Can Germans Hold their Drink?

Germany, by far the biggest and most fiscally sensible EU member, has suffered its largest contraction since reunification, with exports down 19% and a year on year GDP decline of 6.7%.

Doesn’t really seem fair does it? If the last 15 years can be imagined as a huge EU party, then Germany was drinking club sodas for the duration but still ended up with the worst hangover afterwards. T

Those statistics above were mostly responsible for a half cent fall in the euro against the dollar, good news for those who have been diversifying into dollar assets…

All comments welcome.

Regards

Colin Murphy
Director
www.torcana.com

Chaos in Ireland’s newest “bad bank”

I was quite dismayed to read the main headline in the Irish Times this morning confirming what many of us have feared – that the head of the National Treasury Management Agency (NTMA), who is supposed to be running the states “bad bank” has nowhere near the staff necessary to manage all these loans, and worse still, he still doesn’t know how it will be set up and operated.

Apparently a committee is being setup to have a discussion about it next week. It’s enough to make a grown man weep.

Comments welcome.

Kind Regards

Colin Murphy

Director

www.torcana.com

Why is Ireland protecting the wrong people?

There’s quite a lot I can’t figure out about Ireland these days. Perhaps I’m spending too much time in Spain.

For example, why is the government so preoccupied with protecting the level of house prices when most of the people trying to sell are buy to let investors and property developers? Why are major banks cutting mortgage lending by 80% while average house prices have only fallen 20-30%?

It’s a big problem in Ireland that people don’t seem to see foreclosures and fire sales as a necessary evil to stimulate demand and reduce supply. There is simply no way to recover quickly without it.

It reminds of how the French always seem to sympathize with business owners rather than consumers.

Let me give you an example of how a more ruthless banking system can help stimulate a devastated property market. The property bubble in Orlando, Florida started in late 2006, and the banks were absolutely ruthless with people who got caught out – mostly investors and developers, but yes, ordinary people too.

The numbers of foreclosures increased dramatically, and the asking prices for them just kept falling and falling, first by 20%, then 40%, and eventually, in early 2009, by 70-75% from peak levels. Initially, the supply rocketed and demand fell off a cliff.

Without a doubt, a weaker banking and political system or a stronger lobbying group would have put a stop to it. Didn’t happen like that though. You keep dropping prices, you get rid of the rot in the system, and eventually, guess what? People will start buying again.

Let’s compare Orlando housing activity in April 2009 with April 2008

- House prices have fallen 37%
- 48% more homes were sold
- 50% of all homes sold were distressed priced or bank owned
- Properties are selling 15% quicker
- There is 20% less inventory than a year ago

Source: Orlando Realtors Association

In an ideal world of course, we would politely request points 2, 4 and 5 above. But I can’t see that happening somehow.

All comments welcome.

Kind Regards

Colin Murphy
Director
www.torcana.com

Property Lessons: What can Ireland learn from overseas markets?

Hello and welcome to Issue 6 of the www.Torcana.com Newsletter.

It’s getting harder to keep track of everything that’s happening in the property world these days, as every country seems to be tackling problems in new ways.

The news cycle in the UK at the moment is preoccupied with the MP Expenses scandal, although a fairly small report in the BBC today that repossessions have gone up 50% year on year was of much more interest to me.

This is a very important trend, as repossessions force average property prices down, and that’s the only way long term demand will be stimulated.

Birmingham – From £83,412

As you’ll see in our website, prices have been reduced by up to 40% from a 2009 RICS valuation in a new project we’re promoting in Birmingham city centre. We will be making a lot of noise about in the coming weeks so please get in touch asap if you’d like to receive the availability list early.

Can Germans Hold their Drink?

Germany, by far the biggest and most fiscally sensible EU member, has suffered its largest contraction since reunification, with exports down 19% and a year on year GDP decline of 6.7%. Doesn’t really seem fair does it? If the last 15 years can be imagined as a huge EU party, then Germany was drinking club sodas for the duration but still ended up with the worst hangover afterwards. Those statistics above were mostly responsible for a half cent fall in the euro against the dollar, good news for those who have been diversifying into dollar assets.

What can Ireland Learn from Other Property Markets?

A few regular readers commented that the “Green Shoots – Is property making a comeback?” title of last week’s newsletter was far too optimistic. That certainly would be a ludicrous title to a newsletter on the Irish property market, but I was really referring to certain parts of the USA and, to a lesser extent, the UK, both of whom have taken much more drastic action than we have to correct the huge imbalances in their property markets.

