last year, told the Senators that the TARP needed "serious reform."
The new idea: A federal plan to buy up bank assets, relieving bank balance sheets of the need to constantly adjust deteriorating market values, could come in the form of an "aggregator" bank or other type of bad bank structure--a throwback to the 1980s real estate lending crisis--that would buy assets from banks.
This was former Treasury Secretary Henry Paulson's original vision for the TARP fund, but he switched course and decided to devote $250 billion to direct equity stake investments in banks before waffling again and heading back in the direction of asset purchases.
In November, and again last week, the Treasury agreed to guarantee more than $400 billion of assets at Citigroup and Bank of America.
The availability of federal bank bailout funds attracted other industries, including the automakers, who managed to get $17 billion under the program, and American International Group (nyse: AIG - news - people ), an insurer, which got $40 billion.
Regulators have been trying to calm panicked markets by emphasizing that most banks (98% of the industry according to Federal Deposit Insurance Corp. Chairman Sheila Bair) are well-capitalized.
That doesn't mean they don't need to raise more capital, however, a fact that just about every bank stock analyst has dwelled on in the last few months.
"There is a fear factor," Bair acknowledged in a television interview Wednesday. People don't know how bad the economy is going to get, what the outer limit on these losses could be."
A federal "bad bank" could warehouse billions in deteriorating assets and relieve banks of the need to continually shore up capital. It would come at a steep price to shareholders, however, potentially wiping them out.
But free from the burden on their balance sheets, banks could revive lending, regulators say, and get the economy humming again.
World's Best Places For Real Estate Buys
Washington, D.C., traditionally takes a back seat to world cities like London, New York and Tokyo when it comes to real estate investment.
That's likely to change.
Thanks to a proposed $1 trillion wave government spending, investors are flocking to D.C. for opportunities in the commercial and residential real estate markets. All these new programs will need offices, after all, and their employees will need places to live.
This year, Washington leapfrogged London for the first-place ranking in the world's best cities for real estate investment. But don't count out the world's financial capitals just yet--even with massive financial troubles in London and New York, those cities finished second and third, respectively.
In Depth: World's Best Places For Real Estate Buys
Why? It's the appeal of long-term stability, and fears that emerging countries are going to take a harder hit. While the U.S. property market sputters, China is poised for its worst deflation in a decade, focused heavily on property price declines, according to Deutsche Bank (nyse: DB - news - people ).
"For the U.S. and U.K., part of it is flying back to safety," says François Ortalo-Magne, a real estate professor at the Wisconsin School of Business. " For China and India, there's a sense that we went there and tried it, but it wasn't producing."
Behind the Numbers
Forbes' rankings come from the Association of Foreign Investors in Real Estate, a research association that tracks where member investors are finding the best opportunities around the world. AFIRE surveys its 200 members, who collectively hold $700 billion in cross-border real estate.
U.S. cities surged up this year's list: San Francisco moved to sixth from 24th last year; Los Angeles moved to seventh from 19th; Houston moved to eigth from 32nd. Cities in the Asia Pacific region dropped: Sydney fell to 11th from ninth; Hong Kong dropped to 22nd from 10th place.
This year, investors know that valuations can't be trusted. In 2008, the American residential market fell 19%, according to the Case-Shiller index; U.K. prices dropped 16% according to Nationwide, a U.K. builder. Commercial values in both countries have started to soften due to recessions on either side of the pond.
In 2008, investors to spend tried to call the bottom and gambled in emerging markets. This year, they're looking at premium locations in cities with proven track records.
"We don't feel comfortable that we are able to identify what value is," says Richard Kessler, chief operating officer of Benenson Capital Partners, a global real estate investment group. "Having said that, if an opportunity exists on Park and 57th Street, or something we've always wanted to own on Pennsylvania Avenue in D.C., or some other very strategic long-term asset, we would look at it."
That makes 2009 the year of playing it safe and not chasing exotic opportunities in far-flung locations. It's even injected a sense of humility into the investing world.
"There used to be a rivalry between New York and London," says Kenneth Patton, divisional dean of the New York University Schack Institute of Real Estate. "The subject has shifted to the fact that we're both in the same lifeboat, and maybe it's leaking."
While some investors play it safe, others are content to wait out the real estate downturn entirely.
"Most of the [usual] participants are sitting on the sidelines," says Kessler. "There's a lot of capital, but everyone is uncomfortable about deploying that capital."
For their part, the optimists think 2009 might be the year that sideline money starts to come back into the marketplace--and, especially for the cities on this list, it will come back in a flood, not a trickle.
"There's a lot of money that needs to be invested, says Ortalo-Magne. "The instant people feel an inkling of a turnaround, money is going to flow in."
Whether that inkling comes in 2009 or 2010, however, is an altogether different question.
That's likely to change.
Thanks to a proposed $1 trillion wave government spending, investors are flocking to D.C. for opportunities in the commercial and residential real estate markets. All these new programs will need offices, after all, and their employees will need places to live.
This year, Washington leapfrogged London for the first-place ranking in the world's best cities for real estate investment. But don't count out the world's financial capitals just yet--even with massive financial troubles in London and New York, those cities finished second and third, respectively.
In Depth: World's Best Places For Real Estate Buys
Why? It's the appeal of long-term stability, and fears that emerging countries are going to take a harder hit. While the U.S. property market sputters, China is poised for its worst deflation in a decade, focused heavily on property price declines, according to Deutsche Bank (nyse: DB - news - people ).
"For the U.S. and U.K., part of it is flying back to safety," says François Ortalo-Magne, a real estate professor at the Wisconsin School of Business. " For China and India, there's a sense that we went there and tried it, but it wasn't producing."
Behind the Numbers
Forbes' rankings come from the Association of Foreign Investors in Real Estate, a research association that tracks where member investors are finding the best opportunities around the world. AFIRE surveys its 200 members, who collectively hold $700 billion in cross-border real estate.
U.S. cities surged up this year's list: San Francisco moved to sixth from 24th last year; Los Angeles moved to seventh from 19th; Houston moved to eigth from 32nd. Cities in the Asia Pacific region dropped: Sydney fell to 11th from ninth; Hong Kong dropped to 22nd from 10th place.
This year, investors know that valuations can't be trusted. In 2008, the American residential market fell 19%, according to the Case-Shiller index; U.K. prices dropped 16% according to Nationwide, a U.K. builder. Commercial values in both countries have started to soften due to recessions on either side of the pond.
