Hardly anyone now doubts that the property boom is a thing of the past. The evidence of the difficulty in selling properties has begun to make the public aware of something that many of us had already spotted and warned about almost two years ago. Back then, those reluctant to sell their excessive and unsustainable property portfolios argued: «But what are we supposed to do with the money? The bank only gives us a measly 2%.» The result of this flawed reasoning: Brick and bag, or to put it another way illiquidity and risk at the mercy of their respective cycles. Many chose to keep walking towards the abyss at the end of the property boom and increase the perceived value of their inmupossible quarter after quarter. The anchoring effect The rise in prices per square metre in recent years had clouded their judgement. They had two subjective reasons for not selling, despite the objective wisdom of capitalising on the final surge to avoid being caught in the impending downturn: the low returns on fixed-income investment alternatives; and the still-rising statistics on prices per square metre. Very few decided at that time to change their wealth management strategy; however, a significant number of our clients did agree to a change of course, although they had to endure several months of pressure and almost mockery from am
friends and acquaintances. Today, that pressure has vanished, and they derive a deep sense of satisfaction from discussing the current and future problems of the property market with their friends. Despite our efforts to convince those who sought our advice that it would soon be too late, there were quite a few who insisted that «property prices never fall». Perhaps they regarded the 1990 crisis as merely stand-by In the property price race, they were too young at the time to take an interest in property prices as investors, or they simply chose to forget all about it.
In a bullish scenario of Royal Stay long-term, such as the one that has taken place in the US.US. Over the last 40 years, the subsequent bear market has been (and will be) much more severe and prolonged than in shorter bull and bear cycles. Furthermore, after 40 years of rises, the aforementioned anchoring effect is far more dangerous, as the majority of the population has never experienced a bear market. Speculation shortens cycles, and perhaps these four decades have been the last of the long economic cycles we may see in a world where speculation has also globalised, even in the Royal Stay. As for the half-point reduction in Bernanke (the first fall in over four years) I believe that, with sound judgement, the risk of a credit crunch above the risk inflationary.
But let’s get back to the Spanish property market. The feedback which we are currently receiving from those who have been caught out and are still contributing (in the form of interest payments and/or taxes and various charges) to their oversized Property portfolios are similar to those of two years ago. It is true that sellers are no longer aiming for the kind of exorbitant profits seen just a few months ago, but properties are still being put on the market at unrealistic prices. No one ever prepared property investors for the prospect of making a loss; it was the «safest» investment of their lives. Consequently, those who are not in financial need are entering the market without fully grasping their actual situation. Result: They are not selling. Consequence of this result: Their assets are no longer growing as they should, since capital gains are now a thing of the past.
At a time of crisis in the property market and rally When interest rates fall, prices generally fall and the market becomes much tighter, i.e. illiquid. Therefore Only properties that have significantly reduced their prices are being sold, and also of a lucky few who are benefiting from the inertia of the few remaining buyers under the aforementioned anchor effect. The financial strain faced by those who overextended themselves when taking out their mortgages and failed to anticipate the current (and who knows, perhaps future) rise in interest rates will mean that their properties will be the first to come onto the market at lower prices. Consequently, investors with property assets who have not also overreached in the leverage Bank-owned properties will be relegated to the list of those properties that sit on the market with no chance of finding a buyer. Why? Quite simply because listing properties at prices from months or even one or two years ago means setting them well above current market prices. Most simply forego the usual profit margin and stick to the prices from early 2006. But the real market price will be lower, although here we must make an exception, as we explained a few months ago: Prime Properties.
Let’s apply to the current situation the arguments put forward a couple of years ago by those who were unwilling to change their compulsive strategy of accumulating property assets:
- The low interest rates of that time are now a thing of the past, and no longer make buying new property an affordable way to leverage investor.
- Maintaining existing mortgages becomes more expensive as their costs rise, and this gradually erodes the potential return on the investment made, whether in the form of rental income or capital gains.
- And, of course, the depletion of the rally A rise in property prices not only rules out the possibility of the expected capital gains, but also threatens to result in losses in the short and medium term.
- On the other hand, following a long bull run, the uncertainty and high volatility in the equity market is a factor deterrent to find in it an attractive alternative to the current stagnation in the property market
On paper, we would agree that this rise in interest rates also encourages investment in various types of fixed-income assets, but here’s the thing: The Financos and above all the Rottweilers or also known as banking managers Generally speaking, they are highly effective at dispelling any such notion from their clients’ minds. As a result, in practice it is very difficult for small and medium-sized investors to find alternatives that are widely used by high-net-worth individuals.
Outcome: A sharp slowdown in wealth growth for this category of small and medium-sized investors, which had been driven by property capital gains and a bull market in equities. The result of this: The wealthy will continue to pull further ahead of the middle and upper-middle classes. We continue to strive to ensure that those with medium and small-sized assets have access to planning tools and strategies that have historically been reserved for the very wealthy. We highlight and facilitate access to strategies that necessarily involve converting real estate assets into investments, the fixed income from which can be reinvested in any type of business the owner wishes: from the simple growth of compound interest to even property developments in emerging markets and prime locations – if the goat keeps straying back to the hills… In short, to avoid the downturn or slowdown that average wealth has been experiencing over the last few months in its globality.