Investing in Emerging Economies
There has been a lot of talk about BRIC. For awhile it was said that they were not suffering from the economic downturn in the rest of the world. It is fairly obvious now that that is not the case. I have little experience in the Russia and India portion of the BRIC. I do not trust the government in Russia; so would find it hard to invest there. The only thing that scares me about China is it’s very size and the fact that is so manufacturing oriented. The rest of the world will have to recover before China can. There is also the tie to the US dollar. If the dollar goes in the tank, that will hurt the Chinese.
The countries I understand are the Latin American countries. Their economies are suffering some; but because of the use of cash and the underground economies there, they are in better shape, for the most part, than the rest of the world. The real benefit in Latin America is that the economies are small. The USA economy is like an aircraft carrier. It takes a long time to change direction or turn around. The Latin economies are like speed boats, they can spin on a dime.
I believe it is time to invest in Latin America. It is necessary to use a different model than most investors use in developed countries. The relationship between risk and yield are very important. When operating projections are made in the developed world, vacancy and credit losses are factored in. In the developing world one must also add line items for country risk and currency risk. In some cases one must consider political risk and environmental risk as well.
Wednesday, April 29, 2009
Tuesday, April 28, 2009
Let the Presses Roll
Let the Presses Roll
If excessive debt is the problem with the economy, inflation can be the cure. I don’t see how the government can avoid printing money with the huge bills they are incurring. The inflation we are (not) having now is very strange. The price of automobiles and refrigerators are not going up because no one is buying them. The cost of rent and real estate is actually going down. The price of milk is going up. The price of all the groceries and things of that nature seems to be increasing.
Interest rates are supposedly dropping; but if one cannot borrow it doesn’t matter. Credit card interest is not going down. Bank fees are not going down. I say, “Print that money, print lots of it and print it fast.” Maybe the mint can hire some extra employees. That will help the job market as well. There is of course, the question of what will happen to the people who have already taken a pay cut.
When people have had their hours cut and their pay cut. They will be able to spend even less, further slowing the economy. It just goes to show, there are no easy answers.
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com
If excessive debt is the problem with the economy, inflation can be the cure. I don’t see how the government can avoid printing money with the huge bills they are incurring. The inflation we are (not) having now is very strange. The price of automobiles and refrigerators are not going up because no one is buying them. The cost of rent and real estate is actually going down. The price of milk is going up. The price of all the groceries and things of that nature seems to be increasing.
Interest rates are supposedly dropping; but if one cannot borrow it doesn’t matter. Credit card interest is not going down. Bank fees are not going down. I say, “Print that money, print lots of it and print it fast.” Maybe the mint can hire some extra employees. That will help the job market as well. There is of course, the question of what will happen to the people who have already taken a pay cut.
When people have had their hours cut and their pay cut. They will be able to spend even less, further slowing the economy. It just goes to show, there are no easy answers.
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com
Wednesday, April 22, 2009
Opportunities between Chile and the USA
This is a presentation that was made to ACOP, which is a real estate association in Santiago, Chile. It is much longer than my normal entries; but is more effective if not broken up into segments.
Opportunities Between Chile and the USA
The purpose behind the relationship between our associations is to facilitate business for the members of our respective associations. The purpose of my talk today is to help accomplish this by exploring reasons for US citizens to buy in Chile and for Chileans to buy in the USA. We will begin by looking at the current markets and opportunities. Most of the information presented comes from reports generated by NAR and The Cámara Chilena de la Construcción and the internet. Not only are the reports limited in respect to the time periods and localities of the information; but the background dynamics are changing so rapidly that most “snapshot” numbers are obsolete by the time they are generated. There is always a danger in using aggregate numbers as they do not offer a true picture. If one is standing with one foot in a bucket of boiling water and one foot in a bucket of ice-water, that person is on average pretty comfortable. This presentation is best used as a template for your own research and applications.
