US Housing 2011

I’ve been reading some pretty grim statistics from the US. Readers of the Unique Property blog, and the Unique Property website are certainly far too sophisticated to get involved in the US property scene. But in case anyone was having second thoughts, here is a short update on the situation across the pond.

Naturally, the percentages will change depending on the exact points used for comparison, but over the past year the dollar index has dropped from around 86 to the wobbly 75 of last week. It’s down about 13%. That’s one heck of a drop. Just look at all that red!

If we go to the shadow stats site to get a proper indication of the rate of inflation over the past year, it comes in around 7%, and heading steeply up.

The Case-Shiller house price index is showing a monthly drop of 1%, indicating an annual loss of about 12%.

For a foreign investor you would need to worry about the dollar demise, and obviously would need to look in horror at the annual loss showing on the underlying asset. Since you’d be taking the money out of the country and spending it elsewhere you wouldn’t need to worry about the inflation rates, except that it would mean that the average renter is getting poorer, and that is ultimately going to impact on rental rates.

Most of the advertisements I have seen have boasted returns of up to 17%. That’s gross, not net. Even if we are generous and assume a 15% net return that means you are losing money. With the dollar going down 13%, and the house index going down 12%, even after your 15% rental return you are actually 10% down over all. Putting it bluntly, a pretty bum investment!

Okay, so much for the past and the present, but what about the future?

Short term the US is in one hell of a mess. It will recover, of that I am certain, but not any time soon. Forget it for at least another five years, maybe even longer.

Next week I’ll have a brief look at another market. How about Spain? That should be fun.

john

Holiday Home Ripoffs

Let’s have a look at an advertisement that appeared in the local Algarve newspaper last week. There is an ad for a two bed end of terrace apartment. It’s new, and overlooks a rather nice beach. The advertised price is €450,000. If we add on land tax, and surveyors’ and solicitor’s fees, we are talking a real outlay of nearly half a million. For a 2 bed terraced house?

I note the rental for this house varies from £500 to £1500 over a ten week period. The rest of the year is dead according to the website. That computes to a £10,000 annual return, or 2% on your money. The real return, after agent’s fees and cleaning, repairs, maintenance and taxes, is probably less than 1%. If that was valued as a business the PER would be about 100. Wow! And we are in a depression.

I note the low season rental is £500 a week, but there are no takers. I’m not surprised. You’d be more likely to get £500 a month long term. In fact similar deals are available for far less.

However, let’s do some simple calculations based on the existing income of £10,000, with a notional profit of half that. A normal PER on an average business would be about 10 times profit. The place valued as a business is worth £50,000 in normal times. In a severe depression it would be less.

Look at it another way. If it could be rented for even £1,000 a month long term (a well-nigh impossibility) why not rent the one next door instead of buying? Invest your £450,000 in the UK property market if you must, where returns are currently running between 8% and 12% net, but if you are careful you can get even more.

Sticking to the lower figure, an 8% return on £450,000 is £36,000. You could rent the place next door for the whole year and still have £2,000 a month spending money left over, and no worries about maintenance, repairs, or taxes.

You could do even better if you leveraged your UK purchases with mortgages. Even if you paid 6% on a mortgage, you would be getting an 8% return. That means a 2% profit on someone else’s money. Even if you only borrowed £300,000 that would add another £6,000 to the spending kitty. You’d be set up for life. Retirement on £30,000 a year plus a nice rental pad by the sea.

If on the other hand you borrowed money to buy this pad, then….. No, I dont even want to go there. The maths will be too depressing.

As they say: a fool and his money are soon parted. Some folks along the Algarve coast need to do a simple reality check some time soon. Property developers have been milking the market for years. It’s over.
John

Cadiz

I am continuing my series on places to move to in warmer climes. This time I will be looking at Southern Spain. Usually, when you mention southern Spain people think of the Costa del Sol. That isn’t my idea of heaven. It is a concrete jungle, with a motorway that doubles up as a parking lot.

