PL72

Dear All,

Word gets around and many of you have heard that I had a medical problem while back in South Africa recently. We have had many kind letters and phone calls and we appreciate them all very much. Thank you. I had a laminectomy and an angiogram (big words I didn’t know before) and the good news is that although there was a bleed into my spinal column there was no tumour, and no further treatment is required once the wound (from the laminectomy) has healed. Vicky and I and the family are mightily relieved and feel very lucky – it was a worrying few weeks.

The medical team tell me to get back to normal life, slowly to start with, so I do plan to build up to the inaugural “Marathon des Alpes-Maritimes” or “French Riviera Marathon” in November if I can. If anyone is interested in this event please contact me and I will help in any way that I can – it is to be a spectacular course and I feel sure will become a big name on the European marathon calendar in the future. www.marathon06.com/AN

Some questions I have been asked / and doubts expressed:

• This one from South Africa - It is not a good time to buy with the exchange rate against us.....some feel that the Rand will strengthen as soon as the USA economy improves.
• Should we buy at a lower level? We will be penalised (capital gains / bank loan penalties) when we sell to upgrade to what we really want.
• The property market seems to be in trouble in the UK and it may be worthwhile waiting to see if prices drop.

Some answers:
(The Economist articles referred to and quoted below are more than a month old, but what they say isn’t out of date)

• When will the US economy improve? In The Economist of 12th to 18th April there is a very good analysis. In a leader article they propose that “the recession may not be as severe as many fear, but the recovery could take longer”…..”During the past quarter century the world’s most powerful economy has suffered only two official downturns, in 1990 – 91, and 2001. Both were short and shallow.”……”The 2008 recession may be mild, but the 2009 recovery will be feeble.”…..There’s another interesting article that suggests that the Euro may take a bit of a hammering under the by-line “Danger Ahead for the Mighty Euro”. As for the Rand – it’s anyone’s guess. So what does one do?

• When Vicky and I left Zimbabwe in 2001 (during a recession) we had no choice – our farming life had been ripped away so we had a new life to build, and two of our three children were still at school. We took a hard decision to cash in the bulk of our meagre outside assets and go (personally) into property in France – the business grew later. But to be “safe”, and because the markets were down we left a small (sensible) amount in sterling, tied up in unit trusts. We have recently been considering liquidating that asset because we want to invest it in a property project in Cannes. If we do that today we will be paid out the “total interim value” - just 67% of the amount we started with! And yet we still ask ourselves “is it the right time?” Well, we’ve grown well with our property investments and if we’d taken that money in 2002 and put it where we should have it would be worth twice its original value now. So what do you think we should do? I say we should get it into property, and better late than never. That’s just our story, but illustrates for me that you have to go with your instinct in the end and sometimes it’s wrong. One can equally super-analyse oneself into total inertia. Recently an analyst on Sky was asking an “expert” about the market in Royal Bank of Scotland shares, when they were floating them to existing shareholders at an apparently lower price to try to raise 2.5 billion to get them out of trouble. The analyst asked the expert “OK so which way would you go then?” meaning would the shares make money if one purchased some, and the expert replied “I wouldn’t be sitting here if I could tell you that!”

• My view on capital gains tax (and many of our investors have faced the problem. having moved on and up the market after holding on to first properties for a few years) is that annoying as it is to pay the tax, it is ONLY chargeable on net gain, after deducting legal and admin and transfer and renovation costs. So it’s a tax on the real profit on your deal. I’d be more worried if there wasn’t any tax to pay! Bank penalties are unacceptable and you can (and should) make it a precondition that your loan is not subject to early repayment penalties in the first five years. (Banks do agree to it). In any case, if you use the same financier to finance your second investment it falls away because they roll over the loan and give you two years to sell the first property. It’s so much easier to get the second loan when you have faithfully repaid your first loan every month for a year or more.

• The property market is in trouble in the UK (the Economist says it could be…”almost 30% higher than can be explained by fundamental factors such as disposable income, interest rates and size of the working-age population….”) and I’m sure it will spread to France, but France was never anywhere near 30% overvalued and nor was “…credit artificially cheap in recent years because investors have demanded too little return for the risks they have taken on…”. In niche markets (Cannes being one of them) the effect of downturns is cushioned because the market is less dependant on people being able to repay their debts, keeping or losing their jobs, etc. The wealthy are less affected by the cyclical ups and downs of the market – theirs is a much flatter graph. The Economist again – “Charles Peerless, who owns estate agencies near the City and in the West End, areas where prices are holding up relatively well, says each property is being viewed about 12 times before a sale, compared with just four or five viewings a year ago.” He obviously deals in areas of London where property prices are less turbulent – I bet estate agencies in less prestigious areas of London are going bust, as they will in marginal suburbs of Nice, Lyons and Paris. You can’t build any more in the City or the West End, nor the Croisette or the Champs Elysee. So when I see Sky News reporting that property prices are set to fall 25% and home owners are going into “negative equity” I can believe that it’s true for some areas, and the hardest hit are the first time home-buyers making up 30% of the market, with 100% or even 105% mortgages (madness), but to get the real story I wait for The Economist!

In Cannes we are finding what Charles Peerless is finding – properties are taking longer to sell and sellers that are keen to sell quickly are prepared to lower their prices (see below – some bargains are beginning to appear). But overall I’d say that the market is reasonably steady; not rising for the moment, but not dropping much either, and I feel that it is likely with the summer upon us that it will creep upwards again because there is only one French Riviera and property here remains in short supply.

Vicky and I continue to watch the Cannes market and the Cote d’Azur very closely because we have over 70 very precious properties here now, belonging to us and family and many close friends, old and new.

Vicky and I will be in Cannes until mid July when we’re going to immerse ourselves in WWII history for a few days with old friends in Normandy before returning to South Africa for August. We will be back in Cannes for part of September, and all of October and November.

With kind regards,

Guy.