Monday, March 9, 2009

The Global Property Bust

Another day, another sign of mounting hardship for millions of people worldwide.

As foreclosures in the U.S. increase, bargains are readily available, yet many of those willing to scoop these homes up at highly discounted rates cannot get their hands on credit as readily as before, if it all. Thus, the toxic assets that burden many U.S. banks prevent a reversal of this vicious circle.

So as these foreclosures continue and sales improve very slowly, many localities find it increasingly onerous to hold on to the properties. The result? They have devised a new method to jettison these properties--a method that smells of prudent economics, despite the numerous protests: auctioning off the properties to the highest bidder.

At least that's what New York is doing. Hundreds of homes are being put on sale in bids starting as low as just a thousand dollars, with many homes scooped up at prices that in many instances were more than 50% off their peak.

Not to be outdone, protesters vociferously voiced their qualms at what they consider to be a flagrant move, as millions are suffering while some of these select few buyers are making money from their misfortunes.

True, there are people who are making money from these properties, but isn't this a better scenario than the alternative: having the state take over these properties, burdening it in the process, only for it to resell the properties to interested parties in any case? Or to have the property just stand there and depress other property prices in the vicinity? Surely this is the lesser evil, or at least in this blogger's opinion.

Alas, New York isn't the only state to suffer from foreclosure. States such as Florida, Arizona, Nevada, and California have been struck particularly hard. It will be interesting to see if they will resort to similar auctions to decrease the backlog of unsold properties that blight their communities and budgets alike.

And it's not just the U.S. that is suffering. Skimming the Financial Times' special report on worldwide property markets in today's issue, I was struck by how thin it is this time around: just 8 pages, rather than the roughly two-dozen it was just a year or two ago. Likewise, the "House & Home" weekend sections in 2009 are some two or three times thinner than its erstwhile editions.

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