Buying property to let II

Again property is normally a good safety net for savers worried about the future economic developments.

Although there is no guarantee of profits in the short term, my experience is that, by buying property is a sound and conservative strategy. If you are looking for returns in the short terms, you should be looking at other alternatives like the stock exchange or commodities (gold, oil, etc).

In the case of property your first analysis should be prices. How are they if you analyze a twenty or thirty years trend. 

Even in the case of buying when prices are relatively high, there are always good opportunities since, sometimes sellers are there with the immediate need to sell for different reasons. In any event it is more convenient to buy in a buyers scenario, that is when prices are going down, there is more offer than demand and the buyers kind of fixes the market dynamics.

Take a look at Spain these days. The market is pretty inactive. The stock of houses and apartments is high (one million two hundred  thousands of vacant units) The market moves approximately three to four thousands units per year. In this type of market buyers have the chance to make very good transactions simply by picking and choosing.

I would suggest any interested buyer to have a look at this market during 2012 since banks will have to download a number of units they still have in their books. Moreover sellers have been holding the horses for a while but eventually they will have to end up selling at lower prices next year 

Buying property to let

One of the alternatives for investment of surplus Money is this.

Location is the key factor. Renting is not always easy. Having schools or medical centers is usually a better alternative when making a choice of buying property to rent.

As mentioned in previous articles there are web sites that combine the price of property and the rental value on a yearly basis. Using this type of information, you can decide  you investment amount and return on investment.

My personal choice is medium size cities with a clear basis for rental success. Having concentration of hospitals, medical centers or universities nearby is usually a plus in terms of continued rental possibility.

Using google earth and street view you can have a very good look at details of streets, neighborhood, type of community and other characteristics that may help when making a decision.

In next comments we will review more details that are needed when making a decision in the real estate arena.

What to do with your money

In this crisis scenario probably the best recommendation is to be conservative. These comments are for non professional investors but for the regular person with savings and not knowing what to do with his or her savings.
A few weeks ago while in Uruguay someone asked me what can I do with 180.000 dollars which are my "life savings". My recommendation was to buy real estate. Her reaction was a little bit of disappointment. That person was not used to this type of transactions so her reaction was absolutely normal.
Clearly buying a house or an apartment is more complicated than depositing her money in a bank or a cd instrument.
It is also true that once decided to buy, there are many webs and places where to get help in order to make a good selection once you have decided the country where to invest. 
I will try to help those interested in buying to let as an alternative investment. This is based in my own experience in five different countries like the USA, the UK, Spain, Chile, Argentina and Uruguay.
Just one tip, if your choice is the UK, see the web http://www.thisismoney.co.uk/. They give you the best 100 places in the United Kingdom where to buy and let, getting a net return between 3 and 4,5 % p.a.
In next comments we will consider more aspects aimed at making a good decision when buying real estate.

Greece´s default will come in few weeks

A new austerity plan from Greece´s Government aimed at obtaining the new financial help from the EU is under way
The plan will cut some pensions by 20 per cent, put 30,000 state workers on 12 months' notice with a 40 per cent pay cut and extend by at least one year a new property tax.
These measures will surely increase social unrest. This is expected to happen also in Italy and Spain as both countries are showing signs of lack of determination to reduce spending and implement fiscal balance.
In my opinion the situation is manageable from a technical point of view although from a political perspective the situation is explosive.
In first place, the European Union is not showing commitment and determination to put in place the measures needed to re establish balanced National figures in the weakest countries. The northern ones are stronger while the ones in the south are weaker in terms of fiscal situation.
If we see a uniform and firm approach from the leading economies in order to strengthen the Union´s situation, the general perception will change.
In second place The weak Government in Spain, with presidential elections in 60 days is doing nothing. The unpopular figure of the Italian president and his lack of action are not helping at all.
Finally the worst case scenario would be the common European currency disappearing.
I do not see it happening so far, although this is becoming a common topic in certain power circles. 

Don,t cry for it Argentina

Argentina as well as other Latam countries are experiencing increase of prices of Real Estate.

The explanation in the case of Argentina is a combination of prices imbalances (the exchange rate is an unrealistic over-valuation of the peso) which is the characteristic of this rich country in the last five decades. The cyclical peso overvalue and drastic devaluation afterwards in a typical ten years period. The uncertainty of the economic measures that will be taken after presidential elections in late October also contribute for investors to "secure" their cash holdings.

Several investors required my opinion with regards to the Real Estate Market in that country. A quick analysis shows that prices are close to the highest levels registered if we study a time series of prices for the last forty years.