In the world and in The Americas Chile is almost unique in that the impact of the current recession is less here than elsewhere. In South America and the Middle East the economies are still growing, albeit at slower pace. The market dynamics here are hopeful for a very quick recovery. The biggest negative in the Chilean economy is the strong dependence on commodities and agriculture. Prices in these sectors are depressed. Chile’s next two biggest sectors are manufacturing and finance. Neither of these sectors is doing well either; but the financial institutions here seem to have fewer “toxic assets” than the institutions elsewhere.
The housing market in Chile has declined somewhat as you can see by the chart. The good news is that the inventory is shrinking too. While lower production may be causing temporary problems for the construction industry, the decline in construction should help to stem the fall in prices. One interesting thing about the market in Santiago, is that through the end of 2008 the larger homes were selling well. It is the smaller homes (under 70 M2) that are not selling as well.
As you can see from the chart housing sales made a steep drop at the end of 2008. The latest information from the Cámara Chilena de la Construcción shows that in the 1st two months of 2009 the sales have dropped by 40% over the same period last year. The data contained in these reports gives a mixed view on commercial real estate. According to a study by NAR, the commercial property market in Chile has not declined. A study by your own Cámara Chilena de la Construcción shows that vacancy rates have increased. It further indicates that prices have increased while rents have decreased. This results in a lowering of yield and could deter investment. Usually the market will correct a situation like this. Investors will look for a certain cap rate and will not buy unless they can achieve that yield. If other investments are considered more risky or if they also are offering a lower yield, the real estate investors will stay in the market.
The office market is the only commercial market where I was able to get much information for Chile. One major difference between USA investors and Latin investors is the attitude toward investment real estate. USA investors see real estate as a source of wealth. Latin investors are more prone to see real estate as a repository of wealth. This is a broad generalization and generalizations are often limited or wrong. Attitudes are also subject to change.
The lessening of yield on the properties may be less of a problem with Latin investors than USA investors. In addition the Europeans have traditionally taken a position more similar to the Latin position. This point of view is changing rapidly.
The USA is not just a major cause of the current situation. It is one of the biggest victims. The USA is huge and varied. Each submarket is different and has different dynamics. Florida and parts of California are suffering from a pull back of investors after a strong speculative upsurge in prices and activity. Speculators were buying pre-construction properties with no idea who the end user would be. The general idea was that the prices were escalating by 30% per year. A speculator could put the property under contract and sell the contract before the property was completed. Like a game of musical chairs, sometimes the music stops.
Some sub-markets are not suffering quite as strongly. In my home of Charlotte, we never had the strong run-up in prices, so we did not have the crash. Our biggest problem now is that people coming to our area cannot sell their homes elsewhere so they cannot buy in Charlotte. Financing is also a major issue. Mortgages are still available to credit worthy buyers. The definition of “credit-worthy” has gotten much more restrictive.
The good news from NAR research on the macro picture is that housing sales were up strongly in February. The bad news is that the median price was down about 18%. That could be people buying cheaper houses or it could be prices dropping. The inventory is down to the lowest level since 2002.
The residential market in the USA is suffering from several factors. The first is the sub-prime foreclosure situation. Unfortunately many mortgages that were not sub-prime are also going into foreclosure because of the general contraction of the economy. Unemployment and underemployment are big factors. The foreclosed property is not only a loss to the bank and the homeowner. The vacant properties cause blight in otherwise nice neighborhoods.
Unemployment and fear of unemployment are major factors in the residential sector. Young adults are moving in with parents, siblings or friends, shrinking demand for housing and increasing demand for larger homes. Liquidity is also a big problem. Banks are still making loans; but the requirements for obtaining these loans are stricter than before. The government sponsored loans are still offered for people with excellent credit. The conventional loans are requiring a larger down payment.
