Cheap Housing

I have been bewailing the fact that England’s heritage of public houses is being sold off, usually for demolition. It is a crying shame. But there is an upside.

Pubs sell as businesses, and therefore they tend to be valued fairly. They are usually priced in relation to the value of the business. Houses are priced emotionally, or according to fashion.

Pubs have always been good value for money. Now is no different. I have recently been seeing pubs with three, four, and sometimes six bedroomed flats above going for between £85,000 to £250,000. Just think about it: A home and a business for one price. You can choose to run the business or not. You can choose your own opening hours. You could even choose to run the pub from 5.00 p.m. on a friday night, to 11.00 p.m. on a sunday night and keep it closed for the rest of the week. Or you could use the flat above and turn the pub area into a commercial venture of a different kind.

Just look at these examples from a recent auction in the north of England:

This is a pleasant detached home. Downstairs you have the business, upstairs you have a six bedroomed flat. The guide price is £120,000. Krikey! It’s a giveaway! The pub is in for free.

Here’s another. Again, there is a six bed flat above the bar area. This time the guide price is £100,000.

How about this one? Two bed flat on one floor, a four bed flat on the next floor, and the bar on the ground floor. Price: £125,000.

And as Spike Milligan was always saying “There’s more where that came from”. Much more.

Want a cheap way into the housing market? You just found it. And where do you find these deals? At the Unique Property website of course. We feature these deals every month.

US Madness

I was glad to see no-one was particularly interested in the cheap US property deals I advertised at the end of last year. Some of those deals were amazing. You could have bought a three bedroomed detached house for under $10,000. You could even buy places for less than $1,000.

That’s cheap. It’s got to be a good deal. The only problem is, that the US dollar is dropping like a stone. You would need to be able to re-sell that property to get your profit. But if US real estate is only selling for peanuts today, why should it sell for any more next week or next year?

Just look at the dollar falling:

Inflation calculated by the same set of rules in use in the eighties, has already passed the 8% mark, and is set to explode higher as the current round of commodity price rises work their way through the system. Most of us have learned to live with inflation anywhere up to the 5% mark without flinching too much, but once it gets above that level it gets uncomfortable. When rates top 10% things get fraught.

Want some serious inflation figures? Try these figures for the last six months. That’s right, not even a year.

•    Cotton = +125.7%
•    Sugar = +82.6%
•    Corn = +59.0%
•    Coffee = +41.4%
•    Rice = +40.5%
•    Oats = +36.6%
•    Copper = +36.1%
•    Lumber = +33.8%
•    Oil = +25.1%

The currency collapsing year by year. Inflation eroding the value of what’s left. Investing here is just plain silly.

There is a further problem, and that is the risk of hyperinflation. If you check out what hyperinflation is all about you will find that the tipping point when hyperinflation is certain to follow is when governments can no longer pay off their debts, nor even improve upon their financial credibility.

Just look at this. Pure insanity!

 

Sometime within the next twelve months the system must start to break down. How slow (or how fast) that breakdown will be, who knows, but I most certainly dont want to be invested in the US with that mess hanging over me.

I implore you all to steer well clear of any US dollar denominated real estate purchases in the near future. I’m sorry to say that includes that rather charming group of islands known as the West Indies. Who knows, they may have the wit to cut ties with the US$ before things get too bad. The alternative will be to cut loose too late. Whichever way, you stand to lose money. In the latter scenario you stand to lose a lot of money.

john

Egypt

Egypt has moved centre stage. What’s it all about, and is it going to effect the housing markets?

Once again, let’s start with my usual caveat. I dont have a crystal ball, and I have no idea what is going to happen, or when. But I can recognise risk when I see it. I dont like risk.

For about seven years I have been advising people not to buy real estate in the Middle East. I was heavily against buying in Dubai. No doubt some folks made money, but only those who got in right at the beginning, held for two years, and got out. Those who then got back in again got their profits wiped out. It was a market for the greedy, not for the sensible. In one year prices fell by 75%. That’s not just bad, that is disastrous.

I have also warned against buying in Egypt. On the face of it the deals look good, and the market is roaring away. Or rather, it was. The Middle East is a tinder box. It has to go bang at some stage. It’s not the place to be stuck with a nice holiday property when there is fighting in the streets.

I have also noticed that land registrations in Egypt are not exactly wonderful. I have no direct knowledge of the following situation, but I pass it on for what it’s worth. Ten years ago the situation was like this: “92% of city dwellers and 83% of the rural population live in homes with no clear legal title. You have to jump through 77 bureaucratic hoops — taking 6-14 years — to gain formal title to desert land.”

Things may have improved. But with the streets ringing to the crash of bombs, I dont think Egypt is the place to invest at the moment, or for the foreseeable future. But the Egypt effect has far more ramifications than the local housing market. It may well affect the housing markets here in Europe.

I have mentioned before that the Middle East is a tinder-box. A hundred years ago the tinder box was the description for the Balkans. That area has settled down somewhat over the past decade, and maybe we have seen the end of the civil strife in that region. If we have, I think we have the Internet, or indeed the Easyjet, generation to thank. Opening up a country to the outside world does wonders for understanding. It can lead to strife, and less understanding, but generally it is a good thing.

What is happening in Egypt now is a coming together of three separate problems. The first, and the trigger, is steeply dropping standards of living. Food prices rose by 21% last year. In a country where food represents 6% of the average family’s budget (the USA) that is cause for grumbles, but not for revolution. Where 30% of a family budget goes on food, such a rise is cause for serious alarm. However, there are countries where more than 50% of the budget goes on food. In India and parts of China that percentage can be as high as 70%. For those countries a rise in food prices of 21% is catastrophic.

