Mortgage rates are dropping, giving millions of homeowners an opportunity to lower their monthly payments. An estimated 8.2 million borrowers could refinance and potentially lower their monthly payments by at least 75 basis points, estimates Black Knight, a mortgage software and analytics firm. This marks the largest percentage of homeowners who stand to benefit from lower mortgage rates since the end of 2016.
Last week, the average 30-year fixed-rate mortgage reached a two-and-a-half-year low of 3.73%, Freddie Mac reports.
The average borrower stands to save about $266 per month on their mortgage by refinancing, according to Black Knight. About 1.5 million borrowers—or 35% of those who took out their loans last year—could benefit from refinancing, the report notes. Refinancing can lower monthly payments and also provide access to money for homeowners who have substantial home equity. About 44 million borrowers have at least 20% equity in their homes. The average amount available to access is $136,000, Black Knight reports.
Borrowers, however, are being more conservative in tapping into home equity than in years past. About $54 billion was withdrawn in home equity in the first quarter of this year—the lowest amount in four years. Black Knight reports that less than 1% of available equity has been withdrawn.
The growing threat of wire fraud scams targeting real estate transactions is prompting the Utah Division of Real Estate to launch a statewide campaign in warning the public. A real estate email scam is trying to dupe unsuspecting buyers out of their down payment right before settlement.
The Utah Division of Real Estate has produced a public service announcement video that is airing on local television stations as well as a statewide billboard campaign through the end of August.
The email scam—affecting transactions across the country—targets real estate agents’ and title companies’ email accounts. Scammers learn when transactions are scheduled and, usually within 24 hours of a transaction closing, they’ll use the email account to send new wiring instructions to the buyer, seller, title, or escrow agent, lender, real estate agent, or broker. The new wiring instruction will have the funds directed to a bank account outside of the country. After the funds are transferred, they are usually quickly dispersed to multiple banks and quickly become untraceable and unrecoverable.
More than $149 million was lost by consumers nationwide in 2018 from this type of email real estate fraud, according to a Federal Bureau of Investigation report.
“All parties in a real estate transaction should be very wary of any last-minute changes over email,” says Jonathan Stewart, director of the Utah Division of Real Estate. “Once criminals gain access to your email account, they can make anything sound legitimate. We hope by educating consumers about this statewide email scam, we can prevent Utahns from becoming victims.”
Nigerians have lofty dreams and often look at the future with blink interest. The fear that certain previlages may be withdrawn from them within a short while, often tend to make them prepare and acquire wealth meant for generations unborn thereby putting themselves into unnecessary hassles. This is also why they always build property they cannot manage alone just to show off. So to advise one to build small homes may be one advice that may be thron out. Those who consider the idea of building small houses are mostly seen as people who are not affluent in the society. In places like Dubai, where real estate accounts for 20 per cent of GDP (compared to an average of 7 per cent in most other countries), governments need to reconsider regulation of the real estate sector. This is necessary in order to ensure that the sector continues to be healthy, transparent, professional and not-fragile, while keeping the whole economy balanced.
The Great Recession of 2007 has taught most Africans costly lesson of what it means for a real estate sector to be out of control. There was a financial loss of more than $14 trillion in the United States alone, and more than 20 million jobs were lost worldwide, according to the International Labour Organization. This was a crisis of confidence, when people’s trust in governments and businesses were at an all-time low. Unfortunately, this trend continues until this day. Therefore, governments and businesses need to find a formula to regain people’s confidence, as traditional regulation of real estate has proven ineffective.
All homes are mostly the ones whose economic and financial levels are nothing to write home about, so they manage to develop the small home to shelter the nucleus family. Also, when life seems too complicated, some people advocate the solution that it is better to move into a smaller home to have a bigger life.
Although, for some, the tiny house movement has become a way of life, adjusting to a smaller space and fewer possessions, with a goal of saving money and focusing on relationships and experiences. This system is not rampant in the country because of government housing policy. Housing policy in Nigeria can be defined as the government’s action on its people’s housing objectives. Basically, whenever the government gets directly involved in the housing objectives of its people, either by taking actions to provide shelter for her citizenry or by taking actions to improve the quality of the shelter of its people, it means talking about government housing policy. A second perspective of housing policy would be government interventions and subsidies on housing. In this case, we are talking about any government effort to make housing affordable for its people or and its attempt to take care of the housing of its homeless citizenry. Since housing is one of the most fundamental needs of the human race, it goes without saying that everyone should be interested in knowing and understanding the government policies out there that could make it easier or more difficult for one to get his/her own basic shelter or the house of his dreams.