It is time to sell in my opinion. The question then is what to do with the money obtained. The alternatives are various and it will be the subject of my future comments.

Going back to the Real Estate markets in the region, practically all the countries in it are experiencing price increases in the prices of the housing market. This is not a bubble in the magnitudes observed in Spain for example, but it should be observed carefully since price corrections will come sooner or later.

In coming comments we will cover this subject in more detail by country.  

Europe again !

Today´s stocks black Monday in Europe is a consequence of

a) the strong feeling that something bad might happen to the Greek economy since they announced that they will not be able to reach the committed ceiling deficit of 7,5% of their GDP

b) The perception that some European banks are in a weak position regarding credit quality and capital, situation that could worsen if worst come to worst in Greece. If Greece goes south it will surely impact on some European banks that hold their promissory notes.

c) The connection between the situation in the US (banks falling prices on Sept 2nd impacted on prices today Monday the 5th)

All in all and whether we like it or not "everything is connected"

Hopefully we will soon see the end of the double dip recession  

What about Spain and Italy ?

We recently made a reference to the social unrest in the UK stating that the low economic activity and unemployment were the basic reasons for the riots in August 2011. There are other causes from sociological and cultural perspectives, of course.

Having said that, we should conclude that a similar pattern could be followed by countries hit by unemployment (Spain 21% and Italy 8,4%) and low economic activity.

In the case of Spain, it is needed a GDP increase higher than 2% in order for the economy to create employment. In the case of Italy that increase is in the area of 1,6%.

Clearly the adjustment measures required by the European Central Bank is creating certain “social” unrest. Both in Spain and Italy, unions and minority political parties are creating an atmosphere which may end up in serious social unrest.

Spain will have presidential elections on November 20^th 2011. The pools show that the Popular Party (center- right) will win.

According to the recent history, we can expect strikes early next year since the strict  austerity measures requested by the EU will ignite the left wing political parties and unions.

Italy´s eroded image of its Prime Minster, plus its debt ratio close to 120% of GDP and low growth expectations of 0,6 – 0,8% for this year make a dangerous combination regarding social stability.

On top of these worrisome scenario for both countries, the major rating agencies are constantly issuing warnings of quality raising decreases.

Not a very encouraging scenario for both peninsulas in the short term.  

Unenployment plus weak economic activity = social unrest

The youth unemployment rate has doubled in United Kingdom since the beginning of the recession. Unemployment among young people was 20% in the last quarter of 2010 as published in January 2011 by the National Bureau of statistics. This means that one in five people between 15 and 24 years do not have a job.

The British economy (GDP) shrank 0.5% the last quarter of 2010. Although it got a 0,7% increase in the first half of the year, the slugish recovery it is not strong enough to induce employment creation.

This is just one of the causes for the social unrest that led to the riots in August 2011

yes .....recession is here to stay

Undoubtedly the present economic downturns will fade away sooner or later.

If recession nests in the world economy there will be collateral damages in the social fronts worldwide.

What we are seeing in the UK, Greece and to a lesser degree in Spain, will be seen more often.

The social networks should not be blamed for the social turmoil but the increasing number of depleted families throughout the world after  the so called sub prime crisis.

In 2007/2008 the world started a change that is slowly unfolding

Becoming poor is probably worst than being poor.

Preparing for a worst case situaiton...answer to FerFal

I like to answer ferfal ´s following question

Hi! A reader just asked me what to do to prepare for a worst case situaiton in the next 48hs, what would you do this Monday if you knew that the roof wont rise in August 2nd? An interesting article could be, what would you do if you knew USA will default next week?

Hi Ferfal:

In any event a possible default of a Government, generally does not mean instant disaster. In recent years Turkey and Argentina declared default on their debt and the consequences for the population were very bad but not immediate.

The case of the USA is slightly different since it will imply the lack of salaries payment to public sector  employees.  Certain essential services like health, police, air controllers, firemen and the like, would have practical consequences and a striking effect on the population´s perception of safety and coverage.

The medium term effects  in the economy could be dramatic since the cost of financing (debt) would increase. All prices will go upwards. The subsequent deterioration of the economic situation would be inevitable. I would like to elaborate on this aspect in future comments.

Al in all and although this is not the first time that financial collapse is alarmingly near in the USA, the psychological aspects and impact, are worrisome for the American public.

In order to answer  your question, if a financial major problem is near, try to keep as much cash as you might get.... just in case.

If you have health problems, build up an inventory of medicines you need and keep back up of essential goods for every day consumption. Electricity generation is crucial. In February 2010, the hearthquaqk in Chile left hundreds of thousands of people "incomunicados" when their cell phones run out of batteries. Of course there was no electricity for days in certain areas.

