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scot47
Joined: 10 Jan 2003
Posts: 15343
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 Posted: Sat May 27, 2006 4:47 pm Post subject: |
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| Why, in the name of the Great Pumpkin, would I want land in New Zealand ? |
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Bebsi
Joined: 07 Feb 2005
Posts: 958
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| Posted: Sat May 27, 2006 8:45 pm Post subject: Who is Great Pumpkin? |
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| I concede that a house is quite useful for living in |
Most people I know who retired at 40-50 y/o, own a number of houses. They find them invaluable for many reasons other than living in. Rental income, tax breaks...and of course, capital appreciation. Their bank accounts would suggest they are doing something right!! 
Most foreign investors who bought property in Romania in the last few years have no intention whatsoever of living here, or even taking holidays here. [Mind you, many who came here purely as investors have started holidaying here on discovering the beauty of the place. ]
Their having no personal interest in the country has had zero bearing on the fact that those who invested here in 2003/04, have now at least doubled their money, and are still watching it grow. I bought land for 200 euro a hectare three years ago, it's now worth 1,000 p. ha. and still growing fast. I don't live on it, directly farm it, ar even look at it all that often. But Oh, Boy, do I have an interest??
If you owned shares in Intel, does that mean you work for them too? Does it make you an IT specialist? Does owning shares in Proctor & Gamble make you a chemist?
Incidentally, Scot, if you actually know of any real estate going cheap in the Solomons, let me know! Or anywhere in the south/western Pacific.
THAT'S IT!! Scot is buying up half of NZ and telling the rest of us to avoid it at all costs, in order to keep prices down till he owns it all!! Clever, Scot!!  |
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Stephen Jones
Joined: 21 Feb 2003
Posts: 4124
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| Posted: Sat May 27, 2006 10:07 pm Post subject: |
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There appears to be a global real estate boom at present. It may well burst in a couple of years.
You can lose in real estate. The price of real estate has gone down in Japan every year since 1990.
With regard to buying real estate to get money from the appreciation as Bebsi suggests. All I can say is not necessarily a good idea. As long as there is confidence in the market then you can sell on, but when the market tanks you will find the only people who will buy your real estate are those who have a real need for it; either to get a decent ROI through rental income or to use personally.
In the US you are supposed to think of a GRM (that is no of months rental income necessary to reoup the investment) of 120 maximum. The same used to be said of the UK. Now in both markets you will need about 300-400 months rent to recoup the investment. Not promising. In other countries it is worse; and indeed always has been. A 4% annual ROI is considered good going in most countries.
The main problem with real estate as an investment is liquidity. Outside of premium sites in large cities it is difficult to sell quickly, and in emerging markets can be nearly impossible. And the transaction costs of making the sale can be high - seven or eight percent. Add to that possible dificulties and delays in repatriating your money and you should think twice before investing anything you might need at short or mid-term notice.
And finally remember that the real estate market does not appreciate regularly. The norm is often for prices to double or treble in a space of a couple of years or less, then decline a little, and then plateau for the next ten to fifteen years.
I would say though that I agree with Bebsi about Romania being a good bet, with the caveat that all my Romanian contacts in the UK (and there are a lot of them because my brother has had two Romanian wives) say you have to be very leery about the actual deal. |
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Bebsi
Joined: 07 Feb 2005
Posts: 958
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| Posted: Sun May 28, 2006 9:14 am Post subject: Gloom and Boom! |
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Well, Stephen, while I don't necessarily agree with the overall sentiment of your posting, I must say it is the most rational argument I've read here so far. What you say is factually true, but as an argument it is not a strong one against real estate investment.
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There appears to be a global real estate boom at present. It may well burst in a couple of years.
You can lose in real estate. The price of real estate has gone down in Japan every year since 1990. |
I very much doubt if there will be a global burst, it tends to go against the general laws of economics, at least in relation to real-estate. Regional slumps are a very different matter, however. I will deal with this issue in due course.
Yes, you can lose in any sort of investment. Investment, the input and activation of financial resources in a project designed to increase those resources, necessarily involves some measure of risk. The world's capitalist economic system revolves on this concept. Generally speaking, the greater the potential returns, the greater the risk. Short of leaving one's money in a bank at (usually) a miniscule interest rate, one has to put one's money somewhere to make it work. If there was such a thing as a totally safe zero-risk investment, we would all be billionaires!! Of course, the billions we would all own would be worth very little...another immutable law of economics.
However, the fact remains that real-estate is still one of the safest investments around, relative to the potential gains.
