Financial insight

The eurozone crisis will end in panic - here's why

2011-07-23T03:13:00.001-07:00

It's make or break time for the eurozone.

Again.

Stop yawning at the back there. Seriously, this time it's really important. The International Monetary Fund (IMF) says so. And our own chancellor, George Osborne, is warning the Europeans to "get a grip".

Even Barack Obama has been on the phone to Angela Merkel. Although given that the US is on the verge of defaulting on its debt too, she might have told him to clean up his own backyard before complaining about the state of hers.

Anyway, apparently the French and the Germans have agreed on a solution to the crisis. We'll find out all about it later today after Europe's leaders have all had their latest chinwag in Brussels.

But whatever their cunning plan happens to be, I can tell you now that it's not going to work…

There is no palatable solution to this crisis

"We have found solutions to previous crises and we'll find a solution now as well", said French foreign minister Alain Juppé, according to the FT.

Well, now, that's not really true, is it Alain? The reason this crisis has erupted is because you didn't find solutions to the previous ones. If you had, then we wouldn't still be rattling on about the eurozone nearly two years after Greece first blew up.

All the previous 'solutions' were fudges, and whatever comes out of the meeting today is almost certain to be a fudge too. Depending on the precise nature of the fudge, the market may cheerfully lap it up for now, or it might see through it right away and sell off heavily.

But whatever happens, this crisis is not going to end today. In fact, I think this will end in a panic: what the pundits like to call a 'disorderly' resolution, rather than an 'orderly' one.

As I've said before, this isn't because I have some blind pathological hatred of the European project, though I'm not a fan of it either. It's because all of the solutions that would draw a convincing line under this mess are unpalatable to at least one or more powerful parties involved.

There are three basic solutions. The first is 'extend and pretend'. You sweep everything under the carpet, and hope that, given enough time, Greece gets its act together. This is what everyone has been trying to do. It has failed miserably. Greece isn't going to be able to repay its debts, regardless of how much extra time it gets.

Despite that, this is what today's fudge will probably consist of, whether it's about buying bonds with the European Financial Stability Facility (EFSF), or a 'voluntary rollover' of Greek debt, or even a 'bank tax' designed to help fund a new Greek bail-out.

The big problem with this option is that it doesn't really provide a solution for the 'too big to fail' countries, like Spain and Italy. There simply isn't enough money in the eurozone to stand behind all that debt, which is why the fear is spreading.

The second solution is for the European Central Bank to print money and buy the debt of any country that's struggling: quantitative easing euro-style. Or you can issue joint eurozone bonds, backed by the full faith and credit of every country in the eurozone.

What would this mean? It would mean a much weaker euro. It would mean rich countries – let's call them Germany – would pay a tax in the form of either inflation (in the QE option) or higher borrowing costs (in the joint bond option) in order to repay Greece's debts. Markets would no doubt rebound, but in the long run this would also send the gold price soaring.

This would also inevitably require closer political integration. Because this is the equivalent of giving Greece a free pass to spend what it wants. No one would be happy about that. So you'd need to have some sort of central body actively dictating economic policy.

But it's hard to see how that would work. There were already economic 'rules' on debt in place that European countries (including us) are meant to stick to. They haven't of course. And what sort of sanctions can you threaten a country like Greece with? You can't toss them out of the euro, because that's what you're trying to avoid in the first place.

The logical conclusion is that you have to have a central European policy-setting and tax-collecting body with serious enforcement powers that supersede sovereign governments and their citizens. That's going to be a hard sell to the voters, to say the least.

Why not throw Greece out?

So what's the third option? Well, you evict Greece, and maybe some of the other countries too. You make sure everyone who needs to know, knows that it's going to happen. You prop up the banks that need to be propped up, and you throw Greece to the wolves. The other problem countries get the message, redouble their efforts to reform their economies, and the euro survives, stronger than ever before.

This might seem the most sensible route. After all, some of these countries should never have been in the euro in the first place. But there's a problem here too, which again comes down to politics.

If Greece is chucked out, or allowed to leave the euro, it puts the whole project of closer political union under threat. Because if you establish a mechanism by which one country leaves, then others can do the same thing.

The fact is, lots of people don't like the idea of being part of a United States of Europe. After all, any time they allow citizens to vote on it, they have to insist on at least two referendums before the voters make the 'right' choice. If you show the voters an exit door from the euro, then that strengthens the 'no' camp in every member country.

So the real fear among the 'elites' is not a 'Lehman' moment. It's the worry that if you kick Greece out, every other euro member will want to follow.

What does this mean for you?

This is the very definition of being caught between a rock and a hard place. There are no good options here. That's why I suspect the choice will be made for politicians in the end. Because a genuine crisis will erupt, and something will have to be done.

What should you do? I'd build up a watch list of stocks you'd like to buy for a start, particularly in the eurozone. When a panic comes, it's handy to know exactly what you want to 'buy on the dips' so that you can take advantage.

I'd stick with gold – it might be due a correction, but this turmoil could also send it much higher in the long run. And I'd stick with our usual defensive stocks: they're best placed to cope with all this.

Market update

The FTSE 100 built on Tuesday's rally yesterday, as investors seemed cautiously optimistic that the US would reach a deal to extend its debt ceiling. The index climbed a further 1.1% to close at 5,853.

Banks were again among the top performers. Barclays was the day's highest climber, rising 5.2%. Lloyds gained 4.1%, RBS added 3.1% and HSBC was 2% higher.

Retailers were among the few fallers, however. Sainsbury lost 0.9%, Marks & Spencer fell 0.5% and Wm Morrison was 0.3% lower.

Biggest faller of the day was commodities giant Glencore, which lost 1.3%.

In Europe yesterday, the Paris CAC 40 rose 60 points to 3,754, and the German Xetra Dax was 29 points higher at 7,221.

In the US, the Dow Jones Industrial Average and the S&P 500 each slipped 0.1% to 12,571 and 1,325 respectively, and the Nasdaq Composite was 0.4% lower at 2,814.

Overnight in Asia, Japan's Nikkei 225 gained five points to 10,010, and the broader Topix index was flat at 860. China's Shanghai Composite lost 1% to 2,765, and the CSI 300 fell 1.1% to 3,059.

Brent spot was trading at $117.87 early today, and in New York, crude oil was at $98.49. Spot gold was trading at $1,598 an ounce, silver was at $39.53 and platinum was at $1,773.

In the forex markets this morning, sterling was trading against the US dollar at 1.6162 and against the euro at 1.1344. The dollar was trading at 0.7019 against the euro and 78.77 against the Japanese yen.

And in the UK, retailing group Kingfisher, which owns the B&Q and Screwfix brands in the UK, plus Castorama and Brico Depot in France, reported a drop in like-for-like sales of 0.5% for the first half of the year. Performance was worst in the UK, where B&Q's like-for-like sales fell 6.7%. In France, sales were up 3.7%.

