Hello and welcome to the Someplace Else Blog
You may remember that last week I used the example of two very different ESRI reports and their corresponding headline summaries in the national press to illustrate the importance of using a variety of research sources before making a major decision.
So, this week I thought I’d (very) briefly write about some of the factors that really affect the prices of property, in the hope that it may help some of our research minded readers focus their efforts in the right direction.
These following factors are listed in no particular order:
FDI & Economic Growth:
It is very important to examine from the ground up how the people are living and how their lives are improving in a country. Look at overall GDP to determine how much wealth the citizens have now but pay more attention to GDP growth and whether the reasons for this growth are sustainable.
Examine Foreign Direct Investment carefully, as FDI from other countries or multi national corporations can have a profoundly positive effect on a countries economy.
Employment
As more workers mean more potential buyers, investors have always been attracted to countries or regions where there is strong sustainable growth in employment and wages. An investment that has the potential to be resold to a local person is generally more secure than one that is depending on a future foreign buyer.
Availability of Finance
Whether or not financing is available in a country can have a huge impact on the property market. Without financing locals can rarely buy new property, and so the number of buyers (and the demand) will therefore be limited. When mortgages become available however, the property market and prices can accelerate very quickly in a relatively short space of time, as has been previously witnessed in the Baltic States. Also, if you have financed a property purchase, even if it is only a 50% mortgage, the effects of capital growth are doubled.
Interest rates
These rates (set by the ECB in Frankfurt for EU citizens) typically have an inverse relationship with property prices. When interest rates fall, property prices tend to rise as it is cheaper to borrow, when interest rates rise, property prices tend to fall as it is more expensive to borrow and cheaper to save.
Inflation
Setting aside the careless populist rhetoric we often hear on television and newspapers, it’s difficult to explain in a nutshell how inflation affects property prices, but here goes: it goes rises and falls depending on the factors affecting (a) the costs of producers (land prices, taxation, labour, cost of raw materials) and (b) the demand of buyers (interest rates, employment, market sentiment, economic growth, availability of credit)
In addition to the above, there are many other factors such as availability of land, planning regulations, membership of international organisations, infrastructure and government policy which are all worthy of further consideration.
That’s it for me, if anyone has any ideas or issues they would us to address in future blogs, please let us know.
Warm Regards
Colin Murphy
http://www.someplaceelse.ie/
Wednesday, May 28, 2008
Wednesday, May 21, 2008
Confusing Headlines in the Press for would be Investors
Hello and welcome to the Someplace Else Blog.
A very pleasant surprise for me last week was a beaming headline from our friends at the Irish Times in the Wednesday edition (14 May). I could scarcely believe it – “3.75% yearly growth predicted in positive view of the economy” ran the headline based on the latest predictions from the ESRI, our highly respected Economic and Social Research Institute (who have a terrific website by the way – www.esri.ie). The article also went onto say that “the economy is heading toward a bright future” and discussed how we will outperform most of our European cousins for years to come due to our resilient economy and productive and diversified workforce.
Last Wednesday The Irish Independent also claimed that the economy was “on the way back” and our colleagues down south in the Examiner were happy to report “resilient economic growth over the next decade”
All in all, a very far cry from the headlines commented on just 8 weeks ago in Issue 7. The two main headlines that week in the Irish Times and Irish Independent were “Economy Set to grow at slowest rate for two decades” and “Growth to Plummet as Economy Slows” respectively.
Those who have been holding back on investing because of the negatively in the press recently can rightly feel a bit confused by the sudden change. However, the reason I’m writing all this has nothing to do with our national newspapers, most of which, including The Irish Times and Irish Independent, are excellent publications. It is more to stress the importance of using a variety of independent research sources before making a major investment decision.
Our own website has a small research centre that may be of use to some, which can be visited by clicking here. It is due for a comprehensive update in the next ten days, so might be worth bookmarking and returning to it from time to time.
Best Regards
Colin Murphy
Director
www.someplaceelse.ie
A very pleasant surprise for me last week was a beaming headline from our friends at the Irish Times in the Wednesday edition (14 May). I could scarcely believe it – “3.75% yearly growth predicted in positive view of the economy” ran the headline based on the latest predictions from the ESRI, our highly respected Economic and Social Research Institute (who have a terrific website by the way – www.esri.ie). The article also went onto say that “the economy is heading toward a bright future” and discussed how we will outperform most of our European cousins for years to come due to our resilient economy and productive and diversified workforce.