As prices continue to fall, people are afraid that they will buy a property that is worth less than what they paid for it. Like Chile we also have a declining supply of housing stock and that should help cool the downward pressure on prices. Unfortunately our measures of inventory are seriously flawed because there are so many properties that are vacant and owned by banks that have not even been put on the market. Many of the banks are so overwhelmed by the foreclosure situation that they don’t even know what they have in inventory.
Different sectors and different regions are seeing varied results in the commercial property markets. Some sectors are still strong. Some sources have indicated that prices have not declined. What has declined is the yield as multitenant properties have higher vacancies and or lower rents. In the USA we think of prices in “capitalization rates” rather than price per square foot or square meter. When the income from a property decreases and the capitalization rate stays the same, the dollar value of the property falls.
For the last 15 years most commercial real estate has been financed with products that ultimately received their money from commercial mortgage backed securities. This source of funding has disappeared since the credit crisis. More interest has been shown in these products by investors in the last weeks.
Office properties historically lead the decline in a recession and lag the increase in a recovery. In some markets the class “A” and high “B” properties are doing ok because the leases are long and the tenants have not been able to give up the space cheaply. As more companies enter bankruptcy, the properties on the market will increase. Construction of office properties is also a long range prospect. Many properties are coming onto the market with no hope of finding a tenant. New York City is one market where this situation is especially evident. Vacancy rates around the country are expected to increase
As the larger retailers close their doors and let stores “go dark”, the smaller retailers who depend on the traffic from the larger stores begin to suffer as well. Restaurants are a little slow now; but value oriented stores are doing well. Bars are doing well because the unemployment provides both an opportunity and a reason to drink. Building has practically stopped in the retail sector. Investors are still looking at smaller properties. The large number of empty “big boxes” is causing downward pressure on rents and prices.
The industrial property market is probably the hardest hit sector, especially in the larger industries and properties. While much of the decline is blamed on imports and out sourcing. The real culprit is falling demand. If someone needs toothpaste or shampoo, they will still buy it. A refrigerator or a new piece of furniture can wait. Long term leases and the expense of decreasing the size of space where equipment is located put a floor under the decrease of demand.
The rust belt is the area with the most unused industrial buildings, many of which are single purpose buildings that will be very hard to convert to other uses. Smaller buildings (500 to 1000 M2) are still popular. The poor economy actually helps this market. Middle managers finding themselves unemployed frequently start new businesses. The small industrial properties are ideal for this use. Distribution companies eager to downsize, find that by doing more drop shipping they can use smaller spaces and reduce the capital tied up in inventory.
The price of agricultural properties is determined by the value of the crop grown. The increase in industrial and energy use of agricultural products has helped to stabilize this market. People have not found a substitute for food.
As mentioned earlier, housing demand in Chile has fallen so has supply. Certain size properties seem to be in less demand than others. The frequent use of cash to purchase properties lends some stability to the market.
Information is extremely difficult to obtain on the age distribution within the population of Chile. This a key number in predicting future demand. Chile’s entire population is less than 17,000,000. Of which 88 % is urban. Like many other developed countries, Chile’s population is stable. The birth rate, death rate, and emigration rate will maintain this number but with very little growth. The median age is 30 ½ years. Since we are dealing with averages, it is difficult to determine if there is a bubble within any particular age group.
Employment is another area where valid and recent numbers are hard to obtain. The most recent numbers I found place the unemployment at 8.9% by one outside source, 9.5% by another and 7% by government sources. While high for a developed nation, this number is low compared to other Latin countries.
Chile has increased spending more on education than most of the developed countries. Increases in the college-educated portion of the population are about 43% since 2001. This indicates a growing middle class and an increase in both the desire and the ability to obtain a higher standard of living.
The housing market in the USA has suffered from both excessive speculation and a high foreclosure rate. Fortunately the inventory of new homes is dropping. Lack of ability to obtain financing and lack of ability to sell existing homes is causing some stagnation in markets. The population of the USA is over 300 million. Most of the growth in population is coming from immigration. This has slowed somewhat due to economic conditions.