When you talk of policies in places like Dubai, where real estate accounts for 20 per cent of GDP (compared to an average of 7 per cent in most other countries like Nigeria), governments need to reconsider regulation of the real estate sector. This is necessary in order to ensure that the sector continues to be healthy, transparent, professional and anti-fragile, while keeping the whole economy in bal- ance. The regulations will also help to examine and determine why one should go into a style of building in consideration with where he intends to build it.
Those that go after small home despite government policies, have some advantages they believe could be inherent in the system. For in- stance , if you’re looking for reasons to build small, there are some ideas to think about. In this regards, the biggest or best reason for doing so is very subjective. Ultimately, you will decide what is most important to you. First and foremost, small homes are easier and cheaper to maintain. Building a small home is quicker and less expensive. With a good design, a small home can be cozy and comfortable and the costs to heat and cool is less. It will make your home less expensive because in-laws and friends coming to your home already know that you don’t have space and so shall make their visits very snappy. They will legitimately know they will require a motel to stay in. Although, these are some of the reasons people go after small home, the Nigerian housing policy has got a lot of challenges.
In 1991, for instance, Nigeria got a new housing policy that was intended to provide solutions to the problem of housing her increasing population. Twenty years later, the government confessed its inability to achieve the then set objectives and went on to review the National Housing policy. In 2012, Nigeria got her latest national housing policy that promised Nigerians real mass housing which the country has been dreaming of. The new national housing policy emphasized the introduction of mass housings that will provide houses for Nigerians of all financial levels. The policy also introduced the concept of social housing stating that the government hoped to provide housing for even the poorest of the poor by making houses that aren’t for luxury but that will ensure every Nigerian gets a house.
Three year slater, in 2015,a check was made with the Federal Ministry of Housing and Urban Development to analyse the progress made with housing the poorest of the poor and how one can get the social houses the government promised. The report was that the government has not started on that project. Surprised, questions were asked why it is taking so long and the authority stated that the process was at its planning stage which must come before execution. So, for all these, it will make sense for you to ponder the possible disadvantages as well. If your house is small, it can also be very frustrating. The small home can be a problem to the woman in the home because there is not enough storage to ‘play’ around, put this utensils and the food stuff. Because the space is too small, it could be too crowded or closed in to be comfortable. You would not want to put yourself in position of rejecting the home in a year or two. The fact that you feel uncomfortable, the owner of a small home always consider resale value and because it does appeal to a large enough market, it could be a liability to the owner.
For some time, bigger was better. Families, especially in Abuja, Lagos and Port Harcourt could need large space just like in North America where houses seemed to get bigger and bigger. But things are changing. It’s not that big is no longer desirable, but there’s definitely a move towards smaller homes. To make sure that your small home is marketable, get professional help with its design. Small homes require thoughtful design and experts recommend that you find a good architect. You really want to maximize your space, focus on comfort, and enhance its usability. Good designers can do that for you. Governments need to create and enforce high quality governance practices for the industry, while still leaving room for creativity and innovation.
One of the reasons for this is that the real estate market does not have official, and therefore credible, access to performance indices or accurate information on supply, demand, property sales prices, ownership records and other important market variables.
The Nigeria Soverign Investment Agency (NSIA) is determined to explore investment opportunities in the country and beyond to ensure that they benefit from its mandate. With investments spread across oil and gas, agriculture, power, among others, NSIA appears set to guarantee returns on investments for its subscribers. In this interview with reporters, NSIA’s Managing Director/CEO Uche Orji talks of the prospects and challenges of the Authority, saying while the agency is keen on investing, it is weary of making wrong investment decisions. Group Business Editor SIMEON EBULU was there.
Can you take us through last year’s operations of the NSIA?
