Please note, I am no longer updating these pages. There is a wealth of information on this site, but new blog entries are now being made on the Unique Property Site:
I’ve been asked a question. It’s an old one. Those of you who have been reading my material for some time will know my views on buying homes abroad, and especially holiday homes. But what about businesses?
I’ve been asked whether it’s a good idea to buy a property (or two properties) in the Lisbon area. The problem with this is that every deal is unique, but let me throw out a few questions, and make a few observations.
First, I would be very wary of starting any business in the eurozone at this time. You may be successful, but it is a time to be wary. You would need to check out how similar businesses are going, and what the competition is. Is there room for more? In my experience there is very little room for many traditional businesses. The way to find out is to rent somewhere for three months and wander round the businesses and see for yourself how they are doing.
The second thing to look at is the business climate. Some countries are pleased to see you. Panama is one, Singapore is another. There are good places to work in. You dont even have to work in Singapore. How about KL? Dont want to go so far? Then why come to Portugal? There is an anti-business climate here.
You should go where the tax structure favours business ventures, especially start-ups, which is why I mentioned Panama. Check it out. Portugal has a tax structure that seeks to close down businesses.
Let me show you something very simple which will show you what I mean. Tax structures are put in place to do one of two things. The first is to bring in enough money to fund government expenses. The second is used to discourage some activity. Tobacco is taxed highly, ostensibly to discourage users. Certain activities are taxed heavily because they pollute, and so on.
However, let’s have a look at how Portugal’s tax system works. A small business is heavily taxed, and the level of purchase tax (IVA) is punishingly high at 23%. At that rate it is set to discourage the purchase of goods and services. This will tend to depress the manufacture of goods and the provision of services, and so the economy will contract. That is apparently what Portugal’s government wants. Is that the kind of business environment you want to enter?
Let me explain how revenues are usually collected. All taxation is primarily based upon the maximising of revenues. This is done by using a bell curve model and test taxing. A bell curve is a mathematical structure which looks like a pregnant woman, or a guy with a beer gut, viewed sideways. In other words we have a straight line to the right, and a curve to the left. The curve starts at 0 at the top and ends at 0 at the bottom. Each of these points represents the collection of zero tax.
What any government seeks to find is what is called the sweet spot, the band where most tax is collected, the fattest part of the curve, or the furthest extent of that beer belly. When you find that region you keep your tax levels close to that point. If you move away from that band you will automatically get less tax. So, if you raise taxes it means either of two things. It either means you haven’t found the sweet spot yet, or that you want to decrease the tax take for some reason, or, alternatively, seek to depress that particular market.
Portugal has decided to make its tax system punitive instead of productive. It has moved away from the sweet spot. There will therefore be a lower tax take, and people will be discouraged from making money. That’s not a good environment in which to start a business.
It doesn’t mean you wont be successful, but it does mean there are head winds to cope with.
There are other points to make on this subject, but I’ll come to them next week.
I have been saying for some time that it is impossible to second guess the way the eurozone mess is going to go because of the continued idiotic interference of politicians. I have also said that the euro is a currency that survives purely on confidence. Well, I think we have just had a serious change in perceptions.
Confidence in Greece using the euro is evaporating fast. Once that mood gets enough traction it will be impossible to stop, and the country will be forced out of the eurozone simply because it will become a monetary wasteland.
Those of you who read the New York Times (probably not a lot) will have noticed some interesting articles recently about Greece, Italy and Spain.
The news is that large corporations in the US and other countries are preparing for a Greek exit from the euro. Several companies, including Visa, say they can cope with a Greek exit within 24 hours, and they have contingency plans for a new currency. It looks as though politicians are going to be side-lined on this issue at last.
The problem is one of confidence. All fiat currencies rely solely on confidence. Hard currencies are backed by something else, usually gold, maybe oil. Fiat currencies are backed by consensus. If you look at a euro note you would be hard put to work out what it really is, who printed it, who guarantees it, and what it’s supposed to be worth. It might have a 20 written on it, but what that 20 is worth is another matter.
The fact that more and more international companies are questioning Greece’s ability to survive within the eurozone (which is really so obvious only a politician cant see it) means that confidence is going. With that gone, the currency is effectively gone too. It’s no good a politician saying we can paper it over. If no-one believes the politician, that statement is worthless. International businesses have simply stopped believing the politicians.
The question is, who is going to pay workers, and with what. Greek companies will have to do what they have to do, but what about international businesses? What about trade? Most firms dealing with Greece are already demanding money up front. Banks are already organising transport mechanisms to get bags of cash over the border to pay workers. Obviously with a currency change all banking will come to a halt.