In 2008, investors to spend tried to call the bottom and gambled in emerging markets. This year, they're looking at premium locations in cities with proven track records.
"We don't feel comfortable that we are able to identify what value is," says Richard Kessler, chief operating officer of Benenson Capital Partners, a global real estate investment group. "Having said that, if an opportunity exists on Park and 57th Street, or something we've always wanted to own on Pennsylvania Avenue in D.C., or some other very strategic long-term asset, we would look at it."
That makes 2009 the year of playing it safe and not chasing exotic opportunities in far-flung locations. It's even injected a sense of humility into the investing world.
"There used to be a rivalry between New York and London," says Kenneth Patton, divisional dean of the New York University Schack Institute of Real Estate. "The subject has shifted to the fact that we're both in the same lifeboat, and maybe it's leaking."
While some investors play it safe, others are content to wait out the real estate downturn entirely.
"Most of the [usual] participants are sitting on the sidelines," says Kessler. "There's a lot of capital, but everyone is uncomfortable about deploying that capital."
For their part, the optimists think 2009 might be the year that sideline money starts to come back into the marketplace--and, especially for the cities on this list, it will come back in a flood, not a trickle.
"There's a lot of money that needs to be invested, says Ortalo-Magne. "The instant people feel an inkling of a turnaround, money is going to flow in."
Whether that inkling comes in 2009 or 2010, however, is an altogether different question.
Dubai Moves to Rein in Rents
DUBAI - Tenants whose home or commercial property is less than a quarter below the average price for a similar premises will not have to pay any increase in rent, according to a decree issued on Monday by His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of UAE, in his capacity as Ruler of Dubai.
Mohammed Ibrahim Al Shaibani, director of the Dubai Ruler’s Court said the decree was aimed at curbing the increase in property prices within the emirate to maintain a balance between the interests of both landlords and tenants and to ensure stability of the real estate sector, according to state news agency, Wam.
The decree, the Ruler’s first of 2009, provides for a freeze of rent prices in 2009 for tenants renewing contracts signed in 2008.
It states that the rental value of those properties must be equal to or less than 25 per cent of a corresponding rent average established by the rental index.
The guideline for the rental index was issued on Wednesday last week by Dubai’s Real Estate Regulatory Authority and is expected to replace the rent cap.
While the authority has issued a point system for evaluating the rental value of a property, the average rents for properties are yet to be ascertained.
“The evaluation process for all types of properties is based on giving each property points for various attributes such as building facilities, near-by retail outlets, age and condition of building, etc,” according to the Rera statement.
“These points are used as a statistical basis to set a minimum average and a maximum average rent price.”
The minimum average and maximum average rent price are yet to be declared and the status of the evaluation process has not been given by the authority.
However, the decree issued on Monday states that the rate would be established when the tenancy contract is renewed.
The ruling also defines a formula designed to generate lower rent values but allowing a proportional increase in 2009.
Another decree outlined the relationship between the tenant and landlord. The law, which came into effect on December 1 last year, has been amended. It includes points on the basis of which a tenant can be evicted, such as non-payment of rent or if the tenant is found subletting the property.
Mohammed Ibrahim Al Shaibani, director of the Dubai Ruler’s Court said the decree was aimed at curbing the increase in property prices within the emirate to maintain a balance between the interests of both landlords and tenants and to ensure stability of the real estate sector, according to state news agency, Wam.
The decree, the Ruler’s first of 2009, provides for a freeze of rent prices in 2009 for tenants renewing contracts signed in 2008.
It states that the rental value of those properties must be equal to or less than 25 per cent of a corresponding rent average established by the rental index.
The guideline for the rental index was issued on Wednesday last week by Dubai’s Real Estate Regulatory Authority and is expected to replace the rent cap.
While the authority has issued a point system for evaluating the rental value of a property, the average rents for properties are yet to be ascertained.
“The evaluation process for all types of properties is based on giving each property points for various attributes such as building facilities, near-by retail outlets, age and condition of building, etc,” according to the Rera statement.
“These points are used as a statistical basis to set a minimum average and a maximum average rent price.”
The minimum average and maximum average rent price are yet to be declared and the status of the evaluation process has not been given by the authority.
However, the decree issued on Monday states that the rate would be established when the tenancy contract is renewed.
The ruling also defines a formula designed to generate lower rent values but allowing a proportional increase in 2009.
Another decree outlined the relationship between the tenant and landlord. The law, which came into effect on December 1 last year, has been amended. It includes points on the basis of which a tenant can be evicted, such as non-payment of rent or if the tenant is found subletting the property.
Thursday, 29 January 2009
“Bad Banks” for Beginners
To understand this, you need to understand what a bank balance sheet looks like. I’ve covered this elsewhere, but for now a simple example should do. Let’s say that the Bank of Middle-Earth has $105 in assets (mortgages, commercial loans, cash, etc.), $95 in liabilities (deposit accounts, bonds issued, other financing), and therefore $10 in capital.
The assets are things that have value and theoretically could be sold to raise cash; the liabilities are promises to pay money to other people; and the capital, or the difference between the two, is therefore the net amount of value that is “owned” by the common shareholders. Next assume that the assets fall into two categories: there are $60 of “good” assets, such as loans that are still worth what they were when they were made (no defaults and no increased probability of default) and $45 of “bad” assets, such as loans that are delinquent, or mortgage-backed securities where the underlying loans are delinquent, etc.
Say the bank takes a $5 writedown on these bad assets, so it now counts them as $40 of assets, but if it actually had to sell them right now they would only sell for $20 because no one wants to buy them. (When a bank has to take a writedown and for how much is a complicated subject; suffice it to say that in many cases banks have assets on their balance sheet at values that everyone knows could not be realized in the current market, and this is completely legal.)
Right now the bank balance sheet has $100 in assets, $95 in liabilities, and $5 in capital, so it is still solvent. However, everyone looking at the bank thinks that those $40 in bad assets are really only worth $20, and is afraid that the bank may need to take another $20 writedown in the future. So no one wants to buy the stock and, more importantly, no one wants to lend it money, because a $20 writedown would make the bank insolvent, it could go bankrupt, stockholders would get nothing, and creditors (lenders to the bank) would not get all their money back. Because no one wants to lend it money, the bank itself hoards cash and doesn’t lend to people who need money.