Stagflation All The Way

2011-07-07T03:20:00.001-07:00

Super-Cycle: We believe western economies are about 60% of the way through an 18 year bear stock market. This began in March 2000. The crash of 2008 was part of this overall down cycle – the final 40% leg of this bear market will lead to significantly higher inflation along with a commodities bull run through to about 2018. As inflation rises, living standards will be eroded, interest rates will rise, the stock market will drift laterally or down and probably ending in 2018 at a lower level than in 2011, but inflation adjusted this level will be down some 40% from today’s levels. We also expect a mini-stock market crash in the next six months – down by about 25%, but this will just be a correction in an overall lacklustre bear market leading to a low somewhere in 2018. We’ll expand on this in our next Newsletter mid July – because it is critical to describe this in depth – as context to property investment and other asset purchases. Investor often shift out of the stock market into property and commodities (oil, gold, coal, metals, food) as a hedge against inflation. And in our view, for the next 7 years, it will be “inflation all the way” – corresponding to disappointing GDP growth in western developed nations. So called “stagflation” before the end of the bear market in 2018.

Strategy to Inflate: As western national governments look to reduce their sovereign debt mountains, they will view inflation as the best way forward (possible the only way forward) to try and reduce this mountain in real terms. It’s politically more acceptable to have inflation at 5% and wage increases at 2% - thereby reducing disposable incomes by 3% a year and the debt mountain than having inflation at 0%, telling people they need to have wage reductions of -3% and having the debt mountain stay the same size. This we believe is one of the fundamental reasons why the Bank of England has “let” inflation rise to 4-5% without raising interest rates. At least they will argue that there is some form of GDP growth, albeit this might only be in the 1-2% range. And with this growth, tax receipts should keep rising. But please realise that inflation will lead to slow growth and declining living standards while it rages away.

Option to Print Money: The big lever of printed money has not worked very effectively in the UK – and the Bank of England’s must be looking over the pond with horror at what is happening in the USA and think, there is no way they want to follow them down this road of escalating debt mountains, higher taxes, drifting to default and declining currency value – all leading to even higher inflation and eroded living standards. The other problem with printing money is it declines the value of national currencies – on the one hand this leads to lower import costs as import prices rise, hence stimulating domestic manufacturing. However, if your manufacturing efficiency is poor and the declining currency value upsets your foreign investors who then shy away from buying your new debt, then you can get into a real pickle. This is the way the USA has been heading for many years now with a massive acceleration in the last 3 years – it’s only so much the international investor can take and when the Fed stops printing money in 8 days time, we think interest rates in the USA will have to rise – and these will depress the economy. China is now only investing 25% of it’s foreign reserve into new dollars – it is divesting away from the dollar. Frankly, we think the Fed’s strategy will end in disaster – a US crash later this year (see Special Report 382).

Middle Ground: There is a middle ground and the Bank of England seems to have found it, for right or wrong, namely:

1 GDP growth 1-2% (attempted recovery)

2 Bank of England interest rates on hold at 0.5%

3 Mortgage Rates at 5-6% meaning the banks make gigantic profits to rebalance their damaged books

4 Inflation controlled in the range 4-5% - being used to reduce disposable income by stealth (rather than ask for wage reductions and higher taxes)

5 Stop printing money and target slow steady growth and re-balancing from public to private sector employment

6 Allow Sterling to float and settle in the middle area

7 Keep Credit Agencies happy with plans for deficit reduction

Stagflation: This what we describe as good old fashioned “Stagflation” – a stagnant overall economy, with fairly high inflation and reducing living standards for most people. It’s probably the best we can hope for. The reason we describe this central scenario is that it directly links to the property market and your investment strategies – and the market for rental supply and demand. We will explain.

Low Lending: Bank lending remains low as demand is low and banks remain reluctant to risk lending to sub-prime borrowers. Deposits are high, interest rates on mortgages are very high (relative to BoE rates, a massive 5% above-premium) and the banks would rather hoard their cash ,mountains because of new regulations dictating higher collateral, and a pessimistic view of recovery hopes – they don’t want to get burnt again if the property market dips and personal home defaults start up again.

Buy-to-Let Growth: Meanwhile, the buy-to-let sector has shown a bit of a resurgence – partly because of increased rental demand and rental prices, and partly because banks have done analysis to prove that buy-to-let investors are generally lower risk than individual home owners as far as credit rating is concerned. Buy-to-let investors rarely default – analysis from the 2007-2011 period shows.

Landlord Misery: Meanwhile increasing tenant powers, increasing regulations, increasing energy, council tax and hassles have driven many buy-to-let investors out of the business. Its a tough task with many stresses so there are not enough buy-to-let investors to feed the growing buy-to-let sector in southern England and some parts of the north, Wales and Scotland. So rents continue to rise – particularly in London – at well above inflation. Rents are rising at about 8% per annum (against inflation in range 4-5%. Meanwhile property prices remain stagnant in most areas – and hence yields are rising.

Higher Yields As Demand Rises: So the message is, as long as you can handle the hassle and are good at managing properties, buying high yielding rental property in good southern England areas with rising rental demand is probably a pretty good strategy – even with the threat of property price drops ever present. It’s a risk because property prices can fall sharply if another recession begins, but ultimately, a lot more rental property will be require in London in future years because so many 20-40 year olds have given up aspiring to own a property because of:

1 high student loans (average £30,000)

2 high wedding costs (average £20,000

3 increasing student fees

4 inflation and tax eroding disposable income

5 high deposits (25% of £150,000 – £37,500)

6 rental being only slightly more expensive than servicing a mortgage without any risks

7 young people would rather holiday, have fun, enjoy life and travel these days

8 money from the bank of mum and dad to help with deposits dried up after the 2008

financial meltdown and reduced pension with jobs losses

More Rental Less Home Ownership: All of these factors are unlikely to change any time soon. In London, the property market is supported by gigantic financial inflows from wealthy immigrants and investors. In the provinces, this is not the case, so areas far from London will be more affected by the factors mentioned above. Hence one can see that property prices should remain broadly the same in northern areas as rental prices rise as the younger population increases. Buy-to-let properties will be held by only a more select group of wealthy people, in the 45 year plus age group. These buy-to-let investors will probably grow old with these properties as time moves on. Some of the 20-40 year olds will possible get to buy property in the early 40s, but many will remain in rented accommodation – similar to Germany. The argument that everyone should have a right to own a property will fade away as people are more worried about their jobs, having enough money for food, holidays, a car and retirement. This sounds rather bleak – in a way it is – particularly for low growth areas well away from London. Times are likely to get worse through inflation lowering disposable incomes by stealth.

