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Archive for 2010
Florida has been very good to Torcana his year with many successful launches under our belts (with Mosaic, Arbor Lakes & Sabal Point being the standouts).
More will follow in early January as we continue to source high end condos with bulk discounts in affluent middle class areas that are pre tenanted by local professionals. Net yields will generally be 8% and prices 70% below peak rates.
Early in the new year we will bring other US products to the market including a variety of bespoke services for investors seeking to purchase multiple units (please get in touch if you´d like to know more).
Lies, damn lies and statistics (Disraeli)
I´ve had US housing numbers coming out my ears this year and I´m going try and ignore them for the next two weeks. For those who don´t want to watch Harry Potter or Willy Wonka on television, there´s no shortage of housing statistics on the USA market available online.
I´ll just give you two graphs in this newsletter though, one which shows the inventory in Orlando over the last 3 years and other which shows new contracts issued in Orlando during the same period.
Off the top of my head, I can think of half a dozen Housing Ministers in the EU and elsewhere that would sell their grannies for stats like these.
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Warm Regards Colin |
That´s it from me for this year folks - many many thanks for all your support during the year.
Wherever you are, and on behalf of all the Torcana team, I hope you have a very Merry Christmas and a successful New Year.
I´ll leave you with a few useful Christmas quotes for those awkward moments when you´ve ran out of things to say.
The Supreme Court has ruled that they cannot have a nativity scene in Washington, D.C. This wasn”t for any religious reasons. They couldn”t find three wise men and a virgin. Jay Leno
Larry Wilde
Warm Regards
Colin
Let´s get the bad news out of the way first. The views I expressed on Ireland and Spain in the Xmas newsletter in December 2009 have not changed one iota. Both are high risk - low return investment destinations and I can´t see that changing in the near term (it will eventually). I also wrote a detailed overview of the Spanish market last month which you can view here.
Brazil will get a lot of attention next year from property investors. Most of the overseas interest will be in the (relatively) high end coastal properties and holiday resorts dotted along the north eastern coast. I´ve absolutely no interest in that though.
However, the second round of a huge social mortgage program (MCMV2 if you want to google it) is quite interesting. Millions of middle income Brazilians are purchasing homes for the first time with government backed mortgages, and there are a several ways international investors can get involved. It wouldn´t be for the faint hearted and it´s still early days as far as my research is concerned. I might have something in 3-4 months though.
Renewable Energy investments will continue to increase in importance in 2011. I´ve been on a steep learning curve with them this year as they are deceptively complex products that come in a very wide variety of structures. I think solar is best suited to regular €50,000 - €150,000 investors and we´re looking forward to promoting these in the new year.
Wind, hyrdro and biomass are more suitable for high net worth individuals. The low entry level (€20,000) forestry products such as teak, bamboo and agarwood strike me as a fad. I´ve looked into about half a dozen of them, some promoted by companies I respect, and I just don´t like the concept. My gut tells me to stay away.
Warm Regards
Colin
When the financial crisis first hit in 2008, the economic and political collaboration between Europe & America was unprecedented. That isn´t happening anymore.
Europe´s citizens (UK included) are now enduring massive spending cuts while the USA is still stimulating its economy.
Or, to put it another way, Europe has checked itself into rehab while the USA wants to inject steroids a little while longer.
Why?
Setting aside the theoretical pro´s and con´s, a big part of the reason is that the US Dollar is the world´s reserve currency and the USA is the only country that can print it. A very large portion of global imports and exports, including crucial commodities like oil, are all based in dollars.
On the one hand, that makes quantitative easing a lot easier, but on the other, countries that hold US dollars (particularly major oil exporters and China) are not too happy about how those actions are diluting their existing reserves.
In the short term however, these tax breaks and stimulus packages should ensure the US Economy has a healthy 2011. It might even continue to be fine in the medium term, but they´ll have to address the debt situation eventually, because it is clearly unsustainable.
Real long term recovery does not involve the US government pumping money into the economy for years on end - that is a once in a generation activity. It is far more important that the private sector figures out new ways to produce goods and services that US citizens and other countries want to consume.