Unemployment is still relatively low in the USA. Fear of unemployment is as much of a factor in the market as the actual unemployment. Another huge factor is under-employment and reductions in wages. If a family lives to the extent of their income and then lose part of that income, they have to restrict consumption. This seems to cause more unemployment.
The USA has some of the best tertiary education in the world available. The primary and secondary education offerings have been declining in quality over the last 2 decades. While excellent advanced programs are available in math and science. It is the immigrants and children of immigrants that take advantage of these opportunities. This could lead to a loss of competitiveness in world trade.
The USA is not a single market; so giving a price per square meter for house is quite difficult. We have identified the following ranges. House prices are between $700 and $1400 per square meter with extremes at either end. The average price per square meter in a good neighborhood in Charlotte for the months of February and March was $1076.21.
In Chile, I was only able to get rates of changes in prices and not the average price or range of prices. Other costs of living have to be included in housing price to determine what the true comparison would be. If one has cheaper housing and increased taxes, security or living expenses the difference could be offset. Also one has to consider the quality of life.
Currency trends are very important in considering an international purchase. The Chilean peso is very weak against the dollar right now. Let’s examine the currency trends from a few different perspectives and see what would happen in different cases.
When one looks at the exchange rate between the dollar and the peso, it appears to be a good time for people from the USA to buy in Chile. It would be a good time as well for Chileans to sell properties in the USA or repatriate funds from the USA, unless of course you expect the peso to continue to weaken. Look at the other dynamics between the economies and make your own predictions.
If one looks at the exchange rate over a 1 year period the trend seems to favor dollar investments rather than peso investment. A five year perspective shows overall neutral exchange rate effects. A purchase made in dollars at the beginning of this period and closed at any time in the interim would actually have produced a currency loss. One has to consider whether the depressed price in the USA would make the purchase good enough to offset the currency trend.
What do you believe will happen in the future?
What is the plan of the buyer? For someone who wishes to retire in Chile, this is the best opportunity in 5 years. For a Chilean wishing to invest abroad, the time may not be good, depending on your predictions about the future of the peso and the Chilean economy. It is important to examine trade, balance of payments and other factors when buying property in another country. If one makes a high profit but is unable to repatriate this profit or is unable to get foreign exchange, this could be a problem.
The manufacturing base in the USA has eroded over the years. The service based economy that once provided a large portion of the national GDP has been outsourced in many cases. The US dollar remains a viable currency only because the world has more faith in it than in other currencies. The current economic situation has had the unexpected benefit of narrowing the balance of trade deficit to its lowest level in years.
The Chilean economy is still a strong exporter of many diverse products. Although the price of these products may be depressed now, the demand for the products remains high and Chile’s balance of trade is still strong. Chile’s balance of trade surplus has continued to increase on an annual basis since the late 90’s.
This is where we get the questions that were promised at the beginning. How do we find the areas of mutual benefit between our clients, ourselves and our real estate markets? What do you believe the future holds?
The economy of Chile is weak now compared to the past. Compared to the rest of the world Chile is doing well. The lifestyle is great. The climate is varied enough to have a perfect environment for everyone. What are the considerations we need to take for our clients or ourselves? How stable do you consider the political situation? What are the prospects for an immigrant who needs to work? Make comparisons between lifestyle choices, prices, and exchange rates. If a person from the USA on a fixed income retires in Chile, how will these things impact them? What type of issues will need to be dealt with on this person’s demise? What are the cultural considerations? Is language a problem? How well can someone live here without speaking Spanish?
