Property Insights August 2008

UK socio-economic trends update

When evaluating where to invest, it's important to latch onto trends that will help support house prices in future years. This helps reduce investment risk and increase returns. As demographic and social changes take place in the UK – along with the more frequently report economic trends, these factors can have a major impact on property price movements.

Property prices will rise if:

Supply Side:

• property supply is low
• property building levels are low in the area
• planning and environmental restrictions are severe
• all building and brownfield land is used up
• all large houses for flat conversion opportunities have been finished
• new greenfield areas are not allowed to be used for building
• the area has protected status (World Heritage Site, Area of Outstanding Natural Beauty, National Park)

Demand side:

• Population growth is high through:
• migration of existing citizens
• immigration of new citizens
• high birth rates from existing citizens
• high birth rates from new immigrant citizens
• New jobs are created – particularly high paid knowledge based jobs
• Outsiders moving into the area – e.g. people buying second homes (holiday homes, pied de terre, second homes for weekend use)
• Positive change occurs in the area that cause wealthy people to move in, through:
• infra-structure developments
• new offices
• new roads
• new jobs
• regeneration
• Education – universities and schools in an area are excellent, improve and have expanding numbers
• Scenery and appeal – if the area becomes popular because of its scenery, quality of life and leisure pursuits (e.g. surfing coastal property in Cornwall, Dorset World Heritage Coastline, golfing communities)
• Wealthy influx of international people – e.g. West London
• Wealthy influx of UK citizens – e.g. wealthy baby-boomers retiring to Cornwall
• Big growth in business – financial and/or services sector is the preference (over manufacturing, retail or public sector)

A property investor needs to consider these criteria – the overlapping spheres of influence, and then select an area with the highest chance of meeting these criteria – as many as possible! Then decide which area to invest in, and within this area, what type of property to invest in. The questions are:

• What type of property will have a supply shortage in future years (prices will rise)
• What area will become far more popular to live in, in future years (prices will rise)

Some of the analysis can be determined by looking at regional population growth figures. In summary, in the UK, the regions projected to have the largest population growth are Greater London and all regions close to the capital. Any area south of the line from the River Severn to the River Trent will see populations expand considerably up until 2025. The NW of England and Wales will only see moderate expansion. NE and North will only see minor expansion, with West Yorkshire higher than the surrounding regions.

To compound the supply-demand imbalance that the south will experience, it's often more difficult to get planning permission to build in the south – environmental restrictions are at least as severe if not more severe than the north. It's difficult to imagine large scale home building programmes getting off the ground in the south – where the homes will be most in demand. So we believe there will be a severe supply crunch in the next ten years that will drive property prices up further in southern counties. This might start taking effect by end 2009.

A few examples of areas of interest – where overlapping positive criteria emerge:

Oxford : An expanding wealthy student population. Severe environmental and home building restrictions. Excellent place to live with good schools, colleges, historic city centre, good communications to London by road and rail. Increasing population. Fair amount of new business moving in. Commuting to London. Protected green belt. Close to the lovely Cotswolds. Increasing population with many migrant eastern Europeans putting further pressure on housing. Wealthy retiring baby-boomers also like Oxford because it has a nice city centre atmosphere, lovely countryside and yet it's still close to London for all those business contacts. Okay, prices are already high, but we believe they will rise further. An interesting play is to buy a 5 bedroom terrace in one of the up and coming areas still close to the University, then rent to students (high yields, they normally pay, more respectable than they used to be, with reputations they need to keep). Then hold the property for ten years, then renovate the property, add a loft room as an example, then sell as large family home (now only 18% capital gains tax).

Hackney South (Haggerston) - London : An expanding population – very high immigrant population (>50%) with high birth rates (75% of births to non UK others). House prices are relatively low compared with other parts of London. New infra-structure projects include:

• East London Line railway (Haggerston)
• Kings Cross High Speeds One rail link (1½ miles away)
• Stratford International (1½ miles away)
• Olympics (1½ miles away)
• City of London financial centre (1½ miles away)

As more wealthy city people move in, house prices are likely to rise. Good quality Victorian flats and houses in quiet streets are a good play. Low priced ex-council flats could be worth a look if they are secure, close to transport links and crime levels in the blocks are not too high. Anywhere near the new Haggerston station is likely to be a good investment. Hackney has come up a long way from the depressing period of the 1970-1985 period when many properties were boarded up and no-one wanted to live there mainly because of high crime rates. But regeneration is ongoing and all the infra-structure development close by will help see the area improve further and help the area join the mainstream London property market. Hoxton is already very trendy and expensive – this effect will ripple to areas north and east as transport links improve and better access to high paid city jobs help drive up demand and prices.

Winchester : Excellent public and state schools. Extreme to severe environmental and home building restrictions – almost impossible to build new houses. Excellent place to live with beautiful countryside, low population density, historic city centre and colleges, very good communications to London by rail (55 minute commute). The population in Hampshire is increasing, but not much room left in Winchester. Consultants and small businesses moving in. Protected green belt and areas of outstanding natural beauty in the South Downs. Close to the south coast for boating and beaches, plus shopping in Southampton and Portsmouth. Wealthy retiring baby-boomers also like Winchester because it has a nice town centre, lovely countryside, very low crime levels and yet it is still close to London for all those business contacts and old friends. Prices are already high, but we believe they will rise further. An interesting play is to buy a large central terrace house and convert to upper end apartments for retiring baby-boomers and/or wealthy parents of Winchester college kids. Any splitting would of course need planning permission, so don't put in an offer before talking openly to the local planning offices (getting some assurances that permission would be granted). A quick renovation and splitting would only be subject to 18% capital gains tax – rather than the old 40%.

Gravesend: Ebbsfleet opened last year – direct trains to Paris, Kings Cross and Brussels will provide a huge boost. Improvements to the A2 will help. This previously down-at-heel Victorian town will see prices continue to rise as more wealthy commuters move in. Excellent local public schools help (Cobham Hall is an example). The area has a Grammar School system – so if your kids are bright, you get top quality education for no cost! By 2010 it should be possible to commute from Gravesend to London Kings Cross in about 22 minutes! It will be quicker to get from this seaside town to Kings Cross than Fulham! Some jewels are the Windmill Hill area of Gravesend – with nice views, park, Georgian homes and still close to the centre of town. On the outskirts to the south are some large homes with gardens. Purchase of properties for wealthy commuters is likely to see good returns. Down at heel Northfleet is worth a look. Prosperous Southfleet – a lovely village within 5 mins drive of the new station is a sure winner. Istead Rise is also worth a look. As are the many countryside villages between Southfleet and Meophem on the North Downs – an area of outstanding natural beauty in the Garden of England.

Areas to avoid: From 2002 to 2007, house prices shot up in the north and Midlands of England. They were correctly playing catch-up to escalations experienced in London and the south and south-east. They were also stimulated by massive government public spending injections for hospitals, schools, public sector jobs generally and general re-generations funds. However, much of this funding is now coming to an end as the cash strapped government starts to rein back public spending and stop public sector jobs growth (which has been unsustainable). Meanwhile, the manufacturing sector that saw growth of up to 5% per annum in recent years is start a severe slowdown and is likely to slip into recession later this year as the UK economy, Euro economies and global economies GDPs slow. Furthermore, although price / earning ratios are relatively high in the northern counties compared with London and the south, this masks the fact that people in the north have a higher mortgages as an average loan to value of their properties. Because rates have gone up, we expect more loans payments distress in the north than the south and hence this will likely hit northern property prices in the next few years. Overall, it does not look positive for the north in the coming few years. But there are a few bright areas in the north:

• Manchester – continued business expansion and infra-structure developments, plus airport, road and re-generation improvements
• Derby - £2 billion to be spent in the centre on regeneration up until 2020, close to East Midlands Airport, M1, Peak District, River Derwent – with Toyota, Egg and other companies expanding
• Bradford – continued large scale regeneration, historic interest, proximity to Leeds and Leeds-Bradford Airport, improving from a low base.
• Bury – can only improve, possibly the most distressed town in the UK, centre of interest from the prince of Wales in regeneration and improvement. Low priced property, with proximity to Manchester a plus.
• Blackpool – regeneration, retiring baby-boomers from NW England, entertainments, leisure and some new businesses (even has an airport)

In Scotland, we believe many areas will do well. Wealthy baby-boomers moving from England to places like Inverness will help property prices. We see Aberdeen continuing to boom as oil prices stay high – any area within 50 miles of the Granite City will do well. Dundee will continue to regenerate from a low base – and is close to very expensive Edinburgh.

Want to make serious money – read this

To be an ultra-wealthy investor, you need to follow certain traits that will differentiate you from the average person. This is based on our experiences in property investing and wealth creation. Property investors on the whole are not your average person – anyone who has attended a property show or auction will attest to this. In general, property investors tend to have the following traits:

• like to be in control of their finances and agenda
• are creative both financially and practically
• are imaginative
• consider the future – look at trends, predictions and plan for the future
• can have dominant personalities
• action focused – and able to take risk without having sleepless nights
• not necessarily team players or good with people – though the best investors are good with people
• disciplined and hard working
• able to sacrifice time with family and friends in pursuit of their goals
• can be selfish
• often individualistic
• set challenging targets and goal
• continually looking to improve
• highly motivated
• tend to have a capitalist attitude and values
• positive “can do” attitude
• enthusiastic about making money and owning property
• are proud to be a property investor, but feel they don't need to tell the world about it 
• ignore family and friend's advice – “able to go it alone” 
• careful with money
• like negotiating
• well educated
• widely read
• more likely to be married with children or highly motivated singles
• like to learn new things – open-minded
• not scared to go with their own views
• intuitive
• show leadership and/or managerial traits

If you have any of the following traits below, you will likely be a less effective property investor and either find it more difficult to make money or not find the time or energy or have the inclination to do so:

• risk averse
• not creative
• left wing socialist
• unimaginative
• can old handle a employed job – prefer to spend all spare time with family, friends and hobbies
• do not plan for the future
• non action oriented, reactive 
• give all your time and energy to other people
• listen to family and friends advice – always seeking to please them
• negative outlook
• worry a lot about small things
• wasteful with money
• drink too much, smoke too much, take drugs
• don't like negotiating
• low motivation levels
• do not read
• watch popular TV programmes for more than an hour a day
• more likely to be single or divorced
• sometimes or often from low education or deprived background 
• get depressed over small things 

One of the single biggest factors holding back most people from become rich, even if they want to become rich, is their family or spouse. Sorry to have to say this, but we're try to help and be frank and objective. This does not mean to say you will need to change partner or friends, or drop your family – such actions can be even more damaging financially and ruin your life since family and friends are so important for one's well-being. A few tips on how you can manage the relationship with your family and friends:

• Family and Friends: Do not talk about your epic property investing exploits with family and friends – they may subconsciously want to bring you down to earth or be genuinely upset or worried you may change if you become wealthy (or course you have no intention of doing so, but perception is more important than fact).
• Spouse-Partner Communication: You need to try and make your spouse understand your goals, how achieving wealth will help both of you, and how the world will not fall apart if you have any challenges during your property investing exploits. Try and not hide things – women are very perceptive about hidden secrets and your nervousness will be spotted. And men can get envious of women who do well in property investing – do not brag about it too much if you are a successful women investor. And remember, if you end up splitting, then the wealth will be spilt including the properties – it could be a financial disaster. Safeguard your marriage or partnership as a top priority – it's economically very important! As well as being good for the kids and your lifestyle of course.
• Parents: If you are from a modest background and want to be super-wealthy, if you live close to your parents, do not expect to be super-rich. The peer pressure you will receive in subtle ways will lead to you holding back from taking huge risk. After you've made a packet, you can move back close to your parents. But you need to unshackle yourself from any views that might get in the way of making serious money, unless your parents are business people and understand (95% of parents are employees or public sector workers, so don't expect your parents to understand private entrepreneurial business, goals, finance and the fun of making serious money!). Unshackle yourself from old norms and old expectations.
• Negative Poor People:   If you surround yourself with negative people that have no money, expect to end up the same. Nothing wrong with poor people of course – they work hard, many have come from disadvantaged circumstances and live day-to-day – many admirable hard working families. But if you get distracted or influenced by other people's negative, risk averse or worried behaviours – you will never be truly wealthy. How can you expect a poor person to understand property investing fundamentals, plans, goals, values and business models – they probably have zero interest, and may feel envious or even jealous of your exploits. They will think it's okay for you because you have money. They will not understand they you do not need money to make money. Any of your convincing them otherwise will probably land you in trouble – so keep your mouth shut and try and find like minded individuals that you can learn from, share good practice and get enthusiastic with.
• Culture : In some cultures, it seems to be frowned upon to talk about making serious money. The poor will complain about the wealthy as if they have been ripped-off by them – jealousy and envy come to the fore. The UK is one of those countries where it's difficult to openly discuss business with many people. The reason is probably because 95% of the population are employees (working for other people) of which half work for the government (public sector). Both private and public sector employees are “not” businessmen or women – because they do not own their own businesses. They work in a protected environment for investors who own the business. However, if you are a public sector worker who owns five buy-to-let properties, you are a business person. But do not expect your public sector colleagues to understand what drives you, financial spreadsheets, business plans, investments, value creation and the like. Best keep your mouth shut or you'll end up confusing the heck out of them! Better to find a club, forum or like minded friends to share your practices with.  In the USA, the culture is far more receptive to business – there are more small businesses, more private sector employees and less public sector employees – many people migrated into the USA and started with nothing then became wealthy through private business (George Soros is a good example).

