property

Reading Between The Lines: Why Eurozone Improvement is Being Ignored

Published on the Front Page of Huffington Post Business

Markets have shrugged off improvement in the Eurozone because more is needed for stability. Rising demand for German goods, an improving business climate and stability in Spanish housing should have given markets cause for celebration. However, after the substantial rally we’ve seen, and the headwinds yet to be tackled within the region, caution has crept back into markets.

Absence of Growth and Currency Risk

There is deep concern over Europe’s ability to kickstart growth, as austerity measures dampen economic expansion and a strong euro stifles exports. The increase in demand for German factory goods interestingly was driven by demand within the euro area. Domestic demand was weak and the currency still source of concern abroad. Furthermore, despite an overall improving business climate, uncertainty in the political and economic landscape going forward is causing delay in hiring and investment.

Spain Precarious and Firepower Lacking

Once again hitting the headlines, Spain could derail European stability, as corruption charges are directed at the government while they continue to grapple with a large budget deficit. The latest data points to a possible floor in Spanish housing prices but defaults on bank loans due to the real estate bubble remains elevated and there is only limited further financial aid available directly from the rescue fund. In order to meet its main obligation of lending to struggling countries, additional direct bank aid has been rumoured to amount to less than €100bn, nowhere near enough to contain future turmoil!

Reform and Unity Needed

With France expected to have slipped back into recession, Draghi, the European Central Bank President, is right to warn that the region is not in the clear yet. What’s needed now are structural reform and closer fiscal and political unity. Only with a return of confidence, based on improving fundamentals, can stability return.

rafa-sanudo-euro-crisisstock market

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Further Disappointment For The UK As ‘Triple Dip’ Threat Gains Momentum

After disappointing economic growth within the UK fed fears of a ‘triple-dip’ recession, housing market data has added fuel to the fire. Stability is needed for consumers to feel more confident and comfortable spending but instead contraction continues. Outside of London and within the prime real estate market, demand has been driven by a low level of supply and foreign investment. However, outside of this insulated area, property is struggling and banks still have assets to offload which could further maintain downward pressure on prices.

Opportunities for Careful Investors

THE current financial climate is making it harder to decipher where investors are going to find returns. The rates on holding cash are low, bond yields in general have narrowed substantially and there is much uncertainty on the outlook for the stock market. In addition, with macro risks on our minds and the sovereign debt crisis raising concerns, risk aversion is on the rise. In this environment, investing in something tangible that could provide a potentially uncorrelated return is attractive. Nevertheless, there has been a vast difference in returns from various investments in this market. Therefore, it will pay to be particular.

There has been a stark divergence of fortunes between property prices inside and outside of London. Location within or access to the city is a price-setter. Fundamentally, prime assets in attractive sectors should see a level of demand providing a floor on prices. Foreign investors have been quoted as spending £3.7bn per annum for London residences, due to the inviting exchange rate, national ties, as well as in some case the greater political stability that our city can offer. The emergence of an appetite for second homes has created demand in another segment of property investing, where the right location will again be crucial.

Students are another opportunity. Regional student housing is the UK’s best performing sector with around a 15 per cent ROI last year thanks to a shortage of suitable one-bed apartments. Broadly speaking, this is a “buy-to-let” approach. Rental rates are at all-time highs and the short-let market is booming. It is predicted that for the Olympics, rates will increase six-fold.

Therefore, depending on your strategy, timing may also be crucial. To play the school or student market, the run up to September is a key window of opportunity. The challenge is in finding the investments that fit your aspirations, and putting your plan into action at the right time. In a desired area, properties can attract multiple buyers, making this task tougher.

Nevertheless, with inflation one of the biggest threats to the market currently, implementing the right strategy and picking the right property will help provide some protection.

This article was featured in CityAM.

Stagflation – A Risk Worth Noticing

The supreme art of war is to subdue the enemy without fighting – Sun Tzu, The Art of War

Much is made in the news of the risk of inflation. We can’t step far outside our doors without being faced with the challenges it brings. From shockingly high petrol prices to rising agriculture costs hitting our shopping bills, the fear is setting in. However, when we strip out these volatile elements, just how much of a problem is core inflation? Instead, with economic growth precariously fragile, when it does become a concern, won’t we be left fighting a ‘war on two fronts’? It’s time we start to notice the ‘Elephant in The Room’.

