Posts Tagged ‘real estate’
“Lifestyles of the Rich and Famous”*…
… in the age in which we live: two dispatches…
First, from the realm of real estate:
Nantucket, MA, has long served as a sandy summer paradise for jet setters such as Joe Biden, Ben Stiller, Kourtney Kardashian, and former Google CEO Eric Schmidt, among others.
Take, for instance, one six-bedroom house on Red Barn Road that was listed as far back as October 2020 for $2,995,000. Four years and four price cuts later, the 3.8-acre property is now listed at $1.7 million. Even so, it is still sitting on the market after seven months.
The listing agent, John Arena of Raveis, says he has received plenty of calls about the house, which is now in foreclosure.
“People are lined up to buy it,” he insists, adding that the foreclosure has prevented him from properly showing the house.
Shelly Lockwood of the real estate advisory firm Advisors Living has a different theory on why it hasn’t sold: The very beach the house sits on is slowly eroding away.
As a result, she says, “It’s falling in the ocean.”…
“Buying in ‘Billionaires Isle’ Nantucket Is Now a Bargain: Homes Are ‘Falling Into the Ocean’“
Next, from the arena of aristocratic accessories:
Two Italian luxury giants pay just a small amount to produce handbags that retail for thousands of dollars, according to documents in a sweeping investigation of subcontractors.
Italian prosecutors in Milan investigated the LVMH subsidiary Dior’s use of third-party suppliers in recent months. Prosecutors said these companies exploited workers to pump out bags for a small fraction of their store price.
Citing documents examined by authorities, Reuters reported last month that Dior paid a supplier $57 to produce bags that retailed for about $2,780…
The relevant unit of Dior didn’t adopt “appropriate measures to check the actual working conditions or the technical capabilities of the contracting companies,” a prosecution document said, according to Reuters.
In probes through March and April, investigators found evidence that workers were sleeping in the facility so bags could be produced around the clock, Reuters reported. They also tracked electricity-consumption data, which showed work was being carried out during nights and holidays, the report said.
The subcontractors were Chinese-owned firms, prosecutors said. They said most of the workers were from China, with two living in the country illegally and another seven working without required documentation.
The probe also said safety devices on gluing and brushing machines were removed so workers could operate them faster…
The probe also extended to Giorgio Armani contractors, and the luxury company was accused of not properly overseeing its suppliers.
Armani paid contractors $99 per bag for products that sold for more than $1,900 in stores, according to documents seen by Reuters…
As Kevin Kwan observes, too often the allure of luxury is simply an escape from reality…
* Long-running television series
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As we head back to basics, we might recall that it was on this date in 2002 that a modernization of the classic Cinderella folklore, A Cinderella Story, premiered. Panned by critics, the film was a box office success, grossing $70.1 million against its $19 million budget, and inspired multiple straight-to-video films. Indeed, over the years, it has developed into a cult classic.
“Seek truth from facts”*…
China’s property sector is enormous, under tremendous financial strain– and, as Jeremy Wallace explains, a very big contributor to climate issues (e.g., construction on China accounts for 5% of global energy consumption)…
China has ended zero-Covid. The resultant viral tsunami is crashing through China’s cities and countryside, causing hundreds of millions of infections and untold numbers of deaths. The reversal followed widespread protests against lockdown measures. But the protests were not the only cause—the country’s sagging economy also required attention. Outside of a few strong sectors, including EVs and renewable energy technologies, China’s economic dynamo was beginning to stutter in ways it had not in decades.
Whenever global demand or internal growth faltered in the recent past, China’s government would unleash pro-investment stimulus with impressive results. Vast expanses of highways, shiny airports, an enviable high-speed rail network, and especially apartments. In 2016, one estimate of planned new construction in Chinese cities could have housed 3.4 billion people. Those plans have been reined in, but what has been completed is still prodigious. Hundreds of millions of urbanizing Chinese have found shelter, and old buildings have been replaced with upgrades.
The scale of construction has been so prodigious, in fact, that it has far exceeded demand for housing. Tens of millions of apartments sit empty—almost as many homes as the US has constructed this century. Whole complexes of unfinished concrete shells sixteen stories tall surround most cities. Real estate, which constitutes a quarter of China’s GDP, has become a $52 trillion bubble that fundamentally rests on the foundational belief that it is too big to fail. The reality is that it has become too big to sustain, either economically or environmentally….
The “Chinese real estate bubble” is the world’s problem: “The Carbon Triangle,” from @jerometenk in @phenomenalworld. Eminently worth reading in full.
Analogically related (and at the risk of piling on): “China must stop its coal industry“
* Chinese maxim, popularized by Mao, then Deng Xiaoping
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As we get real about real estate, we might spare a thought for Deng Xiaoping; he died on this date in 1997. A Chinese revolutionary leader, military commander, and statesman, he served as the paramount leader of the People’s Republic of China from December, 1978 to November, 1989. Deng led China through a series of far-reaching market-economy reforms, earning him the reputation as the “Architect of Modern China”.
The reforms carried out by Deng and his allies gradually led China away from a planned economy and Maoist ideologies, opened it up to foreign investments and technology, and introduced its vast labor force to the global market, thus turning China into one of the world’s fastest-growing economies.
But China’s real estate bubble is a reminder that every solution can all-too-easily turn into the next problem.