Although not necessarily to scale, this is roughly what the banking systems of the U.S. and several other major economies look like right now.
How does a bad bank solve this problem? There are two basic models: one in which each sick bank splits into a good bank and a bad bank, the other in which the government creates one big bad bank and multiple sick banks unload their toxic assets onto it.
Bank mitosis
In the first model, the Bank of Middle-Earth splits into two: a Bank of Gandalf and a Bank of Sauron. The Bank of Gandalf gets the $60 in good assets, and the Bank of Sauron gets the $40 in bad assets (that may only be worth $20). The Bank of Sauron will probably fail. But the Bank of Gandalf no longer has any bad assets, so people will invest in it and lend money to it, and it will start lending again.
This model has one tricky problem, though: How do you allocate the liabilities of the old bank between the two new banks? Luigi Zingales says the simplest solution is to do it on a proportional basis. Because the Bank of Gandalf gets 60% of the assets, it gets 60% of the liabilities. So if the Bank of Middle-Earth owed someone $1, now the Bank of Gandalf owes him 60 cents and the Bank of Sauron owes him 40 cents. Now the Bank of Gandalf has $60 in assets, $57 in liabilities (60% of $95), and $3 in capital; the Bank of Sauron has $40 in bad assets (that are really only worth $20) and $38 in liabilities. Instead of one sick bank with $100 in assets that isn’t doing any lending, you have a healthy bank with $60 of assets that is lending, and what Zingales calls a “closed-end fund holding the toxic assets” whose creditors will probably get some but not all of their money back. The tricky part is that this is a good deal for shareholders in the Bank of Middle-Earth and a bad deal for creditors to the Bank of Middle-Earth, and so it’s illegal for banks to divide up the liabilities like this. Zingales recommends legislation to make it possible, but I suspect that even were Congress to pass such a bill, there would still be lots of lawsuits challenging its constitutionality.
I started with Zingales’s version of bank mitosis because it illustrates the principle neatly, but the legal complication makes it difficult to implement in practice. Another way to divide one back into two is to find separate funding for the Bank of Sauron. This is what UBS did in November, with the support of the Swiss government. UBS had $60 billion in bad assets that it unloaded onto the new bad bank. To pay for those bad assets, however, the bad bank needed $60 billion. How did it get it? First UBS raised $6 billion in new capital by selling shares to the Swiss government. Then it invested those $6 billion in the bad bank - that became the bad bank’s capital. Then the Swiss central bank loaned the bad bank $54 billion. (There is little chance that any private-sector entity would lend a self-confessed bad bank money, but this was in the public interest.) Because shareholders get wiped out first, that effectively means that UBS was taking the first $6 billion in losses, and any losses after that would be borne by the Swiss government. This constitutes a subsidy by the Swiss government to UBS, but one that was justified by the need to stabilize the financial system. At the end of the transaction, UBS had diluted its shareholders by 9% (because of the new shares sold to the government) and had a $6 billion investment in the bad bank it was likely to lose, but it had cleaned its balance sheet of $60 billion in toxic assets.
One issue in this version is how to value the assets that are being sold to the bad bank. If they are sold at market value ($20 in the Middle-Earth example), then the parent bank has to take a writedown immediately, which arguably defeats the purpose of the whole transaction (because that could render the parent bank immediately insolvent). In that case, the parent bank would need to be recapitalized (presumably by the government) immediately, and the “bad bank” would actually be not that bad, since it is holding assets it bought on the cheap. If they are sold at the value at which they are carried on the parent bank’s balance sheet, then the bad bank is essentially making a stupid purchase (overpaying for securities it expects to decline in value) for the public good. In the UBS case, forcing UBS to provide the $6 billion in capital was a way of forcing UBS to suffer at least some of the loss that the bad bank was expected to incur.
Big Bad Bank
The second model, which has been proposed by Sheila Bair, Ben Bernanke, and others, is the “aggregator” bank. Instead of splitting every sick back into a good bank and a bad bank, in this model the government creates one Big Bad Bank, which then takes bad assets off the balance sheets of many banks. (This doesn’t necessarily have to be created by the government; the Master Liquidity Enhancement Conduit - bonus points for anyone who remembers what it was for - was supposed to be funded by private-sector banks. But in today’s market conditions, the government is the only plausible solution.) In this plan, the capital for the Big Bad Bank is provided by the Treasury Department (perhaps out of TARP), and the loan comes from the Federal Reserve, which has virtually unlimited powers to lend money in a financial emergency. Once this Big Bad Bank is set up and funded, it will buy toxic assets from regular banks, which will hopefully remove the uncertainty that has hampered their operations.
Yes, the Big Bad Bank is similar in concept to the original TARP proposal, and it faces the same central question: what price will it pay for the assets (the issue discussed two paragraphs above)? If it pays market value, it could force the banks into immediate insolvency, so recapitalization would have to be part of the same transaction. If it pays current book value (the value on the banks’ balance sheets), it will be making a huge gift to the banks’ shareholders. There has been talk of forcing participating banks to take equity in the Big Bad Bank (as in the UBS deal), presumably to make them shoulder some of the overpayment. In any case, the money the government puts in, up to the market value of the assets purchased, is a reasonable investment for the taxpayer; but there will need to be additional money, either to recapitalize the remaining banks (which, if done at market prices, would lead to government majority ownership), or to overpay for their assets. Pick one.
One last issue: Creating a bad bank works nicely if you can draw a clear line between the good assets and the bad assets. My theoretical Bank of Gandalf above only has good assets, so there are no doubts about its health. But what if you can’t? This crisis started in subprime mortgage-backed securities, and it’s pretty clear that things like second-order CDOs based on subprime debt are deeply troubled. But as the recession deepens, all sorts of asset-backed securities - such as those backed by credit card debt or auto loans - start losing value, and then even simple loan portfolios lose value as ordinary households and businesses that were creditworthy just a few years ago go into default. Put another way, if it were possible to neatly separate off the bad assets, then the second Citigroup bailout would have worked, since that provided a government guarantee for $300 billion in assets. Yet Citigroup’s stock price, even after Wednesday’s huge rally (up 31%) is still below the price on November 21, the last trading day before that bailout was announced. Clearly no one believes that Citigroup had only $300 billion in bad assets.
