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Archive for the ‘General Opinion’ Category
In my previous blog, I listed some examples of how respected organisations like the BBC, Irish Times and Business Week can give US housing a big thumbs up in one month and a big thumbs down just a few short weeks later.
The reason, as I mentioned, was because the looked at housing trends over a period of weeks rather than months or years. In addition to that, those particular weeks (between June-July 2010) were particuraly volitile because homebuyers were rushing to meet a government imposed deadline.
The well publicised first time homebuyers credit expired on June 30 and so a property sale must be completed by that date if the new owner wanted to get his or her tax credit. As any economist would easily have predicted, the average for June and July was normal, but sales that would have naturally closed in July were pushed forward to June.
And so, June sales were higher than they should have been “Sharp jump!” and July sales were lower than they should have been “Record low!“
Let´s take Tampa Florida as an example (which is near our stunning Waterside at Coquina Key development).
If you look at the June (2155) and July (1486) sales for 2010, they average 1820 sales per month. Sales in June and July 2009 were 1876 and 1885 each. Sales in June and July 2008 were 1481 and 1431 each.
Nothing too exciting there - this year was same as last year and much better than 2008. The expiry of the tax credit simply meant that June and July this year are particularly bad months to examine housing trends.
The six monthly figures for Tampa are a little more useful
Feb-July 2008: 9,497 sales
Feb-July 2009: 9,651 sales
Feb-July 2010: 10,731 sales
Doesn´t exactly lend itself to dramatic headlines does it?
The national figures are even more illustrative. There were 4.58 million properties available for sale in July 2008. In July 2010 there was 3.98 million. In other words, even with record foreclosures in the past two years, there were so many people buying properties that housing inventory levels had fallen by 600,000.
Let´s look at an even longer timeframe (and I´ll stop boring you with stats after this!). Even allowing for a poor July, Annual housing sales in the USA should be approx 5 million in 2010. To place in perspective, annual sales averaged 4.9 million in the past 20 years, and 4.4 million over the past 30 years.
The point I´m trying to make is that comparisons always need to be put into perspective and useful ones are always over a longer time frame.
You don´t have to be Warren Buffett to realise that reacting to monthly movements in activity and price levels makes for exciting headlines but it is unlikely to make you rich. You´d be better off researching a few things very well, making a medium to long term plan, and then sticking with it.
That´s what Torcana do in Florida, and investors have very kindly started to thank us for it online.
Kind Regards
Colin
August is usually a quiet time of the year for newspapers and magazines and so the latest housing figures in the USA received wider attention than they usually do. Judging by the way the headlines were complied however, it would seem summer silliness isn´t quite over yet.
Consider the headlines from last week:- “US Home Sales Dropped to a 10 year low” (BBC)
- “US Homes drop to their lowest pace in 15 years” (Irish Times)
- “Sales of US Homes drop to record low” (Businessweek)
Hmmm, well no, it´s never that simple with these numbers unfortunately. If you looked for similar stories within these same reputable news organizations 4 weeks ago, you would have noticed an interesting contrast…
- “Sharp jump in US housing sales” (BBC)
- “Positive US Housing data lifts investor confidence” (Irish Times)
- “Sales of foreclosed homes are up nationwide” (Businessweek)
The above headlines might seem nonsensical when put beside each other, but the reason these respected organizations are giving US housing a big thumbs up in one month and a big thumbs down just a few short weeks later is easy to explain. They are looking at housing trends over a period of weeks rather than months or years. In addition to that, the last few weeks have been particuraly volitile because homebuyers were rushing to meet a government imposed deadline.
View our next blog if you´d like to read more on this subject.
Regards
Colin
I hope everybody had an enjoyable summer break. I was fortunate enough to spend a few weeks in the north western coast of Spain, in a lovely Galician fishing village called Sanxenxo.
Winding down somewhere scenic and reading a few interesting books* is a great way to relax and recharge the batteries, but thank heavens for Blackberries and wireless internet connections.
Oh they have their faults, I´ll grant you that, but I´d never be able to bring the family to the coast for a few weeks without them.
Like it or not, I can see this type of “working” vacation becoming ever more popular as the years go by.
* My holiday reading
1. The Big Short, Michael Lewis
2. Race of a Lifetime, Heilemann & Halperin
3. False Economy, Alan Beattie
Kind Regards
Colin
Harsh as it may sound, there are several ways those who are still liquid can profitably take advantage of a global downturn which is still causing much suffering to others 3 years after the credit crunch began.
One of these ways, which Torcana identified more than two years ago, is to purchase highly discounted and undervalued properties from distressed sellers. To maximise the return and minimise the risk of these types of properties, they must be purchased
- in wealthy, democratic economies
- with a history of renewal and recovery from recessions
- in fundamentally sound cities and neighbourhoods
- where locals rent long term
- where locals have and are currently purchasing these properties
Apart from that, the properties must be fully completed, cashflow positive and in well located and well run buildings or communities.