Civil Disorder Threat: The big threat is that riots and major public disturbances will break out – like in Greece, leading to credit rating agencies downgrading the UK credit from its AAA rating. This would lead to even higher interest rates as Sterling crashed, and another deep recession. The best the UK can hope for is that the public sector jobs cuts work, tax cuts lead to higher private sector investment and growth and jobs, and the population stays engaged in working through the monstrous debts the Labour party left behind in their 13 years of profligate spending. In a way, we are all paying back the debts caused by wastage of money during this period.

Back to Peak Oil Stagnation: One of the reasons why we do not see things improving rapidly if at all is that we are now more of less past Peak Oil (or at least Peak Cheap Oil). This is the point of maximum global oil production. The end of cheap oil was 2003 when prices rose above $25/bbl and this corresponds with the decline in the living standards we have seen since then in most western nations. Debts rose rapidly as oil escalated to $147/bbl in July 2008 before the financial meltdown – as unsustainably high oil prices hit the global economies – another oil price shock. We have updated our model of global oil supply and consumption through to 2015 and it looks like a very tight market will remain until then as China, India, Brazil and other developing nations increase their consumption whilst the western nations get squeezed. So the fundamental economic situation to stimulate a string recovery in UK, Europe and the USA is simply not there – period. Strong recovery could only come with oil prices at ~$50/bbl. Any oil prices over $100/bbl should lead to Stagflation as we are seeing. The only stock and shares that would normally increase in this situation would be oil, gas and mining stocks.

High Oil Price Leads to Stagflation: We’ll expand on this theme in our next special report, though we thought we should mention this because – as we forecast high oil prices to remain (unless a severe recession starts again), then inflation will continue to be a big problem – hence it will be “stagflation all the way”.

Property As A Hedge Against Inflation: For the smart investors, consider that your savings will erode over time by ~2-3% a year. Stocks and shares are likely to remain depressed and risky with lowering dividends. Cash in banks could also be risky if banks fold. And investment in property would lead to reducing debt levels in real terms over time. So as a hedge against inflation, property is probably better than most people think. Even if property prices do not keep pace with inflation, over time, your equity would rise and debt levels reduce – and if you have a high rental yield, you could still do quite well in the long run. This is why so many wealthy people put their money into property, as a hedge against inflation. If you could purchase property at ~25% below market value with cash, you do particularly well. This is one of the reasons why the rich get richer, and middle income people stay the same or get poorer.

Central Location Close To Jobs: So our overall steer is, if you are looking to invest in property, buy-to-let is still a good option but only in UK areas with growing micro-economies and large private sectors like central London and Aberdeen. You have to make sure you buy high yielding property at a good price in areas close to rail, tube, bus, roads, retail and leisure facilities with many high paid jobs close by. A well presented property should then attract a good low risk tenant at a good rental price. Specific examples:

FW: Five reasons to buy gold and silver stocks now

2011-07-07T02:57:00.000-07:00

Recommended article: Is this the start of the next bear market?

Yesterday's close: FTSE 100 down 0.4% to 6,002... Gold up 0.87% to $1,528.90/oz... £/$ - 1.6004

We're back in the buy zone, folks, for gold, silver and the mining stocks.

It might be another week or three before we hit rock bottom. Then again we might already have seen it.

But I'm confident we're in the zone.

A number of boxes on my check-list have been ticked.

For those that like a flutter, it's 'dipping your toe in' time.

Here are five reasons you should be buying in now...

1. It's early July

I don't know why it happens – I can offer suggestions – but I don't really know why it is that July and August repeatedly prove to be the best time of year to buy precious metals and precious metals stocks.

The simple strategy of accumulating over the summer and off-loading early the following year keeps on working.

This first chart shows gold (black line) and the CDNX (the composite of the Toronto and Toronto Venture Stock Exchanges – blue line), which I use as a proxy for junior miners. The vertical red lines mark the month of July.

As you can see, with gold (the black line) a low for the year repeatedly comes in the July-August time frame. The strategy of buying gold in the summer and off-loading early the following year has worked every year since 2001, with the exception of 2007-08.

Our juniors proxy, the CDNX (the blue line), is not as consistent as gold. But if the low doesn't come in the July-August time frame, it comes the following October. If not one, then the other. It's remarkably consistent in that regard. Again the year that broke the rules was 2008.

2. The COT Report looks bullish for silver

The COT report shows the commitments of the futures traders on the Chicago futures exchanges. Broadly speaking, the fewer open positions (open interest), the more bullish the set-up, because the more potential buyers there are still to come into the market.

In a strong uptrend the open interest will expand – the new buyers are stronger than new sellers. A rising trend with declining open interest suggests that the market is being pushed higher more because short sellers are exiting positions than because new buyers are establishing positions. That's a sign that a move is tiring.

In general, I have found the COT report to be a better identifier of lows than of tops. And the open interest in silver hasn't been this low since late 2008, when silver was trading below $10. In other words, to me it looks as though buyer demand for silver can only go up.

Back in the spring, when silver had its mega correction, I said the most bullish setup would be for $33 to hold. It has held. It's been repeatedly re-tested and it has held. Not only has it held, but the weak hands have now been flushed out, as evidenced by the COT open interest. So there is a lot of room for new buyers to come into the market.

A lot of people sold silver at $50. But were they clever enough to buy back in at $33? If not, there could be a scramble.

I am also extremely impressed by the way the gold-silver ratio has stayed below the key 45 level. Silver has stayed strong relative to gold.

We have had a run over the last two days, so some caution is recommended. But I am feeling very bullish about silver in the intermediate term. I expect a retest of $50 before year-end – or perhaps even sooner than that.

3. We've almost reached our friend the 144-day moving average again

Since the bust of 2008, the 144-day moving average – which shows the average price over the previous 144 days – has been the best gold indicator I have found. (Hats off to the trader Michael Hampton who first alerted me to it).

Gold repeatedly pulls back to it during sell-offs, and it has marked an optimum entry point. The average currently sits at $1,441 and rising. Gold began the week close to it at $1,480. I daresay the twain shall meet somewhere in between at some stage over the next month. Then again, $1,480 held after the spring sell-off. It held during the weakness of the past ten days. That may be the low.

4. Gold stocks are cheap

Gold stocks remain cheap compared to gold. Of course, there are all sorts of reasons for gold stocks under-performing. Rising mining costs, foreign exchange fluctuations squeezing profits, and general poor sentiment towards equities are just a few. And just because they're cheap doesn't mean they can't get cheaper.

But valuations are starting to look compelling even to a cynic like me. With the horrible exception of 2008, gold stocks are as cheap relative to gold as they've been in eight years.

And if you look at the ratio between gold and the junior mining stocks, with the CDNX as proxy (see below), junior gold stocks are as cheap as they've ever been, bar a few months in 2008.

5. I can't find a bull out there

There are the permabulls. But that's it.