Warm Regards
Colin
If you´ve had a tough year in the office and have spent the past couple of days trying to fly out of an Irish or British airport you could be forgiven for missing this - but the world economy hasn´t done too badly at all this year. The Economist magazine estimates that it has grown by 5% - which is way above what people were forecasting in 2008 and 2009.
Manufacturing is up, global stock markets are doing well and the big fears of double dip recessions in the US & UK never materialised. The economies of Germany, Brazil, China and India - big players all - have been tearing through 2010.
Not so good if live in the wrong part of the EU
While Germany is putting a nice shine on the overall EU performance, the nations on its periphery (Ireland, Portugal, Greece and Spain) are facing a very grim 2011 and all still have the potential to wreak more havoc in Europe and beyond.
Additionally, Europe´s existing banking model is (in my opinion) unfit for purpose and needs serious alterations. Some banks are sick and some are healthy, but almost all have either borrowed from or lent huge sums of money to vulnerable EU economies. A bickering and fractious EU leadership does not inspire confidence at a time when new shocks and major political decisions are almost certainly imminent.
Warm Regards
Colin
As a property agent with a reasonably high profile, we receive a lot of requests from developers to promote their products. An increasing number of these have been Spanish developers offering 100% mortgages (including closing costs) for buyers and high commissions (6-10%) for the agents. They´re usually big developments (500 units+) with facilities such as swimming pools, golf courses, sports centres, shopping malls etc.
I´ve always had suspicions about these developments and so I visited one this week (23 Nov 2010) to satisfy my curiosity. I won´t give away too much information about the resort we viewed, but there are lots of them in the Costa del Sol and it´s highly unlikely we will ever promote one.
The development we viewed had more than 1000 units all told, and although construction has completed, most have never been occupied. The developer told me they were 80% sold, but he actually meant that they´ve taken 20% deposits for 80% of the properties pre construction and most of these buyers have no intention of completing, certainly not at 2007 prices.
As sales fell off a cliff in late 2008 and people delayed closing, the developers cashflow dried up and funds have clearly not been available to maintain the resort over the past 18 months. Mould was visible on every property we viewed with cracks on the interior and exterior walls, walkways and ceilings. No heating or lighting fixtures had ever been installed.
The golf course was overgrown, the sports centre was never started, the shelves on the supermarket were bare, and the entire roof of the indoor swimming pool will need to be replaced due to the inadequate air conditioners that were installed.
The developer clearly owes the bank a fortune and the bank is desperate to divide this debt between 100s of buyers rather than one developer (who is probably insolvent).
Hence the 100% mortgages.
The pitch is that the bank provides 80% on their “valuation”, the developer “pays” your 20% deposit plus your closing costs and then you get your free property with exclusive access to their rental pool.
Give me a break.
So you get a 2 bed property for €250,000 without having to spend a penny. You just need to service a €200,000 mortgage over 20 years at a variable interest rate with a net rental income that probably wouldn´t amount to more than €4,000 per year. Setting aside the substantial problems with the existing and non existing facilities, no other bank would give you a valuation of more than €175,000 and they wouldn´t lend you more than 70% of it.
Clients ask me about Spain all the time and I´ve no doubt Torcana would have quite a few takers for Spanish property like this with 100% mortgages, great facilities and easy access to the beaches and airports. We´d mostly sell them to people who would buy sight unseen. We might sell 50 of these over two months if we put our minds to it, and we´d make a tidy commission on them all.
The only problem is that our reputation would be destroyed within a year, because these are terrible investments.
That doesn´t sound like a sustainable business plan to me and so it looks like we´ll be sticking to places like Florida until other markets become sufficiently attractive (not to mention safe) to investors.
I´m curious about two things.
Firstly, why are Spanish banks allowed to blatantly inflate the valuations of properties on their books and then offer mortgages on them? Secondly, what sort of property agent would actually encourage their clients to invest in them?
The result of all this is that lots of naive buyers are going to get (forgive me) screwed, but they won´t purchase anything close to the amounts of properties needed to reduce the current oversupply and return some semblance of market normality to the area.