Last Wednesday The Irish Independent also claimed that the economy was “on the way back” and our colleagues down south in the Examiner were happy to report “resilient economic growth over the next decade”
All in all, a very far cry from the headlines commented on just 8 weeks ago in Issue 7. The two main headlines that week in the Irish Times and Irish Independent were “Economy Set to grow at slowest rate for two decades” and “Growth to Plummet as Economy Slows” respectively.
Those who have been holding back on investing because of the negatively in the press recently can rightly feel a bit confused by the sudden change. However, the reason I’m writing all this has nothing to do with our national newspapers, most of which, including The Irish Times and Irish Independent, are excellent publications. It is more to stress the importance of using a variety of independent research sources before making a major investment decision.
Our own website has a small research centre that may be of use to some, which can be visited by clicking here. It is due for a comprehensive update in the next ten days, so might be worth bookmarking and returning to it from time to time.
Best Regards
Colin Murphy
Director
www.someplaceelse.ie
Monday, May 12, 2008
Is the Credit Crunch doing the industry a favour?
Hello and welcome to the Someplace Else Blog
Last week saw the demise of Inside Track, a large UK based company many readers will be familiar with that specialized in (very) expensive investment seminars. The market has certainly gotten much more discerning in the last two years and most investors are now able to either do their own research or find companies that will point them in the right direction without charging high fees.
Is the credit crunch doing us a favour?
Perhaps the credit crunch is actually doing many of us a favour by narrowing the range of people who want to invest in property and the number of companies who can provide for them. From 2003-2006, when the Irish & UK economies were performing well and the overseas property boom was in full swing with property expos heaving, property supplements bursting with breathless adverts and people signing on the dotted line without a care in the world, it was very easy for property companies to rack up large volumes of sales without doing all that much selling, research or due dilligence.
With many previously gung-ho buyers now nervously scanning newspaper headlines for the latest doom and gloom stories (very easy to find these days), the only property companies that will be able to thrive (and some are definately thriving) will be those who can continuously offer a range of products and services to savvy buyers who are seeking out high performing markets, regardless, or maybe even because of, the prevailing conditions at home. These people also have the experience to know the value of the information being provided to them. Surely this is a good thing for the industry.
Someplace Else Projects During Summer Months
Getting back to emerging markets - Romania seems to be showing no signs of losing its popularity with our investors and with our Bujor development in Northern Bucharest practically sold out, we have been very fortunate to secure some units in another very similar one nearby from the same developer called Lilac Residences, details of which can be found below. The many people who replied to our teaser campaign for our new Ploiesti development (35km north of Bucharest) will hopefully be glad to know that the investment guide is almost ready and should be available to clients next week. It is called Prahova Residences and we feel that it is a great investment with superb payment terms (10/10/5/75)
I've also been quite busy this week in Panama (and am writing this note on my way back across the atlantic). It is simply an amazing country, and we will soon be announcing an exciting new venture with a local company who will be sourcing world class Panamanian developments for Someplace Else investors that will be available nowhere else in Europe. Full details won't be released for a few weeks, but if anyone would like to express an interest in being put on a preferential list, or indeed if anybody would just talk to me about the kinds of projects we will be releasing, then by all means give me a call on 1890 425 425 or me email on colin.murphy@someplaceelse.ie.
New Someplace Else Magazine Coming Soon
Finally, the next issue of the print edition of "Invest Someplace Else" will soon be ready and an email will be sent out shortly giving investors further details. In a nutshell though, it will be a 24 page magazine dedicated to emerging markets and will contain articles on Panama, Romania, Taxes on Overseas Property, Affect of Global Credit Crunch on Emerging Markets, Overseas Mortgages, updates on our own developments in Belize & Argentina ... and much more besides. We will post it out free of charge to anybody that would like to receive it. Simply email orla.doyle@someplaceelse.ie and put "subscribe to magazine" on the subject line and your postal address in the email if you'd like a copy.
That's it from me.
