PL 81

PROPERTY LETTER 5th March 2009.

Dear All,

As we head out of winter the Bay of Cannes is filling with the multi coloured sails of small yachts in early competitions, the brilliant gold of Mimosas line every roadside and splash across the hillsides and spring flowers are bursting into bloom. A greyer than normal winter (in more ways than one) is giving way to the sunshine that we expect on the Cote d’Azur. The last two weeks of February at least were lovely, and a timely reminder of just why we are all here.

I had an enormous response to my last Property Letter which was very pleasing, and many asked whether the market was softening? Are prices coming down “yet”? Are there particularly good deals and bargains to be had? I have answered each of those letters individually, but now in general terms, for what they are worth here are some thoughts:

MARKET FACTS.

Many like us are very fortunate to have at least some of our available assets in nice, safe, rental properties in Cannes. True, the last year has seen no upward movement in the market, so we have stood still. However, until a year ago we had grown at 12 – 15% per annum for six years, and we will grow again.  Many people who write or speak to me wish they could say the same of their investments in various arenas which have shrunk alarmingly, or almost disappeared.
 
I have answered the questions “why property?” and “why Cannes?” before, and most of you will have read my answers in the “Summary” of our activities which I send to people who first get in touch with us. If you would like that “Summary” again (and it is now updated) as a reminder of just what we do, and what we offer here, then please ask? I’ll send it to you by return – it’s a small “Word” attachment.

However, in brief:
Why property? If markets go pear shaped you still own your property and in the long term, irrespective of short term market trends, good property appreciates in value as no more of it is being produced (unlike cars, or derivatives!). It also has the ability to generate income through rentals which can help offset costs associated with ownership and the mortgage if there is one.
Why Cannes? The best property in the world is generally regarded as a safe investment, and Cannes at the very heart of the French Riviera, amongst the most sought after of destinations on the planet for hundreds of years, is amongst the top. Discerning and wealthy people from everywhere want to be here – they flock here. It is fact that France is the most visited country in the world, and that Nice airport is the second busiest airport in France after Charles de Gaulle in Paris.

We have been here seven years now, and those who have invested, many of whom (from farther afield) have not yet visited their properties, have not lost value. If they have bought in the last year or two their investment has stayed more or less at par. Those who invested with us early on have seen significant gains.

The market in Cannes has been “dead” since last autumn, but then it is always slow in winter (although not normally completely dead!). In February we have seen some activity in the market again – mostly in the form of enquiries, but some sales have started to take place, and it seems certain that they will pick up further in the months ahead and into summer as they traditionally do. The French are better off than the English and many other nationalities right now, having considerably less debt, and the banks are lending, so the local market which is traditionally seasonal is moving again. Foreigners too are starting to bargain-hunt, evidenced by the many responses I have had to my last Property letter.

So what is it that we (Vicky and I) offer you exactly?

• We spend all our time and a great deal of effort sourcing “the right” properties for investors. We will find the right property for you when you are ready, if you will allow us to. 90% of you want a rental return to help offset your costs and mortgage – and that is our specialty.
• Once you have decided on your property we will help you all the way through to transfer, including help with obtaining a mortgage from a French bank. You don’t even have to come here if you don’t want to, and many have not.
• If the apartment needs renovation or furnishing we will put you in direct contact with people who can do it for you. They will work to your budget, your specifications and your tastes. All of this is possible using e-mail.
• Vicky will arrange for the opening of your French bank account if you don’t have one and administer every aspect of your property if you require her to. That includes banking, payment of local and government taxes, levies, electricity, water, insurance (including handling claims when they occur), and provide you with a  monthly statement of all income and expenditure which balances to your bank statement. She will also do your year-end tax returns if you’d like her to, and anything else administrative that arises.
• We take care of all minor and major maintenance and upkeep of your property if you want us to.
• Our son Lao runs Everything Cannes and Azur-Online, the two most efficient websites marketing accommodation in Cannes. His organisation takes care of marketing and rentals, mostly (but not only) for festivals and congresses year round, and everything that goes with it - cleaning and servicing, collecting deposits from guests, and payments, airport transfers, meets and greets. They are a highly skilled, dedicated and efficient team with six years of experience behind them.

Some properties are owned in the investors’ personal names, and some investors have formed small French companies to do it, particularly where ownership is shared between family members, friends or acquaintances. This small company created specifically for the ownership of property is called an SCI (Société Civile Immobilière) and is simple and very cost effective to set up. We can handle all of it for you if required.

A common immediate reaction of many people outside France is that although they know they would like to, and for many it’s a dream, owning property in France is seen as a dream that can’t come true…

• I can’t speak French.
• I don’t have an E.U. passport.
• How can I get a loan when I don’t own anything in France?
• But I can’t look after it from miles away.
• Management at arm’s length doesn’t work.
• I believe in “hands on”.
• What will my tax status be?
• Etc. etc. etc.