We had a successful 2018 by some methods, but I think we could have done better in certain aspects. It was our sixth straight year of profitability, but it was the first year when we invested aggressively in things like the infrastructure fund and we have started to see some of the benefits of the infrastructure fund. That is important because Infrastructure Fund takes time before to yield returns. So, you are building the Lagos-Ibadan Expressway and the Second Niger Bridge, it would take a while before it starts yielding returns. As we start to make aggressive investments in infrastructure, you are going to see less capital available for us to invest in markets. So, it is important that we replenish that through further contributions, to maintain the pace of profitability in NSIA. Having said that, 2018 was our six straight year of profit. If you take out forex translation gains, we made profit of $87 million (or N28.45 billion), using an exchange rate of N325/$1 for 2018. The shift towards infrastructure and direct investments in Nigeria means it will take longer for returns to start incubating. But if you include forex translations, 2017-2018, went from $22 billion to $46 billion. So, generally, it was a positive year. By the end of the year, Assets Under Management was about $1.9 billion.
In addition, we also had third party funds like the Presidential Infrastructure Development Fund (PIDF)- a fund created by the President with $650 million. It is not part of our assets. That fund is what we are using to drive the Lagos-Ibadan Expressway, Second Niger Bridge, Abuja-Kano highway and soon, the East-West Road and the Mambilla Power. So, that is exclusive of the N617 billion that we have. In 2018, the returns break down were as follows: We made 11.5 per cent in our Stabilisation Fund, the Future Generation Fund about 3.3 per cent, because the global market was down a lot in 2018 and it affected returns; and the Infrastructure Fund was up 13.8 per cent. For Infrastructure Fund, the 13.8 per cent is actually the investments we are making in markets, with the cash, not the actual infrastructure, because those ones have not started yielding returns yet.
So, the three funds that we run are the Stabilisation Fund, the Future Generation Fund and the Infrastructure Fund. We have commenced construction on our three healthcare projects. Lagos University Teaching Hospital (LUTH) is completed and operational, for Kano and Umuahia, the construction has been done and we are hiring people soon.
What was the performance of the Future Generation Fund (FGF) in 2018 and possibly since inception?
For the FGF, last year we did 13 per cent and the year before it was 11.5 per cent. That is the growth rate of the FGF. But I can’t give you the annualised performance over the past five years. Not as aggressive as I would like it to be; I will explain why. We have a very conservative assets allocation strategy. If you look at our FGF, we only put 25 per cent in public equities. Our peers like the Norwegian Sovereign Fund put 65 per cent in public equities. So, if you want to be aggressive to make money, you put a lot more funds in public equities. Having said that, because of the volatility last year for example, we had a very bad year because the market was down and they ended up in dollar terms losing more because of their aggressive strategy. My biggest problem with the NSIA when we started was that I just couldn’t take the risk of losing money. So, we were a bit more conservative. If you lost money within the first two years of your existence, the National Assembly would raise some issues and may even tell you to give them back the money; so we were a bit more careful. But I think as we get more comfortable, we try to enhance our investment strategy and, hopefully by then, we would have built up enough means of returns and if we had a bad year, we can explain to Nigerians that we had a bad year. If you remember last year, the S & P 500 was done by an additional five per cent. It is not something I am very proud of and I wish we could have done better.
Is the Presidential Fertiliser Initiative (PFI) a social programme?
Fertiliser started as subsidy to support the government, with a view to not losing money and, if possible, to make money. Subsidies in fertilisers before the PFI started was as high as N60 billion a year. In the last two years, the subsidy has come down to N8.6 billion for two years. So, we have roughly N4.3 billion a year, from N60 billion a year and there were no shortages. Now, if you do that and it translates to money that eventually comes to the NSIA, it is value for us. Secondly, it is a programme that has a timeline. At a point, it is going to stop. But the real value addition here is that we have gone from importing 100 per cent fully blended fertiliser to importing only 35 per cent of the materials, while 65 per cent is domestic. Blending plants that were dead or moribund are up and running, from four that were operational when we started, to 22 now, all hiring people. So, that has supported the economy and I am hoping that we would be in a position where we can earn some fees from the work that was done.
