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A Fairy Tale Ending?
Over two billion people around the world watched the royal wedding on
Friday. My hunch is that the overwhelming majority were women (guys
aren't that into fairy tales). I have to admit I caught a glimpse
of the royal wedding as it ended this morning and thought they were a
beautiful couple. Kate looked so poised while William looked a bit
nervous but happy.
The royal couple looks very much in love,
which along with health is the most important thing in life. Without
love and health, all the money in the world is meaningless. Whenever I
look at William and Harry, I'm reminded of their mother and the summer
of 1997. She died a couple months after I was diagnosed of multiple
sclerosis (MS) and while her death was tragic, it helped distract me
from my diagnosis and gain some perspective on life.
Opinions are divided on the royal wedding. Cynics will claim that it's a
major distraction, opium for the masses to divert attention from the harsh reality of austerity in England.
Royal watchers will claim that it's all about tradition and being proud
of the royal family. I'm somewhere in between and look at it for what
it is, a boon for tourism.
But what's really amazing is how fast London has bounced back after the
2008 financial crisis, leading Brett Arends of MarketWatch to ask if
it's the world’s hottest real-estate market?:
I hesitate to use the overplayed word “bubble.” But in the case of London property, it’s hard to avoid.
What’s happening here is absolutely ridiculous.
Markets are being impacted by housing-sales data along with fears
over northern European economies and a stronger Japanese yen.
Look in the window of any real-estate agent here and you think people
have gone crazy — and then you realize that the prices are in British
pounds, and that to convert to dollars you have to add another 60%.
Half a million pounds ($800,000) for a one-bedroom condo with a small
garden on the southern, unfashionable side of the river Thames? Really?
And $2 million for a modest two-bedroom condo in Chelsea?
As John McEnroe used to say at Wimbledon, you cannot be serious.
While the rest of Britain grapples with austerity, falling real wages
and budget cuts, London real estate — super-prime London real estate,
the best of the best — is back in the grip of another mania.
According to an index maintained by high-end real-estate firm Knight
Frank, prime central London prices are nearing and may even be
surpassing the giddy levels seen at the peak a few years ago. The
brokers’ windows tell the same story.
It’s like that whole Lehman thing never even happened.
What’s going on?
“London property is the ‘Swiss bank account’ of the 21st century,” Robin
Hardy, an analyst at London investment firm Peel Hunt, explained to me.
Rich people in places like Egypt, Syria and southern Europe are rushing
to get their money away from the turmoil, and for want of a better
alternative, they are plunking it down in the “millionaire’s playground”
of central London.
“It’s seen as a relatively safe place to put your money if your
objective is capital preservation,” he said. They think money is “safer
invested in an apartment in Sloane Street than in a bank account in
Damascus.”
Foxtons, a high-end real-estate agency, told me that 80% of its sales
this year at its Sloane Square branch have come from overseas buyers.
This is just the latest twist to a story that’s been running for some
time. Gulf sheikhs. Russian oligarchs. Newly rich Indian and Chinese
tycoons. London has become a magnate for the international super-rich: a
millionaire’s playground. Russian money has been flooding in for at
least a decade. One hedge-fund manager here told me London property was a
“laundromat for Russian money.”
You can see it in the fanciest shopping districts, from Jermyn Street and Old Bond Street.
The booms in oil and emerging markets have been very good for prices
here for at least a decade. Great Britain, through generous tax
treatment of foreign nationals, has cleverly encouraged the trend.
A friend of mine a few years ago described how a Gulf sheikh was
steadily buying up more and more of her condo development just north of
Hyde Park. The sheikh liked to come to London for two months every
summer to escape the Gulf heat, and he liked to bring his extended
family and entourage. He didn’t care much about price, and he wanted as
many condos as he could get.
There are other factors at work. London has become the financial capital
of Europe. The giant money machine has spread far beyond the old
financial district of the City of London. High-powered hedge funds and
secretive commodity firms crowd the alleys and lanes of Mayfair and the
towers of redeveloped Docklands. The windfalls have long been seen as a
major driver of property prices.
Housing supply is limited, especially in the best areas. London has tough zoning laws, so there is very little new development.
And you can also throw into the mix low interest rates. A friend
explained how his grossly overpriced home cost him very little every
year, because he is paying just 1% interest on a flexible mortgage.
To hear people tell it here, this miracle will go on indefinitely.
Prices will keep rising skyward. You no longer encounter many bears of
London property. Most have given up.
But there are a couple of wrinkles that should give people pause.