The goal of a bad bank is to restore confidence in the good bank, and it’s not clear how much of the parent bank’s assets have to be jettisoned before anyone will have confidence that only good assets are left. One potential problem with the Big Bad Bank is that banks could be tempted to underplay their problems, sell only some of their bad assets, hope the rest are all good, take the bump in their stock price . . . and then show up two quarters later with more bad assets. If investors suspect that is going on, and that the banks are still holding onto bad assets, then the scheme will fail. The solution to that problem is to overpay for the assets, which gives banks the incentive to dump all of them onto the Big Bad Bank . . . and then we are back where we started.
Update: Citigroup’s division into a good bank (Citicorp) and a bad bank (Citi Holdings, which includes the $300 billion in assets guaranteed by you and me) is more symbolic than anything else at this point, because they are still just divisions of one company. So if Citi Holdings goes broke, the creditors can demand money from Citicorp, which defeats the purpose of a good/bad separation. The goal here was more to communicate what the bank’s long-term strategy is (the hope is to either sell off or run off everything in Citi Holdings) in hopes of convincing shareholders that the management knows what they are doing.
The assets are things that have value and theoretically could be sold to raise cash; the liabilities are promises to pay money to other people; and the capital, or the difference between the two, is therefore the net amount of value that is “owned” by the common shareholders. Next assume that the assets fall into two categories: there are $60 of “good” assets, such as loans that are still worth what they were when they were made (no defaults and no increased probability of default) and $45 of “bad” assets, such as loans that are delinquent, or mortgage-backed securities where the underlying loans are delinquent, etc.
Say the bank takes a $5 writedown on these bad assets, so it now counts them as $40 of assets, but if it actually had to sell them right now they would only sell for $20 because no one wants to buy them. (When a bank has to take a writedown and for how much is a complicated subject; suffice it to say that in many cases banks have assets on their balance sheet at values that everyone knows could not be realized in the current market, and this is completely legal.)
Right now the bank balance sheet has $100 in assets, $95 in liabilities, and $5 in capital, so it is still solvent. However, everyone looking at the bank thinks that those $40 in bad assets are really only worth $20, and is afraid that the bank may need to take another $20 writedown in the future. So no one wants to buy the stock and, more importantly, no one wants to lend it money, because a $20 writedown would make the bank insolvent, it could go bankrupt, stockholders would get nothing, and creditors (lenders to the bank) would not get all their money back. Because no one wants to lend it money, the bank itself hoards cash and doesn’t lend to people who need money.
Although not necessarily to scale, this is roughly what the banking systems of the U.S. and several other major economies look like right now.
How does a bad bank solve this problem? There are two basic models: one in which each sick bank splits into a good bank and a bad bank, the other in which the government creates one big bad bank and multiple sick banks unload their toxic assets onto it.
Bank mitosis
In the first model, the Bank of Middle-Earth splits into two: a Bank of Gandalf and a Bank of Sauron. The Bank of Gandalf gets the $60 in good assets, and the Bank of Sauron gets the $40 in bad assets (that may only be worth $20). The Bank of Sauron will probably fail. But the Bank of Gandalf no longer has any bad assets, so people will invest in it and lend money to it, and it will start lending again.
This model has one tricky problem, though: How do you allocate the liabilities of the old bank between the two new banks? Luigi Zingales says the simplest solution is to do it on a proportional basis. Because the Bank of Gandalf gets 60% of the assets, it gets 60% of the liabilities. So if the Bank of Middle-Earth owed someone $1, now the Bank of Gandalf owes him 60 cents and the Bank of Sauron owes him 40 cents. Now the Bank of Gandalf has $60 in assets, $57 in liabilities (60% of $95), and $3 in capital; the Bank of Sauron has $40 in bad assets (that are really only worth $20) and $38 in liabilities. Instead of one sick bank with $100 in assets that isn’t doing any lending, you have a healthy bank with $60 of assets that is lending, and what Zingales calls a “closed-end fund holding the toxic assets” whose creditors will probably get some but not all of their money back. The tricky part is that this is a good deal for shareholders in the Bank of Middle-Earth and a bad deal for creditors to the Bank of Middle-Earth, and so it’s illegal for banks to divide up the liabilities like this. Zingales recommends legislation to make it possible, but I suspect that even were Congress to pass such a bill, there would still be lots of lawsuits challenging its constitutionality.
I started with Zingales’s version of bank mitosis because it illustrates the principle neatly, but the legal complication makes it difficult to implement in practice. Another way to divide one back into two is to find separate funding for the Bank of Sauron. This is what UBS did in November, with the support of the Swiss government. UBS had $60 billion in bad assets that it unloaded onto the new bad bank. To pay for those bad assets, however, the bad bank needed $60 billion. How did it get it? First UBS raised $6 billion in new capital by selling shares to the Swiss government. Then it invested those $6 billion in the bad bank - that became the bad bank’s capital. Then the Swiss central bank loaned the bad bank $54 billion. (There is little chance that any private-sector entity would lend a self-confessed bad bank money, but this was in the public interest.) Because shareholders get wiped out first, that effectively means that UBS was taking the first $6 billion in losses, and any losses after that would be borne by the Swiss government. This constitutes a subsidy by the Swiss government to UBS, but one that was justified by the need to stabilize the financial system. At the end of the transaction, UBS had diluted its shareholders by 9% (because of the new shares sold to the government) and had a $6 billion investment in the bad bank it was likely to lose, but it had cleaned its balance sheet of $60 billion in toxic assets.
One issue in this version is how to value the assets that are being sold to the bad bank. If they are sold at market value ($20 in the Middle-Earth example), then the parent bank has to take a writedown immediately, which arguably defeats the purpose of the whole transaction (because that could render the parent bank immediately insolvent). In that case, the parent bank would need to be recapitalized (presumably by the government) immediately, and the “bad bank” would actually be not that bad, since it is holding assets it bought on the cheap. If they are sold at the value at which they are carried on the parent bank’s balance sheet, then the bad bank is essentially making a stupid purchase (overpaying for securities it expects to decline in value) for the public good. In the UBS case, forcing UBS to provide the $6 billion in capital was a way of forcing UBS to suffer at least some of the loss that the bad bank was expected to incur.
