Property Investment International - Newsletters

December 2008 - the world has changed

Dear Investor,

The world has well and truly changed in the last 12 months.

We’ve gone from, in the last few years, huge economic growth around the world, a massive asset bubble (fuelled by cheap credit) and commodity boom (fuelled by increased demand in developing nations) to a world where global stock markets have crashed more than since the great depression of 1929, credit is harder and harder to get, banks and a raft of other companies are being supported (“bailed out”) by governments, interest rates are being slashed and huge fiscal stimulus packages are desperately being drawn up by governments around the world and so on and so forth.

I’m sure I don’t need to go into more detail of the why’s and wherefore’s as you can’t switch on the TV or pick up a newspaper without being made aware of it.

Apart from learning the lessons of history, the major point to consider now is how is the world going to look like over the coming years, and specifically, what action we, as property investors, can take to shelter/enhance our portfolios ...

Property Markets & My View of the World

In the October & November issues of this newsletter I covered my thoughts on how the many of the world’s property markets are fairing and will do a full 2009 market update in January.

At the moment I would really struggle to name a market where property prices are actually growing, or will grow, significantly in 2009 (answers on a postcard please).

I do believe, however, that we are setting ourselves up for another asset boom in the years to come. I can’t say when exactly it will start (probably about 12-18 months time) or when it will end.

The conditions that makes me think this are:
1. Governments are in debt and they are going to continue to print money to inflate their way out of it, they just can’t resist running those printing presses
2. Property prices will continue to fall until a bottom is reach, at which point there will be real value (however you wish to measure this)
3. Taxes are being reduced (about time!) which will give those not living under a bridge extra cash
4. Commodity prices, such as oil, are falling – effectively like another tax break
5. Interest rates are very low and still falling

I predict that the world economies will enter just a brief recession and will quickly snap out of the current malaise. Demand from emerging economies will quickly increase again (along with commodity prices), taxes and interest rates will start to go up and inflation will run rampant due to the policies of today’s desperate governments.

Thus for those brave investors out there, I believe that over the coming 12-18 months there will be a huge (once in a lifetime?) opportunity to load up on extremely cheap debt and buy property at crazily low prices, then sit back and watch inflation eat away your debt and asset prices once again soar.

There is a lot of money waiting in the wings to do just that - in both the stock and property markets.

The best markets to invest in will be those with “normally” solid fundamentals (even if they aren’t today) – primarily I would invest in Prague, Warsaw, the UK, Ireland and the US (with few exceptions). The rest you can pretty much forget about just now (unless you want to lose your shirt again in Latvia or Romania and the like, only next time they might be called Morocco, China or Brazil etc – which of course have huge potential, but why take such a big risk when you don’t need to?).

My advice is be patient, raise some cash, consolidate debts and over the next 6-12 months start buying assets at distressed prices.

Either that or things are going to get so bad (world depression for the next 2 decades, another world war etc) that it doesn’t really matter – but i’d always try to take a realistically positive view than go out and stock up on food and guns and move to a cave in the hills.

Price promise

Continuing the credit crunch theme, we’ve just introduced a “price promise” for our services – which basically means we’ll beat all our competitors on price (and of course quality).

Thus, if anyone is interested in a quote for completion services, kitchens, lettings, management or resales please do get in touch.

Investments

Given the points above we are being patient and not spending much time on sourcing investments as we believe there will be better opportunities out there in 2009.

Our main focus currently is helping investors with property management and resale services, and the expansion of our Czech real estate agency.

Behind the scenes we are combing the ground for very well priced properties, particularly larger scale deals for our investors, and we won’t be surprised if we see some Czech developers go bust next year. Again, if anyone is interested in such investments, then get in touch, as I’m personally spending more and more time on this area.

Insurance

I’m not normally a big fan of insurance, as I think it’s generally a waste of money when you consider the odds.

However, I do take out insurance, though mainly for catastrophic events, eg travel insurance, not because I’m afraid of losing my camera but in case of serious illness and property insurance in case of fire or earthquake etc.

The reason why I bring this up is early this week there was a fire in the building in which I live. Luckily no one was hurt, but there is a heck of a lot damage, and it brings home the reason why I pay approx £100 a year to protect my £100k+ investments from such losses.

And finally ...

It is said that an Eastern monarch once demanded his wise men to come up with a phrase than would be true and appropriate in all times and situations ... and the result was “And this, too, shall pass away.” - which is quite profound I thought. So whether you’re in the depths of despair or on the crest of a wave it’s a nice sentence to bear in mind.

I hope the festive period brings glee and happiness to all.

Regards,
Simon Tweddle.
www.propertyinvestmentinternational.com