The USA has just (hopefully) ended a period of political mean-spiritedness and hostility to immigrants (by the government). The economy is not doing well; but confidence is returning. Job prospects are pretty good for foreigners but getting a work visa is very difficult. We have to answer almost the same questions as we did for Chile. What are the considerations we need to take for our clients or ourselves? How stable do you consider the political situation? What are the prospects for an immigrant who needs to work? Make comparisons between lifestyle choices, prices, and exchange rates. If a person from Chile on a fixed income retires in the USA, how will these things impact them? What type of issues will need to be dealt with on this person’s demise? What are the cultural considerations? Is language a problem? How well can someone live here without speaking English? How will family relationships be affected? How will the currency situation affect preservation of wealth?
Thank you for listening to my presentation. You have heard my questions. Now I will hear yours and maybe even answer some of them.
Opportunities Between Chile and the USA
The purpose behind the relationship between our associations is to facilitate business for the members of our respective associations. The purpose of my talk today is to help accomplish this by exploring reasons for US citizens to buy in Chile and for Chileans to buy in the USA. We will begin by looking at the current markets and opportunities. Most of the information presented comes from reports generated by NAR and The Cámara Chilena de la Construcción and the internet. Not only are the reports limited in respect to the time periods and localities of the information; but the background dynamics are changing so rapidly that most “snapshot” numbers are obsolete by the time they are generated. There is always a danger in using aggregate numbers as they do not offer a true picture. If one is standing with one foot in a bucket of boiling water and one foot in a bucket of ice-water, that person is on average pretty comfortable. This presentation is best used as a template for your own research and applications.
In the world and in The Americas Chile is almost unique in that the impact of the current recession is less here than elsewhere. In South America and the Middle East the economies are still growing, albeit at slower pace. The market dynamics here are hopeful for a very quick recovery. The biggest negative in the Chilean economy is the strong dependence on commodities and agriculture. Prices in these sectors are depressed. Chile’s next two biggest sectors are manufacturing and finance. Neither of these sectors is doing well either; but the financial institutions here seem to have fewer “toxic assets” than the institutions elsewhere.
The housing market in Chile has declined somewhat as you can see by the chart. The good news is that the inventory is shrinking too. While lower production may be causing temporary problems for the construction industry, the decline in construction should help to stem the fall in prices. One interesting thing about the market in Santiago, is that through the end of 2008 the larger homes were selling well. It is the smaller homes (under 70 M2) that are not selling as well.
As you can see from the chart housing sales made a steep drop at the end of 2008. The latest information from the Cámara Chilena de la Construcción shows that in the 1st two months of 2009 the sales have dropped by 40% over the same period last year. The data contained in these reports gives a mixed view on commercial real estate. According to a study by NAR, the commercial property market in Chile has not declined. A study by your own Cámara Chilena de la Construcción shows that vacancy rates have increased. It further indicates that prices have increased while rents have decreased. This results in a lowering of yield and could deter investment. Usually the market will correct a situation like this. Investors will look for a certain cap rate and will not buy unless they can achieve that yield. If other investments are considered more risky or if they also are offering a lower yield, the real estate investors will stay in the market.
The office market is the only commercial market where I was able to get much information for Chile. One major difference between USA investors and Latin investors is the attitude toward investment real estate. USA investors see real estate as a source of wealth. Latin investors are more prone to see real estate as a repository of wealth. This is a broad generalization and generalizations are often limited or wrong. Attitudes are also subject to change.
The lessening of yield on the properties may be less of a problem with Latin investors than USA investors. In addition the Europeans have traditionally taken a position more similar to the Latin position. This point of view is changing rapidly.
The USA is not just a major cause of the current situation. It is one of the biggest victims. The USA is huge and varied. Each submarket is different and has different dynamics. Florida and parts of California are suffering from a pull back of investors after a strong speculative upsurge in prices and activity. Speculators were buying pre-construction properties with no idea who the end user would be. The general idea was that the prices were escalating by 30% per year. A speculator could put the property under contract and sell the contract before the property was completed. Like a game of musical chairs, sometimes the music stops.
