Monday, 8 November 2010

Property Forecast Hangover already started

So my property forecast is simply that it will be 2015 before the World property markets returns to where it was at the peak of the boom in 2007 early 2008. What a hangover!!!

Looking at all the property folks analysis of the US, UK, UAE, Eurozone and Africa markets, well results are fairly sound but when it comes to the hot prediction of the exciting crazy days and world property boom, 2015 may be overly optimistic.

So, even if we are correct and prices recover to their 2007 levels by 2015, there is no guarantee that all the factors, the hype, the buzz and all the sexy property ingredients that led to the amazing level of overseas property transactions in the run up to 2008 will have returned.

So what were the key drivers of the boom:  And will we get rid of the hangover

1. Releasing money from your property, driven by domestic property boom s

2. A liberal mortgage and home loans market and cheap credit - 108% Loan to value...scary

3. Strong currencies relative to currencies in seller destinations i.e Pound versus Rand

4. Fear of loss. Prices were going up so fast, buyers felt that doing nothing was losing them money which further re-inforced the cycle.   Remember the buying of whole floors in apartment blocks in Dubai. Cash was also King, But credit was certainly the Queen.

So the big question is: Will any of these conditions have returned by 2015? Any domestic property boom is unlikely given the upcoming spending cuts, tax rises and inflationary pressures which are bound to push up interest rates in the medium term, strengthen or weaken currencies, US pumping money into the economy, this huge dearth of empty properties, even on the west coast of Namibia - time will tell.

Credit should be easier to come by as the banks balance sheets improve and we see banks scrambling to cut costs at all cost, even to the detriment of their allies the mortgage originators (Look at ABSA) but new regulations from the FSA in UK, The FED in the STATES,  SARB Exchange regulations plus more, look certain to restrict loan-to-value rates and clamp down on these weird toxic home loans (Be careful of the 6% loan in SA) mortgages which will probably negate any improvements in the banking system.

Unfortunately, I believe the banks don't have the balls or the willingness to kick start this side of the business...... they are after all people like you and I who also want to live a normal life...ha!!

The best hope for the worlds property market is a collapse in the value of the euro, exchange control removal in South Africa, the FED to stop pumping newly printed money into an economy that must take a bath, firing of all these bankers and instead of bonus's they should get jail terms but by itself this is unlikely to be sufficient to persuade the worlds masses to start buying anywhere again in the kind of volumes we saw in 2007.

So whats the good news - surely its not all doom and gloom- even Julius has a decent side to him for heavens sake!!!

The good news is that the long-term attractiveness of property is rising due to soaring inflation, man's need for ownership, properties in possession making it feel like a good deal.

Transaction volumes may not return to 2007 levels for a generation but there is an increasing market for scarce property and also toxic for some, but cheap for others properties.

Income streams and big cash owners are still there and the other markets are very scary, try the stock market if you dare..

It is good news for agents and developers promoting almost perfect developments but over the next ten years the world market will be no place to offload huge resorts in slightly out of the way locations.  Look at the death of Golf resorts etc

Lower income spenders are buying cheaper property products and once in the market they will move upwards.

Africa and Brazil are hotter than before as far as business is, China is feeling the pinch and 2011 is just around the corner.

And the best news its almost Christmas.


Yarrawonga land said...

Hi Mage,

That is a pretty deep and somewhat scary insight you have made here... I think you have made some really good points, I agree with your comments on the banks not having the balls... They are just far to busy writing letters to people informing them of the next interest rate rise.

I don't know about you but over here interest rates have gone up 3 times in the last 2 months.

Philippine Real Estate said...

I hope that might be the farthest that might happen. Well, might as well be prepared than not.

"The MAGE" said...

Well Yarrawonga lnad , it is quite a thought provoking approach, but just as one thinks you have it right, things change again.

I think for Christmas Im going to not buy anyone gifts and instead give my children some shares or stocks in Apple. They may not thank me now but they will MAYBE thank me later. Once again time to think out the box. Have a great Christmas and holidays and let 2011 be the ONE!!!