Speaking of which, I was quite dismayed to read the main headline in the Irish Times this morning confirming what many of us have feared – that the head of the National Treasury Management Agency (NTMA), who is supposed to be running the states “bad bank” has nowhere near the staff necessary to manage all these loans, and worse still, he still doesn’t know how it will be set up and operated. Apparently a committee is being setup to have a discussion about it next week. It’s enough to make you weep.

Is it better to protect than repair?

Why is Ireland so preoccupied with protecting the level of house prices when most of the people trying to sell are buy to let investors and property developers? Why are major banks cutting mortgage lending by 80% while average house prices have only fallen 20-30%?

The property bubble in Orlando, Florida started in late 2006, and the banks were absolutely ruthless with people who got caught out – mostly investors and developers, but yes, ordinary people too. The numbers of foreclosures increased dramatically, and the asking prices for them just kept falling and falling, first by 20%, then 40%, and eventually, in early 2009, by 70-75% from peak levels. Initially, the supply rocketed and demand fell off a cliff.

Without a doubt, a weaker banking and political system or a stronger lobbying group would have put a stop to it. Didn’t happen like that though. You keep dropping prices, you get rid of the rot in the system, and eventually, guess what? People will start buying again.

Let’s compare Orlando housing activity in April 2009 with April 2008

- House prices have fallen 37%
- 48% more homes were sold
- 50% of all homes sold were distressed priced or bank owned
- Properties are selling 15% quicker
- There is 20% less inventory than a year ago

Source: Orlando Realtors Association

In an ideal world of course, we would politely request points 2, 4 and 5 above. But I can’t see that happening somehow.

Myself and my colleagues are more than happy to discuss the issues raised in these notes, and as always, there’s a great selection of properties for you to look through below.

Kind Regards

Colin Murphy
Director
www.torcana.com

Where Are The Swashbuckling Irish Investors Gone?

The image of the swashbuckling Irish investor has taken quite a hammering over the last 18 months. Both Irish and non-Irish media publications frequently expressed their admiration at the way the Irish purchased enormous amounts of off plan investment property throughout Europe and the USA.

Unfortunately, many of these same investors are now frantically trying to cut their losses and have retreated back to Dublin, Cork and Galway with their proverbial tails between their legs.

Where are we seeing market activity?

I honestly do think that the types of properties Torcana are promoting (i.e. sourcing high quality finished properties available at large discounts from highly distressed vendors) is the only market niche that has seen an increase rather than a dramatic decrease in activity lately.

The sector was previously dominated by the off plan market for vacation properties, for investment properties, and for a combination of both. In the next post, I have described why demand for these types of properties has fallen off a cliff.

Markets that did well for completed / 2nd hand properties, such as Germany and France are both also suffering quite a lot now.

Anybody out there agree?

Torcana Ltd is a property investment consultancy dealing with investments in foreclosed property, distressed property, and discounted property in USA, Spain, UK, and Panama. For more information please visit: - http://www.torcana.com

Quantitative Easing - How It Affects Property Investors

Quantitative easing is not the same as printing more money, although this is also an option open to central banks such as the US Federal Reserve and the Bank of England.

Quantitative easing on a large scale occurs when a central bank issues huge amounts of short-term bonds, which in turn enables them to buy back their own long-term bonds.

By doing this, bond yields and therefore long-term interest rates will decrease.

Ok, so what will that do?

Well, that would drive mortgage interest rates down and potentially kick start the property market. The downside for US importers is that this will also weaken the dollar – which of course, is an upside for investors seeking to purchase American property using GBP and EURO.

Issuing and then buying back your own bonds – sounds ridiculous doesn’t it?

I guess it does a little, but if you think about it, it is actually very similar to a regular person increasing their bank overdraft and using the extra money to pay back more of their mortgage.

It made sense for the Bank of England and Fed Reserve to do this, because interest rates were close to zero and mortgage rates for those trying to invest in property or get on the property ladder were often as high as 6-7%, which was causing huge friction in the stock markets.

As noted above, one of the side effects of quantitative easing is that it drives down the interest rates on their 10 year bonds, which are often linked to mortgage rates.

Decreasing long-term mortgage rates effectively puts more cash in people’s pockets that will hopefully encourage them to spend more.