Some sub-markets are not suffering quite as strongly. In my home of Charlotte, we never had the strong run-up in prices, so we did not have the crash. Our biggest problem now is that people coming to our area cannot sell their homes elsewhere so they cannot buy in Charlotte. Financing is also a major issue. Mortgages are still available to credit worthy buyers. The definition of “credit-worthy” has gotten much more restrictive.
The good news from NAR research on the macro picture is that housing sales were up strongly in February. The bad news is that the median price was down about 18%. That could be people buying cheaper houses or it could be prices dropping. The inventory is down to the lowest level since 2002.
The residential market in the USA is suffering from several factors. The first is the sub-prime foreclosure situation. Unfortunately many mortgages that were not sub-prime are also going into foreclosure because of the general contraction of the economy. Unemployment and underemployment are big factors. The foreclosed property is not only a loss to the bank and the homeowner. The vacant properties cause blight in otherwise nice neighborhoods.
Unemployment and fear of unemployment are major factors in the residential sector. Young adults are moving in with parents, siblings or friends, shrinking demand for housing and increasing demand for larger homes. Liquidity is also a big problem. Banks are still making loans; but the requirements for obtaining these loans are stricter than before. The government sponsored loans are still offered for people with excellent credit. The conventional loans are requiring a larger down payment.
As prices continue to fall, people are afraid that they will buy a property that is worth less than what they paid for it. Like Chile we also have a declining supply of housing stock and that should help cool the downward pressure on prices. Unfortunately our measures of inventory are seriously flawed because there are so many properties that are vacant and owned by banks that have not even been put on the market. Many of the banks are so overwhelmed by the foreclosure situation that they don’t even know what they have in inventory.
Different sectors and different regions are seeing varied results in the commercial property markets. Some sectors are still strong. Some sources have indicated that prices have not declined. What has declined is the yield as multitenant properties have higher vacancies and or lower rents. In the USA we think of prices in “capitalization rates” rather than price per square foot or square meter. When the income from a property decreases and the capitalization rate stays the same, the dollar value of the property falls.
For the last 15 years most commercial real estate has been financed with products that ultimately received their money from commercial mortgage backed securities. This source of funding has disappeared since the credit crisis. More interest has been shown in these products by investors in the last weeks.
Office properties historically lead the decline in a recession and lag the increase in a recovery. In some markets the class “A” and high “B” properties are doing ok because the leases are long and the tenants have not been able to give up the space cheaply. As more companies enter bankruptcy, the properties on the market will increase. Construction of office properties is also a long range prospect. Many properties are coming onto the market with no hope of finding a tenant. New York City is one market where this situation is especially evident. Vacancy rates around the country are expected to increase
As the larger retailers close their doors and let stores “go dark”, the smaller retailers who depend on the traffic from the larger stores begin to suffer as well. Restaurants are a little slow now; but value oriented stores are doing well. Bars are doing well because the unemployment provides both an opportunity and a reason to drink. Building has practically stopped in the retail sector. Investors are still looking at smaller properties. The large number of empty “big boxes” is causing downward pressure on rents and prices.
The industrial property market is probably the hardest hit sector, especially in the larger industries and properties. While much of the decline is blamed on imports and out sourcing. The real culprit is falling demand. If someone needs toothpaste or shampoo, they will still buy it. A refrigerator or a new piece of furniture can wait. Long term leases and the expense of decreasing the size of space where equipment is located put a floor under the decrease of demand.
The rust belt is the area with the most unused industrial buildings, many of which are single purpose buildings that will be very hard to convert to other uses. Smaller buildings (500 to 1000 M2) are still popular. The poor economy actually helps this market. Middle managers finding themselves unemployed frequently start new businesses. The small industrial properties are ideal for this use. Distribution companies eager to downsize, find that by doing more drop shipping they can use smaller spaces and reduce the capital tied up in inventory.
The price of agricultural properties is determined by the value of the crop grown. The increase in industrial and energy use of agricultural products has helped to stabilize this market. People have not found a substitute for food.