Warm Regards
Colin Murphy
Director
Someplace Else Ireland Ltd
Last week saw the demise of Inside Track, a large UK based company many readers will be familiar with that specialized in (very) expensive investment seminars. The market has certainly gotten much more discerning in the last two years and most investors are now able to either do their own research or find companies that will point them in the right direction without charging high fees.
Is the credit crunch doing us a favour?
Perhaps the credit crunch is actually doing many of us a favour by narrowing the range of people who want to invest in property and the number of companies who can provide for them. From 2003-2006, when the Irish & UK economies were performing well and the overseas property boom was in full swing with property expos heaving, property supplements bursting with breathless adverts and people signing on the dotted line without a care in the world, it was very easy for property companies to rack up large volumes of sales without doing all that much selling, research or due dilligence.
With many previously gung-ho buyers now nervously scanning newspaper headlines for the latest doom and gloom stories (very easy to find these days), the only property companies that will be able to thrive (and some are definately thriving) will be those who can continuously offer a range of products and services to savvy buyers who are seeking out high performing markets, regardless, or maybe even because of, the prevailing conditions at home. These people also have the experience to know the value of the information being provided to them. Surely this is a good thing for the industry.
Someplace Else Projects During Summer Months
Getting back to emerging markets - Romania seems to be showing no signs of losing its popularity with our investors and with our Bujor development in Northern Bucharest practically sold out, we have been very fortunate to secure some units in another very similar one nearby from the same developer called Lilac Residences, details of which can be found below. The many people who replied to our teaser campaign for our new Ploiesti development (35km north of Bucharest) will hopefully be glad to know that the investment guide is almost ready and should be available to clients next week. It is called Prahova Residences and we feel that it is a great investment with superb payment terms (10/10/5/75)
I've also been quite busy this week in Panama (and am writing this note on my way back across the atlantic). It is simply an amazing country, and we will soon be announcing an exciting new venture with a local company who will be sourcing world class Panamanian developments for Someplace Else investors that will be available nowhere else in Europe. Full details won't be released for a few weeks, but if anyone would like to express an interest in being put on a preferential list, or indeed if anybody would just talk to me about the kinds of projects we will be releasing, then by all means give me a call on 1890 425 425 or me email on colin.murphy@someplaceelse.ie.
New Someplace Else Magazine Coming Soon
Finally, the next issue of the print edition of "Invest Someplace Else" will soon be ready and an email will be sent out shortly giving investors further details. In a nutshell though, it will be a 24 page magazine dedicated to emerging markets and will contain articles on Panama, Romania, Taxes on Overseas Property, Affect of Global Credit Crunch on Emerging Markets, Overseas Mortgages, updates on our own developments in Belize & Argentina ... and much more besides. We will post it out free of charge to anybody that would like to receive it. Simply email orla.doyle@someplaceelse.ie and put "subscribe to magazine" on the subject line and your postal address in the email if you'd like a copy.
That's it from me.
Warm Regards
Colin Murphy
Director
Someplace Else Ireland Ltd
Thursday, May 8, 2008
Thanking the Germans for the Irish Property Boom
Hello and welcome to the Someplace Else Blog.
Those of you who read these blogs on a regular basis (many thanks) will probably know that I am quite prone to wax lyrical about the booming property markets of Eastern Europe and South American on a regular basis.
There is one great country which I haven't been paying enough attention to lately though, and it's Germany. Most people with a passing or professional interest in Germany will know the basics by now: huge exporting economy, low property prices, low rental yields and a sophisticated banking system that is nonetheless universally reluctant to lend foreigners more than 60% for an investment mortgage.
We shouldn't complain too much though, if it wasn't for Germanys big and financally cautious population of over 80 million people, then Ireland (and to a lesser extent, the UK) would never have had such a huge property boom during the 1990s and early 2000s. It was low interest rates and the cheap availability of credit above anything else that enabled so many people to speculate and make fortunes on the property markets, which in turn granted ordinary homeowners huge equity in their own properties without really doing anything at all.