Just think about the fact that it used to be N60 billion of subsidy, but it is about N4 billion. Even with the N60 billion, there were shortages in fertiliser, but today, local manufacturing has gone even higher. And today, the foreign exchange requirement has gone down by about $150 million yearly. These are all value to the country.
How can more funds be committed to the Sovereign Wealth Fund (SWF?
What worries me is that we need to get money into the fund. It is extremely important to us because if you end up investing all our infrastructure funds, which tends to takes about five years to earn a real return, you might run out of capital and you have your margins squeezed. That is because the cost of running infrastructure is very high. Recently, we started hiring for both Umuahia and Kano. Both places would hire at least 40 people; the LUTH will also hire about 40 people. These are costs and it would still take time before they start earning revenue. The Norway story is one that I like to tell all the time. The reason is because in one of my earliest jobs in 1998, the team I worked for was one of those that managed the Norwegian SWF’s assets. They started in 1993 with $10 billion and to see them now at over $1 trillion speaks to the power of consistent contributions. In 2013, it was reported that the Norwegians were putting in $1 billion a week into that fund. So, it doesn’t really matter how much you start with, what matters is how consistent you are. So, I think if there is one thing we need to do as a people and if we need to be serious about this, there must be consistent contribution. But those who have watched us closely would have seen us move from being fought by the governors; being fought by various others, to now be working well together. We are working well with the governors and the National Assembly. I am hoping that the NSIA has become something that they have all come to accept that it is necessary, it is important and should be funded. I think the bigger question we have is whether we have enough revenue as a country to be able to fund an institution like this. I am hoping that we do if oil price continues to go up and we continue to invest in the oil sector and get our production up; get the right type of production, because all those factors are very important.
For your infrastructure fund, beyond what government is doing are you looking at partnering private sector firms to get more funds to invest?
There are three pillars of our strategy for infrastructure. The first is, we invest our funds directly; the second is, the co-investment strategy; and there is a lot going on there. An example is the co-investment fund we set up with UFF and Old Mutual and it started with $200 million. For that, our full commitment would be not more than $50 million. They would bring their money while we bring other people’s money. The same thing was what happened with InfraCredit, where we put $25 million and brought in other people’s money to make it about $200 million. So, we continue to have co-investment as a strategy. If you look at the PIDF, there is government money, there is NSIA money and there is the third party fund we are going to raise. It is a combination of debt and equity to complete the PIDF project, the Second Niger Bridge and the Lagos-Ibadan expressway. So, we have a strategy to raise funds from other people to co-invest with us in our projects. Now, it is not so easy to develop this co-investment strategy.
If you remember we announced one for real estate, which hasn’t happened. Soon after we announced that fund, the forex crisis in Nigeria started, when we went from N196/$ to N306/$ and at a point even fell much lower than that. So, that affects that fund’s take-off. So, we are balancing the risk of convincing people that Nigeria is investible. So far, we have had two successes and one failure and I am hoping that we learn from the successes and build on the failure to do more of this. So, the strategy we have set up is that we would have other people co-invest with us. For instance, the three healthcare projects we have done, we put our own money. As I speak, I am very confident because we have another pipeline of about 11 more projects in healthcare, we have had commitments totalling over $200 million of people that want to invest in us. So, we can’t solve all of these by ourselves. The strategy we have is that for every $1 we invest in infrastructure, we attract $4 from external parties. But for the NSIA to do that successfully, the NSIA needs to be consistent in its performance and Nigerians, including the National Assembly need to have confidence in the NSIA. I think we are on the way to doing that and we continue to work to build that confidence.
One of the most consistent supporters who have been on the standby to invest in the Second Niger Bridge is the Islamic Development Bank. Same time, we are engaged with the EU Commission, the DFID, and all of these people. So, we have built a significant platform and level of interest and support from various people that makes us very comfortable and happy. We did make an investment in gas, in conjunction with the IFC and Seven Energy to do gas infrastructure and help them get Calabar to operate. So, power in that area has improved significantly. That investment also fell on hard times. It fell on hard times because as we speak, not one bill has been paid for. So, there are funding issues in the power sector that needs to be addressed fundamentally. We have invested in renewable energy and solar. Mambilla would start, at the moment it is a $5.7 billion project. The due diligence required is going to take a lot of time and we are actively doing the due diligence. But don’t forget that Mambilla is primarily a project of the Ministry of Power; we are there as financing partners of the project, but for us to invest in it we have to be very comfortable that we would get our returns.