Big Bad Bank
The second model, which has been proposed by Sheila Bair, Ben Bernanke, and others, is the “aggregator” bank. Instead of splitting every sick back into a good bank and a bad bank, in this model the government creates one Big Bad Bank, which then takes bad assets off the balance sheets of many banks. (This doesn’t necessarily have to be created by the government; the Master Liquidity Enhancement Conduit - bonus points for anyone who remembers what it was for - was supposed to be funded by private-sector banks. But in today’s market conditions, the government is the only plausible solution.) In this plan, the capital for the Big Bad Bank is provided by the Treasury Department (perhaps out of TARP), and the loan comes from the Federal Reserve, which has virtually unlimited powers to lend money in a financial emergency. Once this Big Bad Bank is set up and funded, it will buy toxic assets from regular banks, which will hopefully remove the uncertainty that has hampered their operations.
Yes, the Big Bad Bank is similar in concept to the original TARP proposal, and it faces the same central question: what price will it pay for the assets (the issue discussed two paragraphs above)? If it pays market value, it could force the banks into immediate insolvency, so recapitalization would have to be part of the same transaction. If it pays current book value (the value on the banks’ balance sheets), it will be making a huge gift to the banks’ shareholders. There has been talk of forcing participating banks to take equity in the Big Bad Bank (as in the UBS deal), presumably to make them shoulder some of the overpayment. In any case, the money the government puts in, up to the market value of the assets purchased, is a reasonable investment for the taxpayer; but there will need to be additional money, either to recapitalize the remaining banks (which, if done at market prices, would lead to government majority ownership), or to overpay for their assets. Pick one.
One last issue: Creating a bad bank works nicely if you can draw a clear line between the good assets and the bad assets. My theoretical Bank of Gandalf above only has good assets, so there are no doubts about its health. But what if you can’t? This crisis started in subprime mortgage-backed securities, and it’s pretty clear that things like second-order CDOs based on subprime debt are deeply troubled. But as the recession deepens, all sorts of asset-backed securities - such as those backed by credit card debt or auto loans - start losing value, and then even simple loan portfolios lose value as ordinary households and businesses that were creditworthy just a few years ago go into default. Put another way, if it were possible to neatly separate off the bad assets, then the second Citigroup bailout would have worked, since that provided a government guarantee for $300 billion in assets. Yet Citigroup’s stock price, even after Wednesday’s huge rally (up 31%) is still below the price on November 21, the last trading day before that bailout was announced. Clearly no one believes that Citigroup had only $300 billion in bad assets.
The goal of a bad bank is to restore confidence in the good bank, and it’s not clear how much of the parent bank’s assets have to be jettisoned before anyone will have confidence that only good assets are left. One potential problem with the Big Bad Bank is that banks could be tempted to underplay their problems, sell only some of their bad assets, hope the rest are all good, take the bump in their stock price . . . and then show up two quarters later with more bad assets. If investors suspect that is going on, and that the banks are still holding onto bad assets, then the scheme will fail. The solution to that problem is to overpay for the assets, which gives banks the incentive to dump all of them onto the Big Bad Bank . . . and then we are back where we started.
Update: Citigroup’s division into a good bank (Citicorp) and a bad bank (Citi Holdings, which includes the $300 billion in assets guaranteed by you and me) is more symbolic than anything else at this point, because they are still just divisions of one company. So if Citi Holdings goes broke, the creditors can demand money from Citicorp, which defeats the purpose of a good/bad separation. The goal here was more to communicate what the bank’s long-term strategy is (the hope is to either sell off or run off everything in Citi Holdings) in hopes of convincing shareholders that the management knows what they are doing.
Key facts about USA Bad Bank
Who will run Bad Bank?
FDIC Chairman Sheila Bair would run the operation, Bloomberg said, citing a source familiar with the matter. It said another source told the news agency that Bair is arguing that her agency could help finance the effort by issuing bonds guaranteed by the FDIC.
Who will create the Bad Bank?
The Federal Deposit Insurance Corp is aiming to take control of a widely mooted 'bad bank', to be set up by the U.S. government to mop up toxic assets of struggling banks, Bloomberg News reported on Tuesday.
How the Funding for Bad Bank will be arranged?
It remains to be seen how the "bad bank" will be funded, given the original $700bn (£493bn) bail-out fund has just $350bn remaining, up to $100bn of which is to be allocated towards the housing crisis, with the need to return to the US Congress for extra funding a likely possibility.
Why does the Administration need to be fair?
This is a one-off, emergency measure. The fact that it is worrying about other banks demanding the same deal suggests the terms are not sufficiently punitive to Citi management (note the stress on the impact on the key actors). But even if it is not as nasty as it ought to be to Citi, people in power have the right to be capricious. Citi is unique on so many dimensions that it is easy to argue that a deal for Citi need not apply to anyone else.
FDIC Chairman Sheila Bair would run the operation, Bloomberg said, citing a source familiar with the matter. It said another source told the news agency that Bair is arguing that her agency could help finance the effort by issuing bonds guaranteed by the FDIC.
Who will create the Bad Bank?
The Federal Deposit Insurance Corp is aiming to take control of a widely mooted 'bad bank', to be set up by the U.S. government to mop up toxic assets of struggling banks, Bloomberg News reported on Tuesday.
How the Funding for Bad Bank will be arranged?
It remains to be seen how the "bad bank" will be funded, given the original $700bn (£493bn) bail-out fund has just $350bn remaining, up to $100bn of which is to be allocated towards the housing crisis, with the need to return to the US Congress for extra funding a likely possibility.
Why does the Administration need to be fair?
This is a one-off, emergency measure. The fact that it is worrying about other banks demanding the same deal suggests the terms are not sufficiently punitive to Citi management (note the stress on the impact on the key actors). But even if it is not as nasty as it ought to be to Citi, people in power have the right to be capricious. Citi is unique on so many dimensions that it is easy to argue that a deal for Citi need not apply to anyone else.
Tuesday, 20 January 2009
6 Reasons to invest in Dubai Real Estate
With lavish lifestyles, tall buildings, world-class facilities, and growing economy, Dubai has increasingly becoming a true heaven for all. With so much to offer, Dubai is indeed the hottest real estate destination in the world. In this article, we'll discuss why anyone should invest in the Dubai Property:
One of the primary reasons for investing in Dubai is to earn consistent money through renting out properties. It will help in earning money in the longer run.
Secondly, it is said that the basic value of the property will never change no matter how much the cost of the property might fluctuate. It simply means that the property can always be seen as a money generating tool.
Third, property is always seen as the finest tool for seeking collateral for loans and stuff. They are the best way to get some security.
