August Newsletter First an apology. Sorry for deserting you for the last month, but I have been back in the UK working silly hours. I used to live in a bit of Marshall Aid housing on the edge of London. The local authority, with no care for our national heritage, made me pull it down. I have had to completely rebuild, producing a pleasant, but not so interesting, wooden frame chalet style bungalow. Not only have I had to rebuild, but the planning mob moved in on me and insisted first that I could not pull down the old place and then rebuild without getting planning consent, so I suggested building the new place round the outside of the old one and then pulling down the old. That satisfied them. I can extend the building by 10% or 50 cu.m. without planning interference. Then the blighters changed their minds and said I could only extend, not build and pull down, which led to an absurd compromise. I suggested pulling down one part of the building one year in order to extend my kitchen and living room. That was fine. I suggested that the next year i might decide to extend the bedrooms. That was also fine. This summer is that second year. The structural work is now complete but for the past 15 months the place has been total chaos, with rooms and roof not quite meeting in the middle. I have had nowhere clean and peaceful, and my gear is stashed around in boxes both inside and in the garden, and if I run out of teacups I have to lurch across a mud patch, root around under tarpaulins for the right box, and see if I can augment my supply. The Dining Room! If I could find the cable that links my camera to the laptop I'd pop in some pics, but I dont know which box it's in. On the other hand I have just remembered that I have a built-in camera in this machine, so I may wander around pointing the computer screen at things and clicking buttons, and see what happens. Chalet surrounded by mud. (Done as an old fashioned sepia print.) What all this has meant is that I have been getting up at three in the morning, doing office work, and then having a rushed breakfast at six, then tearing off to the various builders merchants to order materials (they open at seven in the morning). I can then be back on site for an 8.00 a.m. start, when my son, and my Bulgarian builder arrive. When they leave at five I have to spend a couple of hours finishing off things and clearing up, and getting ready for the next day. I then do my email, and with any luck, by 8.00 in the evening I can start making my evening meal. An hour later I have collapsed, and try and find room in the bed for some kip. The problems are serious. The weather usually manages to screw up most activities. And access is insanity itself. I live half a mile from the nearest road. The view across the lake is wonderful, and I must have one of the very few London gardens from which you cannot see another house. But builders wont walk up the path carrying gear, so I have to do most of it myself. Getting sand and cement on site is a ghastly business. It takes hours to get it from lorry to garden, via my estate car, and then a series of trolleys. The wood we get delivered to the car park on the other side of the canal, I then chuck it on a couple of pallets roped together, and I tow that across the canal using a borrowed rowing boat. I get t.v. companies asking for interesting building jobs to follow, but no-one seemed to want to follow mine, which puzzles me, as I thought it would make fabulously amusing t.v. After all, how many building sites have a septic tank delivered which is then chucked into the canal, and towed up to the bank alongside my plot, and then the ridiculous struggles we had to go thru to get the bloody thing out of the water again. But I digress. What's happening in the world of property these days? Things in the west have slowed to a crawl. I am sitting tight with what I have left, but I have liquidated two-thirds of my UK portfolio. Those of you who follow my ramblings over the years will know I have advocated getting out of the UK market for the past four years. I have also suggested that anyone who is mortgaged with a loan-to-value of more than 80% is mad. 70% would be more realistic. My own ratio is closer to 50% at the moment. I can afford to giggle at what is going on. Altho, that is not strictly correct. I am trying to raise a new loan on a 3 bed London property and I am getting nowhere. It is the usual situation: banks are run by people who dont know the business. They lend when prices are too high to justify the business, and when things come back to more realistic levels they dont want to lend. How is it that so many people go to work in a business they dont understand at all? I read several magazines and tip sheets. I still see people advocating buying the cheap US property. Ha ha. You buy at the bottom (if you can find it), not on the way down. I remember being told in all seriousness by an IFA who had passed loads of exams and was supposedly an expert in money management about this wonderful scheme called 'pound/cost averaging'. It was a wonderful marketing idea to get people to spend money when fundamentals were bad. The idea was that if you kept investing as prices decreased you lowered your average purchase price which was supposed to be a good thing. I tried unsuccessfully to convince the idiot that if he spent money every month buying something as it's price dropped, whereas if I waited for the bottom before buying I would end up with more value than he would by buying all the way down. Buy as US prices go down by all means, but the carnage is not yet over. Patience folks. Give it at least two more years. I will buy cheaper than you will, and I'm in no hurry. Ireland's property market has crashed rather badly. I wont be looking that way for some time to come. I warned people about Spain three years ago. They are in the middle of a serious property crash, and the economy is spinning on the edge of disaster with double digit unemployment, and serious foreign reserve problems. Dont touch it with a barge pole. Patience is required here as well. Give it another three years before even thinking about it. Dont even look at any offer of price reductions. Dont even think about off-plan. In a crisis you buy not from the professionals, you buy from distressed individuals who are stupider than you. The professionals who know what they are doing have been out of the market for years. Those who are still in it are fools who are going bust. They desperately need your help to get them out of a fix. Wave to them by all means, but sit on your cheque book. The UK? Umm. The old country is creaking a bit. Best left well alone. What about the rest of Europe? France and Germany are not in good shape, and Italy is showing a falling market. My own preference is for waiting until Italy gets into a worse mess and then picking up some nice deals. Again, there is no hurry. I just love watching the falling prices. Think of it as rain. When the rain stops you can go out to play. But dont go out while it is still raining. It's raining all over Europe. Here are a few salient facts. Spain: Housing sales are down 34% from their peak. The banking system is at breaking point due to the excessive lending on speculative property. Dont expect the worst until next year, and then there will be the silence following the disaster, followed by the re-grouping. The time to buy will be when the banks need to sell off all that repossessed collateral. We are nowhere near that yet, but I'm quite looking forward to it. Food prices: Rising at 10% a year. Oil prices are coming down, as expected. The western economies cant function with oil at those high prices. Emerging economies quite simply stop emerging at those prices, and the rest stop importing oil altogether. Some countries in Africa dont have buses any more, and shops that are too far from the ports dont have imported goods on the shelves. I still like Brasil. The economy is lurching forward. The currency is strong. They have plenty of food and plenty of oil. It's the place to be. I still like China long term, but they are in a bit of a mess now. 58% of their water is undrinkable. There is likely to be a banking crises if things go on as they have, but there will be a rapid recovery from any collapse. Their stock market is down 50% from last year's highs, so investors are a lot poorer, but it will rebound, and south-east Asia will benefit in the longer term from China's increasing riches. Finally, I have to admit to a certain amount of amusement at the contrast between China and America. China gets richer as America gets poorer. China goes capitalist as America goes Socialist. I've invested long term in Japanese property REITS. They are not doing well, but they are for the long term so I haven't even looked at their value over the past three months. I dont think I've made a mistake, but..... I'm invested in the eurozone. The euro has risen rather a lot recently. That's been bad for exports, altho it has cushioned some countries a little against the rising cost of oil. This has meant a very low level of economic advance. It also means we are probably headed for cheaper euros sometime later this year. However, I cant help feeling that the euro wont drop too much as it is becoming the international trading currency of choice instead of the dollar. People want the currency. If something is wanted, it's price stays high. On the other hand, i wouldn't want to bet money either way. Yikes, it's raining outside again. I'm returning home to the Algarve shortly, from there I think I will buy a ticket to Brasil, where I am told the sun is shining and things are going just fine. Come up and see me sometime. Best wishes john

© John Clare and The Property Organisation 2008