Dateline: Phnom Penh, Cambodia
Six years ago, when my broadcasting business in The Land of the Free was in full swing, I flew to New York for an important business meeting with my earliest mentor.
He was kind enough to invite me to stay at his house on Long Island, one he had owned for nearly forty years.
To the untrained eye, you would think this man had gotten filthy rich as a real estate investor. The home he paid barely $100,000 for in the 1970s was now worth six times that.
Of course, “it’s all inflation”, he told me.
When you actually did the math on a lifetime of homeownership, his after-inflation return was 1% a year. Maybe.
Today, with nearly $1 trillion in hot money floating off the presses every year and ongoing dollar devaluation, you can still do better than that parking your money in a high-yield savings account.
However, as poor as the real rate of return on his homeownership was, it was something else that had my mentor truly bothered. In two words: property taxes.
We recently discussed the relatively short list of countries that have no property taxes. Some of these countries charge a few points on a transfer tax when a property is sold, while others simply don’t tax property at all.
However, there is a far cry from no property taxes and the blood-sucking government leeching going on in parts of the “free world”.
In The Land of the Free and other western countries, you’re so “free” to own your own property that, in the case of my mentor, property taxes on a modest Long Island home were over $11,000 per year.
And that was after a hefty “senior discount”, a measure the local government put in place to keep older constituents happy and feeling like they weren’t being robbed.
Here was a guy paying a double digit percentage of his home’s purchase price – year after year – all because his local government demanded it. In the midst of the financial crisis, the local government cut services in order to scale back.
But the property taxes, of course, didn’t get scaled back.
It’s for this reason that I can’t help but be entertained when people call me out for investing in real estate here in Cambodia.
Old friends of mine are worried that property I purchase here may be confiscated through expropriation. To many westerners, their local system of property ownership is the only one worth trusting.
The guy who helped sell my house in the USSA couldn’t believe I’d pass up an opportunity to invest in the middle of the Arizona desert for real estate investing in an up-and-coming frontier market.
Nice guy, but he and the others don’t realize that at least Cambodians have learned their lesson trusting their government.
In fact, some real estate agents here in Cambodia are so unfamiliar with property taxes that they confuse it with the small one-time transfer tax on “hard title” properties. Some of the properties I’ve been looking at have no annual property taxes, while others have tax sums as low as $40 a year attached to them.
I’ll take a 0.1% property tax any day.
That’s because I’ve told you for some time now that modern western governments won’t just come out and steal your money. While I do believe we will see more bail-ins a la Cyprus, the average bankrupt government is all about polishing its image these days.
When they drain your bank account, they’ll call it a “stability levy”. When they steal your retirement account, they’ll call it “pension reform”.
Governments have been masters at marketing by coming up with lots of cute names to convince the average citizen that they’re not being fleeced, and that $1,000 a month in property taxes for a house said citizen is supposed to own is a total scam.
Perhaps nowhere is this more evident, however, than in Greece.
I’m always on the lookout for “crisis investing” opportunities. 18th century British nobleman Baron Rothschild once declared, “buy when blood is in the streets”.
Greece, deservedly, got beaten up so badly that I wondered if it was worth a look. While I have far more confidence in Asia than Europe, my portfolio is becoming rather Asia-centric and I figured a little western exposure might be in order.
Besides, Greece is a top tourist destination which plays into one of my high yield strategies for real estate.
But even after the second largest property crash in the entire European Union – and nearly in modern history – real estate in Greece is markedly unattractive.
That’s because, in Greece, banks aren’t throwing people out of their homes. The government is.
After having their abysmal fiscal irresponsibility outed a few years ago, Greece was flat broke and at risk of exiting the Eurozone to bail itself out of the mess.
However, instead of creating a new Greek currency and inflating it to infinity, the Greek government decided to raise property taxes.
Real estate agents in Athens these days are quite busy. Sadly, the calls they get are largely from one direction. People who want to rent or sell properties they can no longer afford.
One family has racked up a tax debt exceeding $270,000 on an estate barely one acre in size. Their son told reporters he figured it was only a matter of time before he wound up in jail for tax evasion.
Greece’s record high property taxes are so suffocating that only 3,600 properties changing hands in Athens last year. In a city of one million people, only ten properties per day were sold.
It’s maddening. Nobody wants to touch the newly toxic Greek property.
In the process, the Greeks are calling themselves “neoptohoi”, or “newly poor”, reflecting many families’ once great real estate wealth that is now in shambles.
Entire family fortunes have been wiped out by one stroke of the government’s pen. All because their government couldn’t keep its financial house in order.
But it gets worse.
Even as property taxes amount for an unprecedented share of the average income (by one measure, more than 40%), the Greek government has made it an actual criminal offense to not pay property taxes.
You can wind up in jail for not being able to pay your property taxes.
And as a result, many Greeks are fearing having to live on the street for their inability to pay the taxman.
The authorities are seizing money from bank accounts and putting otherwise law-abiding citizens into the court system for retribution.
This whole mess started with an “emergency levy” – remember, it’s never called “wealth confiscation” – on the wealthiest property owners, mostly people who had estates that ran in the family.
It didn’t take long for the government to decree that EVERYONE – including those who shouted “tax the rich” – should pay the increased taxes or face a jail cell.
It’s a stunning example of how your government can change the rules of the game at any time. If you don’t play along, they could literally take your life.
In the United States and other western countries, governments spend gobs of money encouraging homeownership through tax subsidies and straight up propaganda.
The same people who have done such a lovely job centrally planning your currency are the same ones telling you to buy a house. In many such countries, a few extra percentage points in the homeownership rate amounted to disaster.
But when the government’s plan goes bust and their coffers dry up, they’ll still look to you to make up the difference. And they will go so far as to take your freedom if you refuse.
If Greek property owners had kept their wealth in offshore bank accounts, they may have had an easier time holding on to their hard-earned money, rather than having their accounts looted to pay outrageous property tax bills that had no way to escape.
If you are investing in real estate – or any other market – in your bankrupt home country because it “feels safe”, chances are it is not safe at all. And chances are the benefits of foreign real estate in safe jurisdictions – including ones you wouldn’t guess –
The days of “it can’t happen here” are long gone. Expropriation comes in many forms.