An interesting exercise is to list all your friends and family, note down who is a private business person, then make efforts to discuss business with them only – don't distract your other family and friends with your exploits – you'll confuse them at best, and upset or destroy your friendships with them at worst.

One thing that does not matter is whether you are extrovert or introvert. Extroverts tend to make quick decisions, are less worried about taking the plunge and like meeting people and talking lots! They like listening to themselves and do not listen or absorb other people's views well – this can be dangerous but if they have introvert advisors to keep them on the straight and narrow (e.g. an introvert solicitor and accountant) they can make very quick progress to huge wealth. Extroverts are also more likely to take accessive risk and go bankrupt! Introverts tend to evaluate all risks and are more cautious with decisions - decisions are rational, objective and well thought through. They can lose opportunities because of this, but are more likely to steadily create wealth (without going bankrupt!) rather than experiencing a roller coaster ride to wealth creation. Introverts like space, time to think, and do not use emotion for decision making. They like listening and find "in your face" extroverts annoying and irritating. Both extroverts and introverts - as long as they are both motivated, can become super wealthy.

Think Like the Rich – Action Like the Rich

If you want to be rich your need to firstly “think like the rich” then “action like the rich”. This begins with:

• honouring commitments
• performing business with honesty and integrity
• improving your reputation
• seeking to learn and understand whilst being able to make your own decisions
• setting goals and striving to achieve these goals
• being action focused
• being generous when you have made money
• valuing time more than money
• being efficient in the use of time
• leveraging other people to make you money (contractors, employees, consultants, helpers)
• leveraging money to make great net worth (loaning and investing)
• concentrating on build up of net worth (rather than earned income)
• being prudent with expenses
• treating your partner, children and family as number one priority and respecting them
• being disciplined and honest with your accounting and management of business affairs
• discarding your “baggage” – old norms (e.g. "your family has always wanted you to settle down and get a nice steady job")
• taking managed risk whilst managing mental worries and concerns
• identifying gaps in the market where value can be easily created
• making other people feel important
• being thoughtful about health, eating and exercise
• being careful with personal safety and security
• learning from mistakes whilst taking responsibility for your own misjudgments
• never a victim – always an opportunity
• glass is half full not half empty
• proactive positive “can do” mindset

If you can follow these traits of the rich, you will almost certainly become rich – even ultra-rich. It requires dedication, effort, focus and constant thought. Your goal to become rich should drive your behaviours from a day-to-day standpoint.

If you have too many negative thoughts – you need to consign these to the dustbin. You only live once, time is running out, and it's no use putting off that first important action – before you know it, you'll be old and you won't have the energy, health or time to get rich anymore. It takes time and patience. The earlier you start the better.

We hope this has given you some helpful insights into the psychology of the rich - and a steer on how to use a rich person's winning mentality to achieve your investment goals and wealth targets.

Oil Price and Economy Update UK

The good news for all property investors is that oil price have dropped from $147/bbl earlier this year to $108/bbl this month. We still believe oil prices will rise back again and stick with our prediction we made June 2007 that oil prices will be ca. $125/bbl by end 2008. The lowering of the oil price and slowing of the global economy should lead to inflation dropping and should allow interest rates to drop by year end. We expect a 0.25% (or possible 0.5%) drop in UK rates by January 2009. We also expect stagnant GDP growth for the next 6 month, the moderate growth after this. As previously advises, the UK is about eight month behind the US cycle. The USA is just starting to come out of their trough and we believe the UK will follow suit around March 2009. So hang on for a while then expect to see improvements by mid 2009.

In London, we see jobs losses in the financial sector for the next 6 months, but not heavy. Meanwhile the city continues to grow in GDP and population. With the Olympics 4 years away, East London is seeing big new investments and much regenerations. It will be exciting times as the city gets the global attention and continues to prosper from international finance and business.

We're a bit downbeat about parts of the north. A flood of public sectors jobs and buy-to-let investors bought properties for low cost and prices have sky-rocketed. By 2005, the prices in Newcastle city centre apartments were not much different to those in Stratford East London. We expect the south and London and the SE to see prices rising by end 2009 whilst the north stays subdued. There are likely to be exceptions – Derby, Bradford, Manchester (Salford, Trafford Park ) all look attractive because of regeneration projects, population growth and inward investment (with low prices).

UK Market Update

Nationwide reported prices dropping by -1.3% in July. Similar trends were report by Halifax and Hometrack (-0.9%, less than July's -1.2%). The Land Registry recorded -0.6% in July. All indicators were down. The market continues to correct and it's likely further drops will occur up until at least year end. Many areas of London rose 25% up until June 2007, and have corrected back about 10% so far. The tough conditions for raising finance (credit crunch) is making the market slow further, and it's not until the banks confidence levels rise and they start lending to one another that conditions will improve. Inflation at 4% and interest rates such at 5% don't help. Meanwhile growth in the economy has ground to a half with manufacturing entering a phase of recession. Expect a rough ride for the next 6 months at least. But bargains are out their for investors flush with cash, or with ample financing possibilities.

Spice Girl's Property Empire

 

 

 

Reclaiming money in a dormant account

Lost and forgotten building society and bank accounts hold millions of pounds of savers' money. If you think you have a dormant account there are a number of ways to track down your cash.

Banks and building society accounts

If your account has been inactive for a long time your account provider should write to you to ask if you want it to remain open. If it gets no response - perhaps because the letters are going to an old address - it will stop sending letters and statements and class the account as dormant. However, your money will be safe and waiting for you to reclaim it.

If you have a passbook or details of the account and where it is held you should contact the provider directly. Some banks have forms on their websites for you to fill in and reclaim your money. The more account details you have the better your chance of being quickly reunited with your money.

Savers who don't know which bank or building society their account is held with, or who currently owns the organisation, can use a central search set up by the British Bankers' Association (BBA), the Building Societies Association, and National Savings and Investments (NS&I).

Their mylostaccount.org.uk website lets you search across all banks and building societies, including those that have merged. Again, the more information you have the better your chances of retrieving your money. If an account is found you will need to provide ID before you can withdraw your money.

If you can't find the bank or building society you are looking for on the mylostaccount site, you should call the BBA's dormant accounts unit on 020 7216 8909.

Searches can take up to three months to complete, so be patient.

National Savings & Investments

You can go direct to NS&I and use its tracing service, or use the mylostaccount site to search for lost accounts. Both services cover accounts bought from NS&I and the old Post Office Savings Bank accounts, as well as missing Premium Bonds.

However, if you know your Premium Bond numbers but do not know if you have unclaimed prizes you should check if you have won on the NS&I website.

As long as you have some information or documentation - for example, the holder's number, the holder's card or the Bond itself - you won't need to complete a tracing request form to claim your lost prize.

Pensions

The government's Pension Service will track down your missing occupational or personal pension schemes. You can just give the name of your previous employer or pension scheme provider, but the more information you can provide the more likely you are to be successful. A full name and address for the scheme or employer, and details of when you were a member, will help.

Investments and insurance policies

Unless you know the name of the company from which it was bought, the easiest way to trace a lost life insurance policy is to pay a search service. The Association of British Insurers suggests using the Unclaimed Assets Register, as many of its members register unclaimed policies with the site.

For £18 a search it will trawl its database of unclaimed life policies, pensions, unit trust holdings and share dividends. You can search online for policies held in your own name, but if you want to search for policies held in someone else's name - for example a deceased parent - you will need to print off the form and post it.

Unclaimed assets scheme

Under a government scheme to be introduced in 2009, money that has sat untouched in bank and building society accounts for at least 15 years will be taken into a central account. The money will then be distributed alongside lottery fund money.

However, savers will still be able to reclaim this cash if they later realise that some of it is theirs.

Property Insights July 2008

UK Market Update

Nationwide reported prices dropping by 1.2% in July. Similar trends were report by Halifax and Hometrack (-1.2%). Rightmove reported a mixed bag, with some parts of London still rising (London rose +0.3% overall). The Land Registry numbers were a little more positive, though these figures are about 4 weeks behind the other indications (note: Rightmove has the leading indicator).

Clearly the UK market slowdown continues with property prices falling in almost all areas because of a combination of:

•  Credit squeeze – banks are reluctant to lend high multiples of income, and are demanding high deposits to reduce their risk of default and negative equity

•  GDP slowdown - the economy is growing at ca. 1.5% per annum, and may be heading for a couple of quarters of recession, hence consumer confidence is low, unemployment is rising slightly and wage growth has moderated to ca. 3.5% per annum (from 4.0 to 4.4% in 2007)

•  Buy to let investors are buying less – likely waiting for prices to drop further and more bargains to appear

•  First time buyers – have dropped to a half of levels three years ago – they are almost non existent

•  Existing homeowners – the introduction of home information packs, high stamp duty taxes and moving costs has meant many existing owners have chosen to stay put and instead extend their homes. Difficulties getting kids into good schools means many owners, once they have got established in work and schooling arrangements, are reluctant to risk moving

•  Taxes – the rises in stamp duty over the last ten years make it far less attractive for people to move home, particularly in southern England

•  Debit – levels of debit got so high leading up to mid 2007 - many home owners and investors have now retrenched

•  Inflation - the rise in CPI inflation from 1.5% a few years ago to the current 3.2% (driven in large part by higher oil prices between $125 to $145/bbl) has meant interest rates have remained at 5% making borrowing relatively expensive compared to the USA (2% base rate) and European mainland (4%).

•  Developers – have been reducing prices of new build apartments to offload stock as balance sheets have deteriorated and many home builders have got into trouble with high levels of debit and dropping stock market valuations

•  Manufacturing – is in recession, albeit a weakening pound should help exports later in 2008

•  Young buyers – many young people prefer to rent rather than being saddled with huge mortgages, particularly now that most students leave college with massive student debits. They also like to travel, enjoy life and have families later in life – so deferring the purchase of a home is considered by many as an attractive option. Young immigrants also find it difficult raising finance in the UK and therefore rent instead.

The more positive underlying trends are:

•  Rising population – an additional 5 million people will need homes in the next 20 years

•  Stock market performance – the FT100 and other stock markets have not performed well and there continues to be interest in property as an alterative investment

•  Oil prices – the UK benefits from high oil prices in taxes from the North Sea, oil/gas income and government taxes on oil/gas income from around the world that ends up in London and Aberdeen. Remember the UK is almost self sufficient in oil, and its gas imports are not high compared to most European countries

•  Taxes – the government will likely go slow on tax increases moving forwards because the population cannot afford any more

•  Smaller households – high divorce rates, partners owning two properties and an aging population of single people will mean more homes will be required in the next 20 years

•  Inflation - with oil prices dropping to $125/bbl and the UK and global economies slowing, it may be possible for interest rates to drop in the second half of 2008 to 4.75% or even 4.5%

•  Employment – levels remain high and unemployment is not likely to rise a significant extent in southern England and London

•  Building – levels of home building are at such a low level that demand will eventually exceed supply and start supporting prices, possible late 2009 onwards. 240,000 new homes are required a year, but only a net 140,000 are being built (25,000 are demolished)

•  Olympics and London Infra-structure – new investments, infra-structure and public spending in London in the run up to the 2012 Olympics will help support prices in London. £1.5 Bln retail park at White City and £1.5 Bln retail park at Stratford will also help.