I don't use a technical measure of investor sentiment, as some do. I follow investor chat boards. I listen to interviews. I read a lot. I go to presentations. I talk to people. My reading of investor sentiment is nothing scientific, just a judgement based on what I'm seeing and hearing.

There is no elation out there. There was last autumn, but not now. There is a feeling of fatigue, wariness and cynicism. There is also a feeling that 2008 is coming again. Maybe it is. In which case, all bets are off.

But what if it isn't? In general an atmosphere of fear and loathing is a better atmosphere to buy into than one of celebration.

All in all, I think there is a strong case to be buying into precious metals and precious metals stocks for an intermediate-term trade into early next year – or for longer if that's your style.

It looks to me like we are entering the second phase of the financial crisis. When the banks were bailed out in 2008, we noted that all that was happening was that debt had been moved from the balance sheets of private corporations to those of governments. The next phase would be marked by sovereign debt default.

We are there now, whether it's southern Europe, or the US's issues with its debt ceiling. They might be able to put it off for a few more months, but it is coming. It is all incredibly bullish for gold. Sooner or later gold will pull its related stocks up, like a fierce mother with an errant child.

I have published a new Gold Report, which comes out today. I've deliberately tried to time the release to catch a summer low, so that investors have plenty of time to position themselves ahead of the normally sleepy summer months for an autumn run. We'll see if that works.

Market update

Click here for the latest stock market news and charts.

The FTSE 100 ended its run of gains yesterday, slipping 0.4% to close at 6,002.

Banks were again among the worst performers. Barclays was the biggest faller of the day, losing 3.8%. RBS fell 3.4%, Lloyds fell 2.1%, and Standard Chartered was 0.7% lower. But HSBC bucked the sector trend to rise 0.1%.

Highest climber of the day was government contractor Serco, which added 3.9%.

In Europe yesterday, the Paris CAC 40 fell 17 points to 3,961; and the German Xetra Dax was eight points lower at 7,431.

In the US, the Dow Jones Industrial Average gained 0.5% to 12,626, the S&P 500 added 0.1% to 1,339, and the Nasdaq Composite was 0.3% higher at 2,834.

Overnight in Asia, Japan's Nikkei 225 slipped 0.1% to 10,071, and the broader Topix index fell 0.4% to 870. In China, the Shanghai Composite lost 0.6% to 2,794, and the CSI 300 was 0.4% lower at 3,101.

Brent spot was trading at $113.97 early today, and in New York, crude oil was at $97.34. Spot gold was trading at $1,530 an ounce, silver was at $35.93 and platinum was at $1,722.

In the forex markets this morning, sterling was trading against the US dollar at 1.5983 and against the euro at 1.1175. The dollar was trading at 0.6992 against the euro and 80.95 against the Japanese yen.

And in the UK, manufacturing output rose by 1.8% in May, according to the latest figures form the Office for National Statistics - its fastest rise since March 2010. Analysts had forecast a rise of 1%. Year on year, output is up 2.8%.

Botox and dermal fillers Stamford and Peterborough

2010-12-19T01:22:00.001-08:00

Cosmetic medicine is growing in UK and rest of world

Data from the most recent market report published by Medical Insight Inc. indicates that Botox(R) is among the world's most popular cosmetic procedures with volumes up more than 40% since 2000.

According to Medical Insight's comprehensive study on the Global Aesthetic Market, by 2007 more than 8 million procedures will be performed annually using Botox and similar products that are currently in the regulatory pipeline. In 2001, prior to FDA approval, Botox cosmetic manufacturer Allergan (Irvine, Calif.) sold an estimated $300 million worth of the product. …

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Sometimes combinations of treatment may be recommended to get the best effect

Cosmetic Medicine is a rapidly advancing speciality and new treatments and procedures are constantly being developed creating a whole plethora which come under the term “Medical Beauty Treatments”. It is important to ensure that the treatment for each client is appropriate and carried out in the safest and most effective manner.We will decline to administer treatment if it is felt to be medically unsafe or inappropriate

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Property Insights mid-Dec 2010

2010-12-19T01:12:00.001-08:00

Oil Bull Run Has Just Started: For those of you who have been visiting the website for the last five or more years – this might not be a surprise to you. We are just entering a Peak Oil induced "oil price bull run". As global economies recover from the shock of the last oil price spike in July 2008 and the financial meltdown that it helped cause - the global economy will hit the roof because oil supplies have peaked. Essentially, it won't matter if oil prices are $80/bbl, $120/bbl or $200/bbl – oil production will hardly budge. There is very little spare supply left – and Chinese oil demand continues to grow at 6% per annum (or 15% per annum for oil imports in view of their own oil production). Not enough oil is being exported from the oil exporting nations – mainly OPEC countries. But one of the key things to remember is that when oil prices sky-rocket, it has always led to a recession in western nations. Hence this time around, we certainly don’t expect anything different. The only question is – how far the oil price will rise before it comes back down again. It could be $100/bbl, $150/bbl or even $200/bbl – difficult to say. It will come down only when demand from western countries – namely USA and western Europe – drops caused by a recession or zero growth.

$100/bbl: So expect from now on oil prices rising well over $100/bbl this winter – helped by cold weather, spooked financial markets, USA printing money like there is no tomorrow, the declining dollar and speculators parking this printed money in oil as a hedge against the declining dollar and increasing inflation.

Boom-Bust for PIGS: Higher oil prices will increase inflation, increase borrowing costs and ultimately reduce GDP growth in western oil importing nations – it will take six months to feed through. It always has done – the fundamental have not changed. Any sustained oil price above $100/bbl will lead to debt default in the PIGS Euro countries and more financial misery – with Greece, Spain, Italy, Portugal and Ireland being most exposed. So be careful, the action is just starting. And we’ll keep you posted as things develop on the website.

Peak Oil Was Six Years Ago! Remember, Peak Oil was 2005 (crude oil) and July 2008 (all oil liquids including synthetic oil from sugar, natural gas and corn, during the China Olympics). For six years, oil production has been flat. Yes - even though oil prices rose from $40/bbl to $147/bbl from 2005 to 2008, oil production did not increase - the market does not function when resources deplete to such an extent that the “easy oil gas gone”. Like an old oilfield, sometimes one can pump money-investment in, but not much happens in return. It’s like a clapped out car – more gas/fuel will not make it go any faster – so the investor would take their foot well off the accelerator otherwise they would be wasting fuel (or money-resources).

Investors Take Note: So for the smart investors - review our Special Reports on Peak Oil - and consider getting into oil investments as a hedge against property price declines in western oil importing nations. We are now into danger territory - there could be a short bull run on stock markets for about six months before high oil prices start to choke the economy off again. Watch out!

