Thursday, September 11, 2008

Talking Holiday Homesick Blues

Picking up an International Property magazine such as those one finds in the BA lounge is good place for one to begin to imagine the full extent of changes to be wrought by recession, deleveraging, and higher energy prices (even taking into account recent falls and probabilities that they diminish more). Development after development of golf course, seaside, quay-side, urban-destination-side shitbox holiday homes and bungalows percolates through the pages searching for unwitting saps still unaware of what the future holds. Portugal, Greece, Spain Cyprus, Dubai, Turkey, FLorida Gulf coast and all manner of remote pacific isles (heretofore unheard of except by those prone to thumbing the Times Atlas of the world for amusement) beckons buyers with bikini-clad women, freshly-painted exteriors, lushly-manicured gardens in areas devoid of water, and bull-market tag-lines that implore readers to seize the good life they aspire-to and more importantly deserve, while touting the investment merits of past and future-promised returns. These are not the palaces and estates with split-panel multi-lingual Russian-English descriptions - themselves sure-to-be effected by the 50% drop in the RTS and assault on Mechel - but the ones being peddled to those that already have-been, are, or will soon be further squeezed in the vise of deep economic recession, asset-price deflation and restricted credit. Woe be he or she that is tempted by such disingenuous dross.

One need only cursorily observe the near-complete reversal of the virtuous feedback loop of seemingly unlimited cheap credit, low real-terms liquid hydrocarbon prices, declining savings rates, low and declining unemployment rates and proliferation of cheap air transport to understand just how vulnerable and absurd these development pecadilloes appear at present begging the question of who will ultimately take title of these, and at what primary and secondary market prices these will clear. Merely look at Spain's bust to see what lies in store - and this is all before the pain in the real economy has begun to be felt in its inverted glory.

Now, with we in the developed world face dramatically curtailed consumption, higher unemployment, lower core asset price and associated wealth destruction, probably higher taxes or higher imported goods prices from Asia (depending upon which course policymakers choose) creating a spiral that in the process will slaughter (amongst other things) such feeble and fatuous projects such as those pitched next to Panerai watches and Brioni suits.

In 2006, there were so many glossy property magazines being stuffed into the mailslots of SW London flats, one could only imagine the deforestation and coated-paper chemical cocktails required to support it. Such tell-tales are useful indicators in discerning "tops" and manias. Now in latter half of 2008, such panderings of real estate porn are down to a trickle, as estate agents stare forlornly at window shoppers from their desks. And as surely as Sterling is overvalued, developed nation wages will NOT be rising any time soon, and all this will be destructive destructive to corporate earnings (and thus share prices), the international second-home property spec bonanza for people who cannot really afford it is certain to follow the same fate, with few, least of all yours truly, shedding any tears over their transformation from perceived bricks & mortar to Castles Made of Sand.


Anonymous said...

Do keep in mind that not everyone went mad with property. Those left to buy now are going to get stunning deals. There are nice deals on fine, and less fine, properties in Florida.

And in poor California, take a look at the opening bids suggested in an upcoming auction at:

California now has affordable housing. Mexico is about to buy back the state lot by lot at a discount!

tooearly said...

Cassandra: any thoughts on the Japanese real estate markets (non-commercial)?

Anonymous said... why not sell the high-end in London (in Belgravia prices still > £3,000/sq ft, sealed bids and silliness) and re-invest in washed-out California, where I'd assume you can buy at a fraction of the price, even after GBP's little wobble. Anyone know how to short Damien Hirst by the way ahead of next week's vulgarity-fest? [] Stupid question - there's only one person who's in a position to short Hirst: it's Hirst, and he's beaten us to it...

Anonymous said...

Yeah Florida going to get better

"The exception to this pattern is
Florida, where foreclosure sales are running at only about one-third the level of
foreclosure starts 1-2 quarters earlier. However, it should be noted that Florida is a
“judicial” state where lenders need to obtain a court order to proceed with the
foreclosure, and it has been widely reported that there is currently a serious “logjam” in
processing foreclosures in the Florida court system."

Anonymous said...

Cassandra - Absolutely correct in this analysis of "second" (foreign?) hoiday homes. But there is also another aspect that is killing these properties. Cheap airline links are closing fast. Either Ryanair is closing the single route to some out of the way place in Spain/Italy/France/Hungary or the budget/package airlines are collapsing (see XL collapse in the UK). Expect more airline failures. That means more "holiday home" property pain. Great blog.