•  Rental market – young people and immigrant workers have a preference or a necessity to rent – this should stimulate strong rental demand – rents are increasing – this should continue

We believe house prices will continue dropping for at least another 6 months. After this, depending on interest rates (and inflation, and oil prices) it's quite likely the market will stabilize. Interest spread rates are coming down and the main credit squeeze is starting to subside. It's too early to say when the drops will stop – or whether there will be a prolonged downturn. Much depends on consumer confidence, and the government's management of the economy and whether the UK slips into recession and job losses accelerate. All these are quite uncertain.

Clearly for the first time buyer or new property investor it will be a high risk period. For seasoned property investors who are cash rich, opportunities abound, and these could increase towards the end of 2008.

To reduce investment risk, it's worth considering purchasing property only in developing city areas – and London probably provides the best opportunities and lowest risk of a fully fledged property price crash. The reason is levels of borrowing as a proportion of property value remain relatively low in London as wages are higher. As long as the financial sector does not contract, the sheer scale of wealth in the city and foreign investment in property and business should support prices. This is evidenced by the “ super-prime” property prices in Kensington and Chelsea still being on the rise in July. The trick is to find bargains in areas that are regenerating close to very expensive areas – these should experience a ripple effect up until the Olympics of 2012. This is the reason why we have prepared an infra-structure review of London outlined below, to help you with your investment insights and decisions.

Outside London, areas with a projected strong employment prospects are also attractive – some examples are:

• Aberdeen (oil companies, BP, Shell)
• Cambridge St Neots (high tech jobs)
• Reading (British Gas)
• White City-London (2008, 7000 new jobs, £1.6 Bln retail development)
• Stratford-London (2012, 7000+ new jobs, retail development)
• Newbury (Vodaphone)
• Southampton (new business)
• Kettering (transport hub, new businesses)
• Exeter (met office jobs, new business)

Historic cities and market towns with good schools and universities should continue to experience better house price stability during a downturn – examples are:

• Oxford
• Cambridge
• Warwick
• York
• Harrogate
• Lancaster
• Stratford on Avon
• Bath
• Exeter
• Taunton
• Skipton

London regeneration and infra-structure update for property investors

For all the serious London property investors, we have prepared a summary of the key infra-structure upgrades, mainly in East London, that we believe will impact asset prices and returns in future. Beyond any doubt, a new rail or tube station helps with bringing new wealth, income, jobs and prosperity into an area - helps deprived areas and increases rental demand and property demand generally. It's not rocket science. We have systematically researched the latest timings and stations to be built, to help you in your investment decisions.  

A.  Dockland Light Railway Extensions

Any property close to these new stations will see their value increase relative to the average London property. We have summarised the branch extensions - with new stations and timing:

1.  Woolwich Arsenal 2009  (from Silvertown via North Woolwich via new tunnel under Thames)

2.   Stratford 6 km extension – 2010

• Stratford International
• Stratford High Street
• Abbey Road
• West Ham
• Star Lane
• Canning Town

3.  Langdon Park (north of All Saints near Bow) new station on old line under construction

4.  Dagenham Extension – proposal ony - possibly 2012

• Beckton Riverside would serve the development proposals for the area between the River Thames and the A1020 in the vicinity of the proposed Thames Gateway Bridge.
• Creekmouth, Barking Riverside and Goresbrook (formerly Dagenham Vale) stations would be located so as to maximise catchments within the Barking Riverside development.
• Dagenham Dock station would be an interchange

These light rail developments link to Stratford - the main site for the London Olympics of 2012. These areas will likely encounter faster regeneration because of the new communications. Some of these areas will be transformed. Woolwich is a good example - one will be able to travel via DHL to Canary Wharf (20 minutes!) then Bank in the City of London (27 mins) without changing - and this is sure to boost prosperity and with it property prices. At present, it takes about 50 minutes to get to Bank - so now Woolwich will be open to all the city workers who earn high salaries and want to live along the Thames in a regenerating area up-river. Okay, we all know Woolwich is not Battersea, but it will certainly show improvement over time because of this new infra-structure development. And anyone that has ever visited wind swept North Woolwich in the winter will know this new development cannot have come quick enough.

Watch out also for the Dagenham development which may or may not proceed - a direct link between Canary Wharf and Dagenham would undoubtedly have a big positive impact on the area.

B.  East London Line Extension

Here we summarize the latest timing and stations to be built on the "East London Line tube extension". Many of these areas will be transformed particularly those that currently have no station and are also far from an existing railway station - Haggerston is probably the best example. By 2009, we'll be able to travel by tube from Highbury to New Cross Gate without changing train. It will open up New Cross Gate and New Cross to the vibrant City and north of London - very exciting.

2009 New tube trains

1. Dalston Junction
2. Haggerston
3. Hoxton
4. Shoreditch High St
5. Through trains to New Cross Gate (terminating)

2010 East London Railway Opens - through trains to:

1. New Cross Gate (already open, now a through station to West Croydon)
2. Honor Oak Park
3. Forest Hill Sydenham
4. Crystal Palace
5. Penge West
6. Anerley
7. Norwood Junction
8. West Croydon

Phase 2 (to be announced)

1. Surrey Canal Road
2. Queens Rd Peckham
3. Peckham Rye
4. To Wimbledon (possibly via Clapham Junction)
5. Brockley

 

 

 

In 2010, the above-mentioned stations will open - transforming places like sleepy Brockley and Honor Oak into the mainstream tube world. Large tracks of SE London Victoriana will become accessible to City workers - we expect this to positively impact property prices.

Workers will be able to travel from Highbury all the way to West Croydon by tube -  overland on "East London Railway" from New Cross Gate southwards. We've been waiting years for this exciting development and this extension to West Croydon is now 95% certain of happening.

Phase 2 seems to be suffering a bit of delay - this is the section from a new station called "Surrey Canal Road" near Millwall Football Ground (next to the Incinerator) via Queens Rd Peckham, Peckham Rye all the way to Wimbledon. We'll keep you posted on any developments here - it's likely to happen though, but possibly not until 2012 or later.

Any residential property investment within 3-5 minutes walk of these new stations will see a big benefit in both rental demand and asset prices after station completion. We hope you have found this research helpful in assisting London property investors.

C. Crossrail – a massive £16 Bln new project

This huge project got the go ahead in July. At peak times, 24 trains per hour will run in each direction through central London and reach speeds of up to 100 mph on open stretches and 60mph in the tunnels. Heathrow will be 31 minutes away from the West End and 43 minutes from Canary Wharf.

New stations are planned at Paddington, Bond Street, Tottenham Court Road, Farringdon, Whitechapel, Liverpool Street and Isle of Dogs. The heart of Crossrail with interchanges in all directions will be Farringdon – a one bedroom flat close to this station will surely be a good long term investment. Relatively down at heel Tottenham Court Road will get a boost. Liverpool Street will see a boost, and benefit also from the East London Line extension and proximity to Eurostar at Kings Cross. Lots of good news for these central areas.

Crossrail will link the West End with Southall (19 mins), Woolwich (22 mins), Ilford (20 mins) and Romford (31 mins). Likely completion date is 2014 if all goes to plan. Expect further price rises in these suburbs as the West End and City opens up to these previously deprived areas.

Abbey Wood will be a big beneficiary – this place is almost impossible to reach at present. It will have direct access to City jobs and the West End. Prices should rise dramatically if and when the project is complete. Let's hope the project goes through the execution phase. It's been 20 years in discussion and the city will see huge benefits in previously deprived areas because of this project.

UK property hotspots 2008 for a 2-3 year timeframe

We often have requests for our Property Hotspots listing – we enclose the listing for 2008. It's important to note that for most of these areas, we do not expect prices to rise this year. There may be the odd exception – some parts of London may still see small rises such as Soho and Islington. And in the “super-prime” market frequented by wealthy people from Middle East, Russia, Africa, USA, South Asia and the Far East – prices could well continue to rise – such areas include Mayfair, Chelsea, Kensington, Knightsbridge and Notting Hill.

The main objective of presenting this list though is to allow interested investors who have cash and funding to seek out the best opportunities in a 1-3 year time frame. It's quite possible prices may start rising by mid 2009 in these areas if interest rates drop late 2008 and oil prices stay at or below $125/bbl – we do not know when property prices in the UK will bottom out or how severe the downturn will turn out to be. Some areas like Oxford have not experienced any downturn as yet – primarily because of people wanting to move to the City because of its education, history, surroundings and expanding businesses.

The listing is very selective. You will notice no hotspots in the Midland, East Midlands and many northern areas. The closest to a hotspot we would venture in East Midlands is Doncaster, because of its fast train link to London. In the Midlands, we'd go as far south as Gloucester, Tewksbury, Cotswolds and Cheltenham before picking up any area we believe to be more secure from the downturn. Many areas of Manchester may see prices staying firm because of the strong business in this major city. But overall, the drop in public spending growth, manufacturing being clobbered and lower incomes in the north we believe will have a pretty severe impact on property prices in the next year.

Areas in the listing have been selected because of a number of positive factors that will support prices and lead to increases in future years:

• Regeneration
• Improvements in communications – rail, tube, road, bridge, tunnel 
• Olympics
• Jobs market exposed to international wealth and finance
• Ripple effect from more expensive neighbouring areas
• Retiring babyboomers, holiday homes and second homes
• Shortage of land, shortage of supply, increasing population
• Education, universities, knowledge
• Oil wealth

With the Olympics coming up in 2012, it's hard to believe that places like Hackney Wick, south Hackney, Stratford and Bow will not see prices rising. With Ebbsfleet arriving, it's difficult to see how Gravesend will not see prices rise in a 2 year time frame – especially when the fast commuter trains start in 2010. Dartford, Rochester, Northfleet, Strood, Southfleet and Istead Rise will all be positively impacted.

Table: 2008 UK Hot Spots - PropertyInvesting.net - 3 year view

London	Reasons	Rating
Soho, Bloomsbury	Midway West End/Mayfair and City - massive wealth, nightlife	9
West Kensington	Spill over from Kensington - huge wealth/finance	8.5
Lambeth - South Bank	Proximity to West End, mid-town, City and Docklands	8.5
London Bridge - Old Kent Rd	Proximity to City, stations, night-life	8.5
Peckham (Queens Rd)	East London tube station promised, distant Olympic effect	8
Kennington	Gentrification, proximity to Westminster	7
Hackney - Hoxton	Gentrification, Olympic effect, proximity to City & Stratford	7
Elephant & Castle	Proximity to City, West End, regeneration	7
Chelsea	Wealthy international investors, city bonuses	7
Bow - Bow Church - Shoreditch	Olympics, proximity to City, Stratford, regeneration	7
Bayswater	Proximity to West End, Notting Hill, Hyde Park - good value	7
Battersea	Gentrification, proximity to Chelsea	7
New Cross Gate - Telegraph Hill	E London line tube extension, regeneration, proximity to City	7
Woolwich	DHL extension due by ca. 2010, cheap, regeneration	6
White City - Shepherds Bush	Retail development, regeneration proximity to West End	6
Stratford - Plaistow	Olympics, new Eurostar station, regeneration, retail	6
Royal Docks, Silvertown, N Woolwich	New DHL extension, city jobs, Olympic affect	6
Limehouse	Midway Docklands and City - jobs	6
Forest Hill - Catford	East London Line extension opening late 2007	6
Clapham	Gentrification, proximity to West End, City	6
Canada Water	Regeneration of £1 billion, one stop to Canary Wharf	5
South East
Gravesend - Northfleet - Southfleet	New Eurostar station at Ebbsfleet	8
Cambridge	Top education, history, promixity to London, house shortage	6
Ramsgate	Fast commute to Kings Cross in 2009, nice harbour	6
Newbury	Shortage of homes, big business, A14 improvement	6
Reading	Oil company HQ, M4 corridor, close to Heathrow and London	6
Winchester	Excellent education, history, shortage of homes, wealth	6
Oxford	Top education, history, promixity to London, house shortage	6
Rochester-Strood	Regeneration, proximity to Ebbsfleet	6
S Midlands
St Neots	High-tech business, close to Cambridge, A14 improvement	7
North, North West
Bury	Regeneration from low base - for 5 year outlook only	6
Skinningrove	Late regeneration and identified as nice seaside village	5
Bradford	Regenaration from low base - price could rise late 2009	5
South West
Portreath	Regeneration, airport, beaches	8
Hayle	On A30, rail, big harbour development, close to St Ives	8
Newquay	Regeneration, proximity to Padstow and Truro, airport, A30	7
St Just	Regeneration, Heritage Site	7
Weymouth	Olympics and regeneration	7
Swanage	Proximity to Sandbanks - late regeneration	6
Wales
Barry Island	Spill over coastal resort near Cardiff	5
Scotland
Aberdeen, Stonehaven	Oil boom, catch up since mid 1980s	9
Dundee	Low prices, regenerating, nice countryside	8

If you can use the quiet market and relatively high interest rates to seize on opportunities, it might do you good in future years. Not without its risks of course, but we believe focusing on these areas – particularly where new jobs are being created – will help your investment returns in a 2-3 year time frame.