Attractive Investments - Peak Oil positive exposure (or good hedge)

1 Biomass, forestry, land, food

2 Buying physical oil and oil futures

3 Gold, mining and metals

4 Oil, gas, coal exploration, development and production companies

5 Energy conservation, metering

6 Electric battery, charging, services, motors

7 Electric cars

8 Solar power in China

9 Property in oil centres (London, Aberdeen, Moscow, UAE, Olso)

Unattractive Investments - Peak Oil negative exposure

1 Western banks

2 Western retails companies

3 Shipping

4 Power stations

5 Airlines

6 Property in far flung places and USA and PIGS countries

7 Holiday homes

8 Car companies (powered by petrol-diesel, large cars)

9 Solar power in USA and PIGS (will not be able to afford to install it)

Low Growth West - High Growth East: Low cost oil, gas and energy has been the driver behind the massive western economic growth after WWII - as industralisation, construction booms and infra-structure developments led to huge wealth from USA to Greece, Spain to Norway. It was easy to build, transport and manufacture using lo cost energy. But things are changing. Input costs are rising and competition from eastern low cost centres is intense. Jobs are being lost in many of the oil importing western nations. The populations are aging. High social and public spending costs are acting as a huge drag to these economies. The fundamentals are not good. China will suck more and more resources into their super economy and India with 1.5 billion people is following just behind. 3 billion people all wanting the same standard of living as western Europeans and Americans. Resources will be shared. Growth in China will be 10%, but growth in the western world could stagnate completely. The best protective measure is to focus property investment in resource rich countries like Canada, Norway, Australia and possible London/UK. It's pretty simple and basic really. There is no point exposing your hard earnt cash to developed countries with aging populations, declining populations, high oil/gas/coal/metals import bills, and industry without any financial or manufacturing acumen.

1 Oslo yes, Rome no

2 Ontario yes, Washington no

3 Perth yes, Athens no

4 London yes, Madrid no

As oil prices rise, and the global financial systems start to shake again, with the Euro destablizing and US dollar declining - just consider the underlying causes. Shift to commodities rich countries. Shift away from countries that import all their commodities - unless there is a very good reason!

New Areas: There are huge oil resources available for exploitation in the world, but they are either:

1 In technologically demanding, environmentally sensitive and expensive areas (Arctic, Deepwater)

2 Environmentally damaging and water/cost intensive (Oil Sands)

3 Politically and economically challenging areas for western companies to access (OPEC countries)

It's Too Late: It's already too late for development to boost oil production significantly above today's levels. The boost in 2010 oil production came from oil developments kicked-off in 2006-2008 when oil prices were rising from $70/bbl to $147/bbl. By 2012 we will see the affects of the crash in 2009 and Gulf of Mexico spill in 2010 feeding through - whilst OPEC countries go slow on investing - to save oil for future generations. Expect flat oil production and demand increasing until the next western recession. For those expecting Iraqi production to save the day, it took 5 years for Saudi Arabia to increase its production capacity by 2 million bbls/day with no security threat or disruptions. Iraq has huge potential but production today is about 2.2 million bbbl/day – the same for the last 3 years. We expect production eventually to rise to about 5.5 million bbls/day by 2020 – possibly a little more, but this will not be enough to fill the gap in declines from other areas. The same is also the case for Brazil – it’s too little too late.

Renewables: In western Europe, government are trying to stimulate renewable energy investment, but frankly, again it’s too little too late. Part of the reason why it’s too late is that – during low oil price times when surplus money is (or was) available for investment in alternative energy sources, no such investments were made. Now high oil prices have hit, and deficits have increased. Just when investment is required – the money has run out. This is a pretty crude analysis of what has happened, but we think it’s fairly accurate. The UK is now getting more serious about trying to get alternative energy sources to help bridge any gap in energy requirements cause by the closing of old nuclear power plants and restrictions on coal burning– at least the UK has 80% of its oil needs and 60% of its gas needs produced indigenously from the North Sea. In a way, this is a bit depressing that, despite all the oil revenues, the previous government still managed to work up a massive deficit from public spending increases. It will be easier that most big oil/gas importing nations for the UK to sort the problem out – which is why in the longer term, we are far more optimistic about the UK than we are about Ireland, Spain, Italy, Greece and Portugal.

2 UK Property Market Update

Surveys: About 80% of the property price surveys are pointing to a drop in house prices. There are few that report any significant increase in activity or prices. Some of this is the season demand drop just before Christmas. But the underlying trend of mortgage approvals, employment and availability of finance is no good. First time buyers are few and far between. Most of the new generation of 22-35 years old are resigned to living in rented accommodation. Its more difficult for them to find parents that can help them out because deposits are so large, University fees and loans also need paying off and their parents have been subjected to the onslaught of higher taxes in the last four years of the Labour government as the financial crisis hit mid 2008 and the deficit got out of control. None of this looks like changing in the near term. Instead, as prices have dropped, buy-to-let landlords have been bottom feeding and then renting these properties out with reasonable rates of return because of the fairly low interest rates. But with inflation running at 3.3%, the possibility of interest rates rises at the Bank of England and lending banks early next year, plus higher unemployment expectations – buy-to-let landlords are not exactly falling over themselves to get into the market. It only happens when a very obvious new opportunity presents itself. All these leads us to the conclusion that house prices will slowly slide for a month or two – there could be a slight rebound in February to through to early June as bankers bonuses feed through to more investment in property in the London and SE area.

Summer Blues: Come the summer 2011 – we expect prices to continue dropping again because:

1 Market goes quiet as people enjoy the summer and weather after a long hard winter

2 Inflation rises to 3.7% putting pressure on an increase in interest rates

3 Unemployment continues to drift higher as public sector jobs cuts take hold

4 The Eurozone continues to be affected by the PIGS countries debt contagion

5 The US economy continues to drag along

6 Oil prices rise over $100/bbl and put western economies into a slow growth mode

At least for London there is the 2012 Olympics to look forward to, but it’s difficult to say whether there will be a significant improvement in the economy by mid 2012 at this time – much of this depends on whether the oil price stay in check below $100/bbl or not. If it’s well above $100/bbl by mid 2012, this will mean China is roaring ahead but it could also mean that western Europe and the USA is heading for trouble again, particularly in massive oil/gas/coal importing nations like Greece, Italy, Portugal and Spain.