First, you see more and more dark windows. On Sunday I went to a pub
with one of my oldest friends. He described how more and more properties
in central London were simply unused most of the year. You’d look up at
the windows as you walked down the street, and very few were lit up.
A recent study by Knight Frank found that one of the top reasons the
international elite gave for selling a London home was simply that it
was surplus to their needs.
The second concern is that more and more actual British are being
crowded out of the city. Over dinners in the past 10 days, both a London
member of Parliament and a top executive at a fund firm here have
bemoaned the fact that young people can no longer afford to move into
the usual London neighborhoods when they start their careers here.
They’ve been priced out. Many of the middle-class are suffering the same
fate. Ultimately, this simply becomes unsustainable. It will strangle
the city’s vitality.
The third problem is that 1% interest rates will not last forever.
Sooner or later they will have to rise, and when they do, a lot of home
loans will become unmanageable as well as unrepayable. Happy times.
The fourth issue is one that often gets forgotten. In the age of the
Internet and modern technology, the comparative advantages of big,
expensive cities like London are actually in decline. Twenty years ago,
if you wanted to run a hedge fund in the British Isles, you probably had
to do it in London. That is no longer the case. It is a lot cheaper —
and the quality of life much better — if you move out of town.
The fifth problem, though, is probably most ominous: the plunge in rental yields.
According to Knight Frank, while prime London sales prices have doubled
in the past 10 years, prime London rents have risen by less than 10%.
The net result is that landowners are getting a gross yield of maybe
3.6% on average, compared to more than 6% a decade ago. Conversations
I’ve had — with renters and owners — suggest some are getting even less.
Once you subtract all the costs of buying and selling a home,
maintenance, taxes and condo fees, some landlords are making very little
— if anything.
As usual, the defenders of current prices are quick with a rebuttal:
“But people aren’t investing for the yield,” they say. “They are
investing for the capital gains!”Alas for this argument, in a rational market, yields are the drivers of
capital gains. The price of an asset goes up because the current owners
are earning so much money that outsiders want in. The idea that people
will keeping bidding up prices of an asset that makes no money is
quixotic at best.
Will it turn? If so, when? It’s anyone’s guess. But for those living and
working in Britain, the conclusions are pretty obvious. If I moved back
to this country, I would avoid living and working in London if at all
possible. And if I had to be in London, I’d rent.
If I had to live there, I'd rent too but I wouldn't live in London if you paid me all the hedge
fund bonuses in the world! Loved visiting the city but it's way too overcrowded and outrageously overpriced. Blame the "Russian oligarchs"
or the "Gulf sheiks", but at the end of the day there is a lot of hedge
fund money in London that is bidding up prime real estate prices (that's
how hedge fund managers compare penis sizes).
It's ridiculous and the same nonsense is happening in
Canada. I see condos in Old Montreal selling at ludicrous prices. My
buddy out in Vancouver just bought a $2 million home in the outskirts
(modest house; no comparison to his $1 million dollar house in Mont-Royal here in Montreal)
and could have easily made 10% if he flipped it after a month. he tells
me rich Chinese are snapping up properties like crazy so they have have
one foot outside China. Little do they
know they're contributing to the Canada bubble fed by Canada's mortgage monster which will eventually explode.
Whatever the case, I've heard these stories of "real
estate prices can only go up" forever in Greece. Guess what? When people
need to sell, they sell, and that's what is happening right now in
Greece, Spain, Portugal and even in the coast of France (many British
sold their summer houses there for financial reasons). If you're looking
for deals, forget London, you're better off looking at these countries
first. When it comes to London's property market, I fear there will be no fairy tale ending.
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When it comes to London's property market, I fear there will be no fairy tale ending.
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It's retarded shit like this that really detracts from the quality of the site.
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The first thing in the morning ZH read makes me wonder? Is the confidence and faith in the Government and Media so destroyed that it can not be rebuilt? Not to say that I believe any one of the sons of bitches. Just sayin that some how some way, trust has to be re-invented.
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Think that everybody who export and have tangible production (all growth emerging markets BRIC etc) shun SDR. Only banksters like it. Guess why?
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You're still making variations of the NT bet today... High risk gambling on securities that have already made huge moves, never planning for the party to end. Parties always end. Bankers and insiders are selling into the high prices. To succeed one needs to do what they do -- buying when it's uncomfortable. You do the opposite and keep losing.
