What to do About Europe - Part
Two
Okay, Part two of
Mike’s questions. Here it is again:
“Do you have any recommendations in regard to
'affordable' coastline properties. We don't need a popular
beach but we love the sea and walking on the shoreline [grew
up on Guernsey!].”
The first question has to be: Why do you want to buy a home?
Buying a home is the same as making an investment. Would you
invest in a bankrupt company? I can’t imagine anyone would
answer ‘Yes’. Okay, so why invest in a bankrupt country? Buying
a home in Portugal is the same as investing in Portugal. If we
are talking bankrupt countries then the list is getting longer
by the month. Greece, Portugal, Italy, Spain. Who’s next? Common
sense would dictate you dont buy in any of those countries.
If you dont believe me, remember that Portugal has never within
living memory been a profitable place to put your money. When I
first visited in the sixties there were 65 escudos to the £.
When the country converted to the euro there were 315. That’s
some fall. If you’d invested in real estate there in the sixties
you would be sitting on a vast deficit calculated in sterling.
And that’s where it counts. What currency is your base currency?
If it’s sterling then beware of currency fluctuations. At
present, a drop in the value of sterling is the preferred
projection, so moving into euros might be a good idea. But if
the EU then collapses three or four years down the line, the
euro will collapse. That would mean you'd lose twice on the
currency alone.
Sadly, a lot of this is guesswork, but if you are over fifty
then the most important decision will be based on the currency
of your income. If its in euros then by all means invest in the
eurozone. If it is in sterling then maybe you should sell a UK
home and invest in eurozone securities and rent in the eurozone.
I’ve done the maths many times before, but here we go again. A
house: what the heck is it all about? For me, it is not about
ownership. It is about use and value, or it is about income. I
bought a house when I was twenty-three years old. It is still in
the family. It was bought and developed as a family home. We
wanted a place for the family to live, grow, and keep as a bolt
hole later on, and it was also to be an investment which grew as
we grew. I shan’t ever sell it, in fact I have just deeded it to
my daughter.
I own property in London. It’s rented out. Those properties are
an income-producing business.
I live in rented accommodation. As I get older I want freedom,
both the freedom to do as I please, when I please, and freedom
from hassle and work and responsibility.
Fungibility is important for anything you own. If you buy a
house in London, you can probably sell it within a couple of
months, and if you want to rent it out you will probably find a
client within days. If you buy in a village in Croatia, or a
tourist zone in Spain or Portugal you will be lucky to sell
within four or five years, and rentals come and go with patches
of emptiness which may last a very long time. And as one gets
older does one want to manage a large garden, or worry about the
drains or the electrics?
Then there is the math. Okay, Mike has €750,000 available.
Invested in an income producing property in Berlin he would be
able to get an income of €75,000 a year. That sounds very nice,
especially if that tops up an existing pension. If you use that
money to buy a house you lose that income. So the financial
question is: would the house you would like to live in cost more
than €75,000 a year to rent? And would the increased cost be
worth what other benefits you’d get from owning?
I’m not sure what other benefits you would get. All I can see
are problems: Rates bills, repairs and maintenance costs,
insurance, maintenance responsibilities (as a renter I get staff
to do the garden and the repairs). All I do is make one
telephone call to get them in, and it costs me nothing. I have
the ability to come and go as I please. If I get fed up with my
home, I can move at a moment’s notice.
The only downside is if the landlord dies and the place gets
sold I would have to move anyway, which might be an
inconvenience.
Where I live a worst case rental cost would be €12,000 a year
for an average property (I’m actually paying €4,800 for a two
bed apartment on 13 hectares of land adjoining an estuary with
its own landing stage, pool, etc). Renting for €12,000 a year
would leave someone like Mike with an income of €63,000 a year
to live on. So my first question has to be, why on earth would
you want to waste money on a purchase?
Your investment can be sold to recoup your cash. Your house will
probably take years to sell. Fungibility: it’s important.
Moving on, where would I go?
This is where it gets personal, so let’s run through a few
options. My first choice would be somewhere in the province of
Cadiz, but I speak Spanish and have lived in Spain for much of
my life. The province is pretty, rural, old fashioned, warm,
civilised and also folksy. If you prefer a warmer sea, then
check out the area around the Mar Menor, which is on the
South-Eastern coast. I have been swimming there on Christmas
Day. If you prefer being close to a thriving city, then try
Catalonia, within striking distance of Barcelona.
Mike is keen on the Med, but for those of you who like the
countryside, a more temperate climate, and a slower way of life,
try a holiday along Spain’s northern coast. Anywhere from San
Sebastian right the way round to Vigo is utterly charming, and
relatively cheap. And the seafood in Galicia is to die for. But
do learn some Spanish before you settle in. And dont forget that
San Sebastian has more Michelin starred restaurants than you can
shake a stick at.
Italian coastal areas in the north are expensive, but some of
the scenery is spectacular. Similar scenery is to be had on the
north shore of Sicily, with easy flights in and out, but
language is often a problem down south. And do remember that
Italy’s banking system is on the verge of collapse. One bank
alone has a €48 billion bad loan book, and it’s share price has
lost 80% of its value this year alone. And that is just the tip
of the iceberg. This is not a country to put money in.
I have no experience of Corsica or Sardinia.
The old coast line of Yugoslavia is very pretty. The living is
cheap, and the weather comfortable. But if you want something a
little different, check out Kotor in Montenegro. This is an old
walled city, set at the end of a fjord. The country is charming,
mountainous, with a pretty coastline, lousy food unless you like
pizza, and friendly people, and the living is relatively cheap.
I spent last winter in Malta. It is not really my cup of tea,
but weather-wise it’s good, although there is a water shortage
on the islands, everyone speaks English, you are never far from
the sea, but both Malta and Gozo are very built-up. I am told
the islands have the most concentrated number of people per
square mile of anywhere in Europe, and the traffic is something
else. Flights out there are cheap. Try the place for a month or
two and see what you think.
If you like culture, you would be hard put to beat northern and
central Italy, or Catalonia. Barcelona has to be one of the most
vibrant cities on the planet. You could stick with France, and
move down to French Catalonia. We have spent some wonderful
times around the town of Ceret.
The bottom line here is to get out of the armchair and have a
look for yourself. So here’s this year’s homework. Check out all
these areas and have a good time while you’re about it. Then you
tell me where you want to live. You might find you like the
travel better than staying put. Six months here, six months
there… Which reminds me…
There is one more option. If you have the money, buy into the
hotel rooms business. You need twelve investments. You buy a
share in a hotel room or suite that gives you 30 days free use
of your room and its facilities as part of the deal, and you
float around the world a month at a time, and your 'home' brings
you in an income for the rest of the year. I’m tempted to join
you.
john