As the European Central Bank has one interest rate for the whole eurozone, it is the financial saving and spending habits of the big EU countries that determine what their monetary policy will be. When the world economy was booming and you had a large and very wealthy country like Germany saving lots of money in banks, then other banks had more to lend, interest rates were very low and little countries like Ireland could more or less borrow and spend as much as they wanted without having any significant affect on Europes overall borrowings and savings at all. So let us all please raise a glass and toast the wonderful Mr and Mrs Wadenburg, whose careful savings helped Mr and Mrs O'Connor borrow enough money to purchase two buy to lets in Rathgar, a holiday home in Marbella and piece of land somewhere in Brazil.
In all seriousness though - one of the dangers about so many people making so much money so quickly, is that future property purchases might be made on the basis of a similar quick and easy return. Is this the best way to sustain a profitable portfolio over the long term though? Might it be more sensible to invest part of your money in property markets where the short term outlook is very exciting but the long term outlook is uncertain, and another part in markets where the short term outlook is uncertain and the long term very exciting?
It is easy to cross Germany off your list as property prices are flat and rental yields are an unexciting (but very reliable) 3-5%. Think about it again though, and with a long term 8-10 year view rather than a 3-5 year view and the picture will start to look very different. To but it bluntly - Germany is a rich country with emerging market property prices and over the long term, I have no doubts that prices will go back to where they should be alongside those of other major countries. Is it not amazing that we have this huge and vitally important economy in the heart of the EU and yet a one bed apartment in a posh part of its capital city costs about 25% of an equivalent property in London, Paris or Dublin?
In conclusion, those who would really like to plan their purchases based not on what is hot now or what will be hot in six months time, but rather on what mixture of properties is most likely to provide a steady income stream for your family with the right balance of short, medium and long term capital growth should definately take a closer look at prime properties in the major cities of Germany.
All the best
Colin
Those of you who read these blogs on a regular basis (many thanks) will probably know that I am quite prone to wax lyrical about the booming property markets of Eastern Europe and South American on a regular basis.
There is one great country which I haven't been paying enough attention to lately though, and it's Germany. Most people with a passing or professional interest in Germany will know the basics by now: huge exporting economy, low property prices, low rental yields and a sophisticated banking system that is nonetheless universally reluctant to lend foreigners more than 60% for an investment mortgage.
We shouldn't complain too much though, if it wasn't for Germanys big and financally cautious population of over 80 million people, then Ireland (and to a lesser extent, the UK) would never have had such a huge property boom during the 1990s and early 2000s. It was low interest rates and the cheap availability of credit above anything else that enabled so many people to speculate and make fortunes on the property markets, which in turn granted ordinary homeowners huge equity in their own properties without really doing anything at all.
As the European Central Bank has one interest rate for the whole eurozone, it is the financial saving and spending habits of the big EU countries that determine what their monetary policy will be. When the world economy was booming and you had a large and very wealthy country like Germany saving lots of money in banks, then other banks had more to lend, interest rates were very low and little countries like Ireland could more or less borrow and spend as much as they wanted without having any significant affect on Europes overall borrowings and savings at all. So let us all please raise a glass and toast the wonderful Mr and Mrs Wadenburg, whose careful savings helped Mr and Mrs O'Connor borrow enough money to purchase two buy to lets in Rathgar, a holiday home in Marbella and piece of land somewhere in Brazil.
In all seriousness though - one of the dangers about so many people making so much money so quickly, is that future property purchases might be made on the basis of a similar quick and easy return. Is this the best way to sustain a profitable portfolio over the long term though? Might it be more sensible to invest part of your money in property markets where the short term outlook is very exciting but the long term outlook is uncertain, and another part in markets where the short term outlook is uncertain and the long term very exciting?
It is easy to cross Germany off your list as property prices are flat and rental yields are an unexciting (but very reliable) 3-5%. Think about it again though, and with a long term 8-10 year view rather than a 3-5 year view and the picture will start to look very different. To but it bluntly - Germany is a rich country with emerging market property prices and over the long term, I have no doubts that prices will go back to where they should be alongside those of other major countries. Is it not amazing that we have this huge and vitally important economy in the heart of the EU and yet a one bed apartment in a posh part of its capital city costs about 25% of an equivalent property in London, Paris or Dublin?
In conclusion, those who would really like to plan their purchases based not on what is hot now or what will be hot in six months time, but rather on what mixture of properties is most likely to provide a steady income stream for your family with the right balance of short, medium and long term capital growth should definately take a closer look at prime properties in the major cities of Germany.
