Unique Property Blog

Real Estate in 2016 - Part 3

This is the third part of my annual roundup of property analysis but quite deliberately with no predictions. Let’s first have a look at what ought to be regarded as a success story, Malta.

I know very little about the place as I haven’t 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 it’s worth, is up by 5%. It’s been rising for a while. I could give you exact figures, but that’s not the point. The government is trying to help the island’s 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 agent’s 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.

What’s 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 €3.90. Bottles of very acceptable local wine cost anything from €3 to €6. Bus fares from one side of the island to the other come in at €1.50. 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 it’s windy.

The people are generally charming, and several people I’ve spoken to say how crime free the place is, though I have not checked statistics.

House prices are reasonable, and so are rentals. €500 to €600 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?

Let’s 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. Don’t 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 isn’t 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 don’t expect that metric to impact on the current housing situation any time soon, but long term it means static or falling house prices.

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 don’t for one minute think that Andalucia is about to exit from the union. Despite the noises they make I don’t 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 it’s 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 it’s 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 don’t know who is getting the rake off. The difference isn’t going into the public exchequer. It’s 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 encourages this.

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. That’s how things were in the middle ages, and that’s how it is in Portugal. That’s 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. That’s 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 €52 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.

john

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