In countries like Argentina gas and energy shortages could be a consequence of disrupted distribution services.

For the time being and as we anticipated a few days ago, this will not happen, an agreement was reached today (August 2nd) by the two major US political parties so, relax....and enjoy it, at least for the short run

A new world order is in preparation hopefully it will not be done by organizations like the Bildelberg Conference Group.

The US and Europe.... dancing in the dark

Both are facing serious economic problems. Both will come out of the present situation although with wounds and pain. Europe is fighting to keep its economic union with stronger economies "helping" the weaker members of the Union. Most probably the 27 will maintain their links and uniform currency. New rules and constraints will be imposed to avoid the "big spenders" to get carried away again.

The US will come out at the last minute with an agreement between the two main political parties. However the relevant point here is the size of the fiscal deficit. Undoubtedly the US will have to learn to adjust to higher constraints. Spending has to be reduced and it will be necessary to agree what to cut. Social expense does not look like the accounts to touch momentarily

The new economic scenario

Today July 21st the European leaders will meet in Brussels to decide whether Greece second rescue package will take place and how it will be developed.

Eventually Greece and the other weaker European countries like Ireland, Portugal, Spain and Italy will have to adjust their economies to the required constraints imposed by the severe crisis scenario since the so called sub- prime portfolios crisis burst in 2007/2008.

Regardless of the mechanisms to be used to resolve the present crisis in Europe and the US budget restrictions that is keeping the US economy holding everybody´s breadth, we can be sure that the future is going to be different since most of the population the world is poorer.

Surely there are countries in Africa, Latam and Asia that have been poorer for ages. But, you one thing is to be poor and a different thing is to become poor.

In that sense I think that there will be changes in the social texture and behavior of some countries.

Avoiding to be dramatic I would recommend to read the blog of Feral,  http://ferfal.blogspot.com/2008/10/thoughts-on-urban-survival-2005.html

You will find very good recommendations in terms of safety, personal finances and survival strategies.

On the other hand, for the economic perspective I will continue to post my views, probable outcomes and recommendations on how to evaluate the situations to come and proceed accordingly on economic and financial matters

What the hell are stress tests ?

Stress tests for financial institutions are, supposedly, the measurement of the impact that adverse economic conditions will produce in the situation of a bank or other financial institutions.

That is true but, who decides which are this supposed worse economic conditions?

This is not a trivial point. We remember that back in April 2010 a stress test was effected to European banks. Almost all of them "passed" the exam. A few months later three Iris banks required the financial support of the Government in order to avoid bankruptcy.

The test measurement was not effective.

Last week the European Central Bank conducted a new ser of tests. This time a handful of banks showed a weaker financial condition (lack of capital to support its credits)

We will see if this time the tests were done correctly.

In any event this is a rather complicated subject from a technical perspective.

We will see this in future posts from a simple and understandable point of view

The plot is thickening

Things are heating up in Europe. Fears of the fiscal unbalances and poor management are spreading around. Now Italy is in the  "bad guys group" PIGSI, Portugal, Ireland, Greece, Spain and Italy.
The USA is having its own headaches with the Federal Deficit lack of agreement.
Al in all, we feel that something is cooking, that things are going to be different pretty soon.
The detonator was the 2008 financial crisis although we know that many things in the international system were in trouble long before that.
The "perfect storm" exploded in 2008 and we are still suffering the results. This crisis will lead to major changes around the world. It is my intention to anticipate those changes and to help in the process of adaptation to the new financial, energy and social environments to come

Crisis and opprtunity

Crisis means sometimes opportunities, but only if there is life after it.

The upcoming changes in the structure of the society will be dramatic. Poor people are rising their voices in many countries. Riots are common in many countries almost at the same time.

Many governments are showing very little creativity. The gap between the rich and the poor is growing every month according to the figures provided by each country.

During decades I have been in touch with the decision makers of several countries. The exposure has been such that I feel that I have something to say. I am not a politician, moreover my comments have no political intention whatsoever.

My only intention is to contribute to a better understanding of what is being cooked in the decision centers of this world. My perspectives will be from the economic and financial angles but  adding the human and  social implications of the measures that will be made in the coming months and years.

The US is having problems to solve its fiscal deficit. Europe is struggling with the poorly managed countries which are endangering the common currency the euro.

Apparently only China, India and a handful of other countries will be able to grow consistently.

Let me try to contribute to understand de dynamics of the near future and its threats to all of us