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205: World country opportunity and risk assessment for property investors - unique ranked listing


07-13-2008

PropertyInvesting.net team

In this Special Report we have ranked each country based on the oil export (surplus) or import (deficit) as a proportion of the country’s GDP, then additionally taken into consideration key macro-economic country criteria to prepare a qualitative listing of countries - to guide country investment decisions, and to high key risk countries for property investment.

The trigger for this analysis has been the commodities boom that has taken hold in the last five years, caused in part by the boom in demand from China, India and other developing nations. Most commodities prices have risen 3 to 10 fold in 10 years - and this is now having a large impact on building costs, property prices and different economies around the world.  The trend shows no signs of dying away in - 100s of millions of new middle income people need homes, cars and consumer goods in India, China, Brazil, the Middle East and emerging nations. They aspire to the same living standards, housing and transport/retail/leisure as people living in Europe and USA. Unless there is a global depression for any reason, because of this projected demand increase, it's highly likely commodities prices will stay high and/or go higher. Therefore commodities price trends need to be considered in property investing decisions.

It's obviously very hard to predict overall future outcomes, and our Special Report 199 highlights this in describing contagion affects and lack of predictability of outcomes. That said, what we have attempted to perform is a form of risk assessment, coupled with colour coding key economic criteria to highlight a countries key strengths.

The criteria are colour coded to make it easier for you to absorb the analysis. The chart is relevant as long as oil, gas and coal/power prices remain relatively high -and as our regular visitors are aware, we believe they will remain high and this chart therefore becomes more relevant in future years to manage investment risks.

In summary, with such high commodities prices, an ideal country would have:

Because of the 1400% increase in oil prices from 1999 ($10/bbl) to 2008 ($140/bbl) we have highlighted the overall surplus or deficit of oil as a percentage of overall country GDP (2007, World Bank numbers). The reason for highlighting oil is that this is a KEY CHANGE in the global economic landscape in the last 5 years that will start to dictate future outcomes of wealth distribution, and hence property price / asset increases in respective countries. Where this is economic change – positive or negative, there will normally be property asset price changes. If incomes rise, property prices rise.

Overall cost of oil imports in the world at $140/bbl is $2 Trillion per annum ($0.71 Trillion is to the USA alone). We cannot ignore this cost. Many countries will pay for the oil, whilst others will collect the income - and this table also described this massive annual transfer of wealth.

We have then given an overall rating. Ideally, look for dark green or light green - those are the countries with everything working positively for them with high oil/gas/coal prices. And one would tend to avoid countries with too much red. A country with massive % GDP oil deficit, no oil/gas/coal/power, high cost low efficiency manufacturing, poor financial services and an aging population with security threats would rank the lowest (Italy and Greece spring to mind). It would not be wise to execute property investing in such a country.

Oil Surplus Deficit @ $140/bbl as a percentage of GDP
Country 2008 Surplus/ Deficit $bln 2007 GDP $bln % GDP Oil Gas Coal or Hydro-other Maufact-uring Financial Services Security Demo-graphics Overall rating
Libya 89 69 129%                
Iraq 107 100 107%                
Kuwait 123 116 106%                
Qatar 58 56 104%                
UAE 130 132 99%                
Saudi Arabia 424 554 76%                
Azerbaijan 43 65 66%                
Brunei 10 19 51%                
Algeria 88 188 47%                
Norway 113 253 45%                
Kazakhstan 65 168 39%                
Nigeria 102 293 35%                
Venezuela 100 334 30%                
Ecuador 18 99 18%                
Iran 139 777 18%                
Russia 368 2088 18%                
Vietnam 19 221 8.5%                
Turkmenistan 3 34 7.7%                
Colombia 17 321 5.2%                
Mexico 66 1346 4.9%                
Canada 55 1178 4.7%                
Malaysia 11 355 3.2%                
Denmark 5 198 2.8%                
Argentina 12 523 2.4%                
Egypt 1 404 0.4%                
UK -4 2082 -0.2%                
Peru -2 219 -1.0%                
Brazil -23 1834 -1.3%                
Indonesia -12 841 -1.4%                
Australia -20 733 -2.7%                
Romania -7 246 -2.8%                
China -223 7348 -3.0%                
India -109 3092 -3.5%                
Germany -111 2752 -4.0%                
Italy -80 1780 -4.5%                
France -96 2054 -4.7%                
USA -712 13811 -5.2%                
Japan -249 4284 -5.8%                
Thailand -31 519 -6.0%                
Spain -83 1373 -6.1%                
Netherlands -53 625 -8.5%                
South Korea -123 1199 -10%                
Uzbekistan -6 45 -14%                
Legend
Very high rating World class
High rating Good 
Medium rating Moderate
Low-medium rating Poor
Low rating Insufficient-none