Fourth, with more and more entertainment projects are heading towards Dubai, investing in land has become the golden opportunity for all real estate property dealers. Development of places such as Dubai Palm lands, Dubai International Financial center, as well as other big centers, investment in Dubai property is the most beneficial real estate opportunity.
Fifth, if you compare with the property prices of Dubai with rest of the world, you'll find that Dubai still has comparatively inexpensive property rates in the world. However, the property rates around the world are touching the skies these days, but in Dubai, one can find good and quite affordable rates.
Sixth, the property portfolio in Dubai helps an investor to diversify the risk. Real estate in Dubai is potential to transform the risks into different types of properties.
Dubai gives you the hundred reasons to get a suitable real estate property in some of the best locations. In fact, one can find property in sale in Dubai to realize the dreams. So, why wait? Get a suitable property now!
One of the primary reasons for investing in Dubai is to earn consistent money through renting out properties. It will help in earning money in the longer run.
Secondly, it is said that the basic value of the property will never change no matter how much the cost of the property might fluctuate. It simply means that the property can always be seen as a money generating tool.
Third, property is always seen as the finest tool for seeking collateral for loans and stuff. They are the best way to get some security.
Fourth, with more and more entertainment projects are heading towards Dubai, investing in land has become the golden opportunity for all real estate property dealers. Development of places such as Dubai Palm lands, Dubai International Financial center, as well as other big centers, investment in Dubai property is the most beneficial real estate opportunity.
Fifth, if you compare with the property prices of Dubai with rest of the world, you'll find that Dubai still has comparatively inexpensive property rates in the world. However, the property rates around the world are touching the skies these days, but in Dubai, one can find good and quite affordable rates.
Sixth, the property portfolio in Dubai helps an investor to diversify the risk. Real estate in Dubai is potential to transform the risks into different types of properties.
Dubai gives you the hundred reasons to get a suitable real estate property in some of the best locations. In fact, one can find property in sale in Dubai to realize the dreams. So, why wait? Get a suitable property now!
8 things you must do in Dubai
Dubai Museum
This museum is located at Al Fahidi Fort. This was built in 1787 and has served as a palace, garrison and prison. In 1970, it was converted to a novel and creatively conceptualized museum depicting Dubai’s history.
Dubai Mosques
Jumeirah Mosque is one of the biggest and beautiful mosques in Dubai and is resplendent of modern Islamic architecture. The mosque is built of stone in medieval Fatimid tradition with twin minarets and a majestic dome. The Grand Mosque is another beautiful mosque with the tallest minaret at 70 meters. The Grand Mosque has 45 small domes and 9 large domes.
Heritage & Dining Villages
You can go back in time and experience some of Dubai's heritage. The heritage village located near the mouth of the Creek has potters and weavers working on their pearling crafts, along with dancers, Arabic restaurants and many other traditional pursuits.
Dubai Zoo
The zoo in Jumeirah is home to a variety of animals alongside native Arabian animals, which include the Arabian Wolf. Also there is a huge aviary.
Wonderland
This is a must-see amusement and water park for kids. It has a host of water rides, speed slides, a roller coaster etc. In addition, there is a water mist show and water cinema which is an exciting experience.
Magic Planet
This is a splendid and exciting children's recreation zone. It is filled with fairground rides, bowling alleys, electronic games and a mini golf course.
Encounter Zone
It is another kids’ zone, and is situated in Wafi Shopping Mall. Encounter Zone offers many rides, games, the Crystal Maze horror chamber, simulated rides etc.
Wild Wadi
Situated next to the Jumeirah Beach Hotel is the 12-acre water park filled with exciting rides, wave pools and a host of water fun for all ages. The park is set in an ancient theme of Arabia.
This museum is located at Al Fahidi Fort. This was built in 1787 and has served as a palace, garrison and prison. In 1970, it was converted to a novel and creatively conceptualized museum depicting Dubai’s history.
Dubai Mosques
Jumeirah Mosque is one of the biggest and beautiful mosques in Dubai and is resplendent of modern Islamic architecture. The mosque is built of stone in medieval Fatimid tradition with twin minarets and a majestic dome. The Grand Mosque is another beautiful mosque with the tallest minaret at 70 meters. The Grand Mosque has 45 small domes and 9 large domes.
Heritage & Dining Villages
You can go back in time and experience some of Dubai's heritage. The heritage village located near the mouth of the Creek has potters and weavers working on their pearling crafts, along with dancers, Arabic restaurants and many other traditional pursuits.
Dubai Zoo
The zoo in Jumeirah is home to a variety of animals alongside native Arabian animals, which include the Arabian Wolf. Also there is a huge aviary.
Wonderland
This is a must-see amusement and water park for kids. It has a host of water rides, speed slides, a roller coaster etc. In addition, there is a water mist show and water cinema which is an exciting experience.
Magic Planet
This is a splendid and exciting children's recreation zone. It is filled with fairground rides, bowling alleys, electronic games and a mini golf course.
Encounter Zone
It is another kids’ zone, and is situated in Wafi Shopping Mall. Encounter Zone offers many rides, games, the Crystal Maze horror chamber, simulated rides etc.
Wild Wadi
Situated next to the Jumeirah Beach Hotel is the 12-acre water park filled with exciting rides, wave pools and a host of water fun for all ages. The park is set in an ancient theme of Arabia.
Friday, 16 January 2009
Ajman Corniche
Ajman Corniche comprises seven interlinked towers which give it a distinctive architectural design. The two highest sections of the structure stand at 47 floors, on top of an eight level podium.
In terms of scale the building will become a major landmark along the Ajman coastline with the two highest sections of the building standing at forty seven floors built on top of an eight level podium. The building comprises a 200m long structure of varying heights enveloped by a flowing wall of glass which is interrupted on its surface by openings of varying shape and size forming sky gardens.
The Ajman Corniche Residence Project is backed by the Ajman Government who have engaged an international team of Consultants to act on their behalf for the Project.
Villa in Ajman - Q&A
Q: I am thinking of buying a villa in Ajman, a 2 bed for USD 200k.
Does this Seem to be a good deal? How far is Ajman from Dubai and is Ajman far from the beach?
A: Villa for that price looks good. Again, the developer and research is important. If it's for investing 3 BDR villas do better provided you can stretch yourself a little bit more.