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| As long as there is confidence in the market then you can sell on, but when the market tanks you will find the only people who will buy your real estate are those who have a real need for it; either to get a decent ROI through rental income or to use personally. |
I agree, Stephen. Real-estate value, like that of every other single commodity, is dependent on demand. Unlike certain soft-drinks, makes of car or types of drug, real estate will indeed always be in demand, no matter what. As Stephen says, by those with a real need for it, either for a decent ROI rental income or to use personally, i.e. as an owner occupier. This is the key: People will always need somewhere to live, or to run their business from. If they don't want to buy/own it themselves, they will need to rent. I don't think one will always, as Stephen also suggests later, GET a decent ROI. And of course, the real-estate will never cease to exist. Even in a worst case scenario, where it loses value massively, it will recover at some point in the future.
This happened in Ireland, in the 1980s. Bank interest rates soared, causing a huge drop in demand. People still bought, but at lower prices. Many of those who bought at the lower prices were shrewd investors (who were fortunate enough to have the money, of course), and this gradually started to push prices up again. Then came the mid-90s low-interest-rates bonanza, and prices shot up, causing one of the greatest real-estate booms in history. Something similar happened in the UK, I believe.
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| In the US you are supposed to think of a GRM (that is no of months rental income necessary to reoup the investment) of 120 maximum. The same used to be said of the UK. Now in both markets you will need about 300-400 months rent to recoup the investment. Not promising. In other countries it is worse; and indeed always has been. A 4% annual ROI is considered good going in most countries. |
At the moment, UK rental incomes are even less than 4%, on average. Personally, I wouldn't touch the UK market with a bargepole at this point in time. In other places it is indeed worse, but NOT ALL. In Romania at present, a residential unit in Bucharest or other big cities will realise a rental income of around 7-8%. Capital appreciation is considerably higher than this, however. A commercial unit (which requires a much larger equity, of course) can currently yield up to 24% p.a rent for a class A development. For every 1000 euro invested, you get approx one square metre of built space, for which you will get about 20 euro per month leased out.
Also, while the GRM is a good indicator, it is not absolute. Capital appreciation is also a factor, and likely future gains. I reiterate the point I made in an earlier posting: a shrewd investor is ultimately buying for long-term capital gins, not short-to-medium term rental income. The main reason I wouldn't touch the UK is not the low GRM, but the fact that UK property has now more or less reached saturation point.
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| ...remember that the real estate market does not appreciate regularly. The norm is often for prices to double or treble in a space of a couple of years or less, then decline a little, and then plateau for the next ten to fifteen years. |
This is is exactly what happened in the UK. It boomed in multiples over a short number of years, then pretty much reached a plateau. It is part and parcel of real-estate investment. You buy in a booming market, watch your investment grow, then using some judgement and acumen, decide when it is a good time to sell on. What do you do then? Use the proceeds to buy in a new market. In maybe 5 years, Romania will reach saturation point, and then we will all end up moving on to...who knows where? Bikini Atoll, Tristan de Cunha, South Georgia? The UK again?
Successful speculators don't buy just to remain static in a market. They liquidate their assets when they reach an optimum value, and reinvest elsewhere. Example: many who bought in Spain in the late 80s/early90s, are now selling to reinvest in Eastern Europe. They are, by any standards, being very sensible in doing this.
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| Outside of premium sites in large cities it is difficult to sell quickly, and in emerging markets can be nearly impossible. And the transaction costs of making the sale can be high - seven or eight percent. Add to that possible dificulties and delays in repatriating your money and you should think twice before investing anything you might need at short or mid-term notice. |
Firstly, I would say that of course, premium sites in large cities are a safer bet. Secondly, I don't agree that it is difficult to sell in emerging markets. Romania is a case in point. I have clients at the moment who cannot wait to get their hands on property, especially that suited to commercial development. The best approach is to buy in the early stages of economic development, and then liquidate during the later stages, but before the plateau is reached. Investment in emerging economies is always a better bet. If you were buying a pedigree dog, would you choose a puppy, or an adult of two years old?
Costs are a necessary evil in any transaction. Yes, you must pay estate agents, Capital Gains Taxes etc. But in any legitimate profit situation, you must pay taxes. In Romania, CGT is much lower than in many western countries, at 16%, and repatriation to another jurisdiction is easy. Soon, it will be part of the EU anyway. When buying here, you typically pay 3% to the notary carrying out the transaction, and 2% fees to the estate agent, as does the vendor. This is much lower than in many other places.
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| I would say though that I agree with Bebsi about Romania being a good bet, with the caveat that all my Romanian contacts in the UK (and there are a lot of them because my brother has had two Romanian wives) say you have to be very leery about the actual deal. |
Romania is a superb bet at the moment. Yes, you have to be leery about a deal, but surely this applies anywhere?
I would point out that my comopany does NOT act for the vendor, but for the purchaser. We seek out the best and most suitable investment properties for our clients, and take care of all the paperwork and local issues here. This makes for a much smoother and cost-effective deal for the investor. As we source many properties directly without estate agents being involved, we cut out their fee completely. We are actually cheaper than estate agents, so although we represent YOU the purchaser, we still charge you less than you would pay an estate agent representing the VENDOR.
