Following up on last weeks Spanish article, this week, further travelling has revealed some critically important lessons that Australian investors can use to better select and avoid what surely must be a calamity in the making for those unaware.
Driving down from Barcelona to Valencia, Spain’s second largest city, I took a detour through several of Spain’s coastal wastelands. Torreblanca for example is littered with partially constructed/abandoned developments. The Cause – low interest rates and a “build it – they shall come” attitude.
Sadly for Torreblanca and thousands of Spanish towns just like it, they didn’t come – net result being disaster for investors, the banks, developers and really the local community , which has laid in trunk roads, drainage etc for thousands of empty eyesores.
In the case of Spain, years of low interest rates, courtesy of economic prudence from its larger and Northern neighbours, all of a sudden cheap money made building anything anywhere very easy for the developers. Wind forward a few years and an economy with a reported 3 million empty homes and a coastline littered with buildings like this photo, and the outcome is very sad.
So what lessons for us in the land of plenty, particularly with interest rates at historically low levels?
Firstly quality is key – location and quality are non negotiable, when it comes to property. Secondly is long term rationale. Big established cities where there is real demand, now, is critical. Investing in the next big boom town is a big no. Look at what is happening in some of the regional cities – Gladstone or Port Headland, for example, where prices have been literally torched.
Equally the building of low quality inner city high rise – tomorrow’s slums – are a further example of arguably better located but equally poor investments. Both Perth and Brisbane recorded a few weeks ago a fall in apartment prices.
The final rationale:
The backbone of almost every property pitch I have seen – is immigration and population growth. Low interest rates are facilitating the build it for the future they will come catch cry. Great sales story but in reality one where many have fallen foul. Quality is key – just as it is with the stock market.
Investing successfully is based on a process – time tested and proven – just like the tortoise and the hare, not a race but getting the right outcome. Hence why the cornerstone of our investment strategy is in the covered call space – predictable, robust and repeatable – not trying to pick the next “boom town” speculative play. If you would like to find out how we continue to help our clients trade the market in a more reliable, less speculative way, click here.