For Egypt’s urban poor we are approaching catastrophe levels. There is no way to increase food production as Egypt is mostly rock and desert. Only the delta is agriculturally productive. The country imports 60% of its food. It also imports oil, and so is no longer energy independent. The country cant afford to pay its way. The urban poor are getting poorer, and revolution is in the air.

The second problem is that perennial problem: religion. There are race tensions which have been festering for millennia. There is a small clash of ideas between the copts and the muslims. There is a large clash between the sunni and the shia muslim sects. That clash of ideologies bedevils the whole of the Middle East. It is a clash that threatens to erupt at any moment. The main contenders are the Saudis versus the Iranians, with a very complicated mix spread around the other countries of the area. This has explosive consequences for the whole region.

The third problem is that two-thirds of the traded oil that sloshes round the world comes from that region. There are two rather nasty choke points. The first is the Straits of Hormuz. The second is the Suez Canal. If the latter gets closed, or disrupted in any way by the strife in Eqypt, then the price of oil is going to rise rather nastily. If the former gets involved in the religious strife then we have the whole of the region up in smoke, and oil prices will triple almost overnight.

The last time that happened was back in 1971. That brought the whole world to its economic knees, and a decade of ferocious inflation followed.

Forty years on the same could easily happen again. This time it would come hard on the heels of economic chaos already endemic across the globe. It would plunge the whole world into a deep depression, and decimate major currencies. It would be hard on housing, and hard on those paying mortgages. If you could survive the first couple of years of much higher interest rates you would end up sitting pretty on assets that will eventually lurch forward in value to make up for the drop in the value of the local currency.

Those who dont like risk should buy as interest rates come back down again after that period of financial armageddon. Those who just buy one home while selling another wont have such a problem. The sale price may be down, but so will the buy price. And of course, both will rise again.

If this Egypt mess gets really nasty, and begins the religious civil war that has been bubbling under since the original split in the islamic faith that stems from the murder of the prophet, then we are in for a nasty time.

For those concerned with real estate as an investment you would need to be invested in areas other than traditional western countries, as their currencies would be at serious risk, and so would their economies, dependent as they are on relatively cheap energy prices. Once again, I think the only safe havens are likely to be countries with strong currencies which are energy and food independent. It still looks like South America to me, or South-East Asia. Canada is also a favoured place in that respect.

On the other hand, how did I start the first article in this two-part mini series? Just to reassure myself I have walked up to the balcony to watch the sunset. The blossom is gorgeous, and if the blossom is on the bough, can the fruit be far behind? But my best performing assets are all south of the equator, and I shall be drinking a superb Chllean wine with my evening meal.

john

The Euro

It’s February, and where I live the sun is out, and although it is cold first thing in the morning, and chilly in the evenings, the days are lovely and warm. The irises are out, the mimosa is in bloom, and a whole bunch of it scents my kitchen and my sitting room, which doubles as my office. On the balcony the almond blossom is a soft blush colour and smells like honey, and the peach blossom is just starting.

Things look good from here. But do they look good from anywhere else? Let’s have a quick spin round.

I think house prices in the UK look fairly priced. But what happens when interest rates go up? With the economy in first gear (or even reverse) interest rates are unlikely to be lifted. But at some point in the future there will be rises. Until those rises come along, things should be okay.

In Europe the troubles surrounding the euro are far from over. With Ireland illegally printing money, and the ECB looking the other way, we have entered a silly period. The euro is now a teenager. It was operating as a shadow currency before we used it in the shops, and it has been out on the streets for ten years. It is certainly behaving like a spoilt, confused teenager, with periods of rage, periods of despair, and it listens to nobody, and does crazy things. Have we got another ten years of this before it grows up?

Whatever happens house prices in Ireland have to come down a heck of a lot more.

We also have a union that contains more than fifteen members (the EU). Get out your Parkinson and see what he has to say about groups, committees, and cliques. The relevant book is The Law of Delay. He gives examples of groups going back to the middle ages, and shows how the mid teens is about the largest a group can be while still functioning efficiently. The EU is headed for a two-tier structure sometime in the near future, or it will collapse. The former is the more likely.

The same thing will happen as the countries using the euro grow ever more. At the moment that number sits at 17. That is, according to Parkinson, about the highest it can get before splitting into sub groups. Even now we have a clear class system growing up within euroland. There’s the first division, and the second division. House prices in the second division are at risk because of a currency threat. Which members of the second division will be forced out? How far in the future we are looking before there is a serious crack-up is hard to tell. It could be months, it could be years, it may even be more than a decade. I think we shall see serious cracks appear in the system over the next two years. The next crack will probably come after the Irish election.

My money is on some kind of cop-out that papers over a wide chasm. You can paper over a crack, but you cant paper over a chasm without risking a great deal. The banking system is effectively playing blind poker. That’s fun when you’re drunk, but it’s no way to run a large economic block of countries.

How about the USA? Well, the number of houses for sale has topped 11%. Excuse me, but that is a heck of a lot of houses to sell before prices can start rising again. Add to that the fact that the dollar is falling fast again. Foreigners buying into the American market have to be serious optimists, or just plain nuts in my opinion. I really dont advise it.

But what’s all this about Egypt? I’ll talk about that next week. It’s an interesting subject.

Best wishes
john