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Wait till the Olympics come to London and leave the municipality with a mega debt around their necks for another two decades...People pay ...and Oligarchs collect...even when they put 1% of their extorted earnings in posh RE...bubble bubble ...double trouble...when the anglo saxon financial economy collapses...but it won't happen tomorrow...Even the USSR took ...thirty five years to implode after Uncle Joe's death. Let's see Reagan/Bush left in 1992... so that puts it around...2017...parallels are only parallels...if they don't intersect! Who can crystal ball a scenario that repeats itself to a dot...? Pas moi!
'If 2008 crisis didn't do anything, nothing will'.
Alex, I live in central London and saw exactly what happened in 2008. Prices here, including in those supposedly bullet-proof prime neighborhoods, dropped 20% within six months. It was only after the rescue mission for the banksters kicked in from early 2009 that the bounceback began.
Non-prime London is still languishing a good 10% below 2007 levels despite a dead-cat bounce. But make no mistake, our bubble WILL burst - even if repeated rescues turn it into a slow puncture - because the financial crisis, demographic downturn and world debt reset has another five to ten years to run.
Australia's seemingly indestructible market has recently turned, China's big cities have begun their declines and, with 'austerity' only beginning to bite in the UK, we will be next.
Sorry but I bet Kate Is a real bitch when she gets pissed.
LK, best of luck managing MS. It can't be easy.
So, retreating into London property is like retreating into art ....
glad to know there will be somebody to carry on after I am gone.
I imagine real estate prices in Rome escalated as the empire collapsed; at least until barbarians = at the gate.
I never understood California real estate prices. I'm pretty sure no one does, but I read once (I think in Barrons, of all places) that Southern California is the only place in the world where rich Arabs really feel safe and comfortable.
In a world full of catastrophies and ill gotten gains, some markets (Vancouver, London, LA, among them) may simply reflect the cockroaches of the world running from the light. It really could be that simple.
California
Texas
It is all artificial and in the end you end up paying for either mortgage principal, interest, or taxes.
When the foreigners buy in big, it's always a top. Anyone else hear a bell ringing? Thanks, Leo.
Nice article Leo, and one which I agree with completely.
DavidC
a donation? go fuck urself....
Whenever I look at William and Harry I think "Gosh I wonder if the major thanks his lucky stars every night that sleeping with a princess is no longer punished by being drawn & quartered?" That a whole country ignores that little piece of obviousness is highly amusing..........almost like an entire country pretending that a trillion printed dollars with nowhere to go except the stock market is an indicator of a growing economy.
Marvellous interview years ago with Harry's dad (all red hair and gap tooth) in the bath talking to his cock...all without commentary, unbeatable.
"Kate looked so poised while William looked a bit nervous but happy."
Nervous she might back out. Happy she didn't.
OMFG, that woman is a stunner. I'm proud just to be living in a country that used to be a colony of a nation that will someday have Kate as a queen. Hope the future princes and princesses favor Kate's side of the gene pool.
I was just hoping that with the incredible inability of the media to release pre-wedding a picture of the wedding dress, that just maybe there was none, and she would walk down the ailse wearing nada. Well, maybe some stockings and high heels, and a coy veil. She looks poised enough to have pulled that off.
"Man will never be free until the last king is strangled with the entrails of the last priest." Denis Diderot
Enjoyed the read, Thanks Leo
You're welcome. Don't bother with the trolls here. They're just jealous of me.
Leo, you don't realize that any reputation you believe you have is appearing worse and worse with your childish comments. Try to be a bit more diplomatic instead of posting your feelings. You will look a lot better that way and attract less critical comments.
Ha ha ha ha :)))
you spoke to soon ...hang around, you'll get it soon enuf
An apartment in Central London just sold for $200 million.
'its different in London, its rich people, paying in cash, and not caring about year-year fluctuations
its like ordinary people not caring of price used car they own.. they use car,not trade..'
It is never 'different this time round'. It is not just prime London. It is everywhere in London. Houses are overpriced in the suburbs, every High Street has 7 estate agencies or more. A lot of people would lose their shirts if rates increased slightly. London never went through real pain after the crash. It will hit soon enough.
w
wrong...
its different market.. and to be on same page i'm talkng
about $ 3+ mln market..
if 2008 crisis didnt do anything, nothing will..
there's only one condition if London authorities will jack up properties taxes, +5% per annum let say.. but they wont
each multi-milloner brings in at least 2-3 decent jobs ( doctors/laywers/ financiers/etc) + at least dozen fair paying jobs: house/ children care/ fun / etc..
alx
No market is untouchable. Particularly not one in a bankrupt country, with an unstable government, whose central bank has happily debased the currency and cannot jack up rates because if they do British people will feel the recession that was not felt thanks to low rate policies in 2008.