Regards
Colin
I was in the south of Spain earlier this week (22 Nov 2010) with an American friend who wanted to purchase a holiday home. I´m in the area often enough, but I haven´t spent time viewing a variety of properties along the coast and in the hills behind it since the middle of last year.
Apart from helping out a friend, I figured it would be a good time to see what had changed and if there were any great deals out there.
After some intensive online researching, we booked appointments and viewed about 17 properties between the two of us. They were located in Las Mijas, Almuñecar, La Herradura, Lentigi and Granada. If you´re not familiar with Costa del Sol, that´s a pretty decent mixture of small vs large towns and coastal vs mountain properties.
One of the village properties we viewed in the mountains of Granada had extraordinary views and was really well priced at €105,000. Most village properties aren´t like that though, and the owners of them generally wanted 30-50% more than any rational buyer would be willing to pay.
Medium quality - it´s not going to work as an investment strategy
With the exception of one (which I´ve discussed in this post) the coastal properties we saw were of medium quality and prices were generally 10-30% lower than peak rates. Think €190,000 for a two bed and €240,000 for a 3 bed, with either sea views, or walking distance to the beach, or both. The trouble with these units is that there are tens of thousands (and perhaps hundreds of thousands) of them all over the Spanish coast.
They´ll make perfectly nice holiday homes, but supply will exceed demand for another decade or more. That makes it difficult, if not impossible, to foresee even modest capital gains for the owners of them.
As for rental yields, you´d be lucky to get 2-3%.
Regards
Colin
Florida has spent most of the past 10 years near the top of many Irish & British buyers list of places to purchase holiday homes and property investments.
According to a recent survey carried out by the National Association of Realtors (NAR) and our own anecdotal evidence from the ground, the international buyer has never been more important in Florida but they are being led not by the British and Irish, but by the Canadians.
Torcana has never had a bigger variety of international clients than we have now. For example, we sold 25 properties to 7 different nationalities in October this year in Sabal Point alone, which included Americans, Canadians, Spaniards, Swedes, Germans and of course, British and Irish.
According to the NAR survey, 36% of international buyers in Florida were Canadian, followed by 16% in Latin America, 15% in the UK and 14% from the rest of Europe.
Setting aside Florida´s natural strengths as a holiday, retirement and investment destination, the combination of a huge drop in property prices (up to 70% from 2007 prices) and a weak US dollar are attracting huge numbers of international clients whose pounds, dollars and euro have never stretched so far.
Another key trend we´ve noticed among our key overseas buyers is the disappearance of the new property purchase and the dominance of the cash buyer. Agents and developers who are depending on sales of brand new properties and/or sales to buyers who need mortgages are in for a very tough time on both counts. There simply isn´t a demand for it.
The statistics bear this out: 81% of all international buyers and 73% of UK buyers in Florida paid for their properties with cash (i.e. no mortgage financing) while 89% of all international buyers and 81% of UK buyers purchased a second hand rather than a new home. These are both enormous changes from just 3 years ago.
The typical two bed apartment we are selling now for $65,000 to cash buyers would have been previously sold for $195,000 to buyers availing of cheap finance. These are prime properties in great locations which can be sold either vacant or with a tenant already in place, depending on whether the buyer is a pure investor or somebody seeking a holiday home.
So it would seem that the buying opportunities are still there for those with the means and ends to get them.
Just don´t be surprised to see keen eyed Canadians and Latin Americans joining you in the taxi queue at Orlando International Airport next time you pay the Sunshine State a visit…
Regards
Colin
Places like Canada, Hong Kong, Singapore and Australia are all going in the opposite direction to Ireland & Spain - these are overheated markets and prices are rising much faster than they should be. 
Regards
Colin
Ireland isn´t quite as deluded as Spain (at least the statistics are reliable), but properties are still overvalued. An “off market” bulk deal that landed in my inbox a couple of weeks ago serves as a prime example. It was 40+ tenanted apartments in a central Dublin location with an asking price of more than €20 million. The gross rental yield was 2.6% - which I can get in a bank. I wouldn´t have bought those apartments for €10 million, never mind €20 million.
