Monday, Jan 26, 2009
London house prices already down 55% (in yen)
FT: Exchange adantage
A flat that cost £3m in 2007 is now worth £2.4m. But the effective discount is even greater for foreign buyers.
Posted by little professor @ 04:50 PM (871 views) Add Comment
15 Comments
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1. paul said...
This is of course, what the government hopes will re-ignite the housing market in the UK. Apart from the chronic wrong-headedness of the appraoch, there are a few other reasons why this strategy is doomed:
1. Unless you are a cash buyer (who hasn't been affected by the recent events and hasn't been fleeced by Madoff and doesn't work in finance) then you will have to take out a GBP mortgage to service any debt you take on. When the GBP does recover, you'll pay through the nose as the exchange rate comes to bite you.
2. Everyone and their aunt can see that prices have further to fall. What's the point of catching the falling knife now?
3. People don't usually buy millstones when the boat is rocking and the seas are stormy.
2. techieman said...
Posted re this on Sunday:
"..... IF however other countries dont use the Ex Rate to increase their competitiveness / inflate to combat the deflation then i could see a floor that overseas peeps put in (lets see the next few months figures). However i dont believe that ( i think they will try to sell their currencies). So when the pound starts to recover then i think we will see some more falls.... with a lag....When and I suppose IF will that be.
Sunday, January 25, 2009 11:55AM"
Moving on from that a cash buyer (or even one with a decent size deposit) could just make money using the Exchange rate (once [if] £ rebounds). Would they though? Hmm i am not sure how inclined leveraged property funds would be to invest in the UK and what would they invest in, particularly if their own markets are tanking. Perhaps instead they might just use the exchange markets. In summary having given this a bit of thought i think its possible but not enough to effect the "working end" of the market. As for the prime end that depends on how their core interests are doing ... and anyway are most people on here that bothered about the real prime end?
3. Pwez said...
Paul said
"1. Unless you are a cash buyer (who hasn't been affected by the recent events and hasn't been fleeced by Madoff and doesn't work in finance) then you will have to take out a GBP mortgage to service any debt you take on. When the GBP does recover, you'll pay through the nose as the exchange rate comes to bite you."
err, no you don't. You can take out a dollar or yen loan and fix a 55% discount. 2 and 3 therefore become irrelevant.
4. bystander said...
good pots Techieman and Paul, but doesn't it make you proud to be British, as now, with prices coming down, being potentially outbid on a poxy two bed by a guy from Cairo (egyptian pound - 48.5% vs the pathetic drop in sterling rate of -19%, jeez you couldn't make it up. GB and his "I warned you all this would happen" truly doesn't give a sh*t about the public, unless votes are concerned. The whole political process is corrupt and bereft of social responsibility or any form of care for the people (after all it is a global society). We wait for a house price crash and we are the last to benefit from it, brilliant. I notice the scots are now desperate for their bretheren to return to the homeland and spend, spend, spend, their lovely foreign money. Wonder when GB will start appearing in the first adverts asking English expats to come back and save his bacon.
5. bystander said...
meant "points", not pots
6. drewster said...
Why do we have this arrogant assumption that foreigners all want to buy property in the UK? Most people I know can't wait to escape to Australia / New Zealand / France / etc; I can't fathom why a Japanese person would want to own a second home in London unless they actually live and work here.
7. bellwether said...
I can't believe that people keep peddling this stuff.
This would only work on any kinf of sufficient scale if we are talking about investment property and for investment purposes your rents are in the devalued currency.
8. japanese uncle said...
I know a few Japanese 'side-winder (heat-seeking missile)' punters who simply cannot resist the property agent's 'hot spot' calls, bet some money in London property markets. By now they must have their fingers burnt down thanks to the 'gearing' effect of HPC X falling GBP.
9. amjidk said...
bellwether is spot on, why buy in the UK, your returns are in sterling after all...
10. paul said...
JU, I'm surprised you know any Japanese people willing to take a punt on UK property - they've already been burned by expensive property in Tokyo and generally (the people I've met) are risk averse.
Isn't there a saying in Japanese that "everyone and their cat and their cats sister is an estate agent"? (or something like that)?
11. plato said...
Fashion and prestige are big attractions to the London market at least. Must certainly be attractive for some of those currency holders in light of alternative investment risks nowadays. Don't know about the impact on the economy though, would need a hell of a lot.
12. japanese uncle said...
paul
You are referring to '猫も杓子も' meaning literally 'even kittens and rice scoops do something (such as joining property business)'. Rice scoops here represent housewives. So you can say that the ignorant and naiive even including kittens and housewives are playing property agents these days.
13. techieman said...
drewster - its not about wanting to live somewhere its about capital flows and making money from an investment.
14. drewster said...
techie -
Are we talking about professional investors looking for solid yield, or ordinary folk more interested in a holiday home with potential for some capital gain?
For a professional BTL investor, buying a property half-way across the globe entails significant risks:
- If you don't know the city inside out, you are likely to end up over-paying for a property in a bad area or being misled by estate-agent-speak (e.g. North Chiswick = Acton, e.g. "fifteen minutes from Charing Cross" = Lewisham)
- If you can't view the property in person, you are reliant on a purchasing agent to be honest and incorruptible.
- If you aren't there to find tenants or to maintain the property in person, then you are reliant on a letting agency and their handyman to look after the property.
All these individuals have incentives to maximise their profit at your expense (what economists call the principal-agent dilemma). The high transaction costs mean overseas residential property investment is best seen as a long-term affair.
When you factor in the currency risk and the risk of unexpected government actions, the case for investing in foreign property seems rather flakey!
15. techieman said...
drewster - not ordinary folk. I agree with the diadvantages you state and no i personally wouldnt do it, but you can see the incentive for people to do it. And its not about you and me is it. I mean obviously any uber bears arent gonna get involved, but that doesnt mean to say the premise isnt correct.
Overall i am a stock market bear, but that doesnt stop me from buying in the short term to take advantage of a (in my view) counter trend upmove. Granted the property market is illiquid, but if i was from overseas at some point the hp falls plus the currency falls will scream bargin (to them at least). I suppose it depends on how much weight you put on each of the components and when we reach that point.
The pound looks to me not yet finished on the downside (although the Euro looks to have formed a meaninful [short term at least] low against the $) so my view is the £ / $ will bottom relatively soon. (yea i know whatever "relatively soon" means).