As mentioned earlier, housing demand in Chile has fallen so has supply. Certain size properties seem to be in less demand than others. The frequent use of cash to purchase properties lends some stability to the market.
Information is extremely difficult to obtain on the age distribution within the population of Chile. This a key number in predicting future demand. Chile’s entire population is less than 17,000,000. Of which 88 % is urban. Like many other developed countries, Chile’s population is stable. The birth rate, death rate, and emigration rate will maintain this number but with very little growth. The median age is 30 ½ years. Since we are dealing with averages, it is difficult to determine if there is a bubble within any particular age group.
Employment is another area where valid and recent numbers are hard to obtain. The most recent numbers I found place the unemployment at 8.9% by one outside source, 9.5% by another and 7% by government sources. While high for a developed nation, this number is low compared to other Latin countries.
Chile has increased spending more on education than most of the developed countries. Increases in the college-educated portion of the population are about 43% since 2001. This indicates a growing middle class and an increase in both the desire and the ability to obtain a higher standard of living.
The housing market in the USA has suffered from both excessive speculation and a high foreclosure rate. Fortunately the inventory of new homes is dropping. Lack of ability to obtain financing and lack of ability to sell existing homes is causing some stagnation in markets. The population of the USA is over 300 million. Most of the growth in population is coming from immigration. This has slowed somewhat due to economic conditions.
Unemployment is still relatively low in the USA. Fear of unemployment is as much of a factor in the market as the actual unemployment. Another huge factor is under-employment and reductions in wages. If a family lives to the extent of their income and then lose part of that income, they have to restrict consumption. This seems to cause more unemployment.
The USA has some of the best tertiary education in the world available. The primary and secondary education offerings have been declining in quality over the last 2 decades. While excellent advanced programs are available in math and science. It is the immigrants and children of immigrants that take advantage of these opportunities. This could lead to a loss of competitiveness in world trade.
The USA is not a single market; so giving a price per square meter for house is quite difficult. We have identified the following ranges. House prices are between $700 and $1400 per square meter with extremes at either end. The average price per square meter in a good neighborhood in Charlotte for the months of February and March was $1076.21.
In Chile, I was only able to get rates of changes in prices and not the average price or range of prices. Other costs of living have to be included in housing price to determine what the true comparison would be. If one has cheaper housing and increased taxes, security or living expenses the difference could be offset. Also one has to consider the quality of life.
Currency trends are very important in considering an international purchase. The Chilean peso is very weak against the dollar right now. Let’s examine the currency trends from a few different perspectives and see what would happen in different cases.
When one looks at the exchange rate between the dollar and the peso, it appears to be a good time for people from the USA to buy in Chile. It would be a good time as well for Chileans to sell properties in the USA or repatriate funds from the USA, unless of course you expect the peso to continue to weaken. Look at the other dynamics between the economies and make your own predictions.
If one looks at the exchange rate over a 1 year period the trend seems to favor dollar investments rather than peso investment. A five year perspective shows overall neutral exchange rate effects. A purchase made in dollars at the beginning of this period and closed at any time in the interim would actually have produced a currency loss. One has to consider whether the depressed price in the USA would make the purchase good enough to offset the currency trend.
What do you believe will happen in the future?
What is the plan of the buyer? For someone who wishes to retire in Chile, this is the best opportunity in 5 years. For a Chilean wishing to invest abroad, the time may not be good, depending on your predictions about the future of the peso and the Chilean economy. It is important to examine trade, balance of payments and other factors when buying property in another country. If one makes a high profit but is unable to repatriate this profit or is unable to get foreign exchange, this could be a problem.
The manufacturing base in the USA has eroded over the years. The service based economy that once provided a large portion of the national GDP has been outsourced in many cases. The US dollar remains a viable currency only because the world has more faith in it than in other currencies. The current economic situation has had the unexpected benefit of narrowing the balance of trade deficit to its lowest level in years.