All the best
Colin
Friday, April 25, 2008
Past & Future Holiday Investment Destinations
This week I’m going to address the very difficult task of blending a holiday home and investment property into one.
While most people (myself included unfortunately) simply cannot talk about property anymore without discussing how much profit you might make - let us not forget that people were purchasing holiday homes abroad long before the concept of buying foreign property in order to resell at a profit became an Irish and UK phenomenon.
Brief History of Property Investment
In the 1970s, 80s and early 90s purchasing property abroad was only for wealthy families with the money and knowledge (solid information was much harder to come by in those days) to purchase a dream property. In the mid 1990s, foreign property exhibitions and dedicated overseas property newspaper supplements first began to appear promoting both the holiday and the investment benefits of Spain, Portugal, Florida, Greece & Italy.
In 2003 came the emerging markets, with pioneering research and old fashioned hard graft from the founders of Someplace Else bringing the markets of Montengro, Belize, Latvia, Lithuania & Argentina to the ever expanding groups of overseas property buyers.
1995 – 2005 really was an incredible time and is very fondly remembered by veteran overseas estate agents, developers and investors. Never before have real house prices risen so fast for so long in so many countries. The total value of residential property in developed economies rose by more than $30 trillion between 2002-2007 - an increase equivalent to 100% of those countries' combined GDPs. The surge not only dwarfs any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) and America's stockmarket bubble in the late 1920s (55% of GDP).
Where to next?
Looking at what is happening to property prices in Ireland and what has happened to the once glorious southern coast of Spain, one could be forgiven for thinking that the days of purchasing a holiday property investment are long gone, and that one must venture into deepest South America or Africa to make those kinds of returns in a nice climate again – not so in my opinion.
For those who still yearn for a property investment in a beautiful location that they will actually want to use themselves from time to time, that is easily accessible, that isn’t swarming with white bellys, rough accents, fish & chips shops and where the government actually designs and implements sustainable planning policy that protects a beautiful coastline – then my suggestion is that you go and visit Montenegro as soon as possible.
Montenegro
I spend the bulk of my travelling time in overcast cities, but this week has been different as most of it was spent touring Montengro in the charming company of Sanja Todorovic, the general manager of our local office there. I have simply been bowled over by this tiny countries spectacular beauty (most of the photos in this newsletter were taken this week). Montengro is small but has a very diverse landscape with sandy beaches, majestic mountains, deep canyons, huge lakes and a unique cultural and architectural heritage from Roman, Venetian and Ottoman occupations.
It is one of the fastest growing tourist destinations in the world, with incredibly ambitious plans to develop world-class marinas and ultra luxury hotels in an effort to win back the prestigious reputation it once enjoyed as an enclave for the rich and famous.
It is also one of the few truly beautiful coastlines left in Europe where prime luxury property can still be bought for less than €150,000. More details to be found on www.someplaceelse.ie
Have an enjoyable weekend
Regards
Colin
While most people (myself included unfortunately) simply cannot talk about property anymore without discussing how much profit you might make - let us not forget that people were purchasing holiday homes abroad long before the concept of buying foreign property in order to resell at a profit became an Irish and UK phenomenon.
Brief History of Property Investment
In the 1970s, 80s and early 90s purchasing property abroad was only for wealthy families with the money and knowledge (solid information was much harder to come by in those days) to purchase a dream property. In the mid 1990s, foreign property exhibitions and dedicated overseas property newspaper supplements first began to appear promoting both the holiday and the investment benefits of Spain, Portugal, Florida, Greece & Italy.
In 2003 came the emerging markets, with pioneering research and old fashioned hard graft from the founders of Someplace Else bringing the markets of Montengro, Belize, Latvia, Lithuania & Argentina to the ever expanding groups of overseas property buyers.
1995 – 2005 really was an incredible time and is very fondly remembered by veteran overseas estate agents, developers and investors. Never before have real house prices risen so fast for so long in so many countries. The total value of residential property in developed economies rose by more than $30 trillion between 2002-2007 - an increase equivalent to 100% of those countries' combined GDPs. The surge not only dwarfs any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) and America's stockmarket bubble in the late 1920s (55% of GDP).
