Are Property Investments Still Sound?

[Macluis]

We have had a bull run in Property return abroad in the past decade or so.

From professional players at first, the market got overcrowded subsequently.

It attracted lots of amator that have only exacerbated current formed or forming bubble world wide, at the pleasure of profesionals that are cashing big profits while the market was or is still liquid.

The situation could be made worse if the pound currency further decline against major expat destination currencies.

The danger will be for those who have taken mortgage/loan in pound , which will their repayement soar as the currency plummet.

Same idea to the one that have put their house in the U.K. as collateral, as its value is falling sharply.

The world wide real estate boom seem to be coming to an end , the contagion is spreading from one market to another as most financial and economy are interlinked.

The media is helping some profesionel to sell while it's still possible, by either flooding wrong information i.e redirecting buyers to some market (e.g Moroccan, Dubai Market etc..).

What do you think? do you see any other risk among the one highlighted (currency risks, local economy faltering) ?

[Peter Hun]

We have had a bull run in Property return abroad in the past decade or so.

From professional players at first, the market got overcrowded subsequently.

It attracted lots of amator that have only exacerbated current formed or forming bubble world wide, at the pleasure of profesionals that are cashing big profits while the market was or is still liquid.

The situation could be made worse if the pound currency further decline against major expat destination currencies.

The danger will be for those who have taken mortgage/loan in pound , which will their repayement soar as the currency plummet.

Same idea to the one that have put their house in the U.K. as collateral, as its value is falling sharply.

The world wide real estate boom seem to be coming to an end , the contagion is spreading from one market to another as most financial and economy are interlinked.

The media is helping some profesionel to sell while it's still possible, by either flooding wrong information i.e redirecting buyers to some market (e.g Moroccan, Dubai Market etc..).

What do you think? do you see any other risk among the one highlighted (currency risks, local economy faltering) ?

Yes of course we will see a world wide property crash. Besides the lack of affordability, banks simply no longer have access to the funds to finance the bubble .

No money, no mortgages, no property bubble.

[Dubai Property]

Yes of course we will see a world wide property crash. Besides the lack of affordability, banks simply no longer have access to the funds to finance the bubble .

No money, no mortgages, no property bubble.

Sit tight. It only affects you if you sell, and if you are in a position to buy, now is the time. Dubai still offers returns for the long term investor and there are other emerging markets to consider,such as Africa or City apartments like Berlin

Then all you have to consider is the fuel surcharges for the flights

[Macluis]

Source : http://www.ecb.int/press/key/date/2008/html/sp080905.en.html

First, if I emphasise trends rather than waves, I see that risk premia on a representative spectrum of assets have declined more or less consistently since the middle of the 1980s. This is another way to say that the market price of those assets has tended to appreciate relative to the stream of their expected payoffs, discounted at the risk-free rate.

Looks like, Today, The ECB president is just echoing what I was thinking while I started this topic..it all started 2 decades ago, in fact a quarter century ago , precisely in 1980.

Even the 1990 housing bust, has shoown that investment risk premia have been drifting down giving the impression that investing in real estate is a one way safe bet.

I suppose we are now witnessing a readjustement of risks, the world wide correction in almost any asset is inevitable and is ongoing.

Price have gone up as the world was flushed by massive amount of liquidity - allowed by in fact by a single entity : China and its massive reserve (low investment and very high savings) - lately due to the Energy exporter country with their massive surplus.

In the past 2 years, it just came to an end. The reversal mechanism is ongoing and cannot be stopped until a new equilibrium is found maybe in a decade or two.

[Macluis]

To the extent that this interpretation has some merit, a less fortunate string of shocks could always bring more ample swings in economic conditions – looking forward – than we have grown accustomed to from past experience. And this could entail repercussions for the valuation of investment risk in various financial markets. In this case a return to historical valuations for risk would imply large negative returns for a possibly extended period of time

I got to requote that since it has huge implication :

In this case a return to historical valuations for risk would imply large negative returns for a possibly extended period of time

I knew i had a good intuition, but being confirmed by one of the greatest monetary policy maker in Europe, that's scary...

Edited September 5, 2008 by Macluis

[Macluis]

Sorry to self reply, but it's astonishing but it seems that there is a coordinated move from many players to communicate clearly the extent of the drama that seem to be unfolding ....

taken from Bloomberg: http://www.bloomberg.com/apps/news?pid=206...&refer=home

"Gordon Nixon, CEO at Royal Bank of Canada, the nation's biggest bank by assets, called conditions the worst since the Great Depression and said lack of liquidity, rather than credit quality, is a bigger issue.

Bank of Nova Scotia CEO Richard Waugh said the global credit crunch is ``the worst we've ever seen'' and that liquidity had been mispriced for years without enough regard for risk.

A multi-decade era of relatively easy credit is ``over'' and borrowing will be tougher, Nixon said, forcing lenders and companies that borrow to adjust their business models accordingly."

[Macluis]

PIMCO's Bill Gross explains why the markets for houses, stocks, and bonds are all crashing at once--and why they all have much farther to go. In a sentence? The global economy is in the process of delevering (reducing debt by selling assets):

Source: http://www.clusterstock.com/2008/9/bill-gr...rashing-at-once

if you don't know Pimco's Bill Gross, then it's about time...this guy's financial views and media intervention value its weight in gold. It never talk for deceiving.