The Chilean economy is still a strong exporter of many diverse products. Although the price of these products may be depressed now, the demand for the products remains high and Chile’s balance of trade is still strong. Chile’s balance of trade surplus has continued to increase on an annual basis since the late 90’s.
This is where we get the questions that were promised at the beginning. How do we find the areas of mutual benefit between our clients, ourselves and our real estate markets? What do you believe the future holds?
The economy of Chile is weak now compared to the past. Compared to the rest of the world Chile is doing well. The lifestyle is great. The climate is varied enough to have a perfect environment for everyone. What are the considerations we need to take for our clients or ourselves? How stable do you consider the political situation? What are the prospects for an immigrant who needs to work? Make comparisons between lifestyle choices, prices, and exchange rates. If a person from the USA on a fixed income retires in Chile, how will these things impact them? What type of issues will need to be dealt with on this person’s demise? What are the cultural considerations? Is language a problem? How well can someone live here without speaking Spanish?
The USA has just (hopefully) ended a period of political mean-spiritedness and hostility to immigrants (by the government). The economy is not doing well; but confidence is returning. Job prospects are pretty good for foreigners but getting a work visa is very difficult. We have to answer almost the same questions as we did for Chile. What are the considerations we need to take for our clients or ourselves? How stable do you consider the political situation? What are the prospects for an immigrant who needs to work? Make comparisons between lifestyle choices, prices, and exchange rates. If a person from Chile on a fixed income retires in the USA, how will these things impact them? What type of issues will need to be dealt with on this person’s demise? What are the cultural considerations? Is language a problem? How well can someone live here without speaking English? How will family relationships be affected? How will the currency situation affect preservation of wealth?
Thank you for listening to my presentation. You have heard my questions. Now I will hear yours and maybe even answer some of them.
Thursday, April 2, 2009
Life Goes On
Life Goes On
The banks and the Auto companies are getting big bail outs and still laying people off. Loans are harder to get but they happen despite what the newscasters tell us. Business seems to be bad for everyone. I don’t see anymore homeless people than I did before. I don’t see people selling stuff on the street corners. The people selling stuff at tables in vacant parking lots are no more pervasive than they were before. Is it possible things are not as bad as they sound on the news?
The unofficial economy in the USA has in the past probably been smaller than that in some parts of the world. I expect it will grow with the ongoing depression. I have a theory that anyone with a ladder on a pickup truck is part of the unofficial economy. Count the ladders as you ride around to judge the growth of this sector. Since home repairs are not deductible, homeowners do not need receipts for work done. This makes an easy choice of paying a little less for a repair and not reporting the payment. Most of these repair people probably report enough income to cover their expenses.
If we have an economic stimulus that requires companies to cut pay and lay people off, how much will this help the economy? If the laid off people draw unemployment and work unofficially on the side, who will pay the taxes to support the stimulus?
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com
The banks and the Auto companies are getting big bail outs and still laying people off. Loans are harder to get but they happen despite what the newscasters tell us. Business seems to be bad for everyone. I don’t see anymore homeless people than I did before. I don’t see people selling stuff on the street corners. The people selling stuff at tables in vacant parking lots are no more pervasive than they were before. Is it possible things are not as bad as they sound on the news?
The unofficial economy in the USA has in the past probably been smaller than that in some parts of the world. I expect it will grow with the ongoing depression. I have a theory that anyone with a ladder on a pickup truck is part of the unofficial economy. Count the ladders as you ride around to judge the growth of this sector. Since home repairs are not deductible, homeowners do not need receipts for work done. This makes an easy choice of paying a little less for a repair and not reporting the payment. Most of these repair people probably report enough income to cover their expenses.
If we have an economic stimulus that requires companies to cut pay and lay people off, how much will this help the economy? If the laid off people draw unemployment and work unofficially on the side, who will pay the taxes to support the stimulus?
David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com
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