Property Insights August 2008

2008-09-13T21:55:00.001-07:00

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

2008-08-30T05:42:00.001-07:00

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

2008-08-11T23:53:00.000-07:00

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

Dalston Junction
Haggerston
Hoxton
Shoreditch High St
Through trains to New Cross Gate (terminating)

2010 East London Railway Opens - through trains to:

New Cross Gate (already open, now a through station to West Croydon)
Honor Oak Park
Forest Hill Sydenham
Crystal Palace
Penge West
Anerley
Norwood Junction
West Croydon

Phase 2 (to be announced)

Surrey Canal Road
Queens Rd Peckham
Peckham Rye
To Wimbledon (possibly via Clapham Junction)
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

2008-08-11T23:49:00.001-07:00

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

2008-08-11T23:48:00.001-07:00

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

2007-12-08T09:26:00.000-08:00

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

London
Aberdeen (oil town)
Cambridge
Reading
Bristol
Brighton
Plymouth
Portsmouth
Southampton
Manchester
Leeds
Bradford
Chester
Glasgow
Oxford
Edinburgh
Leicester
Liverpool
Derby
Birmingham
Middlesboro
Hull
Nottingham
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:

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

2007-06-25T21:50:00.001-07:00

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!

Property Insights March 2007

2007-04-15T23:38:00.000-07:00

More impartial, objective, practical advice and insights to help with your property investing. We aim to help you improve your investment performance - increase returns & lower risks. A million visitors to our website a year take advantage of our insights can a million people be wrong? we doubt it.

Ideas

PropertyInvesting.net are pleased to provide a list of property ideas these have been compiled over the last 3 years. We hope they stimulate some good thoughts for your own investment plans. You might choose to rank them using your own criteria to screen out the ones you are not so keen on. We hope you find these ideas valuable if you have any comments on them, please contact us by send an email to enquiries@propertyinvesting.net . They may be particularly helpful for people who might struggle with ideas and are better at the implementation-action-execution of property ideas. We will provide further listings of ideas if you think these are helpful please provide feedback if you do. And forward them to your friends or colleagues if they catch your imagination.

Invite a builder to do a deal on your property cut of profits or provide incentive for low price building
Prepare a list of renovation ideas for your portfolio then rank them on value, cost, time
Provide bedsits for key workers or student houses anywhere where there is high yield e.g. Bradford, Woolwich, Plaistow, Kings Lynn
Start a land acquisition agency using website
Buy a crescent flat in Buxton, Derbyshire prices should rise strongly
Buy land at auction or an old house and demolish for land to build big new executive house
Get land and detailed planning permission for four four story gated mews townhouses (with penthouse on top and terraces, do an off-plan development) sell land with plans to developer
Buy low cost un-renovated central City studios, renovate in high quality bachelor pad then flip
Buy in Lille (High Speed One), Genoa (regeneration) and Prague (flats for £60,000, EU now joined)
Manage your property yourself save 15% on rental income
Set up a trust fund for capital gains tax relief if you are an expatriate for 5+ years
Gift property to your children if you have >£350,000 equity in your home, particularly if you are over 65 years old
Specialize in high rental yield homes of multiple occupation - 4/5 bedroom London houses make sure all tenants have jobs and good credit history.
By property in Bratislava (30 miles from Vienna ) and or Tatry Mts in Slovakia boom area (low tax, car factories providing new employment)
By homes in Valencia arts buildings/centre, architecture, night life, 3rd biggest Spanish city, new communications
By property in Costa Blanca - looks like weather almost as good as Costa del Sol (dry, warm in winter) but much cheaper
By property in Varna Bulgaria has a nice beach, history, cheap villas and skiing 2 hours away watch for expanding budget airline
Do rental deal with local council to provide bedsits for key workers
Buy land at the end of your garden then build a house on it and sell making serious profit
Convert all lofts into extra rooms or flats
Convert all basements into extra rooms or flats
Extend all houses to double the size
Build houses in the gardens of all detached properties with large gardens
Use low cost property websites to sell property saving 1.5% of sale price
Buy house on corner plot, then build another house or extend to the side
Have a housewarming party in your garden invite your neighbours then try and do some property deals with your neighbours who have large gardens
Buy holiday home in Slovakia cheap for summer breaks and very low priced
Consider buying in Biarritz SW France could be good holiday option (check flight costs etc) nice food, weather okay, and up-and-coming
Invest in property in Newquay, Cornwall Rick Stein further north in Padstow, new Duchy Poundsbury, Fistral Surf Centre, rail investment, airport, Eden close by, baby boomers retiring and middle class surfing (boogie boards and better wet suits)
Move to Slovakia to avoid tax flat 22% tax rate and no capital gains tax on UK property sales after about 5 years
Get grant from local council to build affordable homes
Consider moving abroad for periods to maintain offshore tax status and hence reduce 40% capital gains tax liability on sales
Buy coastal bungalow, knock down, build on same floor plan with cellar, big dormer roof and attic rooms build then sell on (or sell with plans attached)
Do deals with a local architect
Set up property consultancy and company to leverage your property skills and develop your passion try to not do joint ventures (hence maintain control)
Buy a farm just south-west of Calais in the hills close to the Eurostar (High Speed One) train station could be new commuting area for London after 2010
Buy in Bradford fast growing property prices from low base (prices have doubled since 2002 and will likely rise with its proximity to Leeds )
Consider buying land for a cemetery in UK in a nice location there is a shortage.

The UK Budget

Nothing too shocking for the property investor in the budget. If anything, unlike last years SIPPs U-turn, this budget quietly gave some tax benefits to buy-to-let investors. For both UK and overseas property, you will now only be taxed on actual rental income instead of "intended" rental income (or the rental income of the tenancy contract). Hence if you have empty properties, you tax bill will be reduced. Also, for higher rate income tax earners, the new 20% banding (reduced from 22%) will be benefit since rental income is not subject to the increased national insurance payments on high income earners. For someone with a medium sized property portfolio earning about £44,000, this is likely to lead to a saving of some £1,500 per annum. It's probably an unintended consequence of fiddling with the national insurance and income tax rates (22 to 20% and scrapping the 10% bracket) but all the same, every little bit helps.

UK Market Update

Rightmove reported a +0.9% rise in house asking prices in March in England and Wales. Highest increases were SE England (+2.1%), London (+1.8%), South-West (+1.9%), North (+2%) and West Midlands (+2%). Wales reported a drop of -0.3%. Prices in Southwark (+5%) and Lambeth (+4.1%) showed the biggest increase in London. Clearly the mini-boom continues though there are some early signs of a cool down. No sign of any crash as yet. The two recent interest rises to 5.25% seem to have had little impact as yet. It's likely rate rises will start to bite soon, particularly if rates rise to 5.5%. However, if and when they drop back again, it's likely to re-invigorate momentum. There could also be a shortage of homes on the market after June 1st 2007 when home information packs are introduced some people think there will be a rush to sell properties before this date followed by a drought of properties for sale, because of the price of the HIPs. Read more ... in Special Report: 110: Which way the UK market - and why?