We have invested in gas-to-power, renewables, solar and hydro, but there is still a fundamental issue in the power sector which we are all aware of, that needs to be addressed if we are going to attract more investments into that sector. If we actually aggregate all the power generating sources in this country, put them in a proper distribution metrics, you will have enough power. So, the real challenge is in getting transmission and distribution to work effectively in this country and getting other things working.
Are you involved in gas capturing projects?
We are involved in gas capturing; we are at very advanced stages of due diligence on a gas flare capturing project. From my last count, there are more than 300 major gas flare sites in Nigeria. For instance, those from Rivers State, at night if you drive towards Yenegoa, the night light are lit with flaring gas. These things have been flaring for decades. The economic waste is incredible. So, the project we are about to do, which we would probably announce before the end of this year, is one we are working with other partners and we are taking one of the largest onshore gas flare sites and turning it into LPG capture. What is fascinating about the project is that the LPG and the power sales would give you about 19 per cent internal rate of return (IRR). But there is a big element involved, which is carbon credit. You can actually go to Switzerland and sell the carbon credit and we are glad to do that.
Why is the NSIA not investing in petroleum refinery projects?
Refining is an area of interest for us. We have looked at investing in NNPC or the rehabilitation; it (the Federal Government) hasn’t moved for that, so we are waiting. We looked at modular refineries; we did a lot of work on that and the truth is that we have not done any investment for a number of reasons. So, you will see us in refining because it is an area of interest.
What is your outlook for 2019?
2019 started off very volatile with trade wars as the single most important challenge that we have. It is important to us because our FGF largely invests outside the country. So, when you see movements in the Dow Jones or S &P 500, they tend to affect the performance of this fund. We expect that even though we have seen a rebound in our performance because the global markets have risen, it would remain a very volatile 2019, for as long as the US uses tariff to drive global trade, you are going to see this affect global markets. So, for the rest of the year, I anticipate that the market remains very volatile as long as President Donald Trump continues to tweet and drive foreign policy. I still struggle to understand the correlation between tariff and immigration. However, we are optimistic that our asset allocation strategy will withstand downside risks and optimise market gains. Within the last 12 months, we committed and deployed over N100 billion across the priority three road projects under the PIDF. We have also commenced due diligence on the Mambilla Power Project. We are within the target project milestone on all these projects. Throughout 2019, we shall continue to focus on executing our infrastructure investment strategy in our core focus areas of power, toll roads, agriculture, healthcare and most recently gas industrialisation.
Strong home price appreciation last year led many to wonder if housing was unsustainably strong. I thought not and in November 2018 wrote Housing Forecast: Not A Bubble In 2019. This update shows that housing will continue to soften, though not quite so much as previously expected.
The most important factor determining housing construction and pricing is the underlying demographics. Housing is mostly built to accommodate new residents; just a little new construction replaces demolished or abandoned housing. My first gauge of the housing market is construction relative to population growth. The accompanying chart shows how many housing units were started per 100 new residents. New residents come from births in excess of deaths, plus net foreign immigration. The population data include estimates of illegal immigration, though there’s obviously some uncertainty there.
This ratio shows we are in the ballpark of building just the right amount of new housing, single family homes plus apartment units. This is a low-fidelity measure, ignoring factors such as mobile homes shipments, demolitions, and houses abandoned in rural counties as people migrate to cities. Nonetheless, it gets us in the ballpark of whether we are grossly overbuilding or underbuilding.
Key to this chart is the slow population growth of recent years. The United States population growth last year was the lowest percentage increase since 1937. Many people in the lumber business think of 1.5 million housing starts as normal, but that was back when population growth was much faster. Today, 1.1 million is a normal year, and we built 1.2 million housing units in 2018, though with a downward trend in the second half.