Woolwich is an interesting example – depressed, down at heel, high unemployment, south of the river – many things going against it. But with the Docklands Light Railway Extension due to open in 2009, Olympics 4 miles away, city jobs close by and a low price base – it's an area that will improve substantially in the next ten years. Expect prices to drop for the next year as some distressed sellers come into the market. It will improve in the longer term though. The larger Victorian properties towards Plumstead are also worth considering. Crime is relatively high at present, but as the area improves, this should reduce.

Closer to the city, a safer bet is New Cross Gate - Nunhead - Peckham. This area will benefit from the East London Line Extension from 2009 – 2010. A new station at Surrey Canal Road should eventually transform this part of London near Millwall football ground. The Hatcham Park conservation area close by is already popular - though it's likely to become more so in the future.

In the north of the UK, as we have been mentioning for 18 months now, Aberdeen is a hotspot. A shortage of land, property and building, employment growth in the oil/gas sector and wealthy retiring oil workers all play in its favour. The corporate lettings market is vibrant. City centre apartments and nice old detached properties in central areas are probably the best opportunities. Stonehaven and Dundee are both experiencing positive spillover from Aberdeen. Anywhere within 40 miles of Aberdeen is worth considering, unless you think the oil price will crash.

Overseas European Investment

We believe the European economy will take a knocking in the next few years as interest rates rise, inflation stays stubbornly high (because of oil prices at $125+/bbl) and the general tough banking conditions in the western economies. Exports to the Far East are helping, but the Euro seems overvalued – probably by about 20% against fundamentals. We expect the Euro to decline along with the UK Sterling in the next year. This should help exports and growth but property asset values on a US $ or global basis will suffer because of it.

We have ranked the countries we believe will see highest house price growth (top) with those showing falls (bottom). The general trend is that the newly joined up Euro countries will see prices rising, with the older ones seeing stagnant or falling prices. Italy will suffer from high oil/gas import costs, as will Spain and Greece. Less airline travel to these holiday destinations because of higher airline fuel prices will also dent demand for property in these countries. An exception is Cyprus with an influx of Middle Eastern money and tourism helping the small economy of this Island.

The list is ranked in terms of certainty of house price rises (top) to house price drops (bottom) in the next two years:

• Russia
• Norway
• Cyprus
• Albania
• Romania
• Montenegro
• Serbia
• Poland
• Luxembourg
• Hungary
• Malta
• Croatia
• Belgium
• Finland
• Solvenia
• Slovakia
• Bulgaria
• Denmark
• Lithuania
• Czech Republic
• Switzerland
• Sweden
• Holland
• Austria
• Turkey
• Latvia
• Germany
• Estonia
• UK
• Ireland
• Spain
• Italy
• Iceland

The countries with the biggest potential upside in house prices movements are probably:

• Albania
• Romania
• Poland
• Montenegro
•  

Albeit some of these countries or regions are also high risk, particularly Albania. Probably the lowest risk but biggest upside country is Romania – with regenerating second hand property in Bucharest the capital being the highlight, particularly in the more prosperous central suburbs. As wealthy Romanians return home from foreign working missions, they will want high class apartments and houses close to the city centre in the better areas of the city (north and north-western central suburbs).

Krakow and Warsaw in Poland are also likely to be hotspots – prices will benefit from the proximity to Germany and Russia – its wealthy near neighbours.

For the safest haven, Norway is beyond doubt secure, wealthy, with massive oil/gas income and beautiful scenery (when it's not raining). With small population and environmental restrictions, expect property prices to continue rising on an ongoing steady basis. Oil towns of Stavanger and Bergen should do well, with Oslo following behind.

Every country has a different market, and asset prices of certain properties will perform better than others. The three key categories one can split property into are:

• Residential : Apartments and houses, in cities, towns, villages, and isolated rural areas - principle homes, holiday homes (private or let)
• Commercial : Warehouses, factories, retail shops
• Land : farmland, residential building land, commercial land, forestry/other

In emerging economies with rapid GDP growth, normally the prosperous cities are the areas which have strongest property price growth over time. This is where jobs are created and wealth is focused. Land restrictions and demand drive prices up. Holiday homes and second homes in countryside or seaside areas also tend to follow. Central city land prices will rise the first, then ripple out to country areas close to the cities. So, as a general rule, for residential property investors – if you purchase historic city centre apartments and houses in regenerating suburbs close to prosperous city centres in the capitals or second cities, you are likely to see prices rising sharply. An example was Prague though this is now quite a mature market. Newer examples are Warsaw (Poland), Bucharest (Romania), Sofia (Bulgaria), Krakow (Poland) and Bratislava (Slovakia), Tirana (Albania) and Ljubljana (Solvenia).

Concluding Remarks: We hope you are enjoying your property investing so far in 2008 – more challenging times than most, but with lots of opportunities.

Property Insights June 2008

UK Market Update

More doom and gloom. It's no surprise with oil prices at $142/bbl, and inflation has reared its ugly head again. Indeed the negative impact of oil prices on inflation could have been far worse so far, but the affects are well and truly now feeding through. In the UK CPI inflation is now 3.1% and looks likely to rise to over 4% in the next year. So this in theory would add at least 1% to interest rates, and push mortgage costs up about 20%. If oil prices don't rise further then it's likely inflation will drop back from 4% to its target range 2 to 3% within a year - but we believe oil prices will continue to rise and cause inflation to stay stubbornly high and put pressure on the Bank of England to raise interest rates. They cannot do this indefinitely because this could cause a fully-fledged recession, but they are well and truly between a rock and a hard place on this issue. We believe it's all down to the oil price – as we've been warning for the last 18 months.

Meanwhile the effects of the credit crunch appear to be working their way through, and some interest rate offers have recently been reduced – a good sign of good credit availability to the banks. Berkleys the builders will now start buying large tracts of UK land, have stopped paying out dividends and therefore seem to have called the bottom of the property market – they've called the bottom and top successfully before. We'd like to re-iterate our view that the property market has not reached the bottom yet, and is unlikely to do so any time soon. It may now take years to properly recover because of high oil prices. This is why we have been advising for 18 months to invest in cities and areas that are positively impacted by high oil prices. You can read the range of Special Reports at the end of this Newsletter.

One element missing so far that could cause a fully fledged house price crash in the UK is dramatically rising unemployment – employment has stayed stable for the last year. As long as the jobs market holds up – which is not for certain of course – then house prices should not drop more than say 5-10% per annum for the next year or so – with the possibility of stabilizing prices at any time if the oil price drops.

Landlord Rental Update

The rental market generally remains firm as first time buyers struggle to obtain mortgages because of the credit crunch, and are avoiding taking the plunge because house prices are likely to drop further. This has been a boon for buy-to-let investors as there are plenty of tenants for reasonable quality accommodation in central – convenient locations. The employment market remains strong and the wave of immigrants needing accommodation shows no sign of reversing. We believe unemployment may rise slightly, but not significantly despite the UK slowdown. As long as your properties are in reasonable decorative order, well presented and in handy locations at competitive prices, you should avoid long void periods in the current market. Rents have generally been rising in the last year or so, particularly in London. Yes, mortgage costs have risen a lot as well, but although many buy-to-let properties don't make positive cashflow, most buy-to-let investors are sitting on sizeable equity so are not suffering undue distress as yet. Some reports of distress seem to come from media coverage of people who entered the market very late and also bought into new build developments for instance in northern cities. But this is not the average buy-to-let investor – most investors purchase older flats and houses and are less exposed to a flood of new build properties hitting the market at the same time.

Continued Housing Shortage

As house prices rose in 2007, the government predicted that the UK needed an additional 300,000 properties per year, yet only a net 180,000 were being built. Now building levels have dropped considerably, probably to something like 120,000 a year - mostly flats. But these government targets should not really change since they are based on population growth, immigration, aging population, and predicted smaller family units. So we expect a further shortage of property now and in years to come as building levels drop when they should be rising. Any older house in the south of England that can be purchased at low price in a good location close to higher paid jobs should be a good long term investment. So we advise looking for selective bargains in London and southern and SE England within 60 miles of London – hopefully requiring some easy renovation – upgrade. As oil prices rise, huge profits will be generated from London based oil/gas and mining companies – London is also energy efficient compared with most areas with its electric trains, commuting and lack of manufacturing. So GDP should be maintained at reasonable levels as long as banks do not go under (unlikely since the key reason they would go under is stress caused by high oil prices, and Middle East investment funds would then step in and buy them up).

In summary, the current conditions are enough to discourage building just when there should be a big building spree for the medium to long term. This lack of building should help support prices into 2010. Yes, transaction levels have halved, and people are staying put, but there is not much sign yet of severe distress, unemployment or a crash. It's hardly surprising so few people want to move because of massive stamp duty increases and transaction costs – a key reason why so many people are choosing to extend or upgrade existing homes. So for the buy-to-let investor, one can see opportunities abound in southern England and London – particularly in the run up to the Olympics in 2012. (Stratford, Hackney, Bow, Canning Town spring to mind, with Gravesend further out another good bet with the new Ebbsfleet station).

 

US Market and Future Economic Outlook

The dollar has dropped as we all know – by about 25% against most currencies in the last 8 months. This has probably fuelled about 25% of the oil price rises. It's also helped re-balance USA's massive trade deficit. Exports have been very strong since the dollar dropped – hardly surprising. Inflation has been remarkably well contained despite higher energy prices and the weak dollar. Productivity improvements and general efficient public and private sectors have helped the US weather the economic downturn – and it now looks likely that despite the sub-prime crisis, credit crunch, house price declines and general low consume and business confidence levels, the economy will escape any form of recession. Indeed, GDP growth is likely to be well over 1% in the next year or so. Even with oil prices up to $170/bbl, we believe the US economy is robust enough to not drift into a recession. We think the worst will be over by end 2008 and a recovery will start in 2009. For US real estate investors, end 2008 is probably a good time to purchase bargains – particularly in areas hit hardest by the sub-prime crisis and re-possessions such as Florida, Phoenix in Arizona, and parts of California. These are the areas that in future years will encounter large population increases, GDP growth and retiring baby-boomers settling in the sun. Texas is another winner with the oil prices booming. Wyoming and NE Colorado (coal) are other areas that will benefit from high energy prices. Bakersfield in California is another – a rather depressing small industrial city, but oil production activity will continue to boom – so rentals and oil worker homes will be in short supply.

For non US investors, there is a dollar currency risk to investing in the USA which needs to be properly considered. If you believe the US dollar will continue its decline, it might be worth investing in your home country. It's also a function of local interest rates, local inflation, where you are financing, how much equity you put in yourself (and currency) and which currency you are financing in. We're no experts at currency risk – not many people are – hence your real estate investment strategy needs to add this risk into your decision making. They say if you don't understand it – it's best to avoid it! Overall, if you are a non US American investor and believe the dollar will strengthen – it should increase your appetite for US investments. If you believe the dollar will continue dropping over many years, its probably best to avoid the exposure – unless you intend to settle in the USA one day.