My idea of southern Spain is the province of Cadiz. The ancient city of Cadiz dates back about 5,000 years, to the days when the Phoenicians were roving the world. It is built on a spit of land pointing northwards, and sheltering a wonderful deep water harbour. The old walled city is fascinating. The little bars can be intriguing. The paseo is still an essential part of life. In fact, one of the big attractions for me is the fact that this province more than any other still keeps the old traditions.

Cadiz

It is one of the few places where the old folk still keep the votive candles alight in front of the saints’ alcoves. You can still find people talking and breaking into song, and hand clapping almost as a method of conversation. There are bars where you can still hear genuine cante jondo. There are towns which put on fairs where you can take part in the old rituals. And if you cant find what you want, you will be sure to find it a short drive away.

You have sophisticated shops. The following major cities are all within an easy drive: Cadiz itself, Jerez, Algeciras, Gibraltar, and even Seville and Cordoba.

There are ancient cities with roman remains, and with architecture ranging back to the middle ages.  The best, apart from Cadiz itself, are just over the border in the province of Seville. The towns of Carmona and Ecija are particularly interesting. The Roman necropolis of Carmona is particular noteworthy. It lies on a low hill at the opposite end of Carmona amid cypress trees and contains more than nine hundred family tombs dating from the second century BC to the fourth century AD. Enclosed in subterranean chambers hewn from the rock, the tombs are often frescoed and contain a series of niches in which many of the funeral urns remain intact. Some of the larger tombs have vestibules with stone benches for funeral banquets and several retain carved family emblems.

There are the white hill towns with their charming squares. There are the vineyards producing fabulous wines, including sherries, manzanillas, and montillas. It doesn’t matter where you go, they all have a charm that is irresistible; Arcos, Ubrique, Medina-Sidonia, Jimena, Vejer.

Just south of the motorway from Seville to Cordoba is a very rich and rewarding area. The local wines are superb, especially the whites. The towns are usually very old and fascinating. There are big annual fairs at places such as Utrera and Osuna.

Further south is a range of mountains, hiding the old city of Ronda. Carry on through the mountains and you come down to the coast at Marbella.

There are also the charming coastal towns. Down in the very south is the old Arabic town of Tarifa. It has, of course, been almost destroyed by concrete eyesores. The coast however, is a favourite with surfers. Then there is the rapidly developing city of Algeciras, which used to be a dump before trade with Africa opened up. On the other side of the bay is Gibraltar, with its British stores and banks and building societies, and its charming squares, and bustling cafes.

Africa is just six miles across the straits, although the ferry fares are extortionate. There is a niche here for someone to start up a cheap ferry service.

To the north of Cadiz are the charming sherry towns of Santa Maria and Sanlucar de Barrameda, while I rather like Chipiona because of its rather nice bodega right up on the coast overlooking the mouth of the Gaudalquivir, and next to an old renovated fort. (At least it had better be renovated. I tried to buy it, but the council claimed they had already got an option on it and would be restoring it.)

The weather is usually dry for most of the year, although recently we have been getting wet winters. The weather is generally warm in winter and very hot in summer.

Properties here are generally more expensive than in the north, but sales are slow, and there are bargains about.

For more information on the area, do look at my book on Spain.
john

Galicia-2

It is time to move on down towards the Portuguese border, past the town of Cambados, with its 11th century church and square, and a group of Spanish tourists with guide.

This is a charming town, which boasts the official title of Most Noble Town, and the guide books boast about the white wine that is made locally. The town certainly does have a kind of stateliness in its architecture, and obviously boasts an important past.

A festival is held on the first Sunday in August based around the Albariño wine. The grape is noted for its distinctive aroma, very similar to that of Viognier, Gewurztraminer and Petit Manseng, suggesting apricot and peach. The wine produced is unusually light, and generally high in acidity, with alcohol levels of 11.5-12.5%.The thick skins and large number of pips in the grapes can cause residual bitterness.

In the beginning of the 20th century, Albariño vines could be found growing around the trunks of poplar trees and in bushes along the outside margins of a field. When grown in a vineyard, the vines need to be wire trained with large canopies to accommodate the 30 to 40 buds per vine that is typical.

