Monday, Jan 08, 2007
Prices not 'chickening' out in Kiev! Groan...I'll get my own coat
Firstrung: Kiev property - "House price bubble? Of course it's a bubble! Who is buying these places?" - Moneyweek
One estate agent in the BBC piece says that she bought a flat for $30,000 three years ago, and it's now worth "up to $200,000". Well, she would say that wouldn't she? She's trying to sell flats to naïve foreign investors who think that they too will be able to make seven times their money in three years. My initial reaction is, that if the average salary in the region is $2,400, then why hasn't she sold her great investment flat and retired? It's these kind of stories that show the unsustainable hysteria that lies beneath the global property boom. When you hear of properties in Kiev going for 100 times average earnings, that's when you start to think about the triple-digit p/es of the dotcom bubble era.
Posted by converted lurker @ 11:23 AM (165 views) Add Comment
20 Comments
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1. sovietuk said...
This article was on the BBC website as a headline item for 3 days (yes 3 days) and was posted on Friday. Clear and unequivocal evidence that the BBC enjoys fanning the flames of property bubbles anywhere in the world.
2. Alithemuslim said...
What is the interest of the BBC in doing so?
3. inflation is eating my savings said...
I suspect this is just simple supply and demand thing. Moscow is the most expensive city in the world simply because you can't get stuff.
4. Surfgatinho said...
Well, looks like a great investment to me. All the capital appreciation has already been done for you and the rental income must be a staggering 0.01% if the wages really are that bad!
5. Fatboyslim said...
RE:- Alithemuslim said...
Just get off the tube at White City and you can tell the fine BBC crowd from the common council estate lot at the back of Tesco's, it don't take a genius to see why... COS WE CAN:)
We are the voice of the common people... If our researchers (be that freelancers/editors/copy writers - call us what you like!) get a creative buzz at lunch time its easy and WE all enjoy fanning the flames of this property bubble. It's a bit of a ego boost to be honest!
BEST GRAVEY TRAIN I HAVE BEEN ON FOR THREE YEARS.
AKA :- SIGNET
6. Mjchum said...
For those of you that saw my posts over the last couple of days with regard to buying in Eastern Europe, this is exactly what I'm talking about (Monty). It's was the same with commodities trading, people with no access to what they sell, selling to those that will never receive or use the goods (see copper over the last few years $1400 to £7500/ton), inflating the price way beyond it's true value. This kind of BS economy (gambling) adds to the poverty sufferred by so many people across the world. Ukrainians will no longer afford to buy, or even rent if that bubble doesn't pop and in Eastern Europe that is more likely to lead to real homelessness that the UK (I guess). I hate punitive taxation, but surely a 2nd homes tax is needed to prevent such damaging speculation.
Houses = Homes = Families = Communities = Society = Stability
and not,
Houses = Speculative investment = debt = inflation = misery = cycles of poverty
And before you all shout socialist, I'm not. I earn a high 5 to low 6 figure wage in an industry dependent on HPI. I have lived in dire poverty and know what it's like. HPI to fund some idiots Porsche at the expense of a young family's future just sums up where we are today. I believe to make money, you have to do something real, add at least the value you take.
7. sirgoogle said...
Speculation and bubbles
Riding the bubble up is great ! The only trick is to ensure that you bail out before the system finds you out. This is a classic game of "Hot potato". You must ensure that you downsize just before the bust - as otherwise you are holding the debt that a chain of speculators have built up on you new property over the years from 2000 - 2006.
8. Enuii said...
Remember, you've got to be quick out of the blocks to sell just before the crash starts otherwise the property won't shift if its at all seriously inflated. New build flats are prime fodder for loosing money on especially if they're outside London.
9. denzil said...
Add Isreal to the equation too. Right little property hotspot.
10. Victormcauley said...
This article has convinced me finally - when this madness resets it spell the death of all fiat currencies. This bubble I think will collapse our banking systems as we know them. I dread to think what will replace them....
11. harold said...
"Add Isreal to the equation too. Right little property hotspot."
Mmm, nice basements.
12. European-bear said...
Same speculation and price rises in Almaty Kazakhstan and elsewhere in the former USSR. Due partly to rapidly improving economies in these countries (although most people are still dirt poor) and a recent liberalisation of the local mortgage markets....but the banks in these regions are particularly stupid and will lend anything to anyone and this drive the price up. Things like this in these countries are classic bubbles...there is after all loads of land in Ukraine, Russia, kazakhstan and elsewhere in the former USSR, and labour is cheap (so you can build for next to nothing)......When the crash happens here it will hurt the poor....not because of falling property prices, but due to Banks going under who have made stupid loans from the meagre savings of poor people who have just started to feel comgfortable with the idea of putting thier dollars in the bank rather than the USSR tradition of stuffing the mattress with the stuff....
13. monty said...