For global investors, our steer is, don't under-estimate the US economy. People have been writing the USA off for years, but it's got the following going for it:

• Highly motivated, organized and educated workforce
• Innovation and high technology
• Available financing for business
• Small public sector, large private sector
• Low taxes
• Increasing workforce and population
• Low cost building
• Coal, oil, gas, nuclear, water, forestry, agriculture, minerals
• Oil shale deposits, and tight gas deposits for when oil price rise further
• Much land, varied climate, good security and political stability

There are not many countries that have so much going for them – yes, the US uses too much oil and gas, but they do produce half of what they need. They have the largest coal reserves in the world – these will not run out. So when the US finally begins to wean itself off its addiction to oil, it should be well placed to trade with China, Brazil and India in the global economic expansion.

Most countries have public sector inefficiencies dragging down their economies – the continued US productivity improvements in manufacturing and services is impressive and it's difficult for many European countries to compete, particularly now the dollar has declined in value.

Norway focus

Let's take a look at Norway. This cold and rainy northern outpost! The population is 5 million. We predict oil and gas revenues will top $200 billion a year by 2009 – massive. That's $40,000 per person per annum. Meanwhile inflation is moderate, currency is strong (hardly surprising with high oil prices), and the Norwegians have been investing their oil wealth for years internationally in high earning investments. The trade balance is massively positive. The population is stable. No problems with immigration, emigration, asylum seekers etc. Politically very stable democracy. Highly educated workforce. Efficient working practices. Trusting and honest people. Very high on transparency and business ethics. Good legal framework. Many good engineers. Beautiful scenery. Long summer evenings. Hydro-electric power in abundance. Forestry in abundance. Nordic culture. The list goes on.

Okay, taxes are high and it's cold and rainy in the winter. But property investment in such a booming business climate looks to us to be low risk and relatively high reward. Another bright outlook is the currency – how can such a currency drop when the oil prices are booming, look set to continue this boom, whilst the currency is not pegged to the dollar or Euro.

Our favoured locations are:

• Oslo – capital, oil company headquarters, banking, services, government-public sector jobs
• Bergen – oil town
• Stavanger – oil town, port, oil-gas import-export terminals
• Southern coastal seaside resorts SW of Oslo – 2 nd homes for increasingly rich Norwegians

If you like long distance skiing and the northern lights (Santa for the kids), the place is also a winner in the winter. In the summer, 20 hours of daylight, skinny dipping in the Fjords and the staggeringly beautiful scenery are all plusses. Good healthy outdoor life. We really cannot think of anything particularly negative about Norway – you've got to break into the relatively introvert family oriented cultural persona and social circles. It's got Finland, Denmark, UK and Sweden as it's neighbours – nothing negative here either! The real highlight though is massive oil revenues and massively increasing gas revenues projected over the next twenty years. Norway will overtake Switzerland and Luxembourg as the most wealthy state in Europe soon – and it's difficult to see property prices not rising off the back of this.

Mining Property Boom

As India and China industrialize, commodity price have risen fast – all commodities have experienced big rises in the last five years. This cycle seems unlikely to be ending any time soon. Minerals like iron ore, aluminium, platinum, uranium, copper, lead, gem stones and coal are required to fuel industrialization in the “BRIC countries”. This cycle has been described by investment banks as a “supercycle” which could last a decade or two – rather than the normal five yearly boom-bust cycle. The reason is this time the expanding global population, shortage of supply, increasing demand for raw materials and rapid industrialization of India and China are likely to lead to a sustained demand over a long period. Countries heavily positively exposed to mining are:

• Chile
• South Africa (NW and north of Johannesburg)
• Australia
• Russia
• Kazakhstan
• Mongolia
• Democratic Republic of Congo (high risk)
• Sierra Leone (high risk, diamonds)
• Canada (oil sands open cast extraction)
• Indonesia
• Zimbabwe (high risk)
• USA (coal in Wyoming, low risk)
• UK ( London is the biggest global financial centre for mining companies)

Out of these Russia and Kazakhstan are also rich in oil and gas and to a lesser extent Australia is also. South Africa has no significant oil or gas, but is very rich in minerals – however, the government recently cut off electric power to the mines in January due to power shortages which reduced mining GDP by -22% - risks have therefore increased and inflation is now over 10%. For a pure mining real estate play, Chile is probably the closest you can get. When mineral prices skyrocket, mining jobs multiply and the mining rental market strengthens – all the employment leads to property prices rising. Void periods are low and yields are high. In Canada, the oil sands mining town of Fort MacMurray is a place the canny property investor can make serious money – purchase of oil company temporary accommodation. Rents are high, property is in short supply, real estate prices are rising and the employment scene is booming – massive skills and accommodation shortage are the order of the day in this oil sands boomtown outpost.

For a booming city with a stable economy, mineral wealth, oil and gas wealth and general exposure to Asia Pacific's booming economy, Perth is a place to consider, albeit it is very remote. Many oil, gas, LNG companies and successful mining companies have their offices in Perth – Melbourne is another city positively exposed to all these booming sectors. In Kazakhstan, Almaty is a city to consider – massively changing in a positive sense. The reason for mentioning all these great cities is that if one finds the sweet spot of rising oil, gas, minerals prices coupled with real estate – you can massively reduce your risks and increase returns – if you can be bothered to visit these cities and invest in these expanding regions. So much easier than trying to make serious returns in Italy, Greece and Morocco – all countries with negligible oil, gas and mineral wealth and set for economic downturn as oil prices rises.

Powerful global forces at work

Our analysis of oil and gas imports-exports suggest a massive transfer of wealth in future years from oil importing nations to oil exporting nations. The dollar is likely to continue its slide and asset prices in western countries are likely to drop. This will provide conditions for Middle Eastern oil wealth to be re-invested into low priced dollar and UK pound denominated assets such as commercial property, businesses, infra-structure and residential property. In general the Middle Eastern, Russian and Far Eastern economies will inflate – whilst the western oil importing nations will deflate. Banks may well go bust in the west as write-downs and lack of credit begin to bite. How long this process lasts and how severe it will be is very difficult to judge – part of it depends on how high the oil prices go – high cost of oil imports acts like a huge tax on energy importing nations. Economic balance will shift further to China, India, Middle East and Russia – and away from Europe and USA – albeit these economies will of course continue to be dominant as far as percentage of global GDP for the next few years. China and India will be catching up fast. Overall global GDP should continue to motor onwards at 3 to 4% growth per annum – fueled by expansions in BRIC countries and oil/gas and minerals exporting nations. For UK investors, avoid the FT100 stock market – all shares except oil, gas and mining stocks. Retail, property and construction will continue to take a hammering. In the USA, the Dow will also suffer (except for oil, gas, coal and mining stock) as asset prices drop and business profits come under pressure from inflation and high energy prices. We re-iterate our stance to invest in property in areas positively exposed to high oil and gas prices.

For Europeans who have been living off debit, rising house prices and the seeming never ending growth period – particularly in the UK – tough times lie ahead. The amount of air travel to foreign locations is likely to drop, with it the holiday home markets in place like Portugal, Greece and Italy – possibly Spain. Much of the property price increases have been driven by mobile UK and other European citizens buying second homes. As retrenchment begins, these prices should come under pressure. There will be exceptions though in fast growing local business areas like Barcelona, Valencia, Montpellier and Malaga/Marbella. But areas remote from jobs and business relying on ultra-low priced air travel will suffer – Cyprus, Greece and remoter areas of Portugal spring to mind.

Property prices are likely to stay firmer in Nordic countries that have efficient industry, knowledge based economies and many high paid jobs with relatively low unemployment – also with better demographics and less of an aging population. Some of our favourite locations are London, Oslo, Luxembourg, Aberdeen, St Petersburg and Moscow.

As Italy and possibly Greece and Portugal slip towards recession, there will be pressures building to reduce Euro interest rates. However, because EU inflation is running at 4% and driven by high energy prices and growth in Germany and France, the European Central Bank is likely to INCREASE rates – sending the peripheral EU economies further towards recession. In a year or so, if oil prices stay high – which we expect – this could eventually lead to the break-up of the Euro currency – as Italy, Greece and Portugal split then deflate their currencies to stimulate business, growth and competitiveness. If they keep pegged to a Franco-German Euro dominated Euro, they will likely slip into recession if oil

Property Insights May 2008

UK Market Update

More Doom this month: April wasn't a very upbeat month and May was no different - Halifax reported a –1.3% monthly drop in house prices with the biggest drop reported by Nationwide at -2.5%. Interestingly, on 20th May Rightmove reported asking prices actually rose by +1.2% with the biggest increases in the south. They also described how vendors were being unrealistic and would likely not find any buyer unless they were willing to accept far lower than the (inflated) asking prices.

The negative sentiment is hardly surprising in view of the credit crunch, and oil prices being $125/bbl as we predicted back in June 2007. What's on everyone's mind is – will the situation get far worse or not. One other factor weighing on sentiment is the current government's overall performance and Gordon Brown in particular – this is likely affecting confidence. The tax take has risen +76% since labour came to power in 1997 and 56% in inflation adjusted real terms – so household finances are being squeezed severely by a combination of high oil prices (this acts like a tax), high food prices (mainly because of oil prices) and the high tax burden (much of it interestingly coming from tax on fuel). It seems all these aspects are coming together to create negative sentiment – people are fed up with high prices and tax all round.

We expect things to worsen in the next few months as the remnants of the credit crunch plays out and rates are re-set in the UK. Furthermore, we see oil prices heading higher – we'll make another we hope accurate prediction in the next few months, but do not be surprised to see $150/bbl in the next six months.

One of the most depressing pieces of news was the inflation rate shooting up to 3% which means the Bank of England will find it difficult to drop rates further. And it also seems the banks are being very slow to pass on any rate cuts to their costumers – financial competition has weakened because of the credit crunch and the banks are clawing back losses via higher rates than they would normally offer. We also now expect interest rates to most likely remain unchanged for the rest of 2009 to control inflation – we hope they will not rise, but this is now a distinct possibility.

The good news is employment remains high, unemployment low, the population is expanding and wages are rising 4% per annum – so the rental market is buoyant. We expect retail sales to slide and property prices to remain under pressure for the next six months at least.

We hold to our Dec 2007 prediction of an overall -5% drop in house prices in 2008 – it's possible it will be slightly more than this. But don't get too disheartened. Longer term we are still quite optimistic. What we need is oil prices stabilizing, a change in the leadership of Government or a new Government and an end to the tax hikes the population has incurred over the last ten years. All this seems likely in a few years time, but for now, we're in a period of consolidation and mild distress.

We hope you have heeded our advice in investing in property in oil exposed cities and countries – the Special Reports describe these. As oil prices stay high, this advice will become even more applicable as a massive transfer of wealth takes place from oil importing nations to oil exporting nations. Oil exporting nations will boom. Oil importing nations with no alternatives will stay in the doldrums:

191: Oil Price Update and Real Estate
187: Real Estate and the commodities super-cycle
186: Oil price starts to skyrocket as predicted - how to profit
180: Oil prices continue to skyrocket
172: Make serious money - best investment sectors
169: Oil supply crunch begins… protect yourself
168: Alarm bells ringing – oil price shock now on the horizon
163: Making Serious Money as asset prices plateau – resources and property
161: Resources winners and losers - ranked list for property investors
160: Find out the winners and losers in the biggest oil boom in history - about to happen...
159: Massive oil boom - the winners and losers - be prepared
158: Supply and demand scenarios - oil boom and the property investors insights
157: Impact of 'Peak Oil' for Property Investment
151: Oil price $125 / bbl and rising…how to take advantage in property
150: Peak Oil shortly due to be reach – unique insights for a property investor
148: Take advantage of the oil/gas/coal boom – key insights

In Europe, the only country that produces more than it uses is Norway. The UK supplies half its own oil requirements (not bad) – so is better off than most. And London is home to many of the world's largest oil/gas and mining companies – so in general London and Aberdeen will benefit, whilst the rest of the UK will suffer.

