592: Wasted Media Hype - Best Focus on Property Investment
Media Fears: It's easy to get consumed into the media world of Trump and Brexit, global politics and the uncertainties and injustices that are ever present in the world we live in. But it's also important to get a sense of prospective, and not get too pessimistic.
Relatively Peaceful: Firstly, compared with at any time in history, there are less people dying in wars now than at any time in the last 100 years. If we look back in recent history over 10 years ago, there have been episodes of genocide in the Balkan, Rwanda-Burundi, Iraq - then millions getting killed in the Iran-Iraq war, Lebanon etc. Apart from Syria, and spordic killings related to ISIS - the world is a relatively peaceful place.
Prior Military Incursions: As a side note, the rise of ISIS was probably caused by "discretionary" western military incursions in Iraq, Libya, Afghanistan - plus arming anti-government rebels in Syria. These were absolutely disastrous conquests that toppled leaders - a good example being n Egypt - leaving a massive power vacuum and ISIS/terrorists to take over giant tracts of the world - with Hillary Clinton as State Secretary and Obama as US President - failed Neocon missions leading to abject failure to achieve any military objectives. This is something May and Trump will want to avoid - and focus their attentions rather like the Russians on defeating terrorists and supporting existing government institutions. Let's face it - Obama and Clinton were instrumental in encouraging the toppling of a wave of governments across North Africa and the Middle East - trying to imposed western values - almost like an experiment to see if these countries could go the western way - of course these ideological incursions ended in disaster in Egypt with the Brotherhood winning power, only for the US to reverse course and support a coup that then got back a more moderate western friendly government - a total US embarrassment and utter western disaster and one more reason why Clinton was not voted in.
Global Connectivity: Secondly, because the world is so interconnected with IT, video and the media, the news flows have increased dramatically in the last 10 years. This tends to amplify the bad news. Part of the reason for this is that new outlets tend to attract higher numbers of viewers and make more money if they report bad news, fearful news, and amplify it. This gives the impression thinks are far worse than in actuality. Classic cases are - Brexit. The liberal media were forecasting Armageddon with property prices crash and stock markets tanking if the UK voted Brexit. It has not happened - recently GDP figures actually suggest the UK grew at 0.6% in the final quarter of 2016 which is the fastest growing large developed economy in the world. The mainstream media also forecast Armageddon if Trump was elected into power - and of course the reserve occurred - the stock market actually rose.
Time Wasted: For property investors, it might be intellectually interesting - and some light relief to see what's happening in the world. But consider this - every hour you are busy reading news and getting miserable and worried about it, there are canny property investors making millions from rentals, property upgrades, flipping properties and building properties. For every 10 chicken littles that say you should never touch property because there will be a property crash, there is one bold property investor who makes millions - because there is less competition and more opportunities for the discerning and knowledgeable investor.
Value of Time Wasted: If you work for a living - as an employee or self employed, you might earn between let's say £7 and £70 an hour. When you are not working, you really need to consider your time as a valuable commodity. If you "spend" 3 hours looking at the news instead of 3 hours looking after your properties or building your property portfolios, then that 3 hours could be worth between £21 and £210 - furthermore the opportunity value lost could be enormous, since many property investments that generate thousands of pounds in value only cost a few hours work. You can plan a super investment in 3 hours that might deliver £50,000 of value to your portfolio. Its a question of focus - focussing on the right thing.
Inflation All The Way: If you look at the global trends, one thing is consistent in the UK and USA - it's called inflation. Governments will stop at nothing to create inflation in attempts to create the illusion of real growth and wealth increase to keep populations and voters happy. Even though inflation is destructive - particularly for the poor because food and energy prices rise - governments will keep printing digital currency in attempts also to erode their gigantic debts that they will never in a thousand years be able to pay off. The reason why this is so important to understand as a property investors is that property is one of the best hedges against inflation. You can ride the inflation game the government always plays by buying property. As inflation rises, your mortgage debt will reduce - the property value will rise and your equity or net worth will rise with it. In general, only if there is overall deflation - which is very rare - will your net worth reduce.
