I told ya, over the past year, the neighborhood (sadly, grossly) got more and more badly dressed Russians and flashy obnoxious Arabs driving red flashy convertible Ferraris. A Porsche here is like a Yugo.
There's so much money sloshing around the globe right now (thank you real estate and oil), with London being the world's financial capital (thank you Sarbanes-Oxley), and Chelsea being the nicest neighborhood in London, it all makes sense - simple supply and demand.
Well, it almost all makes sense.
What doesn't? That I rent a place for pence on the pound (about 30% of the cost of owning) and guess what - my rent will be flat for all 2007 on the same place. No increase.
Er, well, hate to be a bother, but there's these little things called fundamentals. If the cash flow or income from an investment is significantly less than the carrying or opportunity cost, and if that income stream is flat or declining, well, that doesn't mean good things for the health of the investment.
Unless you're a complete and total fool with money of course, or a Russian with more new money than sense, who doesn't really care if your investment plummets or what its underlying ROI, P/E or ROCE is. I hear Russians are buying up London property in part because they want to get their cash out of Russia so their government can't touch it (which they know is coming soon enough).
So welcome to Chelsea, London. The New Paradigm.
Oh, man, this thing is gonna blow. Until then, it's party time in London. Anyone want to buy a $1.5 million 1-bedroom condo with bad plumbing?
December 12, 2006
Gotta love a good blow-off top - my neighborhood, Chelsea in London, saw median home prices soar 52% last year
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17 comments:
You're right, this will blow. Why? Because the global economy will soon begin a very prolonged contraction.
When that happens how will people pay interest on their loans. That's just it, they wont be able to.
Why will the economy contract? Because peak oil was last year, the saudis are now crashing http://tinyurl.com/y962t9, and the new technologies that might save us such as fusion and breeder reactors are decades into the future, shale oil isn't even oil and tar sands require soon-to-run-out natural gas to process.
I wish I could remember the source, but I read that Arab investors are flocking to England because they either won't be taxed, or will be taxed at significantly lower rates than they would elsewhere. I may be distorting the facts, but there is some sort of tax benefit involved. If I find the source I will post it.
markets can stay irrational longer than anyone expects
keith,,
youre missing a big point---
those guys driving ferraris from middle east or whatever, have NO mortgage and probably live on interest from their huge amt of money
they could care less about housing market, doesnt affect them-
so the same buble factors that affected the 40 k millionaire in Phoenix dont exist
the people here in chelsea or monte carlo, buy to be part of the scene and dont have to EVER sell if they dont want, and are not effected by interest rates (no mortgage) or whether their job can afford monthly payment (already paid cash)
come on you all need some common sense , everyone is not a working stifff like you or me...
Last anon I agree with you 100%. I wrote:
"who doesn't really care if your investment plummets or what its underlying ROI, P/E or ROCE is"
To reiterate my point, these buyers don't care AT ALL what happens to their investment. And $1 million to them (of $1 billion+ net worth) is childs play. Prices in London may continue to go up and up for some time.
But that's London. Not many London's out there. And talk to people outside of London - things ain't doin to well, people are starting to go bankrupt, not able to make their payments.
What other world cities are like London then, where fundamentals truly don't matter?
New York? Moscow? Monte Carlo? Paris?
Keith,
its great to have you agree with me for a change, theres more common ground then i thought
Aspen is a perfect example of another area like this- and there market has been very strong last couple of years-
so i think we can really have a framework to agree on something--
yes many markets became overvalued, and they are mostly in areas where prices out of whack with incomes AND , this is important - the buyers actually WORK to make these mortgage payments- in super high net worth areas different rules apply-- and city to city some areas have better price to income areas as well
thus the sky is falling argument doesnt neccessarily apply to Aspen where most people ALREADY made their money and are just enjoying skiing with the family
AND,, the sky may be falling in phoenix or wherever where most people work to make payments and prices are out of whack with income combined with overspecualtion (ie the 40K a year millionaire syndrome)
and finally Keith, youd have to use the same logic to say that some areas say in the midwest where prices are not nearly as out of whack to income (ie avg payment may equal 30% of income,, not 45% or so like in San Fransisco)- are not nearly as out of whack and may do just fine (of course many in the more reasonable priced cities never needed a "toxic" mortgage to begin with)
Cheers...
