Real Estate in 2016 - Part 3
This is the third part
of my annual roundup of property analysis but quite deliberately
with no predictions. Letís first have a look at what ought to be
regarded as a success story, Malta.
I know very little about the place as I havenít lived here for
very long. I do my best. I read the newspaper every day. I walk
the streets and talk to people. I read the official stats, and I
look at the buildings, and peer in estate agency windows.
According to the stats Malta is doing very well. GDP, for what
itís worth, is up by 5%. Itís been rising for a while. I could
give you exact figures, but thatís not the point. The government
is trying to help the islandís image abroad, and wants to ramp
up tourism. There is a lot of building going on. There are cheap
flights from various countries, including the UK. The official
language is English, although the locals do speak their own
language which appears to be a mixture of Italian and Arabic,
which seems reasonable, as Moorish Africa is to the south, with
Sicily to the north
On the other hand, the country looks as if it is just recovering
from a war. Just around the corner from me is an entire street
which is filled with empty buildings. Not a single person lives
in the whole of the street. There are gaping holes, half
reconstructed sites, and general desolation in various areas. In
other words there is quite a lot going on, and quite a lot of
potential property already on the market, and soon to come to
market. Another way of putting that is to say there is a large
overhang of un-used properties that will keep prices down for
quite some time.
A couple of days ago I noticed an article on real estate in the
local newspaper. I assume these figures are correct. The
population of Malta is under half a million yet on one estate
agentís website (Simon Estates) there are 17,603 properties for
sale, and 8,186 for rent. If you are looking for capital
appreciation, now is not the time to buy.
Whatís it like here? Cheap food for a start. My breakfast is so
large that I take home half of it in a doggy bag and have it for
supper. It costs Ä3.90. Bottles of very acceptable local wine
cost anything from Ä3 to Ä6. Bus fares from one side of the
island to the other come in at Ä1.50. And the climate is
reckoned to be one of the best on the planet. Though today (mid
december) the temperature was down to 13 degrees centigrade, and
the wind was very chilly. Yes, we are on a small island, and
The people are generally charming, and several people Iíve
spoken to say how crime free the place is, though I have not
House prices are reasonable, and so are rentals. Ä500 to Ä600 a
month will get you a two or three bedroom apartment in a
reasonably good area. That includes penthouse flats with great
views. Sea views are easy to get as the sea is everywhere.
Here's a picture from my window:
On the other hand, what about the rest of Southern Europe?
Letís start east and work our way west.
Greece? Oh dear. My local paper tells me the Greek parliament
has just voted in more ghastly austerity measures, and life is
grim. Donít expect property prices to rise any time soon. Greece
may still fall out of the currency union at any time. That will
lead to an instant currency devaluation of at least 40%, and
probably a lot more. Who needs that risk?
Italy? Technically broke, but soldiering on. The country has a
massive economy, and it isnít about to go under. The interesting
thing is the way the population is shrinking. Less people equals
less demand for housing. This is a long term trend, and donít
expect that metric to impact on the current housing situation
any time soon, but long term it means static or falling house
Southern France is an enigma to me. Anything I say will be
guesswork, so let me move on.
Spain is in a serious mess. In Andalucia youth unemployment is
at disastrous levels. The economy should survive, but growth
levels are not going to be exciting. Not only that, but there is
the ever present problem of regionalism. I donít for one minute
think that Andalucia is about to exit from the union. Despite
the noises they make I donít see Valencia taking the plunge, but
Catalonia is another matter altogether.
I would hate to speculate on what will happen here, and how it
would affect the rest of Spain, but the risk is on. Catalonia is
an older country than Spain, and itís first parliament goes back
to the tenth century. Catalan is an accepted European language
these days, and the local feeling is strong. The area is also
unhappy at what it sees as the subsidy it permanently gives to
the rest of Spain. This problem is not going to go away.
Once again, short term, this will not cause a problem, but
longer term itís another case of risk on. Spain without
Catalonia would be a disaster. I love Spain, and I may well
retire there as, to a large degree, it is my spiritual home, but
I have no intention of buying any time soon.
On to Portugal; a country I know well. This is a great tourist
destination. It is nice as a place to get away from it all, but
it has institutions that are still grounded in the middle ages.
It is riddled with corruption at all levels. There is no rule of
law. The police and the lawyers and politicians of all levels
are above the law. Fines are arbitrary, and the courts system
has a backlog in excess of four million cases (call that ten to
fifteen years backlog).
In Portugal there is a strong tendency to deny the future.
Anything that is new is at best ignored, or at worst, is
outlawed. I mentioned in a previous blog how private capital is
stealing business from the banks. In Portugal there are moves to
make crowd-funding illegal. In fact, almost all forms of
disintermediation are regarded as pernicious. This will continue
to keep Portugal an expensive country in which to live, and will
continue to prop up inefficient and old fashioned mechanisms
which are out of step with the rest of the commercial world.
What this means is that Portugal is a place for romantics. But
you have to take the bad with the starry-eyed. That means
massive corruption leading to price fixing on an outrageous
scale. Want an example? The average tax on a barrel of oil
recovered from the ground is about $10. The rate set for the
Algarve is 10 cents. And the contracts are secret, so you donít
know who is getting the rake off. The difference isnít going
into the public exchequer. Itís going into private pockets. This
means your tax bill is higher to compensate.
People are being made homeless on the islands around Faro
because fat cats want to develop the area for high value
tourism. Homes are being bulldozed, and people are being made
homeless. They get no compensation, and the government
This is a country where the government is your enemy. Class
distinction is serious in Portugal. There is an elite who run
the show. The rest are regarded as serfs. Thatís how things were
in the middle ages, and thatís how it is in Portugal. Thatís why
the sensible person keeps assets out of sight, preferably
abroad, and keeps a very low profile. If you have a home or a
business, you are ready to be screwed.
Property is over-priced, and rents are low. Thatís why it is a
place where you should rent not buy. The same goes for Spain, as
both countries, like Malta, have an insane backlog of unsold
properties. There is also a mid to long term risk of the country
failing economically and backing out of the eurozone. That would
lead to a serious currency devaluation of at least 30%.
The most important metric in all these places is the looming
economic catastrophe. The last thing a prudent person needs to
do is commit to a large financial investment just before a
crash. I know it may not come for another two or three years,
but when it does come there is going to be a mess.
As I have been saying for years, bargains can be had at the
right time. That time still is not now. The best mantra I can
give is: Rent and wait.
Mind you, I am currently living in a four star hotel. My current
'rent' is Ä52 a day for a two bed, two bath serviced apartment,
with indoor and outdoor pools, high-tec gym and jacuzzi. My
bedroom is 4m by 5m, and my living room is 5m by 6m, so it is
hardly cramped. My housing costs therefore are roughly £1,100 a
month, with all facilities thrown in, including staff. The sea
is blue and less than 100 yards from my balcony, and I can watch
the oil tankers plying their trade backwards and forwards
between Libya and Italy.
That's a weekly rate. For a six month stay my 'rent' would be
less. And remember: I have no rates bill, no electric bill, no
pool maintenance, no wifi cost. And when I feel like moving
somewhere else, I give a week's notice. It's the ultimate
timeshare but without someone else controlling it.
<<< Part Two