Currency Printing: The last time there was a major deflationary period was end 2008 to end 2009 - and we all know what happened immediately during and after. The Fed, European Central Bank and the Bank of England went on a gigantic currency printing binge - QE1, 2 and 3 plus more - in attempted to revive the economies by feeding banks with cheap or no cost money - so they would start lending again. The next financial crisis might be just around the corner, but you can be sure that when in happens - they will start the electronic currency presses again. Property prices might dip for a while, like they did in London 2008 to 2010 - but then they will zoom back up and away like they did in London from 2010 to 2015. Cheap currency, ultra low interest rates and a deflating currency value in the UK sending property prices far higher - as the Chinese and other international buyers snap up bargains in the UK property market. Please note - we say currency printing rather than money printing, because currency it not real money. It is "paper" money not backed by the electronic number it's not printed on. The only real "money" is gold - possibly silver. Actual physical stuff that you can touch and feel. Ever since the US dollar lost its gold backing under Nixon (to help fund the Vietnam war) - the dollar has been a fiat currency - not money - and its only a question of time before the currency collapses into very high or hyper inflation. At such a time, anyone owning gold and property will come out winners.
Health Mind Healthy Body: First and foremost, the most important thing for property investors to do is to stay fit and healthy - both mentally and physically. This means no illegal drugs, low consumption of alcohol, eating healthily and getting plenty of exercise. Yes - it's simple to write, but one has to be disciplined and put it into action. Only by eating well, exercising well, taking no drugs and only low levels of alcohol (or none if you don't trust yourself) - will you be fit in the mind and body. It's almost impossible to make millions without being fit and healthy - your motivation will be low and you wont be mentally robust enough to handle the stress and pressure of major decisions, major financial investments and managing suppliers and customers. We really have to stress how important this is - you can read some of our newsletters on healthy buy clicking these links if you are interested to know more:
Avoid The Negative: One of the most destructive aspects of news is that almost all of it is purposefully negative, instilling fear in people - hooking people into the next instalment of the bad news in order to sell adverts. It's best not to get sucked in, in large part because it will negatively affect your mentality. You will feel more pessimistic, more fearful, more nervous, less likely to want to invest or take a risk, and be more liable to let the news fog cloud your judgement. Again, while 9 people get sucked in, 1 person will be busy not bothering and making millions out of property - rapidly building up their portfolios and being happy with it.
Business Growing - Post Brexit Vote: To give this view some credence, after the Brexit vote when many "normal" people went into their introverted shells - many business people were quietly working away growing their businesses and seeing the opportunity - which then lead to the 0.6% GDP growth in Q4 2016. Just as an example, an opportunity that Brexit poses is centred around the fact that Sterling dropped 20%, UK citizens are travelling to Europe less (also because of terrorism), and more European tourists are travelling to the UK to take advantage of the lower costs because of the currency drop. Meanwhile Brexit has caused less house building starts, and the population continues to zoom up in southern England. So the tourist areas in Cornwall and South Devon have been booming - and are expecting a super summer in 2017. Holiday lets are in short supply and holiday let rents are going up sharply. Taxation on holiday lets is far less now than residential letting - so there is definitely a good investment opportunity in holiday lets in Cornwall and South Devon looking forward to the period 2016 to 2020 as the UK exits the EU and people holiday more at home. You may also have noticed plane fares have risen and it's more difficult to find low cost deals to go on holiday now that the currency has dropped - all good for London and SW England tourism. You might find places like Stratford-on-Avon, Winchester, the Cotswolds, Bath, Harrogate, York, Cambridge and Oxford also do roaring tourist business - so small AirBnB holiday lets in such places are likely to be very lucrative in the next four years.
Housing Crisis in Southern England: In the next 15 years in the UK, we are likely to see more of the same - in that:
- Home building supply will lag home demand particularly in southern England
- The population of the UK will continue to rise as immigration far outpaces emigration - by around 220,000 (low case) to 370,000 (high case) additions per year
- The population regardless of immigration would rise sharply because the fertility rates has risen in the last 20 years - mainly because of increased immigration (since immigrant families tend to have larger families than then the indigenous British)
- Business will continue to skew towards services and high-tech industries - and away from light and heavy industries and manufacturing - partly because of very high energy costs in the UK after 25 years of failed energy policies
- The rich will get richer and the poor will get poorer - the middle class will also shrink
- Business will grow far faster in areas close to London when compared to northern England, Scotland and Western England and Wales.