We stayed the night in a small town overlooking one of the rias. The next day we drove down to Santiago de Compostella to look at what lay at the end of one of the most famous pilgrimages of the middle ages.

I have been obsessed with the road to Santiago for years, and have always wanted to make the pilgrimage. Well, there it is. I have mixed feelings about it all, but most of my feelings are not sympathetic. What I see is something that is now irrelevant of course. Only a few people today care about the bones of one of the disciples of Christ, if they are his bones, which is highly unlikely. They were dug up from an old Roman graveyard after about 800 years. But what one sees is a vast church burocracy in stone.

The actual cathedral is in a poor state. The colors that were on the stone are no more. There is no stained glass. The stonework is not dressed. However, the main altarpiece and its immediate surrounds are covered in gold leaf and silver. The whole place reeks of wealth and power. But I dont see any spirituality anywhere. I look at the altarpiece and remember that Christ was born in a shed amongst the cow-shit, and find it impossible to reconcile that with what is before me. There is something fundamentally obscene about it all. It is not so much impressive, as oppressive.

Just to the east of the city is a more intriguing church. I dont usually go out of my way to look at churches, but this one is a trifle odd. It is the Colegiata de Santa Maria la Real de Sar.
Colegiata de Santa Maria la Real de Sar
The Sar is a small stream that winds a mainly hidden way around the city. I had to ask several people where the place was. Somehow I expected it to be a quaint little village church, but nothing in Santiago is as it seems. Santiago is the patron saint of Spain. The bones of one of Christ’s disciples are supposed to buried in the city. This is the end of a great medieval trail. The church infrastructure is massive. Despite all this the place is a sleepy little country town, much smaller than I’d expected, with a small industrial estate that also looked rather sleepy.

The church is sitting in the middle of a car park. There it is squat and absurdly massive because it is supported in all directions by huge buttresses that seem to take up more room, and more stone, than the actual church. On one side is a charming colonnade. Inside is a simple nave with three aisles, and here is the intriguing bit: the church has been built deliberately askew.

I walked back outside and looked at the buttresses. It was all rather strange. Some of the walls seemed to be perfectly vertical, other parts of the walls were leaning seriously askew.

Back inside I stood just inside the door and looked down the nave. The whole church is ridiculously massive. It is built as though someone had to get rid of a heck of a lot of stone. For a small area of worship the height of the church is more than one would expect, and the columns reaching up are deliberately built angled out towards the side aisles. It is all most odd.

There were no tourists. Julie and I had the place to ourselves. I guess virtually no-one knows about the place. But it is worth a visit for the curious.

By dark we make it to Ponteareas, which is close to the Portuguese border. All the restaurants are shut. Apparently they dont open till nine o’clock. However, we had passed one on the way in called Casa Pino that appeared to be open, so we double back.

The menu looks daunting. I order two starters, and wonder if that will be enough. I want to have local specialities so I start with a plate of mussels followed by gambas. A plate of mussels with chopped peppers and tomato is placed in the middle of the table. This is just an appetizer. It is quickly followed by empanadillas (pasties) containing tomato and squid.

The plate of mussels is supposed to be a starter. It contains 20 or 30 of them. And they are huge. I have never eaten such large fat ones before. They are cooked in a delicious sauce, which I spoon up with the shells.

I am beginning to flag by the time the second starter turns up. It is a plate containing about a dozen enormous prawns. I order more wine. I am drinking a rather fine house white.

The price of the meal comes to £16, or thereabouts. I think I am going to have to move down here. I lean back in my chair thinking what a wonderful world it is. When it comes to the bill I find to my horror that they dont accept cards. Apparently that is not a problem, I can come back tomorrow and pay. There are obviously no tourists in this part of the world. How nice.

When I pass by a year later I naturally call in. Sometimes that can be a mistake, but not on this occasion. I shall be returning many more times. This is a very special part of Spain.

To read more about My Travels Around Spain, have a look at my online book.