PL78

PROPERTY LETTER 6th November 2008.

Dear All,

“Call the Bottom Dad!”
…is what Lao said to me recently.
 
We were talking about the market and the release of the “Residential Market Review for the third quarter 2008, published in October by CB Richard Ellis, a worldwide property consultancy firm who publish research results and market reports which are respected by professionals in every field of activity. (See extracts below)

We were also discussing the state of mind (the happiness) of people who have investments, and where those investments are:

• In Sterling and the Rand? Not happy.
• In stocks? Not happy. The less said about that the better.
• In UK property? Not happy.
• In Euros? Happy.
• In French property? Happy
• Don’t we all wish we’d bought into gold!

So I am “Calling the bottom” albeit a shallow one, but one in which there are some cherries to be picked.

Prices in Cannes and elsewhere on the Cote d’Azur have stagnated through this year, and in some cases they have come down. Some wonderful opportunities exist and I would say that almost everything on offer is open to negotiation. Asking prices are quoted but I believe we can achieve significantly below the asking price in some cases, and in a few we do have “distressed sellers” prepared to accept what they would previously have considered ludicrous.
 
I do not expect prices generally to go any lower. On the contrary there is a drying up of supply as sellers who are not under any pressure to sell sit back and wait for the market to pick up again, which it will.
 
There is no sense of panic here.

In addition banks are actively lending and rates are coming down. Savvy investors are taking up the cherries one by one, and some who are not too heavily leveraged already are using this time to invest again, right now. I can not think of a better time to do so.  Optimism is rising.

Commentary on the French Markets:

The CB Richard Ellis assessment of the French market in general is that although France and the Euro zone are experiencing a mild recession already, and consumer confidence is very low, “inflation seems to have passed its peak”. Economists suggest that GDP will rise by only 1% this year and next, but a healthy first half means that business investment will remain positive for 2008 and INSEE (National Institute for Statistics and Economic Studies) estimates a reasonably healthy 2.4%.

Investment in commercial real estate is significantly down but the report on “Homeowner Sales” is more encouraging. “The real-estate cycle may have passed its peak in France, but the market has remained healthy. Demographic and structural changes in the market fuel demand, enhanced by the relatively low level of home ownership in France, 57%, compared to 67% in the Euro zone.” Of course the market is curbed by general economic uncertainty, credit is more difficult to obtain, and there has been a cut back in new construction projects. This “period of adjustment” is expected to continue through 2009 and into the beginning of 2010, but CB Richard Ellis point to the exceptions that exist in the “high grade housing” market in Paris. The same rules apply to “high grade” properties in niche markets elsewhere in France, most notably in the French Riviera and the main ski resorts:

“The micro-market for luxury assets…is getting stronger year by year.” These high grade apartments and town houses, in addition to their size and specifications, can be split into three categories:

• The location – some locations are considered more exclusive than others.
• The architecture and the design – dimension stone buildings, apartments with large reception rooms, original features such as mouldings, carvings, large gardens or terraces are highly prized.
• The security – buildings with high security, video surveillance, secure entrances etc.

 
“This sector appears to be relatively protected from the downturn of the property cycle with the accompanying drop in prices. The motivation of this clientele is not always very rational, and does not necessarily involve the same logic that most buyers exhibit. A transaction may almost be concluded on a whim.”
The number of these types of transactions has increased by 200% since 2005.
The share of foreign buyers has risen sharply in the last decade.
The top end of the market should continue rising which will no doubt lead to more luxury apartments being developed.

Why get excited about all this?

For nearly 7 years I have been telling close friends and family and people I have never met that there is something SPECIAL about this particular property market. The French Riviera is unique, and Cannes particularly so.

• Cannes is the equivalent of one of the TOP arrondissements in Paris. Who would argue that?
• Successful and discerning people from every walk of life want to be here – just a few nights ago I watched James Caan a “Dragons Den” millionaire interviewed, and when asked what he does for pleasure his reply started with “Well, if I’m not in Cannes….”
• From International Living Magazine’s annual Quality of Life Index, their 30th consecutive survey: “…which country wins this year’s Index? France and it takes this honour for the third year in a row. France is the best place in the world to live.”
• France is host to more visitors each year than any other country in the world.

This assessment comes from Citywire’s Personal Investor Edition (1st November 2008):
“Even if we have doubts that it is the best time to invest in property, nobody knows when the bottom of the market will arrive and property should always be treated as a long-term investment. In the current climate, there are enough concerns about where we can put our money safely. At least with property, you know it is there and it cannot be taken away, even if the value may fluctuate.”  With property in a “high grade” market that confidence is doubly justified.

The high cost of oil and today’s economic uncertainties mean that flying off for a holiday overseas is going to become prohibitively expensive for many people or just an unwise idea, certainly for more than one holiday a year.
That self-catering apartment in Cannes might just make a perfect alternative.

OBAMA!

History was made this week.

Whether we would personally have voted for him or not is irrelevant now – a convincing majority of the biggest turnout of American voters in 44 years have demanded REAL change, and remember that 76% of Americans are white, so the groundswell we have just witnessed has crossed all demographic barriers. The “Obama Effect” will be profound on the psyche of every American and will change the way they see themselves, and change the way non-Americans see them too.

I am filled with hope for America and our world.

A Brief Stocks Update.

Last time I wrote I bemoaned the fact that the FTSE 100 had dropped into that “dark place” below 4 000. It came up again thankfully!

At the time of writing the FTSE 100, the French CAC 40, the German DAX 30, and the Pan-European Dow Jones Stoxx 600 had all risen for six consecutive days – the first time they have managed that in the whole of 2008! The pre-Obama bounce perhaps? The FTSE 100 was hovering around the 4 500 mark and I have every hope that the rise will continue (with inevitable hiccoughs) on the backs of the Obama landslide and a probable cut of 0.5% to 1% in interest rates by both the E.C.B. and the Bank of England on Thursday 6th.

There seems to me to be a simple logic that business confidence = confidence in general: Greater confidence = rising markets + freer lending policies in the banks: Freer lending + confidence + rising markets = greater economic activity generally + returning stability to the real estate market.

All are inextricably connected.

Breaking news – as I prepare to send this the Bank of England has sent a powerful message to lenders – they have just cut interest rates by a completely unexpected 1.5%! We shall see if the ECB will follow suit.

With kind regards,

Guy.