Keith,
you need to remember that CA and Fl are not all of the US. median house price in the US is somewhere around 220.000 dollars. some markets have gone out of whack, as some posters have pointed out before. CA and FL gousing prices have a long way to fall, but i am not sure this phenomenon is so widespread as you believe. could you comment on that?
thanks
Funny how the British sold off all their gold at the bottom. Then all of a sudden, a housing bubble in England!
They need to get the Torries in.
Why are you jealous of Russians and Arabs with money?
At least they have something of value to sell (oil).. not like the Anglo-Saxon economies like Britian, USA... they have nothing to sell but Bull Crap.
I'll quote Casey Serin when I say "Don't be a hater"
Chelsea? Chelsea's always been nosebleed expensive.
OK, back in the 70's - when I lived there as a kid -it was still rundown and cheap in places, but its been rising in price for the last 30 years.
Sloan Square end? Fogettabahtit - home of the twinset and pearls 'London Flat for shopping - home in Surrey' Brigade and has been since the 1940's.
World's End end? It was a bomb site/building site when I was a nipper, but high-rise apartment blocks (which, I'd hazard a guess, is where you live Keith) brought modern housing to what was effecitvely a Victorian slum. Not, of course, that anyone who had a council flat can afford one of those swanky river view flats now...
...word to the wise 'anon 13:21:09' - you mean 'Tories', plural of 'Tory'...
"Torrey" as in "Torrey Canyon" was an oil tanker. It sank off the Scilly Isles in 1967. Much the same as the Tories did, in 1997....;-)
Or do the rich know something we don't?
Since there is so much liquidity and too easy credit and a world wide bubble in assets do they see value in buying HARD assets with PAPER?
foxwood,
good point- most people assume here that these buyers are all idiots and that the renters know better
at the same time these guys didnt get to be rich by being fools wiht there money
so what if the big money is right here, why is that so unbelievable ,, maybe most of the crowd will be proven wrong when hard assets gain momentum, not lose is as most people assume (at least in the areas where the truly rich are buying , im not talking the phoenix 40k a year millionaire)
Keith,
London is the new NYC for the international rich. There are numerous $1 million USD plus units in the big apple (I believe $1 million dollar is the Manhattan median) in the similar manner as Chelsea today. So, where NYC's been behind in the new international commodities hedge fund game, London's been on top and has attracted the newly minted billionaires over the American ones, who'd had it during the last boom/bust period of the dotcoms or throughout the American century ala Rockefellers, Trumps, Boeskys, etc.
Why is this such a surprise to you? In many ways, for a learned and traveled person, you've really not that aware of the big picture. England, as a nation, produces nothing but financial products. And recently, NYC (and the USA) hasn't been inviting to Arabs so where would you expect them to park their cash and assets which they don't want within King Abdullah's reach?
Meanwhile jumbo jets will be roaring right over plummeting Chelsea properties in a few years
http://politics.guardian.co.uk/green/story/0,,1968253,00.html
Isn't England a Moslem country now?
If anyone has read about the hyperinflation of Weimer Germany one can see that the rich bought and borrowed on a massive scale using paper wealth to steal real wealth. The won on the way up and after the crash? They cashed in as they had real assets paid off with worthless paper and used those assets to acquire more. The Rockefellers, the Kennedys, the Rothchilds, all did the same.
:that still comprises only a sizable minority of its overall output.
The British Empire ended in '71 with the departure of Bahrain so I'd tend to disagree. Much of England is a financial hub.
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