 

Buy-to-let : No strong evidence of a buy-to-let bust – most investors have made ample equity to shelter themselves from a downturn. As long as the rental market stays firm, which is happening, then – okay – the really good times are behind us, but it should not lead to a meltdown. It's a period of consolidation. Some of the smaller players who got in late and bought new build flats in city centres may decide to exit the market, but anyone who has been in the market for say 3-5 years should be okay. The vast majority of buy-to-let investors intend to remain with the current portfolios or actually expand them.

It's certainly a good time to go searching for a bargain – it's probable prices will drop further – so most people are not in a big hurry. We advise searching hard for real bargains now with a view to the bottom of the market being in October 2008. We expect 2009 to be quiet, not sure yet whether prices will rise, but we think much of the doom and gloom may pass by October.

The stock markets are performing reasonably well and city bonuses will again be high at year end – corporate profits are also strong and the global economy is expanding by ca. 4% GDP with many international companies located in London, so don't expect a recession. We think UK GDP will drop to ca. 1.5% Q4 2008 with London at 2.5% and the rest of the UK at a meagre 0.5%. So we reiterate our long term stance – invest in London or anywhere within a 60 mile radius, or Aberdeen. We are also still fairly positive about south coast towns and cities like Southampton, Bournmouth, Brighton, Weymouth and Portsmouth.

The south-west long term is also very good, but expect some second home owners to sell up in the next year – this will likely suppress prices a bit.

Scotland : Prices stayed so low for so long that Scotland is still playing catch-up with England. The de-population has also slowed and many areas now have moderate population growth such as Inverness and Aberdeen. So prices should keep rising albeit at a moderated pace.

Overall direction: So overall, we stick with our guidance that the prices in southern England and London will outperform other areas in the next 2-10 years. South-west England will continue to be a good place to invest because of a massive housing shortfall as the population increases – partly people settling from London and the Midlands, and partly babyboomers retiring and an aging population living longer. Aberdeen (and within 50 miles of the Granite City) will be a bright spot in the north of the UK. Scotland should weather the credit crunch relatively well in the next year. The oil boom will drive prices further up as housing supply falls short and wealthy oil workers look to retire in the region in the next 5-10 years. In summary – follow the wealthy job, jobs, jobs – and you will find property prices going up.

USA Market Update

We believe all the gloom regarding the US economy is way overdone. An example is the first quarter GDP figures reported last week. Most of the media was reporting the USA was probably “already in a recession” in February and March – as it transpired, Q1 GDP was a whopping 0.9% (or 3.6% on an annualized basis). This is above trend growth. Tax breaks and low interest rates should start feeding through shortly – so we expect growth to continue to be strong. Okay, there has been a severe credit crunch for about 8 months, but this is more or less ended now in the USA. Foreclosures are still rising and house prices areas still dropping markedly, but we expect the worst to be over by October 2008, as the main period of rate re-setting has worked its way through.

As oil prices have stayed high, many oil exporting countries have taken the opportunity to invest in banks, real estate and businesses in the USA whilst asset prices are relatively low and the dollar is weak. The weak dollar has also benefited US exports and reduced imported goods – so the USA's current account deficit and balance of payments deficit have reduced significantly. The dollar is likely to remain weak, but this should boost growth, employment and inward investment by oil rich nations. As the banks work through their bad debit, and take their learnings from the spree of lending too much money to sub-prime candidates, we believe the real estate market is likely to start improving by year end. By end 2009, we see prices rising. So in summary, anytime in the next 8 months is probably a good time to pick up some real bargains – we're thinking foreclosures and distressed sellers.

The biggest downturn has been in Florida, Arizona, and Utah plus parts of California. We actually believe all these states in the longer term are the best states to invest in – the reason is the massively expanding population and good weather for retiring babyboomers – as you can be read in our US Special Reports. The main reason why prices have come down by up to 25% is because of the boom in prices in the previous five years, large building programs and intense speculation. So you might now find you can pick up foreclosures, and real estate from distressed developers for reduction of a further 20-35%. It's when things look the most distressed that it's best to buy, and we think things should start looking less distressed in 2009.

USA boom areas. The latest real estate price news has confirmed our predictions that some of the best areas to invest in are those areas exposed to the energy business – examples are Texas (Dallas, Fort Worth, Houston, Irving, Galveston, Austin), Montana, Wyoming (Green Rover area) and to a lesser extent Oklahoma and Bakersfield in California. All areas positively exposed to soaring oil, gas, coal and energy prices. Some parts of northern Utah may also eventually benefit from oil shale production. Areas around Houston – the Bakken Shales play – are also benefiting from renewed drilling activity.

The coal mining areas of Virginia are also worth a look – it's predictable that coal prices will keep rising and coal mining activity will boom in SW Wyoming and parts of the Appalachian Mountains coal belt. Jobs will be created and previously depressed areas will improve driving real estate prices higher.

We also like Carolina – many businesses are moving south from New York and NE USA in part because of the nice climate, educated workforce and new technologies – Charlotte is the only highlight in the Schiller real estate price survey with real estate prices up over the year.

Canada : House prices in Canada should keep rising and the Canadian dollar should strengthen further against the US dollar as the commodities boom continues and oil sands developments expand. Particular boom towns are Fort MacMurray, Calgary and Edmonton. The whole of Canada though should be positively impacted. The sheer size of the resources of Canada is impressive and this stable prosperous country is sure to do will in future years – a low risk place for real estate investing with good upside, particularly in the oil boom areas.

European places to avoid investing in

There will be a slow and telling suppression of the economies:

• that do not produce an oil, gas, coal and minerals
• have an aging and declining population
• have weak manufacturing
• are slow to reform – especially if socialist government, large public sector and strong unions
• prospered during low oil price times, and before the Indian and Chinese manufacturing and services global boom hit their economies
• where innovation, new technology and education is not strong

In Europe, highest on the list of countries that will suffer are Italy and Greece. Much of the property price booms of these countries has been fuelled by low priced airline travel bringing in NW Europeans to prop up property prices. We see both economies suffering in the next ten years and do not advise any property investment in these developed but potentially declining economies.

Spain is also a candidate for decline, though the country is closer to wealthy NW European neighbours and its economy is rather more dynamic and progressive than Greece and Italy. The population is also more stable. So we do not expect Spain to suffer like Italy and Greece. Portugal will also suffer – we rate Portugal half way between Spain and Italy.

As airline travel becomes far more expensive, and routes are cut, along with new taxes because of climate change, expect any city or country that relies on foreign long distance airline travel to decline – avoid these locations like the plague – examples: Cape Town in South Africa, Gambia, Seychelles, Mauritius and Maldives and possibly Cape Verde. It may sound boring, but wait ten years and oil prices will have hit home in some unlikely locations.

The best place to avoid such a scenario in Europe is to invest in or close to major population centres with prosperous services based businesses. These cities are less energy intensive and may actually benefit from rising oil prices – examples are: London, Amsterdam, Paris, Moscow, St Petersburg, Rotterdam, Munich, Oslo and Copenhagen in Europe. But avoid areas, cities and town way off the beaten track that need much energy and cost a lot to get to – unless these are the most desirable richest enclaves frequented by the most wealthy (e.g. Virgin Islands). Examples are Calabria and Sicily in Italy, and remote parts of Greece.

Other European countries we are neutral on are France, Belgium, Sweden, Finland, Estonia, Latvia and Lithuania. Prices in the countries should slowly drift upwards – all of these western European countries use technology and innovation to mitigate risks of high energy prices (e.g. renewables, nuclear, wind, efficiency savings). Meanwhile the Estonia should benefit from the proximity to booming Russia and stable Finland.

In eastern Europe, prices will still be playing catch up so we expect prices to continue climbing in Romania, Bulgaria, Montenegro, Croatia, Albania, Czech Rep., Poland, Slovenia, Slovakia and parts of Serbia. The point is, in older EU countries that boomed in the 1990s, we expect suppressed GDP and house price growth and a decline in tourism as airline travel becomes far more expensive.

We reiterate the safest places to invest in are Aberdeen, London in UK and Stavanger, Bergen and Oslo in Norway – higher risk but large upsides are St Petersburg and Moscow in Russia. The common thread – they're all oil boom towns!

Property predictions ' 2007

According to Nationwide, UK house prices dropped 0.8% in November after a surprise rise of 1.1% in October. Mortgage approvals also slumped to 88,000 in the month, the lowest level since 2005 and down from 109,000 the in October. Undoubtedly the property market has now dramatically slowed. Five interest rate hikes and the uncertainties around the US and UK credit crunch have taken their toll. Things are not likely to improve for some time. Most people expect prices to stagnate but the doom-mongers are out in force and many people are again talking of a house price crash.

In the last few years, we have been advising investors to buy in London – prices have risen 25% in the last two years and ca. 50% in the West End. But we now do not see any significant growth in 2008. There are risks of a fall in prices - so for new investors, now is not the time to buy. For established investors with much equity and cash, bargains could be available in the next few months as the market cools further.

We do not expect a crash for the following reasons:

• Shortage of supply – this is an underlying trend and it's not likely to go away with an expanding population, smaller families, more singles and people's continued aspirations to live in a home, many on their own. We believe 300,000 new homes need to be built per year to keep up with demand, with the biggest demand being in London and southern England, but only 200,000 are being built, mostly in other parts of the UK.
• Employment – unemployment has remained stable a 5.4% - barring a recession, this should protect against too many distressed households.
• Interest rates – these are likely to begin dropping either early December or more likely in January 2008. A 0.25% drop is likely in the next three months, with another 0.25% drop in mid 2008. This should ease household finances – the Bank of England cannot afford to see a wholesale house price crash – so expect them to react to house prices like they have done when prices have been rising strongly.
• Inflation – despite record oil prices close to $100/bbl, inflation (measured in CPI) has remained remarkably low. This allows room to drop interest rates.
• GDP – this is expected to slow to 2% or slightly below in 2008 and will further encourage the Bank of England to drop rates, which should in turn help support house prices.
• Sterling – the pound is likely to drop as oil prices rise and interest rates come down slightly – this should increase manufacturing competitiveness boosting exports and manufacturing jobs, but the threat is increased inflation. As long as inflation remains in control and wage inflation subdued as it currently is, Sterling will probably correct against the Euro and possibly against the Dollar though this should not unduly affect property prices.
• Immigration – record levels of inward migration is boosting the UK's population and keeping wage inflation lower than it normally would be – both these boost property prices and should help prevent a fully fledged crash.
• Tax – the flat capital gains tax change to 22% should positively impact the market and increase returns for investors.

We expect the GDP in northern parts of the UK and the Midlands to drop to 1% whilst London will continue to motor along at about 2.5%. The lack of new public sector jobs and pressure on manufacturing will suppress property prices in these northern areas. The population is growing at a slower pace, less services jobs are available and it's easier to build new homes – so the north should feel the effects of the interest rates more than the south. This is why we were not surprised to see the recent Rightmove.co.uk report which showed London prices rising 2.3% in a month whilst all other areas saw falls of up to 2%.

The wild card continues to be the oil prices – and as we have so often predicted, we believe it will end 2008 at $125/bbl. The big unknown is whether this will affect inflation – it seems rising from $20/bbl to $95/bbl has had no appreciable affect on longer term inflation, so we are now thinking that a rise to $125/bbl may not be a tipping point. If you are concerned about oil prices, you'd better read all our special reports on the subject.

As a reminder, we enclose our ranked list of the best towns and cities to invest in – the top two are both exposed positively to higher oil prices:

Highest growth

1. London
2. Aberdeen (oil town)
3. Cambridge
4. Reading
5. Bristol
6. Brighton
7. Plymouth
8. Portsmouth
9. Southampton
10. Manchester
11. Leeds
12. Bradford
13. Chester
14. Glasgow
15. Oxford
16. Edinburgh
17. Leicester
18. Liverpool
19. Derby
20. Birmingham
21. Middlesboro
22. Hull
23. Nottingham
24. Newcastle

Lowest Growth

So all investors – be careful – make sure you have enough cash to weather some rough times and be on the lookout for bargains from distressed sellers. Some people simply have to move to a new location of work or move because of divorce or other problems, so do not underestimate how much reduction you could get if you are able to move quickly and have proper financing in place. For the less wealthy investors – it's probably best to hold fire for now and monitor the market. For the first time buyer – best not enter the market just at this time for fear of immediately running into negative equity.