 

 

 

To highlight a few countries you might be interested in:  

UK: The UK still produces about as much oil as it uses - hence it's oil deficit (or imports) are very low. So the UK is fairly well protected from high oil prices for the next few years - albeit it's oil production is declining by about 15% a year. The UK gleans $30 billion a year of tax revenue from oil in the North Sea (disregarding gas tax) which helps Government finances. Very little coal is now produced, but Nuclear power still account for ca. 20% of power requirements. Renewable energy is increasing from a very low base. A lot of the global oil, gas and mining wealth also comes back to London (and Aberdeen) in the form of dividends, financial services and spending &investments from wealthy oil exporting nations in the Middle East and Africa. Manufacturing is relatively high cost and now only accounts for about 15% of the UK’s GDP and is not growing appreciably. London is a global financial services centre of excellence - innovative, efficient, good governance and attracting huge amounts of the highest calibre global talent. People complain about the public transport, but 8 million people can catch a train into central London within a 20 mile radius – this helps when oil prices are very high and improves London’s economic robustness to energy price increases.

Overall, despite the weakening economy and high taxes, the UK with London and Aberdeen in particular - remain fairly well protected from high commodities prices. Indeed, in some respects the Pound Sterling is still a Petro-Currency (the Chancellor after all makes $30 form North Sea tax and then the same again for petrol tax (which is 7 times higher than in the USA). As long as the global businesses still needs London's financial and business services - the outlook remains good for the longer term. What would help would be lower taxes, greater incentives for businesses and a reduction in the size of the public sector to improve economic efficiency.   

USA: The oil deficit situation for the USA looks bleak - at present the country is spending $712 billion on importing oil per annum, compared to it's GDP(2007) of $13,811 billion - a massive 5.2% of it's overall GDP. This is like slapping an additional tax rate of 5.2% on the economy as a whole (all goods and services). This will act as a drag on the economy down over years to come - and the US deficit will suffer because of it. Standards of living will likely would drop somewhat to compensate for high oil import costs. Currency re-adjustment might help the deficit, but oil imports will have a very negative long term impact.  The faster transportation innovation develops the better - what we're talking about here energy conservation and efficiency savings, more renewables projects (possibly wind, solar), electric cars, natural gas powered car and (clean) coal-electric plant expansion. But the good news for the USA is the country has MASSIVE coal reserves in Wyoming, a highly educated, innovative and hard working workforce, efficient and low public sector costs, a business friendly government and big increases in manufacturing productivity over the last ten years. The lower dollar value has also helped the economy and exports and reduced imports. The demographics are also healthy - with an expanding population, not too many aging people - the population growth but not too quickly. USA produces about 35% of it's oil and gas needs and all of it's coal needs – it also exports coal. Agriculture and forestry are strong. Financial services are world class. Technology and innovation are world class. Overall, if the USA can reduce the $712 billion spend on oil - it will be well placed to continue to prosper - and with it, real estate prices should rise - particularly in oil/gas/coal areas (Houston, Dallas, Wyoming) and areas with expanding populations (Florida, Arizona, California) and financial services (New York, North Carolina). For all those Cassandras – don’t underestimate the US resolve, hard work, innovation and motivation. The Texan’s the an example of people who never give up – if they get knocked down, they will get back up again and play to win!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

We hope you have found this compilation insightful and it helps balance your investment decisions. In summary, expect the green to have rising asset prices and the red to have subdued or lowering asset prices – as the massive transfer of commodities wealth begins in earnest.

If you would like us to prepare a write up on any other country of your interest, please request this via email to enquiries@propertyinvesting.net and we can add to this report.

 

      

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