In reading: China In Prime Position To Plunge Into U.S. Market, is there any question that China not only has huge potential to be a major market player, but has the potential to rapidly strengthen their postion in the global market and be the dominant player?

It would definitely take time, but with the amount of money that China has invested in the U.S. already (financing a large chunk of our national deficit), buying into U.S. businesses would put the U.S. in a vulnerable position of power economically and politically. 

Is now the time for us, as a country, to realize we soon may not be the dominant player in the global economic market?  Will politicians see China as too much of a threat and try and restrict this growth to power.  An interesting read, none the less.

I presume some part of China’s government will soon buy an equity stake in a major hedge fund or investment bank as well. … Anyone looking for financing to do a really big deal will, I would guess, soon make a pilgrimage to Beijing.

The Hawaii Kai Chamber of Commerce is being formed to help support and facilitate community events and area businesses.   Go to the Hawaii Chamber of Commerce to learn more about the various Chambers in Hawaii .  The Hawaii Kai Chamber of Commerce is in it’s infant stages and doesn’t even have an office yet.

We will be virtual to start. Without any money, we can’t have an office.

said Bill MacDonald

Want to here more about the market and the serious problems in the lending industry. These are some great audio clips.

US Mortgage Market Woes Spread To Europe (Click on Listen Button at the Top)

Global Markets Respond To Credit Squeeze (Click on Listen Button at the Top)

Fed Floods Bank System With Cash To Avoid Crisis (Click on Listen Button at the Top)

In today’s news….

Mortgage Bonds are edging higher this morning, as Stock markets around the world are sharply lower in the wake of spreading international concerns over banking and investment fund exposure to US sub-prime mortgages. Central Banks are again responding by making even more liquidity available, to help calm investor fears and prevent massive withdrawals from accounts and holdings around the globe. The other action the Fed could take is to consider a cut to the Fed Funds Rate. My sources feel that a Fed cut at the Sept 18th meeting is highly likely. The migration of subprime investing problems to Europe demonstrates just how widespread subprime mortgage investments are. As if more action was needed, the economic calendar sizzles next week. Even though Stocks have traded significantly lower the past couple of days, Bond prices have been unable to make a significant move higher. 

Prices are up almost 22 bps since lenders opened this morning with prices so we would advise locking any loans immediately in anticipation of an inter day price change.

How many times have you heard, “Don’t buy leasehold properties.  They are a bad investment.”?  Well, some are, some aren’t, but if you choose wisely, right now, you could end up making a very good business decision.  Not all leasehold properties will be favorable, but a lot will.  If you buy it now when it is leasehold and there is uncertainty as to if and when it will ever go “Fee” then you may be able to make some money.

Why?

Because of Legislation Act 166 SLH 2007 (SB600 HD2 CD1 (CCR178) Relating to Leasehold Conversions:

What does it say?

Provides an income tax deduction of 100% of the income derived by a fee simple owner from the sale of a leased fee interest in units within a condominium project, cooperative project, or planned unit development to the association of apartment owners or the residential cooperative corporation of the leasehold units.  This will commence after December 31, 2007 and is set to be repealed in January 1, 2013.

So, what the heck does that mean? 

First you must understand how leasehold properties work.  See my previous post about leasehold properties to understand.

Now that you read the post, the legislation states that the owners of the land that are leasing to the condo owners, if they sell the land to the association (condo owners) between Jan. 1, 2008 and December 31, 2013, they don’t pay state taxes on the proceeds of the sale. 

This just came out in my Real Estate Commission Bulletin and the news isn’t well know right now.   The reason they are doing it, is because there are a lot of condos where the lease is going to expire here in the next few years, and a lot of them have reversionary clauses, that state the unit ownership will revert back to the land owner. 

Imagine the headache for the police department, when these people, who have owned the unit for many years, all of a sudden are told they no longer own the unit and must move out.  The police don’t want to have to enforce this, and the State doesn’t want to have to deal with this nightmare. 

The state gov tried to force the landowners to have to sell, but that was overturned in court, SO…….now we have this solution.  Give the landowner such an incentive to sell the land that they can’t refuse, but put a time limit on it, so the landowner will do it soon, thus avoiding the crisis.

If you can buy the right leasehold property now, with the uncertainty of the future of the Fee (gives you a discounted value), and then it does go Fee in a few years, you should be able to pick up some value in the unit just because it goes Fee.  Leasehold units will usually rent at breakeven with a lower down payment than Fee Simple properties because you haven’t paid for the land.