But remember, if we'd all listened to those Chicken Little's who predicted a house price crash back in 2001, we'd have missed out on a doubling and in some casing trebling of house prices. Confidence has been shaken and prices can go in both directions, so it's up to you to judge whether you want to enter this market and seek out bargain, or sell your portfolio because you are so spooked. But the wealthiest investors normally buy on a low and hold – Warren Buffet being the classic example – of a disciplined value investor. We can try and follow his tenants. But don't expect to make serious money unless you risk at least some of your hard-earnt cash.

Oil Prices Continue to Skyrocket

On 14 th August when oil prices were at $70 / bbl – we predicted oil prices would rise to $125 / bbl by end 2008. They almost touched $100/bbl end November before easing back to $90/bbl. We have written ten special reports on this topic – we suggest all serious property investors should read these report that have taken years of analysis and insights to prepare:

• 169: Oil supply crunch begins… protect yourself
• 168: Alarm bells ringing – oil price shock now on the horizon
• 163: Making Serious Money as asset prices plateau – resources and property
• 161: Resources winners and losers - ranked list for property investors
• 160: Find out the winners and losers in the biggest oil boom in history - about to happen...
• 159: Massive oil boom - the winners and losers - be prepared
• 158: Supply and demand scenarios - oil boom and the property investors insights
• 157: Impact of "Peak Oil" for Property Investment
• 151: Oil price $125 / bbl and rising…how to take advantage in property
• 150: Peak Oil shortly due to be reach – unique insights for a property investor
• 148: Take advantage of the oil/gas/coal boom – key insights

In these reports, you'll find, for free, all you need to know about how to make serious money from the predicted boom in oil prices. The analysis of all producing oil nations has taken years to prepare and we finally think we've cracked it. The results shows that we are now on a rolling plateau production rate, meanwhile demand is increasing by 1.3 million barrels a year. We spotted this abnormality on 7th June 2007 and we now think prices will skyrocket. The opening gaps between oil supply and oil demand is a dangerous situation. OPEC meet early December and may very well communicate they will increase supply by 0.5 million bbls oil per day. But it's too little too late. Any increase in oil supply will likely be lower value high sulphur heavy crude. When the markets finds out that the global oil producers cannot increase production any further, there will be a mother of all oil price hikes. So be prepared. And don't say we didn't warn you!

This analysis is underpinned by our unique oil production mathematical model which forecasts every country's production up until 2015 and it does not make very pleasant reading. As already described – production is on a plateau and has been on plateau since October 2005. This is why prices are rising. But many in the market mistakenly believe there is more oil out there that can be switched on – it's not going to happen. The plateau could be long and undulating, but we believe everyone is more or less pumping at their maximum. So for the property investor:

• do not purchase property in far off places which take a tank full of gas to reach – this includes suburban homes with a very long daily commute to work centres
• be careful about purchasing holiday homes in places that need a 10 hour flight to reach (stay within 2-3 hour flight radius from major population centres)
• be careful not to purchase huge fuel inefficient homes in cold climates requiring much heating oil, gas or electric
• the lowest risk options are city central quality apartments close to services jobs
• consider purchasing property:
• in oil, coal, gas and mining boom towns (refer to the above special reports)
• close to oil company and oil services company offices
• in areas positively affected by renewable energy developments – solar, wind, hydro-electric, low energy conservation centres.

For US investors the best places to invest in the USA to take advantage of the oil boom are:

• Wyoming – Green River area for the coal boom
• Western Colorado – oil shale potential future boom area
• Texas – Houston, and Dallas-Irving-Fort Worth – oil/gas HQs and technical services centres
• New York City – oil/gas/energy trading
• Oklahoma – ethanol from corn and some old oil/gas wells

The USA has more coal than any other country in the world. So it seems clean coal technology with electricity to automobiles (electric cars) will be a key future response to dwindling oil (and gas) supplies.

As we predicted, Houston has done well in the last few years to weather any downturn in the real estate market and we expect this to continue. But be very careful not to purchase property more than a 30 minute auto commute to a city centre – when oil prices skyrocket, people will want to move into the cities to reduce their fuel bills. Outlying suburban areas will suffer. An extreme example is – don't buy a large detached suburban house 80 minutes commute to downtown Detroit. The gasoline guzzling car plants will close. No-one will be able to afford to commute or heat a huge house in the cooler north. You would be better off buying a downtown apartment in the oil capital of the USA – Houston, which will benefit from the high oil prices that in turn will destroy the gas guzzling autos.

US Market Update

The US real estate market continues to be in a distressed and depressed position in most states. However, the market varies – the US is such a huge market – some areas are still rising but overall the situation looks fairly bleak. We believe the extent of the unraveling of the sub-prime woes is about 45% complete. In Spring 2008 we will be past the peak of the rates resetting and by September 2008 most of the resetting will have unraveled. Until then, expect a bumpy ride with continuous negative headlines and some banks getting into trouble and writing down bad debt. The problem emerged in the open in July – it's now December so quite some time has now passed.

US homes prices have been most negatively affected in areas away from cities where prices shot up the most. Examples are holiday areas in California and Florida. But closer scrutiny of the numbers identified that cities like Miami and Detroit actually saw prices rise slightly in the last quarter. Prices in large cities like New York and Los Angeles are fairly stable. Prices in Texas have been robust and in most areas rising. Prices in remoter areas with less service industries and more manufacturing and agriculture have generally dropped back. It's difficult to generalize but it does not look like a full scale meltdown. Although everyone talks about the US housing bubble and it's bursting, prices rose by a relatively modest (in global terms) 50% in five years up until early 2007. It's difficult to see how prices could crash and burn when home prices came from a low base.

The US population has risen from 150 million in 1950 to 300 million today. The population is projected to rise to 450 million by 2050. This implies 75 million new homes will be required. The fastest growing areas are Nevada, Arizona, Texas, California and Florida – see our special reports for more details. So in these areas where land shortages occur, it is likely prices will recover and move far higher in years to come. One can expect a period of stagnation for a few years then prices in these areas will again rise. California should also follow suit as the population in this state is also increasing and it's difficult to see where all the new homes will be build with increasing environmental restrictions coming into force. Ditto Florida. And remember the wave of aging babyboomer that will start retiring this year, peaking in 2016. These people will want to move to the sand, sea, surf and cultural centres. This is why we have a long term view that coastal Florida, California and culturally interesting places like Austin in Texas and Sante Fe in Utah will continue to see prices rising after a few years.

But be careful investing in oil intensive areas like Detroit and Cleveland. These cities are far too reliant on the auto-industry and the increase in oil prices will hit them hard. But Houston will prosper along with the new energy corridor of western Colorado, Wyoming and NE Utah – areas expose to coal, oil shale and coal-bed methane and closer to the Oil Sands projects of Alberta in Canada.

 

European Mainland

Property prices have risen dramatically in the last seven years as interest rates have remained low and inflationary pressures subdued. The GDP of Europe has averaged around 2% for the last few years. But Euro area asset prices are likely to come under pressure as evidenced by price drops in Ireland this year. It's late in the party and we would steer clear of faltering economic area exposed to high oil prices such as Italy, Portugal and Greece. Southern Spain and southern France will likely see prices continue to increase led by wealthy people migrating to these area and setting up businesses – populations in areas like Perpignan, Toulouse, Sete and Montpellier in France and Marbella, Malaga and Valencia in Spain are increasing - investment levels remain robust. Wealthy retiring northern European baby-boomers will also support this market.

Germany is an interesting market but it's difficult to judge whether it's best to invest in previously depressed cities like Berlin and eastern Germany where asset prices are very low priced, or areas like Munich in the wealthy south which have very high property prices. Our gut tells us, that Munich and the south is the better place because of the booming services business, pleasant climate, local wealth, central position and booming banking and high-tech businesses. But it's not an obviously a high return area and Germany has suffered in the last 15 years compared with countries like UK and Ireland because of the excessive regulation and high cost of labour. Undoubtedly a pleasant place to live, but it is difficult to see high investment returns. Yes, yields for rental property are high in northern and eastern Germany, but asset prices are unlikely to boom.

The new European Union entrants Romania and Bulgaria remain very interesting. We expect the markets to cool in the next year, but property prices in good locations in the capital cities of these two countries should continue to boom as long as their economies continue to be managed affectively. There has been a brain drain away from Romania and Bulgaria to places like the UK and Ireland in the last few years, but eventually these people will return flush with cash and want to purchase property in the capital cities Sophia and Bucharest, as well as nice farm houses in the best areas. So we expect prices to double or more in Romania in the next ten years. One just needs to be very careful with the legal, tax side and make sure one does not get ripped off!

Bratislava – the capital of Slovakia is another gem. It's only 60 km from Vienna and cross border trade is increasing rapidly. Austrian property prices have also risen by about 10% in the last year. We expect Bratislava prices to normalize towards Vienna prices in future years. It's very central and the flat tax regime plus car plants on Slovakia have helped the economy enormously – worth checking out for all those exploratory investors in Europe. Another interesting option is ski villas in the High Tratras mountain – a booming ski centre – though one needs to research the affects of global warming since the snow might become rare in future years. But still a beautiful scenic area for holidays years round.

UK PROPERTY Market Update

 

Fizzling out in the summer: Just like last year and the year before, the heat in the property market has started to fizzle out early May. In the last five years, the customary spring market has been getting earlier and earlier. Followed by summer cooling. There are a number of reasons for this

• the property market is being driven more by city bonuses in London and provincial cities - the expectation of bonus payments has made the more competitive minded investor start looking earlier to prevent being caught up in a hot market.
• the stock market tends to do well from November to mid May then cool or go into reverse during the summer months – this knocks confidence.
• GDP, employment and manufacturing levels are higher in the October to May periods – creating confidence early in the year that peters out when the economy slows mid year.

Interest rates have risen to 5.5% and there is at least one more rise anticipated as early as this month, with the possibility of a further rise of 6% by year end. This should cool the property market significantly moving towards the end of the year.

But bonuses back on the horizon: In London and SE England, again, a wall of bonus money like no year before will be hitting the streets starting January 2008 and ending May 2008. This should revitalize the SE and southern English property markets. Other financial centres such as Edinburgh, Leeds and possibly Manchester and Glasgow will also benefit this wall of money. Most people receiving big bonuses have much net worth and equity held in property, so a few ¼ point rises in interest rates should not unduly affect them. So prices in the most select areas of London, Leeds , Edinburgh and Manchester will likely continue to rise. Belfast will also continue to perform well because it is still playing "catch up" from years of underinvestment and low confidence levels during the troubles. So do not be surprised to see prime central London property prices continue to drive forwards into 2008. Central/West London areas popular with the most wealthy international professionals and investors are likely to go up the most – Chelsea, Kensington, Mayfair, Soho, Bloomsbury, Hampstead, Notting Hill and Bayswater are examples.

Bonuses in the USA: The same is true of New York, Massachusetts, Boston and parts of California (LA, San Francisco San Fernando). The Dow Jones has reached record highs, M&A activity has been good and global business is doing well. New York has lost some ground to London, but global finance has performed well so far in 2007. Hence these city bonuses will arrive Jan 2008 to May 2008 and generally be heading for the best areas of NE USA and California. Do not be surprised to see property prices in such areas growing in early 2008. Some Euro and £ Sterling investment may also be taking place because of the weak dollar.

 

Mediocre Midlands: Average suburban areas in regions not affected by city bonuses and holiday home investments are likely to see prices stagnate – examples are most of the Midlands, and many northern areas, and remote parts of Wales and East Anglia. Areas exposed to manufacturing and public sectors will show less growth than areas exposed to services sectors. The south-west would likely escape a severe slowdown because of its popularity with wealthy people working in London (second homes, holiday homes, buy-to-let investment property).

Cornwall : This is an interesting market – the county has the highest projected population growth of any county in the UK yet barely any homes are being built because of planning and environmental constraints. Despite having about the lowest affordability ratio between local earned income and house prices, it's likely prices will continue to move higher because of influxes of telecommuters and retiring baby-boomers in the next 5-10 years. This once depressed corner of England – which suffered from the collapse of tin mining and agricultural jobs in the 1960s to early 1980s is now booming in towns like Truro and Falmouth. We can't see any house price crash in Cornwall, or similar select localities in southern England.

