Today I want to share three stories that each in its own
right, are tell-tale signals on the sorry state of the Commercial and
Residential Real Estate market in The Netherlands. All stories are coming from
(the paper version of) Het Financieele Dagblad (www.fd.nl):
Watch-dog
AFM warns of CRE-fraud by dubious investment funds (Link in Dutch)
Investors
should be aware of suppliers that offer unlisted real estate funds. These funds
are often involved in fraudulent and deceptive actions. This is stated by
managing director René Maatman of the Authority Financial Market (AFM).
The
official supervisor ascertains that investors are often not informed on
problems within the fund and marks over 25% of the eighty funds as ‘suspect’. The
supervisor is using its power of authority against at least eight of those
funds to challenge the discovered abuses.
The
AFM can’t yet disclose which parties are involved: ‘The investigations are in
different phases now, but within a number of months some names will be revealed’.
The
real estate-industry suffers from (structural) vacancy and renegotiated renting
contracts that are continued against much lower rents. On top of that, funds
suffer from refinancing problems for their (leveraged) investments. This leads
to investors running a much bigger risk than originally stated by the funds,
while forecasted yields for the investors are not realized. Many of those funds
are in dire straits. And Dutch investors invested not less than €5 bln in
unlisted real estate funds.
Maatman
emphasizes that actually nothing is wrong with aggravated risk by itself. ´Our
concern is that investors are informed of this elevated risk. They must know
what their money is used for´. Currently,
it happens occasionally that fund managers transfer funds to sister
companies-in-need, without informing the investors. Or that money is forwarded
as a third-party investment, without a guarantee that it will be reimbursed.
These
debaucheries are not only established at little, mediocre player in the
CRE-market, according to the AFM. ´Investors cannot simply trust in the decency
of the big fund names´, according to Maatman. On his suspects list are small as
well as large suppliers of Real Estate funds.
Large
parts of the CRE funds industry are officially exempted from AFM supervision,
as their minimal investment is €50,000. Therefore the AFM cooperates for this
investigation with the Dutch National Bank DNB and with the fiscal criminal
investigation department (FIOD).
For investment funds, the threshold for being subject
to supervision by the AFM is currently below €50,000. That will be €100,000 as
of January 1, 2012. People that invest above these amounts are considered to be
´intelligent and streetwise enough to do their own fact-checking´. That this consideration
is rather wishful thinking than reality, is proved by the large number of
wealthy investors that lost massive amounts of money on fraudulent funds in the
past. These fraudulent funds were not only involved in Dutch Real Estate, but
also in exotic investments like teakwood plantations in Costa Rica, the palm
islands of Dubai or Real Estate in Qatar.
The higher the estimated yields were
of these investment funds, the more willing rich investors were to switch off
their brains and invest at the smooth-talking fund managers, with the expensive
rides, the yachts and the golden, Swiss watches.
Although you can´t say that only real estate funds are
involved in fraudulent or deceptive investments, there is an
over-representation of this industry in investment fraud.
Housing development unexpectedly low (no link available)
Sales
of newly built houses are increasingly caving in. In October, only 1189 new
houses were sold, according to the Dutch Association for Developers and
Building entrepreneurs (NVB).
In
September, this number was still 1490 and during the three previous months this
number was above 1500. ´We were taken off guard by this number´, according to
NVB chairman Nico Rietdijk.
The
economic malaise and insecurity seem increasingly serious. Last Thursday during
an NVB symposium, Rietdijk assumed sales to be between 1200 to 1400 per month
for Q4. On Friday, Rietdijk lowered his estimate to below 1000 houses per month
for November and December.
In October 2006, housing sales were 4000 houses and in
October 2009, sales were still 1662 houses.
I wrote so many lines on the utter stupidity of Dutch
politics, concerning the Dutch housing and mortgage market and the MID (Mortgage
Interest Deduction), that I don´t deem it necessary to do it one more time (see the article list at the bottom of this article).
This article speaks volumes about the sorry state of the Dutch housing market
and so does the next article:
Higher
mortgage for couples (no link available)
Next
year, couples with a double income can borrow more money when they want to buy
a house. The National Mortgage Guarantee (NHG) is going to loosen the
conditions, according to the Guarantee Fund Owned Houses (WEW). Especially
lower incomes can borrow more money. ´The extra leeway can mount to €30,000 for
couples with two €20,000 per year salaries´, according to Karel Schiffer,
managing director of the WEW.
Based
on the latest advice of the NIBUD (The Dutch Institute for Budget Education),
the income of the lowest earning partner can count for one-third in deciding
the maximum mortgage amount. Until now, only the salary of the highest earning
partner was used in this calculation.
The
change is mainly affecting the lowest incomes and not so much the higher
incomes. Couples with double incomes can currently borrow €149,000, but under
the new rules this increases to €180,000.
The
NIBUD lowered the housing budget for singles. Due to the new rules, these can spend
less income on housing.
This kind of behavior by Dutch authorities and
semi-governmental institutes, like the WEW, is almost criminal.
Instead of letting the Dutch housing market do its
cleansing work with price and debt destruction as a consequence of dropping
demand, these institutes motivate couples in vulnerable categories (young and
with a low income) to put their head in the gallows by borrowing more money
than they can afford for a much too expensive house.
When the female partner gets pregnant (which young females
tend to do after starting to live together) or when one of the partners loses
his/her job, this is the start of financial misery and forced austerity for
these young families.
The WEW mentioned here is the same institute that reported
the dramatic increase of the house-owners being in arrears with their mortgage
payments.
This article proofs once more that ´Extend and pretend´ is
still the name of the game in the Dutch housing market. Why would you admit
that Dutch houses are hopelessly overpriced, when you still can put salve on
the wound and hope for the best. That is what we have been doing for almost
five years now, so why would we change that?!
Inquiring minds should read also:
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