UK Interest Rates

CPI inflation is still 2.8%, predicted to drop to about 2% by year end. Oil prices have risen from $53/bbl to danger levels of $66/bbl. GDP is 0.7% in the last quarter 2.7% in the last year. At midday Thursday 5th April, the Bank of England will announce their monthly interest rate decision. We put a 40% chance of a rise in April and a 40% chance of a rise in May. We think there is almost no chance of a rise in both months. We also think there is close to zero chance of a fall in interest rates in the next two months. So there is a very high chance in the next two months of a 0.25% rise then likely staying at 5.5% for some months. Forward interest rate curves show 5.7% by end 2007 though these are normally 0.2% higher than actual levels. So expect 5.5% for the rest of 2007 in your cash-flow forecasts we hope to see a 0.25% drop by year end, but it's looking less likely now oil prices have risen.

Trends - Continuing Housing Shortage

Our website has been predicting a housing shortage for many years now and it's absolutely no surprise that the cumbersome planning process, increasing environmental constraints and land shortages, along with robust economic growth and increasing population has led to a severe housing shortage, particularly in southern England. This will remain. Cornwall has the biggest percentage increase in population of any county in the UK, but there is almost no new building. So is it any wonder prices continue to spiral upwards? London's population is due to increase by 800,000 in the next ten years with the average household having two people per home, the city needs 400,000 new homes. We cannot see these being built either now or in the next ten years. What's more, most people want to live in proper home e.g. a house with a garden. There are very few detached houses with gardens being built. So there is an increasing shortage of reasonable sized family homes with a garage, garden and close to good schools in southern England .

The population of England is due to increase from 46 million in 1990 through 50 million in 2007 to 58 million by 2040. The population of Wales and Northern Ireland will also grow strongly (see chart). For England, this implies an extra 6 million new homes being built between 1990 to 2040 that's about 120,000 net new homes a year (on top of the 20,000 that are demolished). We frankly cannot see such high building levels being sustained to keep up with demand. From 2007 onwards, it's equivalent to increasing the housing stock from 26 million to 30 million just to keep up an increase of 15%. It's like building four cities the size of Manchester (2 million each). Meanwhile the number of homes per person increased from 0.32 to 0.43 from 1961 to 1997. If this trend continues, by 2020 we'll need 0.55 homes per person this statistic alone implies an extra 40,000 homes will be required on top of the 120,000 hence 185,000 homes a year including those to replace demolished buildings. This is even more properties required, 4.3 million new homes by 2030 again, we cannot see this happening.

So those houses that are not "shoe-boxes" are likely to see prices escalating at a healthy pace in the next few years. Used flats and Victorian conversion flats will also do very well because of the reduced size of most families and more single people living alone. Particular shortages will occur in areas where fast growing economic activity converges with a lack of land, historic and pleasant surroundings and population increase, with minimal building. Examples include:

Oxford
Cambridge
Brighton
London West End ( Chelsea , Soho, Belgravia , Kensington)
London west (e.g. Chiswick, Hammersmith)
Winchester
Guildford-Woking
Reading
Canterbury
Maidenhead
Bath
Gravesend- NW Kent (new High Speed One Station)
Truro
Exeter

Baby-boomers downsizing and buying city centre properties in historic Cathedral Cities will drive the demand for higher-end apartments and quiet period terraces in such locations. Proximity to London will be important for these people the above locations are examples of such locations. Read more ... in Special Report: 122: UK trends in services and manufacturing - how can I benefit?

UK South Coast Benefits

As the wealthy baby-boomers start to retire (some semi-retire) after 2010, many will head for home at the seaside but still want to be close to their business contacts and networks. As the UK warms up (global warming) the south coast is likely to become a more bearable place to spend winters and summers are likely to be rather warmer and drier if you believe all the talk on this. As oil prices rises, taxes rise for travel and airports become more congested, the south England resorts are likely to gain in popularity the novelty of overseas travel might even wear off for some. But the key reason why this area will stay popular is because most UK nationals will want to stay at home because this is where their friends, family, employment possibilities and investments are. A typical wealthy semi-retired baby-boomer is likely to have a property on the south coast, and spend time in London with old business contacts and fly out to the Alps for winter skiing and Spain or Cyprus for long summer holidays. They will not typically emigrate because they'll see less of their families and friends and get bored quickly. So good quality coastal property in Southern England with a sea view and easy access to London will gain in popularity. Examples of good investment areas are:

Dorset: Poole, Swanage, Weymouth and westwards
Sussex : Brighton, Eastbourne, Hastings , Portsmouth harbour, Chichester
Hampshire: Bournmouth, New Forest
Kent : Folkestone, Ramsgate, Broadstairs
Cornwall: Penzance, Newquay, Truro , Rock, Helford River , Falmouth , Hayle, St Ives, Scilly Isles
Devon: Torquay, Exeter , Plymouth harbour, Mindhead, Branscombe, Clovelly
South Wales: Swansea , Gower, Barry, Pembroke, Tenby

Most of these towns face south making them warmer than they normally would be because they catch the sun. The sea keeps them warm in the winter and cool in the summer. In west Cornwall, temperatures are normally 3 or 4 degrees C higher than the Midlands in February. So if you can find large Victorian apartments with sea views or any home with a sea view and good aspect, it will likely rise in price more than average. It will also be easy to let out for holidays if it is in south-west England .

Some market analysis: just imagine you are a middle class baby-boomer living in London or the Midlands (the total population of this area is some 30 million people). You are now 50-60 years old. You have £200,000 of equity in your home. You are retiring in the next ten years. Where will you want to live Birmingham, Croydon, Milton Keynes? No, however you will likely want to be within reach of your family, friends, and old business contacts and therefore you will not move permanently abroad. You will want to be close to the beach or nice market town, preferably in an area where the weather is warmer than most of the UK. So forget high house prices many of these people will clamber to buy property in Cornwall, Devon, Dorset, Hampshire, Sussex, Kent, coastal Essex, coastal Suffolk, Norfolk and coastal south Wales. The more wealthy may also have a pied-de-terre in London as close as possible to the West End , Mid Town or City (e.g. Limehouse, Chelsea, Battersea, Kensal Green, Islington).

What we do know is there is very little building of new homes in Devon, Cornwall and the best coastal stretches of Dorset, Suffolk and Hampshire. So prices are almost certain to rise. It's simply supply and demand. And those doubting Thomas's that say "we'll all be moving abroad" sorry, we just don't buy this. Reason family, friends, part time employment and health care (and the TV, football and all the cultural aspects). Most of these retiring baby-boomers will end up putting up with the bad weather and traffic jams on the motorways because they'll want to be close to their family and friends. So properties in Cornwall or Devon and the south coast seem good investments . Spanish options will also likely do okay, but if you buy property in the UK, you won't have to pay 13% purchase and sale commission every time you make a transaction. Stamp Duty is a pain, but it's nothing like commissions and taxes in places like Belgium and Spain, particularly on lower priced property.