Best Towns and Cities Get More Expensive: The overall impact will be that home prices will continue to rise at a higher trend rate in places within 80 miles or commuting distance of London. The nicest market towns and Cathedral cities will see above trend house price growth. Tourism will also be important for these cities and towns - mainly in southern England. Where the biggest housing shortages and largest population growth occurs - along with the biggest growth in business - will be where the highest property prices and rental prices increases will be. Beyond any doubt, we believe the key area will be London - almost anywhere in London. The very most expensive places like Mayfair and South Kensington will get a lot more expensive in the 5-15 year time frame. Also the lower priced areas like Hackney, Forest Gate, Lewisham, Sutton - will also see prices rise sharply. Places on the new Crossrail Elizabeth Line will see the highest property price increases in the next few years we believe - particularly places like Forest Gate, Acton, Ealing, West Drayton and Abbey Wood. Maidenhead should also see prices rise sharply. Further afield, think about towns and cities close to London that are beautiful, prosperous, low crime and have lots of successful businesses with very little home building. They may also have super private schools, Cathedrals, excellent shops and a lively cultrual scene. We think these towns and cities will see prices rise sharply:
- St Albans
- St Neots
- Home is National Parks in England
- Homes in England facing south with sea/beach views
- Home with boat access to rivers, creeks and sea
Retiring Babyboomers: Also consider there will be a big wave of wealthy babyboomers either retiring or going into semi-retirement and they will want to live in the nicest places close to amenities, nice shops, in historic areas, close to good scenery, parks, interesting walks etc.
Southern Cities: Other larger cities that are likely to do well because of housing shortages are Southampton, Portsmouth. A little further afield are places like Kettering which has a good rail link to London and prices are still quite reasonable for a fairly nice market town.
Laggards Areas Well Away from London: The further north and west one goes (except for SW England) the higher chance you will have that there is an overall stagnation in the population, industry that is in decline and home building that actually keeps pace with the population levels. In such towns and cities, you will see depressed property prices - for example: Bury, Barrow-in-Furness, Blackpool, South Shields, Port Talbot, Hull, Middlesbrough, Redcar, Barmouth etc. We see a pretty bleak future with regard to property investment in such places.
Northern Cities: Northern towns and cities that are likely to grow in both business and property prices - along with population are Manchester, Leeds, York, Harrogate - and possibly Derby - with outside bets on Sheffield, Newcastle, Birmingham and Nottingham joining in.
Deprived Areas Get Worse: The nicest cities and towns to live in will probably get nicer - and the poorer cities - even poorer as public sector jobs dry up, EU funding dries up and the Tory policies start to bite further - not really helping the manufacturing heartlands in the north. Forget Northern Powerhouse - it's really not going to happen - except in Manchester and Leeds - also interestingly cities with giant successful and quite prestigious universities - this helps. In areas with poor social conditions, low education standards and low employment levels - it looks pretty bleak on the property side. The "underclass" don't really stand a big chance - and the economies in places like South Shields and Middlesbrough are destined to see the impact of this deprivation in years to come - and this will be reflected in house prices with high crime levels, high alcohol-drug abuse, low motivation levels, high unemployment in places were, frankly, no one really would choose to live. Anyone that thinks we are being a bit harsh, ask yourself the question - do you know anyone rich, successful and/or famous (who is not a football player-manager) who was bought up in Middlesbrough and "got out". Frankly - the last person was 200 years ago - Captain Cook - in Middlesbrough heyday!
Scotland Depressions: As far as Scotland is concerned, it's looking very bleak for a number of reasons.
- The constant threat of another Referendum is drying up investment in Scotland
- The low oil prices have destroyed the North Sea oil business - Aberdeen is on its knees with crashing property prices and rising unemployment
- Instead of generating oil revenues for the government, the abandonment liabilities are so huge that it will cost the UK government a net £20 billion a year henceforth. Obviously - most of this burden would be handed over to the Scottish Government if they voted for independence - and it would bankrupt the country from day one. No one in the right mind would propose another independence referendum because Scotland has not got the financial power to withstand leaving the union - particularly since population growth is almost non existent, manufacturing is in severe decline and financial services are moving south out of Edinburgh and Glasgow. It's simply too late. Oil production crashed years ago and the North Sea is almost exhausted and is now a decommissioning environmental liability not an asset.
- Scotland's best bet is to stay within the union - then it will receive subsidies - but the demographics of an aging population reliant on public sector jobs has a poor outlook and we see property prices - except possibly in Edinburgh - staying depressed for years. The uncertainties around another independence vote and all of Sturgeon's anti-union rhetoric will not help inward investment - it will drive people away from Scotland - both tourists and investors. And the North Sea died years ago off the back of successful tax increases - two by Labour and one by the Coalition - showing scant regard to the importance of energy sufficiency - that will now be abandoned at huge cost to the oil companies and government alike.