Torcana Ltd is a property investment consultancy dealing with investments in foreclosed property, distressed property, and discounted property in USA, Spain, UK, and Panama. For more information please visit: - http://www.torcana.com

Torcana.com – Our Opinion on Spain

Quite a few people have asked me about Spain recently and whether or not it would be wiser to wait a little longer until prices drop further.

The truth is that the Spanish market has not bottomed out yet, and there are many banks and developers who will shortly be joining the ranks of those who are already very distressed. This increase in supply should cause a drop in median house prices.

However, this doesn’t make it any easier to predict how far the markets might fall or when the “best” time to buy might be. At the moment we have highly distressed stock (in great condition) that is reduced 30-50% from peak levels, and I can’t see average foreclosed properties falling much further to be honest, even though the average regular property price still has a long way to drop.

If you want an extreme example of how much property developers are suffering down there, look no further than a small Belgian developer in Marbella who kidnapped a local bank manager at gunpoint in an attempt to secure a 50,000 euro loan a few weeks ago. Thankfully he was arrested and nobody was harmed after the bank manager used coded language in a phone call to his branch who then alerted the police.

I kid you not folks, it was reported in El Pais.

Feel free to view our Spanish property listings.

Kind Regards

Colin Murphy

Director

www.torcana.com

Issue 4 – Applying Buffett’s Logic to Property Markets

Good afternoon and welcome to Issue 4 of the Torcana Newsletter

As usual, it’s been an eventful two weeks since Issue 3.

Let’s get the bad news out of the way first shall we? In the UK Alistair Darling delivered a budget describing an eye watering increase in public debt based on some very unlikely economic growth predictions in 2010.

In Ireland, the levy’s and cutbacks announced a few weeks ago are about to take affect amid mounting criticism of the governments handling of the crisis. On top of all that, we’ve a possible Mexican pandemic on our hands.

It takes a bit of an effort to look beyond all that, but I’ve been doing it, and thankfully, so have plenty of others.

“Be greedy when others are fearful and be fearful when others are greedy”

Warren Buffett coined that phrase in 2004 and it’s truer than ever today. Mr Buffett has been a busy man these last six months, and as usual, he hasn’t been afraid to put his money where his mouth is.

He is currently purchasing stocks from large cash rich companies with sound business models and competent managers. He figures there’s a good chance these types of companies will increase their market advantage and squeeze out weaker competitors over the next 5-15 years. Makes sense right?

Torcana and our investors have quietly been applying this same logic to the property market - i.e. we have been sourcing and selling undervalued properties with higher than average rental yields located in fundamentally sound areas. It stands to reason that these will be the best performers over the next 5-15 years doesn’t it?

Green Shoots - UK & USA

There is a wealth of useful statistical information out there to assist today’s active buyer. Below you’ll find a quick summary of some of the main points discussed at a business breakfast seminar we delivered last week (you can view a copy of the presentation here)

United Kingdom

- The number of mortgage loans approved increased in Feb 2009

for the first time in two years (Bank of England)

- Last month estate agents reported their fifth consecutive monthly increase in new buyer enquiries (Royal Institute of Chartered Surveyors)

- The average price of a prime central London properties rose for the first time in over a year (Knight Frank)

Orlando, Florida

- The volume of property sales in March 2009 was 48% higher than March 2008

- The numbers of properties available for sale has fallen 20% in the past year

- The affordability index is a record 192% i.e. the average family has 192% of the income necessary to qualify for a conventional mortgage on an median priced home. (Orlando Realtors Association).

These are the kinds of statistics we base our recommendations on and we spend a lot of time analysing them. Purchasing below market value property is now a very quick process (usually less than 6 weeks) but please bear in mind that it involves effort and close collaboration between the vendor, agent and client.

Who wants to be popular?

I think we can all agree that the days of packed exhibitions, overbooked inspection trips, bulging property supplements, non-stop property chatter in the pubs and coffee tables full of glossy brochures are all long gone.

That’s fine by me.

Why? Because most people get interested in stocks when everyone else is. Real wealth is generated by getting interested when no one else is. You can’t buy what is popular and do well.

Yet another pearl of wisdom paraphrased from the Sage of Omaha, but he could have easily replaced the word stock with property…

Kind Regards

Colin Murphy

Director

Torcana Ltd

http://www.torcana.com