The cause of recent weakness is most likely mortgage interest rate increases. From September 2017 through November 2018, the interest rate on 30-year mortgages increased from 3.8% to 4.9%. Sales of existing homes dropped sharply, with about a one-month time lag. Sales of newly-built single-family houses peaked just after mortgage rates started rising, then dropped sharply in the following months, hitting bottom in December 2018. Mortgage rates obviously affect the affordability of a house, but the changes in mortgage rates also affected expectations of future affordability. Homebuilders moved quickly to avoid the worst sting of the higher rates, then returned to the market at the first signs of rates easing.
The income part of the home buying equation has been steadily improving. Disposable income has increased by four to five percent over the past few years, driven by increases in employment and even greater increases in wage rates.
Looking forward, the demographic trends won’t change much, unless the United States suddenly lets in a great many more immigrants. That seems unlikely, even if President Trump is not re-elected in 2020.
Interest rates have dropped every month since November 2018. Part of this is a global drop in long-term interest rates, and a secondary factor is the recent Federal Reserve policy shift, which involves both short-term rates as well as the Fed’s large portfolio of long-term securities. I expect rates to be level for a few months and then to rise again, as the Fed sees more signs of inflation in the economy.
Household income growth should continue to be strong. Weakness in employment would most likely be driven by labor shortages rather than soft demand. The labor shortage will continue to drive up wage rates, boosting total income.
Rolling these factors together, we are currently close to a reasonable range for housing construction, but a little bit high. The slight oversupply will put downward pressure on price appreciation. If I am right that inflation will accelerate—and be warned that this is now a minority view—then higher interest rates will dampen demand. Combining weaker demand with a little too much supply, and home price appreciation will slow. A major price decline is unlikely, but don’t expect to make easy money simply owning a house.
As I talk to people about the economy, I hear a range of opinions. The gloomy old men see housing as overpriced and younger people too profligate to be able to afford to purchase a home. The real estate professionals panic at the thought that mortgage rates could rise over five percent, as if we haven’t survived much worse. And investors don’t understand that the economy is not the same as the stock market. A good solution to the inherent biases that we humans have is to slow down, roll through the fundamental factors, and ignore headlines as much as possible.
Summer has arrived and that could mean a boost in real estate activity as prospective buyers, especially parents, look for homes ahead of the start of the new school year in the fall. A rise would be a welcome sign given that home prices have been on a downward slide for the last 13 months, but that could all change soon
“According to the latest S&P CoreLogic Case-Shiller National Home Price Index, home prices in the United States grew by 3.5% in April,” wrote Ralph McLaughlin, Deputy Chief Economist at real estate data company CoreLogic. “This is the 13th consecutive month of slowing home-price growth, which is now at its lowest level of growth since September 2012. However, there are signs the streak may not last, as half of the 20-cities have reversed course and witnessed a quickening of price increases in April.”
A possible price uptick is starting to be felt in the priciest metropolitan areas, which could lead a forthcoming housing heat-up.
“The slide in average home prices for the top 10 metropolitan areas broke its 12-month cooling with an increase of 2.3%, up from the previous month’s 2.2% increase,” McLaughlin wrote. “However, the top 20 metropolitan areas cooled for the 13th straight month, posting a gain of 2.5% year over year, down from 2.6% in March. Just 10 of the top 20 metropolitan areas reported lower price increases compared to the previous month, with the other half of the metros actually experiencing a pickup in their home price appreciation. This is in sharp contrast to March, when 18 of the top 20 saw a decrease from the previous month.”
A confluence of rising interest rates and low affordability have made the housing market a challenging space in 2018, but that could all be changing with the NAHB/Wells Fargo Housing Market Index holding steady.
To start 2019, contracts to buy existing homes rose 4.6 percent in January versus December, according to a monthly survey from the National Association of Realtors (NAR). However, contracts were still 2.3 percent lower versus a year ago, which makes it thirteenth straight months of declines annually.
Furthermore, the central bank has been sounding increasingly dovish as of late, which could mean that less rate hikes than anticipated for 2019 and even possible cut something that could give additional help to a sector that is in need of a much needed boost.
The home-buying season is on in the US, despite the current dispute with trade partner China. However, the market looks different than it used to just a year or two ago. Geek Wire reported that buyers and sellers will be looking at a drastically changed–for better or worse–market, with real estate technology doing its expected disruption of traditional and slow processes.
With technology, there are quite a few changes expected. Homeowners can now have direct access to major realtors without the help of a middleman.