From Repossessions to Buy-to-Let

The level of UK repossessions has risen significantly in the last year albeit from very low levels. But is this a serious issue? As interest rate rises have started to bite, in the lower priced areas where the lower income first time home buyer have overstretched themselves, there will be increasing levels of repossessions. In a normal market this might be a signal for house price to drop. But in the UK it could be different this time. The reason is that many buy-to-let investors have very high net worth and cash reserves and are likely to view these repossessions as opportunities to purchase property at below market value. So there will be a transfer of wealth from the distressed first time buyers to the large buy-to-let investors as some consolidation takes place. This type of consolidation is normal in business the larger players who have the financial acumen, expertise and muscle will leverage their skills and help purchase property from distressed sellers that do not have these skills (otherwise they probably would not have got themselves into distress).

Because the population is rising, there is a housing shortage, employment remains strong, Gordon Brown has not hit investors with big tax hikes and the economy is strong prices are not likely to drop but there will be more repossession opportunities. That said, the Banks need evidence (to prevent litigation) that the property has been properly marketed and is being sold at true market value so repossessions do not come at a discount in the current market. The best repossessions are properties that look tatty and superficially ugly (rubbish lying everywhere) but just need a good decoration to bring them back to normality. These properties might sell for £20,000 below similar well decorated properties, but only need a £2,000 tidy up and paint job. It's important to see through the mess and look at the fabric of the property imagine what it would look like if properly decorated. I've yet to view a repossession that was not messy and needed re-decorating and hence they normally sell for considerably less than normal properties.

Major Development Areas

Areas with big construction projects, regeneration and new infra-structure normally rise in price at higher rates than more mundane suburban areas. In the south of England, there are some particularly important developments taking place which will transform the area this is a list to highlight these for the canny investor.

Stratford Lower Lees Valley ( Olympics , High Speed One)
Kings Cross (High Speed One)
Gravesend-Ebbsfleet (High Speed One, regeneration)
White City ( Retail-Business Park )
Wembley (Stadium-leisure)
Greenwich peninsular (Housing)
Docklands from Limehouse to Beckton (Offices, housing, regeneration)
Chiswick ( Business Park )
London Bridge (general activity)
Peckham (regeneration ongoing)
South bank (latter phases of regeneration from Vauxhall to London Bridge )
Elephant & Castle (planned regeneration)

If you overlap all these development areas it seems unlikely that places like Hackney Wick, Bow, Shoreditch , Canada Water, Stratford "village", Kings Cross and Borough will not see continued price movements higher. The 2012 Olympics, new High Speed One rail link, City Airport expansion and the sheer number of new higher paid jobs in the West End-City-Docklands corridor makes it a low risk investment area. We particularly like the area just south of Tower Bridge prices drop quickly away from the Thames. The trick is to get a very well priced property as close to the river as possible but south of the river. All those city workers need crash pads somewhere and this area of London, close to London Bridge railway station is becoming far more popular with the "city slicker" as years go by. If you can pick up a low priced flat just on the fringe of the main "building frenzy" prices will likely ripple out in the next few years. This zone started about ¼ miles south of the station. And remember, London Bridge is the site of the Glass Shard building planned to be London's tallest tower block, most likely to start construction shortly. This would add further kudos to the area which benefits from Borough Market, the station (excellent communications), new offices, London Dungeons and proximity to the city.

Macao - China

Interested in investing in a boom town? Macao is as close as you will get. The city used to play second fiddle to Hong Kong before China took control in 1999. High crime levels in the decaying ex-Portuguese colony did not help its cause. Since 1999, the Chinese authorities have driven most of the violent crime away and cleaned up the gambling business. The city now takes more gambling revenues than Las Vegas. £20 billion is being invested in regenerating the city and building huge new gambling casinos. It's expected the revenues will double by 2012 mainly through Chinese people visiting the city. Along with this many new developments are springing up and a property boom is well underway. It's still a demanding place to do business, but for the experienced international property investor, it's worth considering.

US sub-prime lending issue

During the US property boom in the last 10 years, many banks lent money to borrowers with poor credit histories . When interest rates were a mere 1% in early 2003, payments were easy for these people. However, as interest rates rose to 5% up to 2007, these borrowers have been progressively getting into problems with payments. Many have drifted into arrears and some have had their properties re-possessed or handed back the keys. The glut of property in the poorer areas in the USA have seen property prices reduce these are generally also the areas where many homes have been repossessed. It develops into a downward spiral. About 15 banks lending to sub-prime borrowers have gone bankrupt. This has affected the confidence of the property market. Because most US areas have ample land and building programmes, there is no shortage of properties for sale. Hence, when repossessions hit the market they tend to have a proportionately large impact on prices. That said, in most US areas, prices in Q4 2006 were still rising and the recent problems seem to be isolated into lower price suburban areas in the poorer neighbourhoods. It's likely interest rates may not drop which will give a welcome boost to the property market. But there is a chance the current problems could get significantly worse. For experienced property investors, this could be a very good opportunity to purchase properties at well below true market value from distressed sellers of course this is not without its risks because there could be a wholesale meltdown, but it's frankly unlikely and confidence could well return next year as the economy continues to grow and jobs are created in most US regions.

Oil Price watch out

As previously discussed, we are on a monitoring brief on oil prices. Any oil price over $70/bbl signals problems high oil prices increase inflation, lead to interest rate rises and can precipitate house price falls. Oil price are hovering around $66 / bbl at present, just below danger levels. We will keep you regularly posted on oil price developments there is a possibility because oil production levels may be peaking and demand is rising, the supply/demand imbalance may cause prices to rise significantly, particularly if there are global security tensions. 25% of world oil supplies come through the Straits of Homez between UAE and Iran if this area is blocked or threatened for any reason, oil prices would sky-rocket and this could precipitate a house price crash. An unlikely scenario, but it is possible. Any oil price below $50/bbl would be most welcome for property investors. If you want to hedge your position, it's a good idea to invest in oil towns more detail can be found in Special Reports 56: Sophisticated Investors Follow Value - property, oil/gas, ore and gems! and 104: Oil & Gas How can I benefit from the boom?.

South Africa

The Football World Cup is planned for mid 2010. There will be new stadiums built and big infra-structure improvements in Jo'burg, Cape Town and other cities. The confidence this event will bring to the country will be great and property prices will likely follow upwards in the lead up to 2010. Property prices have doubled in the last few years and are expected to moderate to about a 10% increase this year. However, as in all the most desirable global areas, some parts of South Africa are likely to beat the national average. Examples include:

Cape Town - Camps Bay , Bantry Bay , Seapoint, Cliftonville, Llandudno, Hout Bay , Wynburg
Jo'burg
Port Elizabeth (and the Garden Route to the west)
Durban

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Oil Price  watch out

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Wealth and Amenities the meaning of Location, Location, Location

Oil Price watch out