Singapore’s open policy to immigrants has made it one of the wealthiest countries and freest economies in the world. Millions have flocked to this island wealth haven, filling much of its less than 250 square miles of land area with banks, legal offices, and even gold vaults.
That growth has led to a property bubble in which broom closets cost hundreds of thousands of dollars as wealthy Singaporeans and Southeast Asians pour money into the Singapore real estate market, figuring the more “first world” a place is – with the horrible yields and high stamp taxes that come with it – the better a store of value for cash.
However, western real estate continue to be in trouble. I firmly believe that in terms of real fundamentals, the emerging world is home to the world’s “new safe havens”.
Consider that nearly one-half of homes in the EU nation of Cyprus are now either in default or near default. It only took one year since the big bail-in there for non-performing loans to jump from 23% to a full 45% of all of the nation’s mortgages.
The folks at Zero Hedge share my opinion on the matter; that many western investors and the western media have gone gaga over looking at spreadsheets and have basically said fundamentals be damned.
Half of all mortgages being in default should be front page news, especially after the very public failure of the Cypriot banking sector last year. Yet it’s all swept under the rug, even as Cyprus has no real economic fundamentals to drive any kind of recovery.
They had their chance – with huge whacks of Russian cash arriving by the briefcase – and they blew it. The same principle applies to many other western nations. And it’s not good for your asset values at home.
Elsewhere in Europe, the bloom is also off the rose. British newspapers recently complained that the same Russians who parked their hot money in Cyprus are losing their love affair with London.
For years, wealthy Russians and Middle Easterners have flocked to London to live as non-domiciled residents who pay “rent” to the government each year in order to live in London while keeping their worldwide income out of the hands of the British tax authorities.
It’s not a bad idea for the British government. Collect tens of thousands of dollars a year in indirect taxation and reap all of the benefits of sheiks and oligarchs buying their Ferragamo bags within your borders. Other European countries have cheaper versions of the same thing; I interviewed the top expert on a similar programmed in Malta for The Nomad Society Members a few months ago.
However, the plan is failing as the British government gets greedy, raising fees and chasing people out. Now, the UK has a personals ad out “seeking new spenders” to replace all the easy money they earned from emerging world visitors.
While a few nationalist politicians in Britain are all too happy to claim they drove the Russians or the Middle Easterners out, the result for the average Brit is not good. A new report just suggested that property prices in England will fall 30% over the next four years.
I suspect some homeowners are going to see the value of their properties cut in half.
In some posh neighborhoods in London, a correction is already being felt. But experts believe that correction will radiate out to the entire property market, including owner occupants and those who bought into the idea that property in the United Kingdom is a “safe place” for capital and a little yield.
This issue hits close to home for me. I sold the last asset I owned in the Land of the Free a few months ago. It was a home I purchased when real estate was toxic and I figured it wouldn’t be a bad idea to have a nice pool to swim in the few months a year I spent there.
In just a few short months, the value of that home has dropped 10%. Not even a year has passed and the buyers who beat me up on fixing a stain on the pool tile and kitchen faucet have seen 10% of their leveraged-to-the-hilt purchase evaporate.
Around the world, jingoistic anger, wars, and other nonsense are getting countries that were already getting a free pass into hot water. How some wealthy Chinese think California is a safe haven for their cash in the same way Russians viewed London is beyond me, but there is one thing you can always count on…
Confiscatory, greedy governments will always find a way to screw things up.
Arrogant countries like the United Kingdom and the Land of the Free have a history of biting the hand that feeds them. We’ve reported about how the US government is successfully chasing companies out of the country, only to label them tax dodgers.
As these western countries try to shut down perhaps the only solid fundamental they have in their favor, the result won’t be good. Economies rise and fall on margins, and it won’t take every wealthy Chinese deciding to avoid investing in the United States, for example, to have a serious impact.
That’s just another reason to avoid investing in US (and UK) real estate. Once these declining western markets are forced to survive merely on the core fundamentals, it will all fall apart.
Peel back the curtain and the real truth about the dismal state of western currencies, western taxes, and western wealth confiscation will come to the surface.
Then, just wait for property prices to fall like a stone.
Within the last year, Canada decided to pull the rug out from underneath its immigrant investor program that allowed thousands of Chinese to move to Vancouver. At our first Nomad Society event in Vancouver this summer, we heard how these investors had dominated Vancouver’s luxury and now even middle-class real estate market, creating a boon for property owners.
As with other countries all too happy to cut off their nose to spite their face, Canada decided this massive influx of money into its economy was… a bad thing. And they shut it down. Immediately, experts in the market suggested the property market was in for some hurt.
It’s fascinating how your local government can control your entire economic reality. They devalue the currency you use only because you have to, manipulate alternative currencies like silver, and even outright confiscate your wealth.
But there is a little-discussed method of wealth confiscation used by a government near you. And that involves their utter disastrous attempt at managing the real estate market.
Governments and their cronies love to say that “your home is your biggest investment” (even when it shouldn’t be). They encourage homeownership and call it part of “the American dream”.
Yet they force banks to lend to people who have no business owning a home. They steal from you through the property tax system. And they can ruin the value of your investment with the stroke of a pen.
There is a scuffle going on in Phoenix, Arizona, where the Federal Aviation Administration changed some flight plans at Phoenix Sky Harbor airport. Those that live in the quaint historical area where flights are suddenly doing final approaches over say they’ve already been told their home values may drop by more than half.
One bureaucracy – accountable to nobody – made one innocuous decision and ruined those peoples’ property values, the same way the British and Canadian government spit on foreign capital and now expect to see large drops in property values.
There is nothing hold up western property values except for the same thing holding up the US dollar. Blind faith by people who don’t know any better.
Meanwhile, countries like Thailand are opening their doors to wealthy investors from places like China. I personally wouldn’t buy a green banana in Thailand, but that’s me. At least the Thai government, with all of its military coups knows something the western world doesn’t.
We know that capital goes where it is treated best. Domestic capital hasn’t been treated well in the US, UK, or Europe for some time now. That made it easier for foreigners to come in and get some deals, but now foreign capital is being chased out.
How the hell does these governments think they’re going to maintain their developed economies without ANY capital?