Global Property Cycle Turning

From MarketWatch. “Evidence is mounting that the global property cycle is turning down, as rising interest rates and heightened inflationary pressures combine to put the brakes on demand for real estate, according to a Morgan Stanley report.”

“‘Due to deflation shocks, global inflation has been low, which allowed major central banks to keep interest rates very low, in turn fueling property,’ economist Andy Xie said. ‘As inflation picks up simultaneously around the world, interest rates are rising everywhere, and the property boom is turning into a bust.’”

“Unlike in previous property cycles, Xie said institutional property investors have been active in shifting capital between different cities, leading to the rare situation where prices gained in unison around the world.”

“‘Innovations in the global financial system have led to a rising correlation of property markets to each other and central bank-policies. It has essentially turned deflationary shocks of the past 10 years into a global property bubble,’ Xie said.”

“He cites some telling statistics to illustrate his point. The value of U.S. housing has risen to 173% of gross domestic product in 2005 from 135% in 2000. And in Australia, housing values rose to 347% of GDP in 2005 from 271% in 2000.”

Bollywood does Banks

I've just finished making my short film in India (its cheaper). The film is a tale of the murky world of Irish banking. I'm afraid that I couldn't afford English speaking actors so it's in Urdu, but with subtitles. I've attached a short clip to give a flavour of what I hope to be this summers blockbuster.

http://www.grapheine.com/bombaytv/play_uk.php?id=724918

Binge There Done That.

Its always fascinating to get outsiders view of your country and the Jerusalem Post’s perspective is probably as detached as any. The author of this piece was tasked with finding examples of successful small nations, which might offer Israelis clues as how to grow their own economy, Oy vey!

Two more different nations than the Swiss and the Irish would be difficult to imagine. If they can both achieve success, and maybe even happiness, by going their own different ways - then good luck to both of them. The real question is whether the Irish approach can hold up over the long term - and the answer is quite likely negative. The Irish are flush with the cheap and easy money that the single currency has provided them, thanks mainly to German frugality, and they seem intent on blowing it. In addition to flashy spending of the usual sort - the rate of ownership of BMWs and Mercedes in Ireland is higher than in Germany - they are hooked on a crazed binge of property buying. This encompasses both their own real estate - so that derelict barns in remote country villages fetch six-figure euro prices - and others' too, especially in the developing East European countries, from Poland down to Bulgaria.

Meanwhile, with regard to its infrastructure, Ireland itself remains decades, in some respects generations, behind its West European peers. Israel, itself a laggard, is a paragon compared to the ballyhooed Irish (remember Bibi's extolling of Irish achievements?). Their road network is like ours was 15 years ago, before we began spending money on it, and their rail network seems to be unchanged from 50 years ago. As for Dublin airport, the old terminal at Ben-Gurion on a bad day in August was a positive experience, by comparison.

Fine houses, fancy cars no roads. That's short-termism run amok, a feel-good formula leading nowhere. The Swiss may not know much about feel-good fixes and they may be unfriendly and cold, but they are the world experts on protecting and enhancing the wealth they steadily accrue. As ever, they are much the safer bet.

http://www.jpost.com/servlet/Satellite?apage=1&cid=1150355504324&pagename=JPost%2FJPArticle%2FShowFull

The Lights are off and there’s nobody home.

Astoundingly, enumerators undertaking the latest census have stumbled across 275,000 vacant homes.

The Irish Independent (19.6.06) reported that 300,000 homes across the country will not be included in the latest census because there was no one at home to accept the census form.

‘Following inquiries among neighbours, postmen and women and apartment block management companies, the vast majority of those dwellings - some 275,000 - were identified as being vacant.’

The government uses the data collected in the Census to inform policy decisions, such as infrastructure development, education and health care provision, strategic and local land use policy, even constituency boundaries. The census asks questions regarding the composition of housing accommodation; number of bedrooms, type of utilities, floor space etc. It seems that following the completion of the census we will have very sketchy or no information on 15% of the housing stock, (that 15% is sufficient to house 800,000 people based on the average household size by the way). So the census of 2006 will be unsound, more a sample than a census.

But a much more disturbing aspect of the discovery of these tens of thousands of ‘ghost homes’, is the revelation that we have more homes than we need. The housing vacancy rate in the UK is about 3% and falling while In Ireland it is 15% and probably rising (given that we will churn out an additional 90,000 units this year). It matters not one jot, incidentally, how many of these properties are available and on the market to buy or let. The fact is that they are there and can arrive on the market at any time.

More proof, if proof were needed, that our country is in the grip of a speculative asset bubble, that is now approaching Tulipmania magnitude.

The Sunday Times Loves This Blog (kinda)

I was shocked, nay verily stunned, so I was, when I opened my Sunday Times (Ireland) Homes (Section 6), (ST(I)H(S6) and quickly leafed through the property porn to ‘The Market’ section, the only part worth reading. There in ink, not flickering pixels, but good old ink was a reference to this ever so humble blog. Niall Toner, the author and a man who has recently risen highly in my estimation (this morning) wrote these hallowed words in relation to this blog.

‘It makes for an entertaining and occasionally informative look at the market’

Alas Niall also made reference to tents and peeing and armchairs where amateur economists may be found lounging, no doubt resting after all that peeing. And lamentably moan and rant also got a look in. But hey, ain’t no such thing as bad publicity, so thanks Niall for the name check. This particular bear promises not to maul those sheep who have recently noticed a certain, aah….. cognitive dissonance, when pondering the current property mania.


But enough of blogs. Niall makes reference in his section to the fall in clearance rates at last week’s auctions. ‘Fewer than one in four houses put under the hammer actually sold last week’. At one Linsey sales room last Tuesday, nobody at all turned up to bid on three properties on offer’. That’s a pretty good definition of the sound one hand clapping makes for all you Buddhists out there. Has the selling season come to an unseasonably early end? Is the lure of Paraguay v Serbia and Montenegro on the telly stronger than the urge to buy the most expensive real estate on Earth? Have the boys in Bonn in the Bundesbank, put the willies up the buying public? Trees don’t grow to the sky I suppose, but if we are seeing a top, will the lure of 2% net yields be enough to keep investors interest in the market?

What am I talking about? There are no investors in the Irish market. There are speculators who have bet the house (literally in many cases, through equity release on their principle residence) on capital escalation; investors became extinct years ago. What happens next? well look no further than Las Vegas, Phoenix, Florida, The Spanish Costas, New England, or indeed Japan in 1990 for clues.