I'm not going to argue about what will cause London prices to drop, but I will point out that in the 1970s many of the highly exclusive London private members clubs were near bust. In the 1990s property in this town was as cheap as in regional towns in Austria.
Something will happen and the continuity of thought which dictates that London prices must appreciate ad infinitum will break. That could be a broke government increasing taxes, it could be that the wealthy start to see London as over valued and move to allocate resources elsewhere, maybe demand from ME sovereign wealth funds dries up as more money is diverted to domestic spending. Who knows.
Bottom line is, when a single apartment sells for $200 million (David Tepper's mansion in the Hamptons is worth ONLY $50 million by contrast), and the vast majority are not even questioning the valuations (they are, in fact, thinking that prime London can only go one way- up), well that's when I think bubble.
Al89 is right. Despite every boom being different, there's always a time and place for a crash in an overheated market whether in RE, stocks, bonds, PMs, etc.
Remember PCLN? Oh wait, it's different now? They've gotten bigger, they are international, they do cars and hotels now! Their run up is overdone and should be at a discount. What will eventually happen is another crash in the stock as it's crashed before. Most people will not have the money to travel as things get worse, yet we keep getting 52 week high after 52 week high. I'm not a hater, I just look at it's history. Overspeculation, the company making money hand over fist and analysts are not overly cautious. I won't claim a top, it could easily double again, however I believe we'll at least see double digits again and when the gas prices get too high and no one is going anywhere in Asia, the US and Europe it will be over before anyone knows it. Don't believe me, just look at the chart.
http://www.marketwatch.com/investing/stock/PCLN/charts?countryCode=US&submitted=true&intflavor=advanced&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=20&freq=1&comp=Enter%20Symbol(s)%3A&compidx=aaaaa~0&compind=aaaaa~0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013
While the amount of time is different as well as the fundamentals are different, the result will be the same with the London market and PCLN in the future.
1 Hyde Park "sales" by Candy & Candy have been revealed to be related transactions...this one may be real but as previous ones were not the suspicion lingers...bulletproof glass, nice neighbours.
I wouldn't live in London if you paid me all the hedge fund bonuses in the world!
Yes you would
..you're a Canadian crone, you're 'for rent' Kockup and for not very much far as i can tell from your cheap cut (crib) and paste articles
With all due respect, if you don't like his work, why bother to read it?
Its like a car wreck...you know what you're going to see when you get up to it...but you have to look anyways...LOL.
I've never understood the whole monarchy thingy of the present day...a society supporting an elite family in opulence as they themselves scramble around for the bread crumbs that fall from their table.
Now if properties were being purchased with the gold Brown sold off at its fiat priced bottom...well that would indeed be newsworthy ;-)
Kockupalot
you giving me advise? ...after the non-stop garbage you post! You get a kicking around here for a reason (go figure). Isn't it about time you took some advise mush head?
someone has to be Omega wolf, Leo seems to be the fav for bloggers to get a kicking and who am i to argue, his cronism, head in the sand pension dross and cribbed articles are total garbage (ie. he deserves it)
Zero Brains,
You're a monumental fool! Do you want to know which hedge fund had the best setup I ever saw? It was Vega Asset Management operating out of Madrid and their traders could live anywhere in the world. Madrid is an amazing city, simply loved it. I would live there over London anytime. Ravi and Jésus, the two managers running Vega, are smart as hell and they were extremely smart to set up the fund in Madrid.
I don't believe you--Jesus would never run a hedge fund.
Oh...Hey Zeus. Never mind.
the world just needs more princes to buy all this shit... kings bot a baybe machine ever think things may just turn out alright
.
im trying to get drunk as hell lisening to sonic syndicate
http://www.youtube.com/watch?v=QbE4pTc2Tr4
.
barf burp barf
leo,
please, another piece of junk... just plain bullshit from Massmedia.. and each line contradicts another below,,,
#1
“laundromat for Russian money.” and because he is paying just 1% interest on a flexible mortgage.
so i didnt get.. do they russain/chinese/gulf guys buy for cash or take mortgage in bank ? I think its contradiction..
#2
“It’s seen as a relatively safe place to put your money if your objective is capital preservation
and “But people aren’t investing for the yield,” they say. “They are investing for the capital gains!”
so what is it exactly? yeild/preservation/or something else ? if its preservation I guess rich dont care about price, its like a bond , if its yeild so YOU'ARE SAYING RICH RUSSIAN paying 10 mln for condo to RENT IT OUT .. to whom? are you stupid Leo?