Mjchum,
In every market there is speculation. That is the nature of the beast. The early risk takers are rewarded and the fools are punished. True, speculation creates bubbles but they never go on forever. Investors need dividends and lenders need interest payments. Kiev real estate may well be driven up temporarily by speculation but it has to be funded. An oligarch may be able to hold onto a $1m flat for a while with no return but will eventually ask the question as to why his money is not better off in the bank. My point is that those flats/houses/dachas/peasant shacks are all going to have to deliever a return at some point. If not, they will be sold.
Same goes for copper. If £7500/ton does not reflect the true value of the copper then it will come down (as it did.) If it is the true value then there is an incentive to mine more of it. Mine enough of it to meet demand and the price comes down again. If there is not enough of it left in the ground then clever people will find an alternative. Just watch what happens to oil over the next 30 years. The market will always out. Apologies if I'm teaching you to suck eggs here but I find the free market a creature of beauty and government interference a wart.
Is that the sound of violins I hear? Like so many others before, you are confusing home ownership with having a home. I have lived well over half my life in rented accomodation and have never been homeless.
14. David20040_0 said...
It's only a bubble if people won't pay the prices, at the moment they are so it isn't a bubble.
15. Mjchum said...
Monty,
What happens when you retire? You sound like a particularly intellegent chap, so I guess you earn well and save (in investments that always make money). But still, if you don't have a home, paid for by retirement age, what are you going to live in? I guarantee you the Govt will not support you, especially if you have worked (contributed) all your life.
As for commodities trading, I believe there has to be a limit to the artificial inflation of things people need to survive. Sure, many commodities traders will likely lose their shirts, but they will still probably afford to eat, unlike many people in developing countries who's lives may even be taken by the poverty created such practices as witnessed on the LME.
Houses = Homes = Families = Communities = Society = Stability
My family was torn apart by the last crash. I was homeless at 16. There really is no need for these destabilising bubbles, or is it just the way the rich get richer in the long term.
Fine, gamble on iPods, or big TV manufacture or anything which isn't really needed. But as for those things at the top of Maslow's hierarchy of human needs (the real one - shelter, warmth, food etc), is it really acceptable to Govt's that these are used as gaming chips amongst the rich at the expense of the poor? I mean, they really don't add any real value, they just make a quid worth 50p.
I too can't stand Govt interference and punitive taxation (I mean I truely loathe it), but these commodity/housing bubbles are not good for the development or stability of any society. We also have to compete in a global market now. How can we do that with £300k mortgages?
Just friendly banter.
16. inbreda said...
David2004 - not sure I see the logic in your definition of a bubble. I think that when people wont pay the prices it is the bursting of the bubble. While people continue to pay the prices it is the creation of a bubble. The problem is the creation, the solution is the bursting.
And besides - the existence of this site shows that not everyone in the country is daft enough to pay the prices.
17. David20040_0 said...
Maybe not everyone will pay the prices but enough people will and every day we are further away from buying a home with prices rocketing.
18. monty said...
Mjchum
Where will I live when I retire? Certainly not where I live now, which is where my children currently go to school and is a reasonably convenient commute for me. I won't bore the forum as I've done before with my family's housing history but suffice to say that my grandparents lived pretty much their entire lives as tenants which, on retirement, was paid for by a well invested pension. The IHT benefits are obvious.
Your assertion that home ownership equates to stability would imply that countries with far higher levels of renting than us (e.g. Germany and France) have communities which are less stable. Methinks they would disagree. We're a nation obsessed with owning our own little chunk of Blighty.
Home ownership means a stagnant labour force. What happens when a factory closes in a small town and moves to China? Jobs are lost and house values plummet. Spare me the violins about communities being torn apart. It's far better to be mobile and migrate to where the jobs are than being a third generation dole-hound droning on about Maggie's pit closures.
19. Mjchum said...
I agree Monty. I have worked away from home all my working life. I currently live in the site office on an inflatable mattress. I have a small flat which I keep. Work is never less than 200 miles away and I move around the country to different sites. However, families need homes whether the old chap works away or not. In retirement, unless you have a bullet proof pension (which most don't due to a completely crooked finance industry/Gordon Brown) I very much doubt whether the Govt of the day will pay your housing costs.
Old friend of mine, late forties, higher rate tax payer, always worked, chartered engineer (civils), got made redundant. A divorcee, he had a second family, wound up £120k debt not including mortgage, got made redundant, had nothing, went to DSS or whatever it's called, got told "we'll pay one months stamp and nothing else". He now lives in Sydney. From what I've seen, if you fall on hard times having worked and contributed, don't expect the least bit of help.
Germany and France have real social welfare systems. The UK's is just there to defy Darwinian Theory, hence the evolution of the "chav".
20. Mjchum said...
Monty, go to bbc.co.uk/news now and you'll see what I mean. 'Elderly excluded from social care'. This country will go the way of many Asian countries, where the young look after the old. Not necessarily a bad thing for generations down the line, but the transition over one generation, paying bizarre amounts of tax in a bubble economy is likely to prove very painful.