In this thread, we have become bogged down in whether real-estate investment is safe or not. No investment is completeley safe. Capitalism doesn't work that way. However, it is among the safest investments all things considered, while still offering potential for very significant gains.
One final point: many have knocked the idea of real-estate investment. However, I haven't as yet read any alternative suggestions regarding good, safe investment that will yield SOME kind of fairly decent return. I mean, how DO you people invest your money? Is there some big secret about which I haven't heard? 
Let's hear those ideas. We want suggestions, not criticisms. In real-estate, we generally tend to build, not to knock. It is far more productive, believe me. |
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Van Norden
Joined: 23 Oct 2004
Posts: 409
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| Posted: Sun May 28, 2006 12:42 pm Post subject: |
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I'm not knocking property. It can be a top investment if the fundamentals are right. What I addressed was your fatuous claim that it's safe because it doesn't disappear.
I invest in shares because they generally offer the best returns (viewed historically) and because of the convenience and lower costs/taxes. I've never had to get a bank loan either. I'm not averse to risk. I take a long term view and expect highs and lows.
As for Romanian property, who's been driving up prices in the last few years, locals or foriegners? If it's foreigners, Romania will hardly be immune to the correction in the west.
BTW,I didn't mean to strike a nerve with my 'salesman' crack. I didn't even know you were in real estate! I hope you do well. You're obviously very committed. |
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Bebsi
Joined: 07 Feb 2005
Posts: 958
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| Posted: Mon May 29, 2006 11:08 am Post subject: Bebsi Estates Limited!! |
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| What I addressed was your fatuous claim that it's safe because it doesn't disappear. |
No, I didn't mean it is 100% safe, as I have since made clear. What I meant was that property is a safer bet than most others, in that if a company in which you have bought shares, for example, goes bust you lose your investment. On the other hand, if property you have bought loses its value in a slump, and you have the time and patience to wait a few years, there is a good chance your investment will recover its value. This happened in Ireland: There was a boom in the early/mid 70s, followed by a major slump in the late70s/early 80s when interest rates hit an all-time high. Some lost their shirts, but many more who could afford to hold on, did so, and saw their investments soar in the 90s.
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| As for Romanian property, who's been driving up prices in the last few years, locals or foriegners? If it's foreigners, Romania will hardly be immune to the correction in the west. |
It's a combination. Many young Romanians, because of more disposable income, lower taxes and falling interest rates, are leaving the traditional living-with-parents arrangement and buying places of their own. This has fuelled demand of course, but as this caused prices to rise, foreigners then moved in seeing a good investment. Commercial property prices have been rising because of more businesses, in turn the result of the start of a consumer boom. Ditto with foreign investment. The vast majority of larger commercial developmenst are foreign backed, however.
Romania is now seeing the start of a major boom, although the effects haven't truly materialised to the ordinary person as yet. This happened in Ireland in the 90s, with the start of the Celtic Tiger boom. It actually took about 4 years for the real benefits to filter down. But filter down they did!
Romania, like any other economy, is not immune to external economic conditions. It doesn't matter whether the real-estate boom is fuelled by local or foreign investment. The reality is that it is happening, and it is now an excellent time to get in.
Buying stocks and shares has its place too, the main advantage being that you can get in at a very low level, unlike buying real estate. With property, you must first save up the money in another saving scheme, and when you have accumulated enough (or the ability to borrow), only then can you invest.
S & S also offer a possibly higher ratio of returns in the short term, but of course this generally applies to high risk investments.
The main drawback with the stock market is that very few people know how to play it well, and while it may be a relatively safe bet for those who do, it is a far riskier situation for the vast majority. Whatever else may be said, far fewer people have lost their shirts in real estate than in the stock market. I will reiterate my earlier point: if the company goes bust, you lose all. If land loses its value, it will still be physically there and some day you may have another chance.
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| BTW,I didn't mean to strike a nerve with my 'salesman' crack. I didn't even know you were in real estate! I hope you do well. You're obviously very committed. |
No probs, VN, no offence taken.  Of course, I'm committed, it's my business!
Doing pretty well so far! If you're interested in a good investment in Romania, PM me. I have some great opportunities here at the moment, some starting as low as USD 20K. |
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Van Norden
Joined: 23 Oct 2004
Posts: 409
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| Posted: Fri Jun 09, 2006 9:53 am Post subject: |
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| I have some great opportunities here at the moment, some starting as low as USD 20K. |
Bebsi, what can you get for that? I'll mention it to some of my colleagues. Lots of them are obsessed with Eastern European property.
Will I get a cut????  |
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