Where to next?
Looking at what is happening to property prices in Ireland and what has happened to the once glorious southern coast of Spain, one could be forgiven for thinking that the days of purchasing a holiday property investment are long gone, and that one must venture into deepest South America or Africa to make those kinds of returns in a nice climate again – not so in my opinion.
For those who still yearn for a property investment in a beautiful location that they will actually want to use themselves from time to time, that is easily accessible, that isn’t swarming with white bellys, rough accents, fish & chips shops and where the government actually designs and implements sustainable planning policy that protects a beautiful coastline – then my suggestion is that you go and visit Montenegro as soon as possible.
Montenegro
I spend the bulk of my travelling time in overcast cities, but this week has been different as most of it was spent touring Montengro in the charming company of Sanja Todorovic, the general manager of our local office there. I have simply been bowled over by this tiny countries spectacular beauty (most of the photos in this newsletter were taken this week). Montengro is small but has a very diverse landscape with sandy beaches, majestic mountains, deep canyons, huge lakes and a unique cultural and architectural heritage from Roman, Venetian and Ottoman occupations.
It is one of the fastest growing tourist destinations in the world, with incredibly ambitious plans to develop world-class marinas and ultra luxury hotels in an effort to win back the prestigious reputation it once enjoyed as an enclave for the rich and famous.
It is also one of the few truly beautiful coastlines left in Europe where prime luxury property can still be bought for less than €150,000. More details to be found on www.someplaceelse.ie
Have an enjoyable weekend
Regards
Colin
A Short Note on Financing
This week, I thought I’d write a little more about financing, as I feel strongly that agents and developers should be doing much more to ensure their clients understand how it works and how it will affect their investments.
I can’t emphasise how important it is to research how much finance you are likely to receive before putting down a non-refundable deposit on a property - and you won’t find many estate agents or developers who will write that to you in an email. Someplace Else has relationships with English speaking brokers and/or banks in all the countries we deal with that offer financing to foreigners, and one of our key aims in 2008 is to continue to strengthen these relationships, thereby ensuring that our clients always have quick access the best possible financial advice.
Firstly, the lending criteria for obtaining foreign mortgages is usually quite similar to what you are used to at home. Generally speaking, you must be over 21 years old, be in secure employment, prove that you have an ability to comfortably repay, have a good credit history and aged not greater than 70 at the end of the mortgage term.
We all know that most banks do their utmost to make their lending policies and how they make money out of loans them as complex and arcane as possible. With this in mind I thought some may find be useful to have the following clarified:
Nominal vs Real Interest Rates
The nominal interest rate is merely the interest rate before it is adjusted for inflation. After this adjustment, it is called the real interest rate. This helps a country measure its price and cost competitiveness compared to others.
Fixed vs Variable Interest Rates
Generally speaking, banks based in emerging markets offer variable interest repayment mortgages to locals and foreigners, although they are constantly improving and expanding their product range as they are operating in countries with tiny amounts of personal debt. By variable interest rate I mean that the rate can go up or down and is linked to the central bank controlling the country you are borrowing from. By repayment mortgage I mean that your monthly payments cover both the interest charged and the original amount borrowed.
Mortgages.ie have a very handy calculator for repayment mortgages that allows stress test for an additional 3% if interest rates go up. Click here to find out more.
Loan To Value
I think sometimes people get too focused on LTV. It is merely the percentage of money you want to borrow compared to the cost of the property. Many banks lend a percentage of what their valuation of the property is on completion, not the amount you bought it for offplan. This is great if the price of your property goes up during the construction period, and very bad if it goes down (as some unfortunate people in Dublin are now discovering).
In Conclusion
Financing, or leveraging as it is sometimes called, is and always will be an incredibly efficient way of maximising the return on your investment. As discussed in a previous newsletter most emerging markets are nowhere near as exposed to the global credit crunch as Ireland and UK. The good news for investors is that these foreign banks are expanding access to finance just as our own are making it more difficult. And thank goodness for that.
Kind Regards
Colin.