I am sure you are asking, “Yeah, well how would you know which ones might go Fee?”

That is where I come in to help.  And FYI, there are companies that are in constant contact with the landowners to see if they would be willing to sell the fee or not.  Typically they have had ongoing communications with most of the landowners and can tell you if there is a good possibility that the landowners would sell.  These companies negotiate the process of selling the fee to the associations.

Oh…by the way, did I say this is risky, not guaranteed, is my opinion and is with the assumption that the market doesn’t change drastically over the next few years?

Let me know if you have any questions.

What does leasehold mean?

There are two forms of ownership in Hawaii, Leasehold (LH) and Fee Simple (FS).  With FS properties you own the house and the land underneath it like any other property around the country.  With LH you own the house, but you lease the land that is underneath it.  Every lease agreement is different, but they all typically have a specified length of time you are leasing the land from the landowner for.  They range from a year to 90 years or more.  If you are to get traditional 30 year lending, then the lender wants  there to be 5 more years left on the lease than the length of time you will have the mortgage for, so if you wanted 30 year financing then you would need 35 years or more left on the lease.  If you wanted to do 15 year financing then you would need 20 years left on the lease.  You would otherwise have to pay cash for the home if the lease doesn’t conform to the lending guidelines.  With leases there can be periodic step ups in the lease rent (outlined in the lease contract) and sometimes there are lease renegotiations (also outlined in the lease contract).  There may also be a reversionary clause in the lease that states at the end of the lease the home reverts back to the landowner.  It is possible that the landowner sells you the land prior to the lease expiring, so then the property would be a FS property, but leasehold properties tend to be more affordable because you don’t own the land and because of the risk involved with the uncertainty that you will ever have access to owning the land.

The Tsunami Hazard Information Service provides residents and visitors of the State of Hawai’i easy, on-line access to the State’s tsunami evacuation zone maps as well as information about potentials risks, how to prepare, and what to do in the event of a tsunami. This service was created by the NOAA Pacific Services Center in partnership with the State of Hawai’i.  Visit the Tsunami Hazard Information Service website for more info.

Mortgage Bonds are trading higher on unexpected news from Europe connected to US sub-prime mortgage investing problems, as well as Stocks trading lower off the same news. French Bank BNP Paribas, second largest bank in Europe, announced it has temporarily halted withdrawals in three of its mutual funds that have exposure to US subprime credit. As you can imagine, investors like you and I, who are told that their own funds are not available for withdrawal, would be quite worried. In the day’s only economic news, Initial Jobless Claims edged higher by 7,000 claims to 316,000, the highest weekly total since June 30 - a positive factor for the Bond market. For now, I am advising cautiously floating any conforming loans, but I would recommend locking non-conforming transactions upon application

Please feel free to use me as a resource to find out what’s going on in the marketplace and to find the best options for your clients today.

Clients who were prequalified months, or even weeks ago, need to be talked with again to make sure that with all of the changes they are still able to qualify and qualify with payments they are comfortable with. Let me know if I can help.

Keri Shepherd - Loan Officer
Charter Funding
4211 Waialae Ave. Suite 107
Honolulu, HI 96816
808-356-5911 Office
808-223-4118 Cell
808-748-2787 Fax
Keri.Shepherd@charterfunding.com

I had seen an article about a year ago that discussed how China has the ability to cause serious problems to the US economy because our wonderful deficit that we have is financed by China.  China Threatens Nuclear Option of Dollar Sales was a good read, though I do feel that if China did do something along these lines that it would hurt, China’s economy and the rest of the world economies as well.

In regards to housing:

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

As indicated in my Oahu Real Estate Market Stats Summary For July, the median home price for a single family home was down $45,000, from $685,000 to $640,000.  this doesn’t mean the sky is falling.  You can’t look at data over a one month time frame, and the Honolulu Advertiser finally got it right with their Oahu Median Home Price Dips article.  Also check out the Star Bulletin’s article Sales Drop

July’s $640,000 median price was 3 percent lower than the median price a year earlier, and returned to what mostly has been a picture of flattening prices after several years of double-digit percentage-point growth. The Honolulu Board of Realtors, which released July sales data yesterday, said the price swings over the last two months have had more to do with where homes are selling as opposed to inherent value changes.

The main concern to keep an eye on here is interest rates and inflation.  What these two do over the next several months should give us some more indication of where the market is headed. As you probably know, the mortgage industry is having it’s problems.