Property Investment International - Newsletters
PII Newsletter September 09 - African flu
Dear Investor,
This month’s newsletter wings its way to you from the African continent where i’ve been looking at some hotel/tourism investments. Thus, I can’t help starting this month with some words on investing (or not as the case may be) in Africa.
Africa
Africa is extraordinarily rich - its people, culture and resources. Yet why has Africa effectively stood still in the last 20 years whilst many parts of Asia (which were as equally poor 20 years ago) have seen tremendous growth and economic development?
I contend that its ultimately down to the people – especially the ruling elites.
Political power is often little more than a way to get rich in many parts of Africa. Some of current and former presidents/dictators are some of the worlds richest men with billions stashed away in Swiss bank accounts and the much of each country’s riches have been squandered.
Part of this is a legacy of colonialism where Africa’s wealth was, at the same time, plundered and developed. Borders were drawn without regard to tribal/ethnic divisions and thus tensions remain today.
With terrible governance, corruption and ethnic strife all the aid in the world is not really going to help in the medium to long term unless the country’s structural problems are resolved.
Taking a quick look around the continent we can see familiar patterns and some glimmers of hope.
In the west you have one of Africa’s richest and most populus countries – Nigeria (see my blog for more details) – with huge oil wealth that has never fully found its way down to the people, engendering crime, turmoil and internal fighting. Similar problems exist in neighbouring countries and for those countries just discovering oil are tending to go in the same direction. Even Ghana which had so much hope has never really got it right.
Moving further south through central Africa many countries (eg the Democratic Republic of Congo) have rich and fertile lands. Huge potential exists for agricultural development and mineral wealth that should be a sufficient basis to transform economies if well managed. With almost any country you choose in this region it just hasn’t happened. Poverty remains the norm and warlords and the goverment fight each other to control the mines. Perhaps one of the few exceptions to this is Botswana which has at least used some of its diamond wealth somewhat sensibly – though i’m not sure how sustainable this is.
South Africa remains one of the jewels in the African crown though it too has its problems. Property price growth has been relatively high in the recent boom years of cheap credit, but for non south africans mortgages were typically only available at 50% LTV and similar growth rates could be obtained in Europe for lower risk and less hassle, so i saw no real reason for investing there.
Zimbawae is still a basket case thanks to Mugabe. Somalia barely has any property left thanks to years of war. Kenya, which was supposed to be a model economy has seen ethnic tensions spill out on to the streets again. Madagscar, too, is extraordinarily rich with unique wildlife and landspaces, oil, minerals and agriculture but a military coup has sent the country in to turmoil and unemployment rocketing as businesses close down, tourism drops and the currency weakens. Even the Koreans, who tried to set up huge farms on the east coast, left empty handed as locals did not want foreigners „stealing“ their land and could not see the economic benefits it could have brought them.
Its all quite a depressing picture and one I don’t see changing overnight. Despite the new shinny office blocks and apartment buildings that are springing up around Africa (eg even in Sudan) I don’t see many reasons why a private individual property investor would want to invest in residential property in most of Africa (unless they have family/links with the country).
Until such countries become more stable and developed there are best opportunities will lie in tourism, agriculture and mining. All higher risk but potentially higher reward.
If I was going to invest in Africa it would perhaps be in those countries that border Europe – namely from Morocco to Egypt – all countries with growing populations, slightly liberalising regimes and energy resources (mainly oil & gas).
As always it comes down to a simple choice. Would you rather go for a steady 5 or 10% a year growth, with good finance, low risk, good property management companies not to mention easy to get your money out in somewhere like London or potentially slightly higher growth but more risk/hassle in a developing market such as Morocco. Usually i would always go for the former, unless the returns are worth it and there is some chase that will make such returns more sustainable/reliable as well as having some way of reducing my risk.
Czech Tax
The Czech property market remains quite flat. We’re no longer seeing price falls and the market has not yet returned to growth yet.
The current Czech political outlook remains uncertain and depending on who gains power in the forthcoming elections will determine the Czech tax rates for the coming years. Like many countries the Czech Republic has a budget deficit and politicians are deciding which taxes they should raise in order to help plug the gap.
One proposal is to increase the property sales tax from the current 3% to 5%. It’s hard to speculate if this will actually happen or if it does when it will be implemented but if it does happen and you are thinking about selling a property in the Czech Republic you may want to do it toner ether than later. If this is the case get in touch to find out how we can help.
Flu
The world’s population seems to be growing unabated. With growth of several billion people in the next few decades this is likely to be good news for property investors (though perhaps not the environment).
With such demographic dynamics you almost can’t go wrong. The cities will need more property to house all the people and land in the countryside will become more valuable as its needed to feed the growing population.
I can’t really see many things that will slow this population growth process down, especially with so many poor people around the world many of whom typically have around 10 children each. I very much doubt natural disasters or wars are enough to significantly dampen this unrelenting growth.
The only spanner in the works could be if there is a more serious outbreak of a strain of flu (such as the recent, relatively benign, swine flu case) which could kill a massive number of people. How likely this scenario is I can’t say but if it happens demand for property could fall through the floor – though at the same time if this does happen our property portfolios are likely to be the least of our worries.
This is rather a doomsday scenario and not one I’m planning for. Somehow humans have so far been very resilient and would probably find a solution in the nick of time. Nevertheless it’s a point to ponder for a moment.
Over the coming months, before the end of the year, I intend to lay out how I see the new world order going forward, where opportunities will lie and how best to take advantage for the best returns on investment for the lowest risk.
Regards,
Simon Tweddle.
www.propertyinvestmentinternational.com