This also means that companies have emptied their Greek bank accounts. All this worsens the situation, and it is clear the euro in Greece already has no international value. There could still be a proper rescue but the effectiveness of that rescue would have to be believed. Unfortunately no-one believes there can be any effective rescue. One of the major political problems is the stark reality that Greece has not put in place a single reform demanded as part of the previous bailouts.
If you look at the fundamentals, Greece is in a far worse position now than it was three years ago. It long ago went beyond the point of no return. Businessmen are realists. I would say it’s over.
The real question then is, what happens about Spain and Italy? I note the airlines are making contingency plans for a Spanish exit. I think that might well be good for Spain, but it will put enormous pressure on Portugal if Spain does decamp. I’m not convinced at this stage, but I think it’s all over for Greece. If the politicians hang it out much longer they will do enormous damage to the whole european economy.
There are interesting times ahead. Let’s just hope we can get the Greek thing over and concentrate on the next problem.
A massive devaluation is on the cards for the new currency. That will make property cheap. But it wont solve the dead-beat state of the economy or the various restrictive practises which are still in place, and look likely to remain, or the massive government subsidy situation, which presumably is about to recoil from a serious shock after the bailouts stop.
One other interesting fact. Forgers have stopped bothering to forge euro notes. That is significant. If the forgers dont think the currency is worth forging what the heck are the rest of us to think?
Now might be the time to start looking at nice tourist spots with a view to buying after the crash. But do wait for that crash, it’s coming.
I’ve been receiving several bulletins telling me about the state of the UK property market. The general view is doom and gloom. Prices are going to tank with a vengeance. Apparently we can expect a 25-30% drop sometime over the course of the next year or so.
This is an interesting view of the market. In theory prices ought to be dropping more, but during a recession people dont tend to move around so much so the market is quieter. It’s not that prices drop, they simply stagnate because not much is going on. You have to have an active market for prices to rise. You also have to have an active market for prices to fall. Prices will only fall when interest rates rise. Then the buy-to-let mob will be squeezed, and there will be a rush for the exits. That’s when prices will tank.
Those who want bargains will then sit back and smirk for a couple of years, and then go out and buy. But I’ll let you know when the time is right. We aren’t there yet.
Meanwhile I did promise a couple of weeks back that I would do a quick calculation on the auction index to see whether I thought prices in the real market place (by that I mean where money has changed hands, rather than prices asked) were still above where they should be.
My conclusion is that prices are seen to be too high by the general public, and there is undoubted price resistance.
The index should read somewhere between 11-20 to indicate a normal market. Anything above 20 represents an expensive market. Anything above 30 represents ridiculously high prices which are unaffordable.
The average across the country for July came in at just over 22, so prices are, in general, slightly higher than perhaps they should be in a normal market. Given that we are in a depression prices are too high. Those figures do include an insane figure from the Bristol area of 42.85, and one anomaly in the South of 0.
The most reliable figure is for the North of England where I used the most results. The overall average was 28.36, which is very high. Prices obviously have to come down from these levels.
The lowest reading was in East Anglia where I found a figure of 11.76, which is about where I would expect it to be for the kind of economic situation we are currently in.
If I am right and rents begin to waver and fall by the middle of next year, we will have the scene set for a resumption of house prices drifting down. However, as we have a largely stalled market, I dont think the falls will be great. Prices will only begin to fall seriously when interest rates go up. That could be some time yet as the whole fragile mess of the world banking system is only held in place by low interest rates
Unfortunately low interest rates stifle business, as it becomes uneconomic to lend money; and in a capitalist system, without credit, enterprises dont get off the ground, and economic life just stagnates.
Almost all economies are now managed economies, and they are managed for political not economic ends. That means the mess goes on. That also probably means interest rates will stay low all next year and maybe the year after. We only get a crash when they go up.
Meanwhile, prices in the eurozone seem to be holding, although the euro itself is not. Expect more falls against other currencies as it hits more head winds. The trouble is, Europe is the UK’s biggest trading partner, so any fall in the euro will affect the economic life of the UK, and that will also act as a drag on sterling.
Now isn’t the time to be looking for bargains. They simply aren’t there.
The latest members’ bulletin on the Unique Property site lists some interesting items, but what really interests me is the way prices have come down for certain types of property.
I have over the years been featuring barns for conversion in Wales. I dont know why it is, but there seem to be more barns west of Oxford than there are to the east. For a while Devon was riddled with barns for conversion, and the number turned into an avalanche after the last foot-and-mouth scare. There are still barns available in Wales. The trouble is I think they are going to be available for a long time as they are priced well over the odds.