#3 LEO PLEASE READ BOOKS, STOP BLUBBERING ABOUT BUBBLES..
there's huge difference between housing bubble in USA and hi-end housing bubble in London/Vancover/Hong-KOng/etc
you know which one? its simple... in USA poor white/black/latinos schmucs bought houses not having income, no downpayment, etc
its different in London, its rich people, paying in cash, and not caring about year-year fluctuations
its like ordinary people not caring of price used car they own.. they use car,not trade..
common on Leo, you can be better..
alx
ps
sorry to hear about illness.. i hope you're ok
alx,
I'm fine, seems like the CCSVI procedure is helping me out and I'm hitting the gym as often as I can doing more strength training. Anyways, that article isn't perfect but it captures the gist of the mania. I disagree with you that it was only ''poor white/black/latinos schmucs'' who got clobbered in the US. McMansions also got whacked hard. I had a drink with a Wall Street Strategist who told me a CFO of a big firm bought a $12 million property in the Hamptons in 2007 and is having difficulties unloading it now at $9 million. Not that I feel sorry for him...
heared of a friend of mine who bought 1800m2 of land outside zurich for chf 10 Mio. is having a problem to sell for 9 mio.
lots of downside in all world real estate markets. anyway if your cost of equity is 10% and doing a full cost RLST analysis. it makes no sense to own, you rather rent the experience, its cheaper
You're correct, Leo. The "above $1 million" house category took the largest hit, both nominally and as a percentage of peak selling price, across all sectors of the residential market in the U.S.
In most metro markets, the entry level home price actually held up the best.
Well, now we know where TARP, QE1, QE2, etc went to and how it was utilized. How're bankruptcy laws in Britain? When that 1% interest ratchets up to 3 or 7% on that $800k house, can a payment be made?
I'm expecting to see more and more of the US real estate to be gobbled up by Chinese investors. Shouldn't be long before they are buying most, if not all, the coal mines, gold mines, silver mines, uranium mines and thousands of office buildings in major cities.
I doubt that any well educated Chinesse would want to buy too much real estate here as they already know that the US is already confisating US dollars from their government by devaluing the currency.
We are going towards a part socialist, facist and communist type regime. Chinesse know all too well how it feels to have the screws put to you.
What's to stop the US from making a call that Chinesse are financial terrorists when things esculate with the US and China?
What does the US do with proclaimed terrorist money? Freeze it and eventually claim eminate domain in the name of national security.
The Chinesse knows the name of the game. Buy physical resources and ship it back to China with all of their empty containers sitting just off of the west coast harbors.
The US government will probably block a lot those purchases on 'strategic' grounds.
So you post a somewhat decent article, and then ask for a damn donation at the end.
How about you give me a donation, and I'll give some advice that you could make a fortune off of?
"somewhat decent"----What a scrooge. It's a good article, spot on, and to take a dump on it just because you usually disagree with Leo or dislike him is small-minded. When the man's right, he's right.
I thought the prices in Vancouver were nuts (and they are) but this just proves that trends can always last far longer and go much farther than anyone thought.
I don't think the Vancouver property bubble is about to burst, not as long as people the world over are looking for some attractive locale to set up an alternate domicile in, should the home front go Egyptian. My guess is that a squillion or so upper middle class Americans are eyeing Vancouver right now because 1) It's a pretty city with all the trimmings, 2) You can drive there (no T&A fondling or x-rays of your gold eagles) and 3) It's not Mexico.
For myself, I'll take the Sonora Cartel over those Canadian winters any time.
How about you stop being a CHEAP BASTARD and donate? One of my solar recommendations popped BIG this week, others to follow:
Total's purchase of Sun power...a good PV panel manufacturer...If oil stays in 150 range ...solar is back in race big time! Let's hopes cold film technology brings us down that price curve fast w/o loss of primal efficiency. Keep the alternative energy cycle moving...I'm all for it! It's time to say 'ciao' to ME oil hegemony...I know we'll get there... in thirty years?
If we're not all baked red/zingarood by fukshima fall-out : by climate change/pollution evolution, by then!
Falek
you're 'hoping' solar will be efficient in 30 years, fingers crossed cold film technlogy brings prices down, praying we're not fried by climate change which is based on 10 years of scare stories (propaganda) from Govt funded crony scientists that high CO2 can change the weather.... is there anything between your ears that isn't constant wishful thinking and total fluff??