“Location, location, location”*…
Adam Tooze on the biggest vulnerability in the global economy…
In this precarious moment – in the fourth quarter of 2022, two years into the recovery from COVID – of all the forces driving towards an abrupt and disruptive global slowdown, by far the largest is the threat of a global housing shock…
In the global economy there are three really large asset classes: the equities issued by corporations ($109 trillion); the debt securities issued by corporations and governments ($123 trillion); and real estate, which is dominated by residential real estate, valued worldwide at $258 trillion. Commercial real estate ($32.6 trillion) and agricultural land add another $68 trillion. If economic news were reported more sensibly, indices of global real estate would figure every day alongside the S&P500 and the Nasdaq. The surge in global house prices in 2019-2021 added tens of trillions to measured global wealth. If that unwinds it will deliver a huge recessionary shock.
In regional terms, as a first approximation, think of global real estate assets as split four ways, with the US, China and the EU each accounting for c. 20-22 percent and 35 percent or so belonging to the rest of the world.
The housing complex is at the heart of the capitalist economy. Construction is a major industry worldwide. It is one of the classic drivers of the business-cycle. But beyond the constructive industry itself, the influence of housing as an asset class is pervasive. Compared to equities or debt securities, residential real estate is owned in a relatively decentralized way. Homeownership defines the middle class. And for the majority of households in that class, those with any measurable net worth, the home is the main marketable asset.
Middle-class households are for the most part undiversified and unhedged speculators in one asset, their home. Furthermore, since homes are the only asset that most households can use as collateral, they pile on leverage. For households, as for firms, leverage promises outsized gains, but also brings with it serious risks in the event of a downturn. Mortgage and rental payments are generally the largest single item in household budgets. And household spending, which accounts for 60 percent of GDP in a typical OECD member, is also responsive to perceived household wealth and thus to home equity – the balance between home prices and the mortgages secured on it. For all of these reasons, a surge in mortgage rates and/or a slump in house prices is a very big deal for the world economy and for society more generally…
More background and an assessment of the outlook: “The global housing downturn,” from @adam_tooze.
For Tooze’s follow-up piece on the risk inherent in the $23 trillion US Treasury market, see here.
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As we mortgage our futures, we might recall that it was on this date in 1914 that the Federal Reserve Bank of the U.S. was opened. In actuality a network of 12 regional banks, joined in the Federal Reserve System, they oversee federally-chartered banks in their regions and are jointly responsible for implementing the monetary policy set forth by the Federal Open Market Committee.
In that latter role, they are central to the housing market in that they set interest rates and purchase mortgage securities from Fannie Mae and Freddie Mac (Government-Sponsored Enterprises in the mortgage market). At this point the Fed owns about a quarter of the mortgage-backed securities issued by Fannie Mae and Freddie Mac.
The Federal Reserve Banks in 1936 (source)
“The whole of the global economy is based on supplying the cravings of two percent of the world’s population”*…
Perhaps that’s an oversimplification; but as a new McKinsey Global Institute study suggests, perhaps not by much…
We have borrowed a page from the corporate world—namely, the balance sheet—to take stock of the underlying health and resilience of the global economy as it begins to rebound from the COVID-19 pandemic. This view from the balance sheet complements more typical approaches based on GDP, capital investment levels, and other measures of economic flows that reflect changes in economic value… [and] provides an in-depth look at the global economy after two decades of financial turbulence and more than ten years of heavy central bank intervention, punctuated by the pandemic.
Across ten countries that account for about 60 percent of global GDP—Australia, Canada, China, France, Germany, Japan, Mexico, Sweden, the United Kingdom, and the United States—the historic link between the growth of net worth and the growth of GDP no longer holds. While economic growth has been tepid over the past two decades in advanced economies, balance sheets and net worth that have long tracked it have tripled in size. This divergence emerged as asset prices rose—but not as a result of 21st-century trends like the growing digitization of the economy.
Rather, in an economy increasingly propelled by intangible assets like software and other intellectual property, a glut of savings has struggled to find investments offering sufficient economic returns and lasting value to investors. These savings have found their way instead into real estate, which in 2020 accounted for two-thirds of net worth. Other fixed assets that can drive economic growth made up only about 20 percent the total. Moreover, asset values are now nearly 50 percent higher than the long-run average relative to income. And for every $1 in net new investment over the past 20 years, overall liabilities have grown by almost $4, of which about $2 is debt…
“The rise and rise of the global balance sheet: How productively are we using our wealth?,” from @McKinsey_MGI
(Image above: source)
* Bill Bryson
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As we recalculate: we might spare a thought for composer, musician, director, and producer Frank “anything played wrong twice in a row is the beginning of an arrangement” Zappa; he died (of pancreatic cancer) on this date in 1993 at age 52.
“Politics is the entertainment branch of industry”
“The bottom line is always money”
“Home is the nicest word there is”*…
Suburban housing developments, simultaneously loathed and loved, began in the mid-20th century. Two of the major figures who built these developments were William Levitt (1907-1994) and Joseph Eichler (1900-1974), both sons of New York Jewish immigrant families. Yet the communities they created differed in one very important respect—one whose legacy endures to this day: While Levitt & Sons built “whites only” communities and refused to integrate their developments, Eichler and his son Ned fought just as hard to oppose discrimination in housing, even helping to write California’s fair-housing law…
William Levitt and Joseph Eichler both pioneered suburban development. But one fought for fair housing, while the other refused to integrate his communities: “The Kings of Suburbia.”
* Laura Ingalls Wilder
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As we focus on fairness, we might send stark birthday greetings to Denys Louis Lasdun; he was born in this date in 1914. An eminent British architect, he is probably that countries leading practitioner of the Brutalist style. He is probably best known for his designs of The Royal National Theatre on South Bank in London, and for his work at the University of East Anglia (where, as it happens, your correspondent did time during his juior year abroad).
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