An Anaemic Recovery

The economic recovery remains weak. Still driven by the consumer, the environment for spending is tenuous. Retail sales for December were downgraded and January’s figures can only be described as “unspectacular”. We saw the first increase in the claimant count in four months (which would have been even higher had people not given up the job search entirely). Moreover, earnings growth slowed to the lowest rate in six months (from 2.5% to 2.0%). With Hometrack, the property analytics business, foreseeing homebuyers facing a continued struggle to obtain mortgages in 2011, the outlook for spending and GDP growth looks tough.

Source: Capital Economics “UK Labour Market Data” Regular pay growth slowed from 2.5% to 2.0% (Published end Feb 2011, data to end Dec / Jan)

Consumer Companies Highlight the Headwinds

Highlighting the problem were the many consumer companies missing Q410 earnings estimates and downgrading their forecasts for this year. Diageo, Colgate-Palmolive and P&G were among those that struggled to meet expectations. Falls in demand were blamed, with the situation looking none the rosier going forward. Renault predicts the demand for cars in their home market of France will fall by 8%. In addition, rising input costs is adding to woes. Pepsi is budgeting for a whopping 8 – 9.5% increase in the amount of capital they will spend on oil and agriculture commodities, which contributed to the firm lowering their forecast for earnings growth from low double digits to high single digits. The question on everyone’s lips is – can they continue to pass on higher costs to the consumer? With the aforementioned weakness, the most likely answer is “no”.

Source: Bloomberg. Next share price (white) and the Cotton price (orange) + >10% YTD already.

Inflation ‘Illusion’ Tempting Risky Action

So just how much of a problem is inflation, when compared to the weakness of the recovery? True, headline Inflation has held stubbornly above the Bank of England’s target at 3.7%. However, stripping out food and energy prices, core inflation falls to 2.9% and recent reports show that after excluding taxes, we hit the 2% jackpot. Regardless, the political environment poses a risk. The MPC (Monetary Policy Committee) is under immense pressure to defend its credibility after keeping rates on hold for 23 months consecutively. Markets are now pricing in a 25bps rise in May. Crucially, these expectations alone have consequences. In one week alone, more than 10 mortgage lenders pulled their best fixed rate deals – hitting credit availability to the already weakened consumer ‘spenders’.

Only an idiot fights a war on two fronts. ~ Londo Mollari, Babylon 5

Stagflation – A ‘War on Two Fronts’

This is the crux of the problem – promoting growth can at times risk inflation and fighting inflation can risk weakening growth. Currently the biggest challenge of the two is strengthening growth. If the recovery remains weak, then when inflation rises and poses a far more serious challenge, the government will not be able to implement policies to fight it without dragging the economy into another recession. The possibility of stagflation is real. In this situation the government will feel even more pressure to raise rates but unemployment will still be high and so if rates rise, many will suffer. At the moment the MPC have a “wait and see” attitude – let’s hope this continues and they don’t succumb to ‘peer pressure’ too soon.

Putting to test the property that you can buy for investment


One of the most lucrative investments is investment in real estate. Although, the process may seem quite simple to you, but it is not so. The way you evaluate a property while buying for investment purposes is not the same as the way you will evaluate a property while home buying. When it comes to investment property you have to think like a business owner and not a home owner.

Thus, there are various tests that you must out the property you are buying through, before you purchase it. 2 of the most important tests are as follows.

1. Testing for a good neighborhood: Location is a very important factor when it comes to purchasing a property. The property you buy should have the availability of basic amenities in close proximity. You must also check if the area in which the property is situated should not be prone to crime. You must check all this because no one would like to stay in a place where the crime rate is high and there is no proper availability of essential facilities. So no matter how well decorated the property you buy, is from within, it will not sell well in the real estate market because of the location factor.

2. Testing for the need of extensive repairs: Before you buy a property it is essential that you check what sort of repairs are required in the house. Find out if these repairs are an extensive repair that is structural repairs or they are merely minor repairs that you can tackle. You must not buy properties that need structural repairs, this is because you lose a lot of money and the percentage of profit reduces.

These are the 2 tests that are very essential before you buy any property.

Nancy Smith