UK Economics Laid Bare

With inflation running at 2.8%, GDP growth motoring onwards at 2.7% (4.0% in London, down from 4.4% earlier this year), employment at record levels and wage growth in the 4.0% to 4.4% range in 2007, the economy shows no signs of falling into stagnation or recession. This should support house prices – if any correction is due, it is likely to be in the 5-10% range rather than a fully fledged crash (say 30%). So far in UK history it is unheard of to have a crash without a recession. However, inflationary pressures have been building and the predicted drop in the inflation rate to below 2% has now shifted from later in 2007 to mid 2008 according to the Bank of England forecasts. Oil prices remain a concern – these have risen from 53$/bbl earlier this year to $66/bbl in May. Tensions in Iran (threat of the closure of the strategic Straits of Homez because of Iran 's nuclear testing programme) remain a concern – because any big hike in oil prices would immediately feed through to inflation and cause interest rates to rise significantly.

Meanwhile, the EU economy also motors onwards at 2.7% GDP growth and generally lowering unemployment – the European economy is now growing faster than the US economy whose economy has cooled to 2.3% GDP growth for 2007. China's economy is fast expanding at 11% (higher than the ten year average of 9.5%) and this has become the prime global growth engine as the US economy has cooled. Overall, the economic environment looks healthy and benign with no discernable threat of recession. It would need a trigger like a financial market collapse in a G7 county, war and/or oil price spike above $100/bbl to create such a recession. It looks unlikely, but eyes should watch whether USA achieves its expected "soft landing" and the Iran tensions subside – with oil prices remaining below $70/bbl. We'll keep you posted, but so far it does not look like the right conditions in the UK or the USA for a big property price market correction.

Business Cycles

Those people with long memories or interest in history will note that in the UK (and many parts of Europe and USA ), there have been recessions or severe economic slowdowns in:

• 1971 (oil price shock)
• 1981 (oil price shock)
• 1991 (monetary shock)
• 2001 (dotcom bust and 9/11)

We are now motoring away in 2007 and all looks rosy. We may be mid cycle, heading towards the end of another ten year cycle. Pressures are undoubtedly building with inflation, oil prices and commodities shortages. The UK and US babyboomers are aging and are likely to start re-trenching (likely the Japanese did in the 1990s) – our prediction is by around 2012 these boomers will start to reign in spending. Stock markets have had a long bull run from their lows of 2002, so risks have increased. It's not likely to look much better than this.

The experts will say, whenever it looks great, benign and stable, the whole lot starts to wobble. So do not be surprised if we get a shock any time from now until 2012. It only takes someone to close the Straits of Homez to create a global oil crisis and for the whole lot to start heading to recession. So our advice is, stay alert to the risks for your property investments. Do not ever think it can't get worse. But remember – if you know your business well – and you can take managed risks – you will make money in any business climate. Try and avoid paying prices at the top of the market. Don't ever get arrogant or "take your eye off the ball". Don't believe you are an expert. But focus on what you know best – if this is council flats in Liverpool and you know how to make money from them, then focus on this. Become a master at it. Use your intuition and knowledge, plus social and economic trends, to give yourself insights into whether a market in an area has reached its peak. Don't over-extend. Don't pay more than you have to. Watch your cash-flow like a hawk. They say to make a million is easy, but keeping it is the tough bit.

Boom towns around the world

For the adventurous and international property investor, we can provide some interesting insights into the current boom towns. Many of these cities are little heard of. Many are booming because of mining, oil and extractive industries. Quite some research has gone into preparing this list for our website visitors. The main sector themes cities where oil, mining or financial services have been very strong – there are no indications this will change in the next few years. Many analysts believe we are in the middle of a commodities "super-cycle". The reason is because of China and India 's appetite for raw materials, global population growth and the European and USA's continued reliance on these same raw materials. Other boom towns are tourist related – others a combination oil, financial services and tourism (e.g. London). But one thing is for sure - in all these cities and areas – populations are increasing, jobs are being created and not enough homes are being built. The ideal combination for property prices to rise.

• Green River Wyoming – coal mining
• Limpopo Mpumalanga Rustenburg – Rep South Africa – platinum and chrome mining
• Houston – global oil & gas services
• Macao – gambling, tourism
• St Petersburg – oil & gas, tourism, finance
• Moscow – oil & gas, tourism, finance
• London – financial services, wealth management, M&A
• Bratislava Slovakia – low cost proximity to Vienna, E Europe boom
• Warsaw Poland – EU integration, low cost, increasing wealth
• Muscat – oil & gas, tourism
• Luanda Angola – oil development
• Doha Qatar – gas developments
• Mongolia – mining, proximity to China
• Dubai UAE – oil, financial services, tourism
• Cape Town Rep South Africa – tourism
• Fort McMurray & Calgary Canada – oil sands developments
• Aberdeen Scotland – international oil & gas services
• Stavanger Bergen & Kristiansen Norway – oil and gas operations
• Bangalore India – IT/call centres/communications/services
• Mumbai India – financial services, manufacturing
• Guangdong province, China – global manufacturing
• Shanghai, China – financial services, manufacturing, export
• Beijing China – public sector, services
• Ho Chi Minh City Vietnam – manufacturing and services
• Buenos Aires Argentina – business and services
• Cairo Egypt – regional business centre

As advised on our website, if one has a combination of:

• Increasing population
• Increasing employment
• Increasing business (GDP growth)
• Increasing wages
• Low levels of home building
• Low reliance on imported oil and gas
• Low interest rates
• Low inflation
• Exposure to financial services sector
• Land shortage and/or environmental constraints

This powerful combination will lead to booming property prices.

Norway : If one uses these criteria for cities like Bergen in Norway it's difficult to see how prices would not continue rising. London is the same – it's also a global centre of oil and commodities financing and re-investment of proceeds from the extractive industries that are booming. Moscow is similar albeit more regional in its sphere of influence.

 

South Africa : Localized gems occur such as Rustenburg to the west of Pretoria in South Africa. The population is booming as 25,000 new jobs are being created in the expanding platinum and chrome mines. Pretoria is also worth considering with its access to Johannesburg government employment – it is the regional centre of the Bushveld Complex of minerals and mines, with most mines within a 100 km radius of the city.

Canada : Fort McMurray in NE Alberta, Canada is booming oil town. A huge wave of new jobs have been created in the oil sands business – accommodation is desperately short and rentals are in big demand. Many billions of dollars are being invested to grow oil sands production – in part because this makes the USA less reliant on overseas imports. This is something not likely to go away – hence Fort McMurray will likely see prices booming into the future. Calgary the centre and HQ of the Canadian oil & gas business is another booming town – and a pleasant place to live as well. The creation of new oil and gas jobs and wealthy retiring oil workers will likely support prices into the next decade.

USA : The Green River area of Wyoming is another gem – who would believe that in 2007, a boom is taking place in a coal mining area in the USA? This part of the world has more barrels of oil equivalent of hydrocarbons (locked up in coal) than Saudi Arabia and Russia combined. The USA will never be short of fuel for electric power station because some of these coal seams are 50 metres thick and mines are open-cast and of the highest quality anthracite coal. Huge wealth is being created as production is increased and this is supporting rentals and property prices in this remote area of the USA.

Mongolia : Mongolia is another gem – yes, this area is booming. The reason is its minerals mining. China is desperate for its products and there is a property boom to match the mining boom. It's not likely to go bust unless China's economy goes bust – something most unlikely in view of the sustained 9.5% GDP average growth over the last ten years and China's hugely increasing middle classes and 1.2 billion population next door. Mongolia has also benefited from being next door to booming Russia and the Siberian oil and gas fields. Some gas pipeline projects run close by and as long as there is peace in the area, Mongolia's fundamentals and booming population look impressive.

Macao : Property prices have been booming for five years – massive investment in casinos and neighbouring China's booming economy, middle classes and interest in gambling has made Macao the rival of Las Vegas. Difficult to see this changing – all the money being made in manufacturing in southern China will benefit Macao – talk of Richard Branson investing in the area is interesting. He's well known for getting in early – the future looks bright for Macao.

Egypt : Cairo is an interesting city. Huge traffic jams everywhere, pollution, rumour has it the true population of Cairo conurbation is 25 million. No wonder the traffic never moves. This regional business centre has benefited from relative peace, expanding oil and gas businesses north and east, and a booming population. Property in the city centre for business people wanting to avoid the traffic jams is worth considering. Always at risk of instability but the city will likely further double in size over the next 50 years, making central property values increase.

Wealth and Amenities – the meaning of Location, Location, Location

London and New York – examples: Ever wonder why property in central London and Manhattan are so expensive? Because of wealth and amenities. The wealth is from businesses, private investors, shareholders and corporate headquarters – financial, banking, services jobs. But the reason why so many people want to pay huge prices for such property is because of the local amenities. Shops, theatre, trains, planes, work-offices, tubes/metro, roads, restaurants. Proximity to high paid jobs, where profits are made and a nice residential environment are key. So in London when you think of Mayfair it ticks all the boxes. So does Covent Garden. So does Kensington. But can prices in such areas go any higher? This depends on how successful the businesses close by are doing. London has been gaining relative ground on New York as a premier global financial centre – in part because it is less regulated and in part because of the huge wave of Middle Eastern, Asian and Africa money that has found its way to London – a truly cosmopolitan global city. So if you think global finance stimulated by China India and the Middle East will prosper, buying property in Mayfair could still be good value for money.

Other examples: This same model applies to other areas and cities. It's no good investing in a lovely Georgian Mansion in NW Scotland – it ranks low on almost all the above criteria. You won't find many millionaires wanting to live in the sticks – it's too far from where they like making money. And enjoying their money. So Monaco, Luxemburg, London, Stockholm, Helsinki, Geneva – they're full of wealthy people who want to be close to the best amenities. It's probably the case in Barcelona, Marbella, Miami, San Francisco and Shanghai – 'location, location, location', as they say. Never forget this. If you find a location very close to excellent amenities that you believe will have increasing numbers of wealthy residents and is under-valued, go for it! Some examples in London are:

• Shoreditch
• Bermondsey
• Southern Hackney
• Telegraph Hill - New Cross Gate
• East Dulwich – Peckham borders
• Battersea
• Kennington - Vauxhall

Luxemburg - another good example: And remember our analysis of Luxemburg? No other European city has such an exciting combination of land shortage, population growth, massive wealth and GDP growth – a lovely city to live in – some of the most wealthy Europeans will want to a place in this city tax haven and financial wealth centre.

 

Disillusioned with "work"?: Ever feel like your current job is leading nowhere? Get frustrated with the lack of control you have over your life, work and your diary? Looking for an outlet? Then may be property investment is for you! Everyone needs a hobby to relieve themselves of the stress of work or daily drudgery. What better way than to indulge in something that makes you personal financial progress, gives you more financial control of your life, and let's you take your mind off the pressures of work. This is how many property investors first get started. Out of frustration and a feeling of drifting in their work lives, being over taxed and underpaid as an employee for their precious time. Disillusioned with pension and stock performance. Being tired of putting money into funds that other people (mis) manage. If this all sounds familiar, then this is likely the reason you have got to this stage in this newsletter. We sometimes have people ask us – "what sort of people come to your website" – it's pretty obvious when you see the name of the website. You would not be visiting if you were not interested in property investing. That is – making money from investing in property. It's not always easy, but we've not found any other better way to make serious money. Almost all financed by the banks. You leverage up your minimal amount of cash, using the bank's finances in order to exposure oneself to property – and if capital values go up, it's quite possible to double your cash in a year. There are few property investors that have not achieved this some time in their investing history. Many achieve it regularly – year-on-year. You won't find many advertising this fact though. Why should they? Most people don't like other people knowing how much money they have. The purpose of writing this closing contribution is to help you think about why you are investing in property. It's likely because you want to make serious money and it's probably because you enjoy it was well. So what an excellent combination. You like it and you make serious money out of it. If this is the case, best do more of it! And you might even consider doing it full time!