Villas in Ajman should do well. Ajman should be 30 kms and yes Ajman has a coastline. Need to see if villas are beach front. For that price, I don't think so.
A lot is happening in Ajman.
I read this in a book.....Always buy in an area where growth is coming. If you are a little early or little wrong, the growth will take care of it. If you invest in an area where growth has been and growth is not continuing, then when you are wrong, you are wrong forever.
Ajman is an emerging market and an early entry will not hurt especially with Villas.
Does this Seem to be a good deal? How far is Ajman from Dubai and is Ajman far from the beach?
A: Villa for that price looks good. Again, the developer and research is important. If it's for investing 3 BDR villas do better provided you can stretch yourself a little bit more.
Villas in Ajman should do well. Ajman should be 30 kms and yes Ajman has a coastline. Need to see if villas are beach front. For that price, I don't think so.
A lot is happening in Ajman.
I read this in a book.....Always buy in an area where growth is coming. If you are a little early or little wrong, the growth will take care of it. If you invest in an area where growth has been and growth is not continuing, then when you are wrong, you are wrong forever.
Ajman is an emerging market and an early entry will not hurt especially with Villas.
Rent in ajman
Despite the more than 30 per cent increase in rents in 2008, Ajman rents are the cheapest compared to Dubai or Sharjah.
Fast access of the emirate via the Emirates Road is also forcing people from as far away as Dubai to Ajman.
Flats in Al Nuaimiya, Zahra and Hamidya are high in demand because they are near the highway and it takes about 20 minutes to get to Dubai from here, one agent said.
By next year 7,000 new apartments will be ready for rent, according to Alison Wilkinson, real estate agent at Northern Emirates Property.
A two-bedroom apartment in Al Nuaimiya is renting at between Dh35,000 and Dh45,000. "You can't find a two bed-room flat in Sharjah today," she said.
According to one agent from Memon Real Estate, rents in Ajman have shot up by Dh6,000 to Dh7,000.
A market analyst said a two-bedroom luxury flat in Dubai is now renting at Dh90,000. A mid-level flat in Bur Dubai or Karama is renting between Dh70,000 and Dh80,000, she said. "Rents are going exorbitantly high despite the 15 per cent cap."
She said there will be an "excess of apartments" in Dubai in the near future, but said it is difficult to predict how that would impact on rents because of the way inflation is now headed.
The other reason why rents are rising in Ajman is because of lack of new rental properties, one agent said.
Most of the new towers being built are for sale, not rent, according to Tariq Salahuddin from Al Ruwaid real estate agency.
Apartments in 20 new residential towers in Karama are for sale, he said, adding that in Al Nuaimiya 17 towers are nearing completion and most of them have been sold.
There is also hectic construction activity on Shaikh Khalifa Bin Zayed Street on the way to Ras Al Khaimah, apparently to also attract property buyers from the adjoining emirate.
Unlike Sharjah, where rents cannot be legally increased in the first three years, Ajman has no such law and landlords can hike it every year. But unlike other emirates, renters do not have to pay "key money" or a guarantee deposit in Ajman.
The rental market in the Northern Emirates is expected to pick up even more after the summer holidays, sometime in August, the agents said.
Fast access of the emirate via the Emirates Road is also forcing people from as far away as Dubai to Ajman.
Flats in Al Nuaimiya, Zahra and Hamidya are high in demand because they are near the highway and it takes about 20 minutes to get to Dubai from here, one agent said.
By next year 7,000 new apartments will be ready for rent, according to Alison Wilkinson, real estate agent at Northern Emirates Property.
A two-bedroom apartment in Al Nuaimiya is renting at between Dh35,000 and Dh45,000. "You can't find a two bed-room flat in Sharjah today," she said.
According to one agent from Memon Real Estate, rents in Ajman have shot up by Dh6,000 to Dh7,000.
A market analyst said a two-bedroom luxury flat in Dubai is now renting at Dh90,000. A mid-level flat in Bur Dubai or Karama is renting between Dh70,000 and Dh80,000, she said. "Rents are going exorbitantly high despite the 15 per cent cap."
She said there will be an "excess of apartments" in Dubai in the near future, but said it is difficult to predict how that would impact on rents because of the way inflation is now headed.
The other reason why rents are rising in Ajman is because of lack of new rental properties, one agent said.
Most of the new towers being built are for sale, not rent, according to Tariq Salahuddin from Al Ruwaid real estate agency.
Apartments in 20 new residential towers in Karama are for sale, he said, adding that in Al Nuaimiya 17 towers are nearing completion and most of them have been sold.
There is also hectic construction activity on Shaikh Khalifa Bin Zayed Street on the way to Ras Al Khaimah, apparently to also attract property buyers from the adjoining emirate.
Unlike Sharjah, where rents cannot be legally increased in the first three years, Ajman has no such law and landlords can hike it every year. But unlike other emirates, renters do not have to pay "key money" or a guarantee deposit in Ajman.
The rental market in the Northern Emirates is expected to pick up even more after the summer holidays, sometime in August, the agents said.
| Rents less than half of Dubai Rents in fairly new apartment buildings in popular districts | |
| Emirate | Two bedroom |
| Ajman | Dh33,000 to Dh45,000 |
| Sharjah | Dh40,000 to Dh60,000 |
| Dubai | Dh70,000 to Dh120,000 |
Monday, 5 January 2009
Sweet Homes sells out 70 per cent of AED 3 billion ‘Ajman Uptown’ despite 40 per cent property price hike in 2008
Sweet Homes, a leading UAE-based developer and multi-service provider to the real estate sector, has announced that it has sold out 70 per cent of its AED 3 billion ‘Ajman Uptown’, the first freehold residential township in Ajman. The announcement follows a GCC-wide roadshow organized by Sweet Homes and is in line with the developers’ AED 2 billion investment plan for 2008. The strong sales reflect the vibrancy of Ajman’s real estate industry and the appeal of ‘Ajman Uptown’, which comprises of seven commercial and residential towers, a hotel and hotel apartments complex, and villas and townhouses, despite a 40 per cent hike in property prices in Ajman in 2008. Reports also indicate that investments into Ajman’s property sector have crossed the AED 400 billion mark this year, which augurs well for the success of the ‘Ajman Uptown’ project.