I think in todays world, financial and economies are going to clean themselves up. No more amator speculator that are distorting the fundamentals and sole base is to make money out of money without considering the benefit they bring to the society or economy.

I think the speculators, that have had a living out of real estate by just buying and selling, flipping and renting, will have a very hard time. The delevering that will happen will not be a 1 year or 2 event, but one or two decade process. I suppose most of the speculators would have retired by then and hopefully still have enought cash...to pay their rent.

In the past decade or so there were not talented or genius, expat real estate investor but just lucky one that enjoyed the world ammasing an enormous, unsustainable amount of debt that is know imploding in all directions...

Edited September 6, 2008 by Macluis

[Caribbean Beauty]

if you don't know Pimco's Bill Gross, then it's about time...this guy's financial views and media intervention value its weight in gold. It never talk for deceiving.

I think in todays world, financial and economies are going to clean themselves up. No more amator speculator that are distorting the fundamentals and sole base is to make money out of money without considering the benefit they bring to the society or economy.

I think the speculators, that have had a living out of real estate by just buying and selling, flipping and renting, will have a very hard time. The delevering that will happen will not be a 1 year or 2 event, but one or two decade process. I suppose most of the speculators would have retired by then and hopefully still have enought cash...to pay their rent.

In the past decade or so there were not talented or genius, expat real estate investor but just lucky one that enjoyed the world ammasing an enormous, unsustainable amount of debt that is know imploding in all directions...

Just like St Paul on the road to Damascus, you have seen the light. Change your profile to Bear now please, thanks.

[Macluis]

Just like St Paul on the road to Damascus, you have seen the light. Change your profile to Bear now please, thanks.

Nothing to do with Light & Magics, but more to do with hard facts, coming from the biggest brains in the investment and monetary policy in the world.

I'm just bullish in the same sense as I was during the Nasdaq peak of 2000, bullish because I sold all my stocks while others were still buying.

So indeed when all asset price had rallied for over a period a two decades (ignoring the 1990 correction in real estate and 2001 correction in stocks, which were bumps in a strong two decades bull market), how can one is not bullish. Price have corrected but are still far, very far from their natural equilibrium. I will turn bearish when asset price have return back to their 1990 peak...I suppose i will update then my profile in 2011 or 2015...just be patient.

Edited September 6, 2008 by Macluis

[Ulidia]

I'm just bullish in the same sense as I was during the Nasdaq peak of 2000, bullish because I sold all my stocks while others were still buying.

Is that an example of bullish behaviour?

So indeed when all asset price had rallied for over a period a two decades (ignoring the 1990 correction in real estate and 2001 correction in stocks, which were bumps in a strong two decades bull market), how can one is not bullish. Price have corrected but are still far, very far from their natural equilibrium. I will turn bearish when asset price have return back to their 1990 peak...I suppose i will update then my profile in 2011 or 2015...just be patient.

Do you think asset (in this case, real estate) prices will increase or decrease over the coming years?

[Macluis]

Is that an example of bullish behaviour?

Bullish in the sense that excess are going to be removed. Bullish with the fact that at some point the market will be healthier.

Bullish with the fact that reckless investors will be punished hard for bringing unbalance in most markets.

Bullish with the fact that system finally clean itself up after few years of unhealthy Euphoria.

Regarding the real estate market in the next five to two decades, indeed I'm bearish

Do you think asset (in this case, real estate) prices will increase or decrease over the coming years?

To me, it's clear that a major delevering by banks and households is currently happening.

This after about 20 years of credit expansion.

During those 20 years, stocks, bonds, and real estate went in only one direction : up.

During the next 20 years, stocks, bonds, and real estate will go in only one direction : down.

Bear in mind that the stock market is much liquid than the real estate market, so it will go side way the long term channel will be down.

It will be a trader market as it has been in the past year or so.

Most experts, I mean the real one, are all warning about this possible outcome.

So house price will go down for a very long period, and then stabilize. Bank will have to replenish their capital base or disappear.

There will be far less bank in 10 years than todays. Lot of banks around the world will go belly up.

Liquidity will dry up whatever the Central bank do. Less mortgage, less buyers. Cash will be king.

The buy to let market is dead. This business model was working when you have a ever rising asset.

Bradford and Bingley is the symptom of worse to come.

[Macluis]

"Bradford and Bingley" & HBOS are all but collpasing and with it they are just announcing the end of the Buy to let market.

The english world wide real estate speculator has disappeared today as the dinausors during the ice age, this time it is dur the freezing of the credit market ...

[pujika55]

Well according to me real estate investing is going to be the best option. As it is very good option for future savings. There are many things which can go through real estate investment.

[DrGUID]

Liquidity has gone. Property investments will be worthless, as nobody will be there to buy them off of you.

[Macluis]

Liquidity has gone. Property investments will be worthless, as nobody will be there to buy them off of you.

to that i will add, not only financial institution have to go through deleveraging but so will the highly undebted citizen. This will take years if not decade.

A japanese type scenario, the US is building it as it doesn't allow or it has no choice but nationalizing the big one - lehman was choosen for the example - AIG, Fannie Mae and freddy Mac, were to big too fail, it would have witnessed instant deleveraging raging... but they choose to take control and to allow an orderly readjustement so instead of 1 year of mayhem, you will get many year of sub growth, sub lending ....

Buy to Let is gone... you can buy property, fall in love with stone but as a lover you will need to get patient and stay in relationship for a decade or two before filling for divorce and getting some profit - if profit there is.