We have heard it all time and again, and people have missed opportunities because of their fear of the unknown, but the truth, in the words of one very recently elected President is: “Yes we can!” And frankly, those who have are better off for it.

Vicky and I have identified a number of properties in Cannes that are well below market value, for whatever reason (such as deceased estate, motivated seller, etc). We have searched for these properties high and low and I have never done this in a Property Letter before….but this is as close as it gets to a “Property Sale!” The prices of these properties are not reflective of the market, as on average the market is 30% above this level. So take a look at them, and if you are in the “maybe we can” camp, please get in touch with me and let’s see what we can do to turn it into “Yes we can”?

The prices of these properties (below) are not even necessarily the best prices we can get – we should still try to get further reductions on some of them and I have to say, there are some fine investments amongst them.

MIPIM

…is coming up (9th to 13th) and activity is in full swing all over town with marquee tents and stages and banners going up everywhere. MIPIM is the International Market for Real Estate Professionals and Investors which takes place here every March and is normally bigger than the Cannes Film Festival. It will be smaller this year than last year however – some players have even “disappeared”. Lao had a block booking for a Lehman Brothers delegation from the U.S. for example – and obviously they will not be here this year! Overall however, his bookings are pretty good and we are pleased that most of our investors’ properties are booked – with a few days still to go.

A DRIVE AROUND THE FARM...
(..we were given two hours to leave it on 18/09/2001)
(Our own 9/18 came exactly 7 days after 9/11)

A few years ago we might have hopped into the Land Rover and driven out to see our tobacco crop, to admire it, and on through a land of 9 foot high maize with cobs as big as your forearm. Then we might have stopped to watch a herd of Simbra (Simmental crossed with Brahman) cows quietly munching on belly-high Rhodes grass while their calves romp around them or noisily suckle. Finally we would have driven down to the dam, probably passing a herd of sable antelope with their heads down, or giraffe with their heads up in the acacia branches on the way, and turned off the engine at the waters edge. Quite quickly the sun would melt away, its reflection dipping across the water as it went, and the sky turning red and gold over a herd of zebra, or flock of impala slipping silently in single file to the waters edge for a drink at last light. As the light faded completely the Abdims storks, herons and raucous cattle egrets squabbling for a perch in the trees on the island would settle and go quiet. Now the high-speed sonic twittering of the bats, and the sound of their wings as they flit past our ears in search of midges and insects coming off the water and reed beds, and the occasional liquid, lilting cry of a distant Mozambique nightjar set against the rhythmic background symphony of a thousand frogs.

Instead of that Vicky and I took a bag of keys from the office on Sunday and visited a number of our investors’ apartments, all prepared for our MIPIM guests, and our overwhelming feeling was that “we are so pleased and proud” of all of them. Each is a gem, and we agreed that if any of the investors could have walked into their apartment they would have been delighted with what they saw - a great investment, in a very good position, crisp, spotless, and as properly managed as a good farm! Until a year ago Lao out-sourced the cleaning and laundry and you can probably imagine that it was a constant headache. At the beginning of 2008 he took the cleaning and laundry in-house and the difference it has made is enormous, from attention to cleanliness and detail, to minor maintenance issues! That move has marked a major step forward for us and our owners.

The drive home around the Bay of Cannes with the azure water turning to gold as the sun dipped behind the burgundy-red Esterel Hills in the west was not quite the same as watching the sun set in the Zimbabwean bush, but beautiful, and peaceful enough to take our breaths away.

AN OVERVIEW OF THE RENTAL MARKET.

Lao has just completed a detailed analysis of rentals in 2008 and the first two months of 2009. Here are some of the facts.

• October 2008 was +20% on 2007. (Bookings taken before the crash).
• November and December 2008 were -96%. (Read – “stone dead”)
• January and February 2009 bookings serviced were -55% on 2008. (This is for bookings taken in the last quarter of 2008 of course)
• Forward reservations taken in January and February 2009 were +17% on 2008.

Observations:
There was almost complete meltdown of the industry from the middle of October 2008 resulting from

• A loss of confidence and near-paralysis in decision making.
• A large proportion of bookings are for tradeshows which are often considered ‘discretionary spending’ and may be high on the list for cost cutting.
• A very strong Euro.

Most of the 17% increase in forward reservations taken in January and February this year has been in bookings for the MIPTV conference in March / April and the Film Festival in May.

Lao has increased his advertising and marketing spend many-fold. This is closely associated with the increase in forward reservations, and it is gratifying to see that the investment and effort is bringing results. In addition a very international outlook and an early realisation that “something was happening” led to a major restructuring of the business in October / November last year, and all of this will keep our team in their jobs, and our apartments rented at least close to “normal” in 2009.

In contrast it has to be said that there are some players in the industry who are “packing up”. All of the above is placing us in an immensely strong position on the upswing of this recession.

One final point: Businesses who would still like to attend the tradeshows and congresses are finding a means to cut their costs by moving from hotels to up-market self-catering accommodation, and we are playing that hand to best advantage.

With kind regards,
Guy.