| 26 August 2007
On investorsoffshore.com an adviser is singing the praises of overseas property
investment, but I remember that Mrs Beaton advised young married couples not
to spend more than 8% of their income on housing costs.
In those days, there was no obsession with property ownership - it was quite
normal to rent at all levels of society - and 19th century census returns show
that there was a large rentier class providing accommodation to willing tenants.
What has turned this sensible situation on its head, so that normal families
worldwide spend up to half of their income on buying properties, running horrendous
risks on interest rates and underlying valuations?
Books have been written on that, and I only care about understanding it because
I am thinking of buying myself a little pad somewhere in the Mediterranean for
when I get too old to find rich boy-friends any more. And I don't want to buy
at the peak of the market!
I can see that government-inspired inflation has undermined belief in money
during the last 100 years, so that people want real assets; and I can see that
governments have given tax incentives to borrowers for much of that time. So
far so good, that creates demand, and there is a limited supply of properties,
especially in nice places. I'm not thinking of buying an apartment in downtown
Minsk. But I can also see that there has been a boom and bust situation in property
values. How can you explain 600% increases in house prices in Malta in the last
five years? Or 300% in Cyprus? Just because they joined the EU?
In the past, asset crunches in the USA have had knock-on effects in Europe
and emerging markets. The bull market in house prices has lasted in most places
for 15 years or more. When is it going to stop?
And yet . . . and yet . . . the enormous piles of money in offshore tax havens
keep on growing at silly annual rates. That's more asset demand, isn't it?
Help! I don't know what to do. I think I'll stay with my current boy-friend
for a while and keep thinking!
You have been reading an entry on the following blog:
Penelope Wise
Penny Wise but not Pound Foolish! But remember: I am not offering investment advice. My comments are just for your general information; I do not recommend investments, and you should take professional advice before entering any investment contract.
Penelope blogs on investment and financial services around the world: mainstream and alternative. Contact: penny@lowtax.net
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