Will Spanish banks survive?

Back in 2009, a friend of mine asked me " if the Americans had to "nationalize" many banks and had to inject moneys in GM and others, if the British, French and Germans had to follow the same recipe, if Iceland went broke, ...how is it possible that Spain had n casualty among banks (with the exception of Caja Castilla La Mancha).

Now we know how it happened,

...it is because the Bank of Spain (Regulator) consistently swept the reality under the rug.
Now 178.000 millions of euros derived from losses in the real estate market, have to be acknowledged.
The economy of Those actions should have been:
1 - To recognize that the price of houses, apartments and land were decreasing as rapidly as they had been growing before (1990 to 2007).
2 - As a consequence of that a higher loan to debt ratio was requiring a higher capital level
3 - The decreased economic activity and high unemployment rate (24%) were deteriorating the quality of the RE portfolios of commercial and saving banks.
Now May 2012 the Government has to inject capital in the fourth largest bank (Bankia), has already capitalized other seven institutions and it will be required that the whole system creates reserves for additional 50.000 millions of euros.
The consequence of all this will be weaker financial institutions simply because the government did not do what it was suppose to do.
The lack of actions from the Government of ex President Rodriguez Zapatero (April 2008 Nov.2011), worsened the situation of the whole financial system, which until the 2007/8 crisis was considered one of the strongest of the world.

Buying property to let III

Real Estate seems to be a good decision these days, for those investors seeking for safety rather than immediate gains. Investors tend to maintain their investments in areas that they know better. Stock exchange investors prefer to stick to their usual investments in that market rather than diversifying to other segments like Real Estate.

Diversification, if well managed, means a safer way of investing.

I recommend to have a balanced mix of types such as investments in Euros and US dollars for example.

This seems pretty basic but some people that recently contacted me had not paid any attention to this very basic fact.

There are many programs in the market for sophisticated investors to combine several types of investments according to each individual risk appetite.

Those theories have been used for several decades and they are effective. Nobel Prize Harry Markowitz back in the sixties generated his theories and tools to assist investors to create balanced optimal investment portfolios.

Some investors do not need to reach those levels of sophistication but rather to stick to basic principles such as definition of investment strategy (Return, time, and risk appetite/aversion, etc) and diversification.

For those deciding for Real Estate as a safe place to put their monies. We may recommend to define their level of investment and location

Combining these two simple variables is the key for a successful investment decision.


 

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.