The Brits Should Not Beat Themslves Up All The Time: The British tend to beat themselves up very much. Call it democratic, introspective or just plain negative, we dont seem to understand our strengths. For years we have been under an illusion that we needed to be in the comforting fold of the European Union - and that life outside this pen would be unthinkable. Many normal British citizens voted "out" - they might be more proud and patriotic than the remainers. They may be less insecure. It's not fair or reasonable to say they are less intelligent, or less knowledgeable - the Brexiteers have their values, culture, history and views on the UK - and voted out in large part to get back sovereign democratic control over laws, decisions and borders. One cannot blame them. Instead we need to embrace the new opportunities that lie before us.
For anyone totally depressed about Brexit, consider this:
- The UK is the third biggest military spender in the world - spends even more than Russia.
Along with the USA we lead NATO and the Europeans know how important this is for their borders - with the Russian threat in Estonia/Poland
- We control our island borders - and its far more difficult for trouble makers to come and live in the UK - Brexit will tighten things up even further
- Our intelligence services are second to none - highly valuable
- London is the premier financial centre in the world - covering all time zones
- The UK is the head of the Commonwealth group of countries - an important historical alliance
- Britain is an island nation, with excellent access to US, European and other markets
- London as one of the biggest global airports in the world - Heathrow - handy and very close to central London
- The UK is seen by many foreign investors and business people as a super place to work live and work because of its super education (schools, universities), national health service, culture, history, scenery, parks, villages, historic towns and cities, beaches, coastline-walks, national parks, all in close proximity
- London is about the only huge global city where you can buy a nice Victorian house next to a park - and be only 30 minutes tube-train ride to the City of London financial district. London has so many trees it can be classified officially as a forest - because of parks, gardens etc. Very few high rise flats.
- Lots of low rise Victorian terraces - no wander the global elite love London. Note Paris has four times denser population when compared to London - since so many people live in higher rise flats and few in houses with gardens like London.
- The UK has a proud history, culture - English speaking
- The UK has almost no gun crime, very low crime levels and its safe to a walk or jog in London parks at night for me and women - almost unheard of globally
- London has an excellent, fast, safe and clean tube, train, bus and taxi services and reasonable cost - anyone that has lived in cities like Cape Town and Rio will know what we are talking about
- A right wing Tory government that tries to balance the books and encourage business is something most international business people love - especially because of the very good legal system (laws) and lack of corruption in the UK - this is also true of property rights and another reason why London property price are high
- A Tory government - now that SNP is successful in Scotland, Labour has imploded and the Liberal-Democrats are destroyed - look likely to be voted into power consistently for the next 5-15 years bring longer term business stability - after the turmoil of Brexit is over
London or Frankfurt? Finally, if you were a London banker, would you seriously want or choose to move to Frankfurt or Paris? No way! The banks might be threatening to send 20% of their banking staff to Europe - but we remain rather sceptical that the numbers wil be large - and longer term as London globalises further and unshackles itself away from European constraints - it might actually prosper more than if it had stayed in the EU - we just don't know yet. No one knows. Those expert economists are always wrong - they have been wrong about almost everything they ever predicted - so it would be healthy to have a large dose of scepticism.
Brexit Long Term: In summary, anyone that thinks the wealthy international business people will desert London are crazy in our view - you will see in 5-10 year's time London will be an even more select and global compared to what it is now. Along with it - demand will be high and supply of homes low - leading to ever higher property prices in central areas like Fulham, Earls Court, Mayfair, Chelsea, Marylebone and Soho. Wages will rise as property prices rise in London - and rents will be driven far higher. The Brits have a lot to be proud of - and we should feel emboldened and positive we are resting control back of our laws, regulations and parliament from Brussels. The European project has a high chance of imploding in the next five years - Brexit could have been the trigger or tipping point - we will see. What is for sure is it will be rather turbulent and people who like the status quo will fear what is happening, but for people focussed on business and investment - its will likely turn into a good opportunity in years to come as we unshackle ourselves from the non democratically elected bureaucrats that appoint themselves to tell us what to do - and create a regulated slow growing economy. We did not vote Brexit, but we can see the positive side of things - since Teresa May represents the Tory party, and 70% of Tories voted Brexit - we think she has a duty to her electorate to Brexit regardless of her personal views, so Brexit it will be. Don't get your hopes up that the neo-con-socialist liberals like Tony Blair will be able to block it. We think the chances are very slim indeed. Everything is pointing to a "hard" Brexit. At least once the dust settles in a few years the UK will be free to make its own trade deals around the world without being beholden to what the Eurocrats in Brussels have decided is best for us.
We hope this Newsletter has given you some interesting insights and pointers into the property investment world. If you have any queries, please contact us on email@example.com