I´m sure there are plenty of other types of properties that can make you a healthy profit, but these are the ones we´ve identified with the best risk/reward ratio. It´s difficult to see how these kinds of properties will give any serious problems over the next 5 years and the potential benefits are huge.
So our criteria is very strict, but we´ve found plenty of properties that tick all these boxes and the latest is Arbor Lakes in Orlando. Here you can buy for 30 cents on the dollar in a beautiful and pre tenanted condo with 7-9% net rental yields.
If you haven´t received an information pack, please send an email to investments@torcana.com and request one.
Kind Regards
Colin Murphy
“Too much” is a very vague term. It would be more accurate to say “What happens when people don´t want to lend to governments anymore”. Nonetheless, if a debt or a deficit is perceived to be too high, a country needs to borrow less, spend less and/or grow more. These are very difficult options.
For Ireland this meant higher income taxes, higher VAT, lower public salaries, higher retirement ages, lower capital spending and less state support for the elderly and children. Tough medicine to be sure, but I´m proud to say we had the stomach for it, unlike lots of other (mostly Mediterranean) countries that should be taking similar measures.
France is a good example. There was a massive public uproar recently when the retirement age was increased … to 63 years ….in small increments between now and 2018. They´re getting no sympathy from me!
Germany, on the other hand didn´t need to do anything nearly as extreme as the Irish because they are a conservative and prudent economy with low wages and high productivity. Between 2001-2006 they were drinking diet cokes while the Irish, French, British and Spanish were downing straight whiskies and margaritas. Their finances were fine and thanks to their awesome economy they can grow their way out of a recession a lot quicker than everybody else.
These are among the reasons we´ve started promoting multi tenanted German properties in key locations.
Feel free to call or email me (investments@torcana.com) if you´d like to learn more.
Kind Regards
Colin Murphy
A government’s debt is simply the total amount a country owes to its borrowers and the total amount owed is often expressed as a percentage of GDP (the size of its economy).
Governments usually borrow money by issuing a bond, which are mostly bought and traded by banks and investment funds. If it is a 10 year bond, the country pays a fixed interest rate to the bond holders every six months and then pays back the principle after 10 years.
For example, let´s say a 10 year old country with a €100 million economy has been borrowing €10 million every year. It´s total debt will be €100 million, which is 100% of its GDP.
Greece has been making headlines lately because its debt has reached 113% of GDP, which is one of the highest in the world and almost double the 60% limit imposed (in theory!) by the EU.
Government Deficit & EU Crisis
You could be forgiven for thinking a government deficit is something weird and complicated, but it´s not at all. It is simply the difference between what a country earns and what it spends in a fiscal year.
For example, let´s say Country A earns €100 million in 2009 from taxes collected and profits on government funds. During that year it also spends €110 million in health, education, defence and other public services. Its deficit is €10 million or 10% of its GDP that year.
The fact that pretty much all countries in the EU not just broke but tore up their own rules regarding debt limits (60% of GDP) and deficit limits (3% of GDP) has caused all manner of jitters in the financial markets this year.
Greece was the worst offender overall in 2009 (debt 113% and deficit 13.6%) although countries like Italy had a higher debt ratio (115%) and Ireland had a higher deficit ratio (14.6%).
So there are 16 countries in the eurozone all using the same currency, but they have very different levels of debts, deficits, unemployment levels and recovery measures. That worries people.
The same could be said for the USA (Texas is quite healthy, California is certainly not). Of course, this overlooks the fact that the USA is a single political entity whereas the EU is anything but.
A US President is quite restricted in domestic and economic policy though. Republicans don´t want to increase taxes and Democrats don´t want to decrease services.
Messy compromises in both Brussels and Washington then!
Kind Regards
Colin Murphy
Like many of our readers, I’m the type of person who tunes in regularly to radio chat shows, current affairs programs, newspaper reports and financial magazines.
I do my best to keep on top of how the global turbulence is affecting our governments, our house prices, our labour markets, our stock markets and our changing consumption habits.
There are lots of commentators out there who seem very qualified and sound like they know what they’re talking about when discussing concepts like recapitalisation, debts, deficits & credit ratings and yet, with a few notable exceptions, when I’ve finished listening to them, I’ve usually forgotten what the question they were supposed to be answering was.
Sound familiar?
The BBC website has a great “jargon dictionary” for laymen. It can be viewed here if anybody would like to have a look.
Kind Regards
Colin Murphy
CONFUSED BY THE Government’s latest extension to its deposit guarantee scheme? Don’t worry, you’re not alone. In fact, all the comings and goings have left many readers in the dark as to how well their savings are protected.
When the scheme was first launched at the height of the credit crisis in September 2008, the guarantee, which covers all deposits with certain named institutions, was due to last until the end of September of this year.