New technologies and innovative apps have also provided a better version of buying and selling a home or renting out a place. Major players, who were once traditional marketers, have also begun to expand their reach and capabilities, thanks to the disruption of tech.
The prevailing feeling with these companies, as well as well-known Wall Street investors, is that everything will change to adjust to the tech of the times.
The real estate landscape will inevitably undergo a chance. Redfin CEO Glenn Kelman said that 20 percent of the US economy will be up for grabs for companies willing to take a bigger risk than usual.
The notion that real estate is changing is shared by many others, including Stephens stock analyst John Campbell. Campbell recently spent some time studying the industry deeper.
He then shared his opinion that consumers are ready for change, but it’s not clear whether it’s because they want results or they want to see change.
Market Watch reported that today, that effort resulted in industry players like Zillow and Redfin, with customers at the center of that strategy. There are also new participants to this strategy making themselves known, eager to present a solution to the industry where Zillow and Redfin belong in.
Zillow and Redfin are in the market to create waves, and Seattle looks like the place where the waves will crash. The national transformation converges on the state as Redfin and Zillow are located here. Redfin has been in operation for 24 months–two years–while Zillow has re-invented itself to become a company that’s involved in direct buying and selling these homes per month.
Others have been making their presence felt slowly but surely, and real estate will be all the better for it. Outside of Zillow and Redfin, Compass–a Softbank-backed startup brokerage–has been creating quite the buzz. Instant home offers, quick resolution of processes, and the elimination of the middle man have become the new norm thanks to these real estate startups.
The real estate sector in the country is currently going through a tough phase. The number of stuck housing projects has gone up since April 2019 and hundreds of developers are behind bars or are out on bail for not delivering homes on time, according to a recent report released by Propequity.
Sources from Nasscom and Credai have also confirmed to CNBC-TV18 that the number of builders facing legal action has crossed 150 across India.
According to Vivek Kohli, senior partner and co-founder of Zeus Law Associates, the NBFC crisis is only a part of the problem. Putting promoters behind the bars is essentially adding to the chaos, he says.
It may be noted that Monty Chadha, the promoter of Wave Group, was arrested from the Delhi airport last night by the Economic Offenses Wing of Delhi Police. He is accused of cheating people by making fake promises of giving flats at cheap prices. The Chandra brothers of Unitech are in Jail, and so are Amrapali directors and there’s a warrant out for the Pranav and Sushil Ansal, promoters of Ansal API.
Despite these arrests, none of the stuck projects has any visibility of completion. In fact, as per Propequity data for April 2019 versus June 2019, the number of delayed projects with no sight of completion date has increased from 1389 to 1473. Units stuck have gone up to 4.52 lakh from 4.20 lakh and the value of these stuck units has gone up from Rs 2.79 lakh crore to Rs 3.15 lakh crore. This clearly has a connection to the lending taps from NBFCs closing up.
“Now you have these bunch of companies which are completely headless and you have a group of customers who are absolutely aggrieved, but nobody understands where the situation is going to go. As it is completely chaotic, it is completely headless and there is no direction to this crisis at the moment,” Kohli noted.
“The direction can come only if there is a comprehensive policy statement from the government. The NBFCs are now out of the picture, the banks are not lending to the projects, so who is going to complete these projects? Until the projects are completed and a habitable home is available for the customer, we are looking at a crisis which is deepening without any direction, we are not at the bottom yet,” he added.
Says Shobit Agarwal, MD and CEO of Anarock Capital: “The crisis is deepening and it is only at the surface yet and all the numbers that you spoke about are sort of known to the industry. We need a comprehensive solution and until that is visible we do not know how NBFCs are going to start funding. It is not that there is no money with NBFCs, I think the issue is how much of that can – should it go into emergency capital if I might use that word or should it go into funding Greenfield projects. It is not just about money, it is about customer hesitation, it is about land title getting challenged, it is about approvals not coming, so it has several layers.”
Agarwal pointed out that all the projects were not stuck because of capital shortage. “If the project is doing well and it is only the capital which is required I think there are solutions to it. The problem comes when the projects are unviable, may be because selling price has gone down, sales have gone down or there are legal issues related to approvals,” he opined.