Ever since the tax credit for home buyers ended in April observers in the housing market have wondered what the sales forecast would look like with no tax credit.
Peter Jankovskis of Oakbrook Investments observes “People are still waiting to get a set of numbers that has absolutely none of the government incentive in it for home buyers. From what I was able to gather, we are a couple of months away from that”.
For the May to July sales period, the Case-Shiller national index reports that July had the worst home sales in the last 15 years and August was about the same. The summer is usually the peak period for home sales but with high unemployment and the market being flooded with foreclosures people are hanging onto their wallets.
Nationally home sale prices have increased about 7% since April but are still about 27% less than the peak of July 2006. There were about 5 million foreclosures last year and probably at least that many more this year.
There is some evidence however that the banks have hidden a lot of foreclosures from being listed so as not to flood the market and drive down prices even more. It’s possible though that another big surge in foreclosures will force the banks to dump even more of their shadow inventory onto the market next year.
Dubai World and its creditors both have a problem. Dubai World’s debt is almost $40 billion … and its present assets are valued at not more than about $11 billion. Dubai World is trying to convince their creditors to work out a new debt restructuring deal spanning about the next 8 years. Dubai claims their assets will soar in value to as much as $20 billion by then and the creditors will receive a lot more value if they go along with this 8 year restructuring plan.
Dubai is also sweetening the deal a bit by offering to sell some of their so called crown jewel properties if the ends don’t meet after the 8 year period so that the creditors have some assurance they will get paid … they just have to hang on for the next 8 years. Hmmm. Who’s got who here by the you know what?
Of course the problem isn’t quite this simple since there are a lot of very high end properties involved like DP World, Jebel Ali Free Zone and Dubai Maritime City (DMC) and of course there’s also the little problem that maybe the world economy is heading into a depression and thus further tank commercial property values and the revenue streams they can produce.
There’s also some politics involved here since Dubai World is controlled by the Dubai government and selling such elegant properties to pay off creditors would be a bit embarrassing and present a credibility problem for some of the sheiks whom also have their fingers in other pieces of the economic pie.
The Dubai government has been positioning Dubai as a trade and business hub for the last few years and Dubai World holds a lot of the strategic components for this strategy. By allowing creditors to take over even some parts of these properties it would in effect be an expensive failure in government planning & management.
Dubai World’s subsidiary Infinity, has property investments in the U.S. which would be much easier politically to turn over to its creditors. Infinity paid about $2 billion for a 5.9 percent stake in MGM in October 2007 and $4.8 billion for an investment in its Las Vegas development, CityCenter. Infinity’s MGM stake was bought at an average price of $83.15 per share in October 2007. They paid top dollar for these properties prior to the 2008 downturn and now the share prices are only worth a fraction of what they were in 2008.
Can the creditors and Dubai make a deal? There’s a plan in the works that has an October 1st deadline. Part of that plan has a kicker in it that gives the bankers a pretty healthy “consent fee” of up to $800,000 and 3.5% interest for the next 5 to 8 years if the special board they have set up approves the restructuring.