Then, last December, the Eligible Liabilities Guarantee Scheme, covering term deposits in qualifying institutions in full for up to five years was rolled out.
Now, following approval from the European Commission, the initial scheme has been extended until the end of December 2010. But what does the latest extension actually mean for savers and should they be worried about the security of their cash?
WHAT PROTECTION DO I HAVE ON DEPOSITS OF LESS THAN €100,000?
If you have money on deposit of less than €100,000, then the amendments to the guarantee scheme won’t affect you. Instead, you will be covered on amounts up to this figure by the Deposit Guarantee Scheme (DGS), which applies per person, per institution and has no end date.
So, if you have €50,000 deposited in three separate institutions, you would, if the worst came to the worst and all three banks collapsed, be covered for the full €150,000.
The scheme applies to: current accounts; demand deposit accounts; term deposit accounts; share accounts and deposit accounts with building societies; and share accounts and deposit accounts with credit unions.
Its reach extends to 16 deposit taking institutions in Ireland, or shortly 14, as both Postbank and Halifax are on their way out.
WHAT ABOUT DEMAND DEPOSITS OF MORE THAN €100,000?
While the first €100,000 of your money is covered as normal under the DGS, the latest extension to the guarantee scheme means that any balance in excess of €100,000 is also covered until the end of this December.
Read the remainder of this excellent Irish Times article here.
Kind Regards
Colin
I´ve had a few clients ask me about the new Irish government bonds recently and what the pro´s and con´s are for these versus a real estate investment.
Whilst these bonds guarantee a standard rate of return, in reality, they are not offering anything new, with some of these incentives already achievable through various savings schemes already in place. The main points are –
1. Interest Rates are fixed at 1% per annum, and DIRT is payable on the interest earned.
2. Bonuses are the only part of the scheme which are not taxable and you must leave your money in for a minimum of 5 years to receive any bonus (10%), 7 years to receive a 22% bonus, and 10 years to receive a 40% bonus.
3. After 10 years, the net return after DIRT would be equal to 3.96% return per annum – which certainly isn´t enough to get me to part with my cash for 10 years.
Additionally, these figures do not allow for any inflationary indexing. In other words, as the value of products and services go up, the value of your investment remains fixed, and there remains the very real potential that any interest and bonuses earned will be dramatically wiped out due to rising inflation.
Further information available here
Compare this to the “bricks and mortar” test in Florida –
1. You will achieve an annual rate of return on your investment at a minimum of 7 to 8% net of all costs. Due to the allowances and deductions which exist, you should never reach the tax thresholds in the States where you are have an income tax liability on the net rental income achieved.
2. The rental leases are signed on an annual basis and you can expect them to increase year on year in line with inflation, thus protecting your net rental return from any significant inflationary increases. The bond scheme offers no such protection.
3. The capital appreciation potential in these severely discounted properties is very real in the medium term and would certainly have the potential to outstrip any potential bonus offered under the government scheme (bear in mind you only receive a 10% bonus after 5 years, expect your condo to increase in value by more than this during the same period).
4. If you hold the property in Florida for the full 10 year government bond investment period, at a minimum you can expect a 7 to 8% annual rate of return on your investment every single year (a much higher rate of return than the bond scheme), and you will also benefit from significant capital appreciation after 10 years.
5. Your rental return will be in dollars, a very safe and strong currency at the moment, and certainly a lot less volatile than the “eurozone”. If the euro weakens any further against the dollar your rental returns will increase significantly in euro terms, as will the value of your investment.
6. Our Florida based investments are available for are approx 70% less than previous verifiable sales prices, and cost around 50 to 60% less than it would take to build the condos today.
7. Florida is an area of the States with excellent infrastructure, year round sunshine and lots of economic diversification. It is much better positioned to recover from the “bust” cycle than Ireland is at the moment.
Kevin Cross, Torcana
Over the past 3 years a wide range of governments, regulators, banks and buyers have collectively been suffering from what might be described as Icarus Syndrome.
Laws and tax breaks were installed to encourage rampant construction of apartments, offices and hotels in dubious locations. “Soft touch” regulation was all the rage and banks were competing with each other to see who could rubber stamp the most loan and mortgage application forms in the shortest possible time. Buyers were borrowing beyond their means to purchase overpriced property developments around the world.
Too many thought they could keep on flying forever until finally, in early 2007, Icarus like, they soared too close to the sun and fell back to the ground with an almighty thud.
While all that craziness was happening, there was one country that paid no attention to the excesses of its neighbours during the boom.
Their banks didn´t get carried away with huge loan to value mortgages and their citizens generally saved more than they spent. Economic growth, rental rates and property price inflation were all stable and steady. It was and still is by far the most important economy in Europe and has been a profitable and safe haven for investors for decades.