The strong performance follows Sweet Homes’ successful participation in high-profile property exhibitions as part of an extensive region-wide campaign to promote its ‘Ajman Uptown’ project. The impressive sales indicate that the global financial crisis might actually have a positive effect, as Arab and expatriate investments into the US and European markets are expected to flow back to the local and national property sectors. Ajman in particular is experiencing a property boom due to its investor-friendly property laws and reasonable project rates, with the emirate having attracted significant Foreign Direct Investment (FDI), which has exceeded the rest of the other emirates’ by 300 per cent.
“As the third largest property market in the UAE, Ajman is strategically positioned to attract more foreign investments into the real estate sector, with over 33 per cent of development projects in the area owned by expatriates, as compared to 11 per cent in other emirates. The Ajman Government has mandated the implementation of a solid infrastructure that will entice high-caliber real estate developers and has recently adopted Escrow Accounts and STRATA regulations similar to those adopted in Dubai. Further, the recent signing of an AED 7.34 billion contract between the Ajman Government and Malaysia-based power producer Malaysian Mining Corporation (MMC) to build the first coal-fired power plant in the region is set to build investor confidence, and we are positive of an increased response to our projects,” said Fahad Sattar Dero, CEO, Sweet Homes Group.
Sweet Homes has been boosting its regional presence through an extensive roadshow highlighting its ‘Ajman Uptown’ township community. The developer participated in the recently held ‘City View Syria 2008 - The 2nd Tourism Investment & Real Estate Development Exhibition and Conference’ and ‘Kuwait Property Exhibition 2008’, where it showcased the two office towers - ‘Freesia’ and ‘Gardenia’ and the five mixed-use luxury towers - ‘Heliconia’, ‘Jatropha’, ‘Iris’, ‘Kentia’ and ‘Ludisia’, within its ‘Ajman Uptown’ project. Both events have helped Sweet Homes significantly expand its investor base and motivated the property specialist to plan appearances in other upcoming real estate investment and development shows. With offices in the UAE, Oman and Qatar, Sweet Homes continues to undertake regional awareness campaigns and participate in high profile promotional activities, such as its ongoing participation as a major sponsor for the Doha Shopping Festival, with aims to draw further attention to its latest residential development.
“Our projects, plans and philosophies were warmly received during our roadshow, proving the soundness and appeal of our comprehensive property development approach. We hope that our activities will spur investments not only into Ajman but also into the broader UAE market. Sweet Homes has indeed shown through these events that many opportunities remain despite today’s highly competitive and unpredictable real estate environment,” concluded Dero.
Ajman Uptown’s prime location and its distinction as the first freehold villa and townhouse community in Ajman have made it a highly-sought project among local, regional and international investors. The prime residential development includes 1,504 G+2 villas and townhouses and 7 G+4 buildings spread over 4 million square feet of land that is directly accessible from the Emirates Road and adjacent to Emirates City. Scheduled for completion by 2010, Ajman Uptown will feature a school, a healthcare centre, a fire fighting station, several mosques, a health and recreation club, a swimming pool, markets, shopping mall, hotel & hotel apartments, and convenient and spacious parks.
The Emirate of Ajman has made substantial improvements to its property laws and infrastructural strategies to further attract realty investors. Ajman is the second emirate after Dubai to introduce a freehold property law as early as 2002; the law allows non-GCC developers and buyers to own freehold land and property in designated areas determined and approved by the ruler. The emirate has also streamlined its inheritance policies and introduced bank guarantees to safeguard investor's interest. Finally, Ajman has made substantial investments into utilities, sewage management and transport projects to establish suitable infrastructural foundations for more intensive property development activities.
Dubai Villa Evictions - reaction #1
s long as people are waiting in line to come here, why should the empowered authorities not try to take every hard-earned Dirham out of our pockets? While everybody -including my family- continues to complain about, and suffer from, the ever increasing cost of living here no laws are implemented to protect or improve our miserable lot.
Residents need to put themselves on the other side of the table briefly when assessing this topic. If this were YOUR country, would you sanction foreigners working on your soil sending their earnings back home? Or would you implement ways and means to ensure their meagre earnings were spent in your country? The strategic plan calls for chipping away at your earnings one Dirham or one Riyal at a time, be it through Salik or Empost fee increases, to ensure your earnings stay HERE. Have you noticed that the prices of US or dollar-denominated goods have increased on par with products which are sourced in other currency denominations, such at Sterling or Euro? While the Dirham is officially tied to the US dollar with a constant exchange rate the selection of US-made groceries has gone up in price by 50+ percent?
Rather than airing complaints in public, these matters need to be addressed in personal letters or emails to appropriate local government officials, perhaps through your Embassy / Consulate, as a matter of international interest. My Consulate could care less, suggesting I go home rather than disrupt the cocktail party circuit they enjoy. At least at home the media finds such tales of woe and despair fascinating, eager to publish them. As do the late-night talk-shows on TV.
The choice is ultimately YOURS - work here, spend your earnings, fall into debt. Use your end-of-service gratuity to pay off your debt before you leave or just abscond as so many seem to do who are unable to repay their loans? You decide. Scores are waiting to take your place at a lower salary than yours. They too will learn the hard way that there's no long-term future here.
Residents need to put themselves on the other side of the table briefly when assessing this topic. If this were YOUR country, would you sanction foreigners working on your soil sending their earnings back home? Or would you implement ways and means to ensure their meagre earnings were spent in your country? The strategic plan calls for chipping away at your earnings one Dirham or one Riyal at a time, be it through Salik or Empost fee increases, to ensure your earnings stay HERE. Have you noticed that the prices of US or dollar-denominated goods have increased on par with products which are sourced in other currency denominations, such at Sterling or Euro? While the Dirham is officially tied to the US dollar with a constant exchange rate the selection of US-made groceries has gone up in price by 50+ percent?
Rather than airing complaints in public, these matters need to be addressed in personal letters or emails to appropriate local government officials, perhaps through your Embassy / Consulate, as a matter of international interest. My Consulate could care less, suggesting I go home rather than disrupt the cocktail party circuit they enjoy. At least at home the media finds such tales of woe and despair fascinating, eager to publish them. As do the late-night talk-shows on TV.
The choice is ultimately YOURS - work here, spend your earnings, fall into debt. Use your end-of-service gratuity to pay off your debt before you leave or just abscond as so many seem to do who are unable to repay their loans? You decide. Scores are waiting to take your place at a lower salary than yours. They too will learn the hard way that there's no long-term future here.
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