Some of the barns available in Wales cost £200,000 in their unconverted state. That is a ridiculous price. Compare that with a barn in Kent with a massive roof that looks to be in pretty good condition which is on the market with a guide price between £50,000 – £70,000.
There used to be a shortage of woodlands for sale, but that has also changed. There are woods for sale in the south all the time, and once again, prices are keen. A small site of approximately one hectare, again in Kent, is up for auction with a guide price of around £10,000.
There is even a double available. Half an acre of woodland with a barn shelter which might be developable.
Churches are on the market in ever growing numbers. When I first started the Unique property site there weren’t that many churches for sale. In fact, back then, everyone wanted a church they could convert into a home. Now the churches for sale are those that have already been converted. However, there is a rather nice Methodist chapel in Kent that is for sale at a very reasonable price. It looks rather nice, with some nice timbered beams, and would make a lovely home.
I am constantly being told that prices are still rising in London and the South-East but I cant see the evidence. In fact the latest Unique bulletin shows just the opposite. I think it is time I dusted off the old Auction Index to see how things are going. I suspect we may find that prices are at last sagging their way to a more affordable level. I’ll keep you posted.
Cheap Property for Sale
Everybody wants cheap housing at the moment, so where is it?
First, let’s have a look at the regions.
In the North-East one of the cheapest areas is south of the Tyne, with Sunderland coming in pretty cheap.
On the other hand, if we come further south to the East Midlands the cheapest area is apparently the City of Nottingham. Everywhere else nearby is significantly more expensive.
Cheaper still is the North-West with Blackburn apparently the cheapest area.
Wales is cheaper still, but if we then move east into the West Midlands prices move up again, where they are slightly more expensive than the North-West.
Humberside has come up in the world with prices similar to those of the West Midlands.
I am skeptical of these figures. They certainly dont compare with what I see on a daily basis. That is borne out quite obviously when we come to East England. Maybe the prices in Peterborough are well up on most of the previously mentioned regions, but throughout East Anglia house prices are static, or dropping, and they do not represent value for money.
One of the big problems with all these figures is that they have to relate to something. Most people think I’m being silly when I say that the most important concept in maths is the equals sign. But when it comes to valuing something, money has no value on its own. It only has value as a means of exchange, in short, to get a deal, you have to have both sides happy with the equation. The equals sign is what joins the two sides. If there are inequalities then you dont have a deal..
So if there is not much well paid work in a region then there are not the pay packets to justify high house prices. In places such as East Anglia you also have large distances between big centres so that travel to work is expensive. With the current price of petrol that counts. Translated into simple maths that comes out as [not much money = low house prices].
As we come further south prices go up. However, that is not the whole of the story. The cheapest flats in the country are listed as being in Wales. The cheapest terraced houses are also listed in Wales. That of course is rubbish. There are terraced houses all across the north of the country with prices barely above £50,000, and such houses can be picked up for £30,000 without much trouble. And if the cheapest price of a terraced house in Rotherham is £69,000 then all I can say is someone isn’t looking.
These stats are not just wrong, they are plain silly. If you want cheap housing it can be found, but at a price represented in other ways. You wont find much well paid work about, or indeed much work at all, in cheap areas. Lincolnshire remains cheap, so does East Anglia. Wales is far more expensive than it should be. You can buy a derelict barn for £200,000. That’s insane for Wales.
Meanwhile there are bargains all over the place. You just need to be patient and to be clued up to the auction situation. I shall be looking into cheap deals in the auction market over the next few months. I may even start a cheap-as-chips section to the Unique Property Site. We’ll see how things turn out.
In the meantime I still maintain one of the cheapest ways into the housing market is to buy a de-commissioned pub, especially in the North-West. Some of these pubs have three-bed accommodation above, and some even have six bed flats upstairs. That means the pub could turn into a very big house or four reasonably sized flats. It’s a good way into the housing market and your pension at the same time.
In the last few months there have been several pubs advertised through the Unique Property Site at figures below £100,000. Many could have been turned into four flats. Even if you spent £10,000 per flat you could end up with four dwellings for less than £140,000 or £35,000 a flat (that’s cheaper than a flat in Merthyr Tydfil which is supposedly the cheapest area in the UK). You can live in one and rent the other three. After 25 years the mortgage is paid (by your tenants) and you have the equivalent of £1,500 a month coming in to live on.
In the meantime I will check out the bottom end of the market and get back to you.