I can’t emphasise how important it is to research how much finance you are likely to receive before putting down a non-refundable deposit on a property - and you won’t find many estate agents or developers who will write that to you in an email. Someplace Else has relationships with English speaking brokers and/or banks in all the countries we deal with that offer financing to foreigners, and one of our key aims in 2008 is to continue to strengthen these relationships, thereby ensuring that our clients always have quick access the best possible financial advice.
Firstly, the lending criteria for obtaining foreign mortgages is usually quite similar to what you are used to at home. Generally speaking, you must be over 21 years old, be in secure employment, prove that you have an ability to comfortably repay, have a good credit history and aged not greater than 70 at the end of the mortgage term.
We all know that most banks do their utmost to make their lending policies and how they make money out of loans them as complex and arcane as possible. With this in mind I thought some may find be useful to have the following clarified:
Nominal vs Real Interest Rates
The nominal interest rate is merely the interest rate before it is adjusted for inflation. After this adjustment, it is called the real interest rate. This helps a country measure its price and cost competitiveness compared to others.
Fixed vs Variable Interest Rates
Generally speaking, banks based in emerging markets offer variable interest repayment mortgages to locals and foreigners, although they are constantly improving and expanding their product range as they are operating in countries with tiny amounts of personal debt. By variable interest rate I mean that the rate can go up or down and is linked to the central bank controlling the country you are borrowing from. By repayment mortgage I mean that your monthly payments cover both the interest charged and the original amount borrowed.
Mortgages.ie have a very handy calculator for repayment mortgages that allows stress test for an additional 3% if interest rates go up. Click here to find out more.
Loan To Value
I think sometimes people get too focused on LTV. It is merely the percentage of money you want to borrow compared to the cost of the property. Many banks lend a percentage of what their valuation of the property is on completion, not the amount you bought it for offplan. This is great if the price of your property goes up during the construction period, and very bad if it goes down (as some unfortunate people in Dublin are now discovering).
In Conclusion
Financing, or leveraging as it is sometimes called, is and always will be an incredibly efficient way of maximising the return on your investment. As discussed in a previous newsletter most emerging markets are nowhere near as exposed to the global credit crunch as Ireland and UK. The good news for investors is that these foreign banks are expanding access to finance just as our own are making it more difficult. And thank goodness for that.
Kind Regards
Colin.
Friday, April 11, 2008
Lessons from Corporate Spain
Good afternoon all and welcome to the Someplace Else blog.
For the third year in a row, I’m attending a huge trade show in Madrid called SIMA, and I’ve been struck by the positive attitude of the big Spanish developers in the face of a very difficult local market.
On the one hand, they have belatedly realised that the second home / holiday market is completely saturated. They are now refocusing the sale of their new developments to the local first time buyers market, with knowledgeable (and very good looking) salespeople manning some stupendous exhibition stands offering a wide range of sensible incentives and access to finance (unlike the Irish developments mentioned in last weeks note)
And on the other hand, these same Spanish builders are announcing bold and ambitious new developments throughout South America and Eastern Europe, with the biggest announcements being made in Panama, Mexico and Romania.
This all seems to be just the latest example of a quiet revolution in the upper echelons of corporate Spain. Since the return of democracy in 1975 Spanish companies have made some tremendous progress and the country is now home to some truly world-class corporations.
Spain is already home to the biggest bank in Europe (Santander), to five of the top seven European construction groups and to the third biggest telecommunications company in the world (Telefonica). The Inditex Group, which owns Zara among other brands, recently over took GAP as the world’s largest fashion retailer. Metrovacesa, a Spanish property company, bought the HSBC headquarters in Canary Wharf last year for £1.1 billion – Britain’s biggest ever single property deal.
Much of this recent expansion has come from audacious takeovers – Santander bought Abbey National in 2004 for €8 billion, Telefonica bought O2 in 2006 for €26 billion. Equally impressive was Ferrovials highly leveraged $22 billion takeover of BAA, the company that owns Heathrow, Stansted, Gatwick and four other British airports. Nightmare teething problems at Terminal 5 aside, this is an unbelievable acquisition for a family owned company that started out building railroads in Northern Spain 50 years ago.
So it seems that the Spanish conquistador spirit is alive and well in this wonderful country, and your humble correspondent is very happy indeed to discover that these huge corporations are bravely venturing into many of the same markets Someplace Else promotes to our UK and Irish investors.
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