The Bottom Is An Illusion, It Does Not Exist, And It’s Not Important!
Spain has had a little bit of a kicking of late, she has been battered and bruised, and she has been the unwashed, unloved pedigree alley cat of late. However she has breeding, and she has come back with her claws out, and a shine in her eyes. She is positively purring today.
Many City clowns, sorry overpaid (analysts) are peering into their crystal balls hoping to predict the bottom of the Spanish property market collapse, an exercise which serves as a stark reminder of one clear, indisputable fact, the city analysts are blaggers, they know very little, they are lighthouses in the desert. Very bright, not a lot of use to anyone. The market will not hit bottom because the bottom is an illusion, a little like the Stock Market, its fairy dust, it doesn’t actually exist.
In one of the latest attempts to predict a bottom, Fitch Ratings pegged 2015 as the year when the market turns around, yawn. Fitch‘s conclusion is similar to other recent reports, if the market analysts were so expert, all of the analysts would be buying stock, not selling BS advice to their gullible clients!
For practical purposes, trying to define a bottom is pure nonsense and a folly. Life is too short to chase unicorns. In the reality of the investment property market, some areas will find a lower level than historical levels, while others will continue to slide, and some will gain momentum. The idea of an identifiable bottom is a myth, nothing more than fodder for pundits and something for anorak analysts to do between kissing the bosses backside and lunch. Graduates who left Oxford with an old school tie and no life experience or common sense, have no place in this market, however the City is full of them. Ask any of them how much time they have spent in Spain, and the answer is an obvious, none. They holiday in Rock or France.
For intelligent investors and industry experts like H&G, the far more interesting goal is normalcy – a functioning, stable market. There is a big difference between a market that has reached the so called bottom and a functioning market. In a functioning market, sales are occurring, homes are appropriately priced and lenders are supporting purchases. A normal market exists when a well-priced, well-located property finds a buyer in a reasonable amount of time.
Signs of Normalcy.
There are signs that many markets are approaching some semblance of normalcy, even if it might be a weird BMV (Below Market Value) normal.
In markets where there is high demand and low supply — the high-end Balearics, Barcelona and Marbella markets, for example, are on fire. It is already difficult to find quality properties for sale, especially since there is no new supply coming on line. Todays buyers are from China, Russia, Angola, Venezuela and India. They are cash rich, so well-located, well-priced homes are selling like hot cakes.
In some areas, there are already tiny signs of new development “green shoots.” In the Costa Blanca, small developments projects are under construction. Warren Buffet and Paulsen have already snatched a couple of very big construction companies. JP Morgan is buying distressed property like it’s going out of fashion. A recent report suggested the construction industry is going to start building some very swanky properties, very shortly. Who is looking at buying these, China, who else?
For Spain to continue to see normal, the banks are going to have to start lending and the Spanish economy will need to improve to resurrect the domestic market. There are little indicators that things are happening now, most analysts agree with us, if you read between the lines, Spain is a good place to be.
The banks’ lending support, is a key variable to a normal functioning market, if the banks won’t support current values, it is unlikely that the normal buyers (Holiday Homes) are going to show enthusiasm for the market. However true Investors see the BMV market as a very lucrative arena, H&G have property which is 35% BMV, couple this to huge upside rental returns, and Spain is the flavour of the year.
The negative reports don’t mean jack, if you’re returning 16% in rental yield and you can wait for the capital return. Believe me, the only problem that you will have, is that you did not buy earlier!