Thursday 29 March 2012

THE WEALTH REPORT - IMPLICATIONS

How safe are safe havens?

The rich are getting richer and the poor poorer, and the rich are retreating to the citadels leaving the wasteland to the poor - this could be a particularly dark interpretation of the findings revealed in The Wealth Report published by banker, Citi, and property consultancy, Knight Frank, yesterday, but in my opinion, summarises where the world is headed.


There are more centa-millionaires, HNWIs with more USD100 million or more in assets, living in Asia than in the West now, and the world's centre of economic gravity has shifted from the mid-Atlantic to somewhere over Turkey and Russia, and will be firmly in India and China by 2050, the report tells us. But it also reminds us that these Asian centa-millionaires, along with HNWIs from across the developing world are using much of their money to buy homes in London, New York and Paris, because they feel safer there - these cities are politically stable and enjoy the rule of law.


Economic growth in the developing world is not solving all of its problems, rather it is masking many of them, like poor governance and corruption, and worsening others, notably environmental degradation. The rich know that. That is why 60 per cent of Chinese millionaires (calculated in British Pounds) are either leaving China or considering doing so. Who feels safe living in a country where you can be arrested, tried and executed within three days?


As The Wealth Report shows, South American HNWIs are heading to Miami, the Chinese to Hong Kong and everyone to London. That's great news for estate agents and vendors in these and other recipient locations, including Monaco, Cote d'Azur, the French and Swiss Alps, Sydney and Auckland. The trouble is that with so many HNWIs arriving the natives are getting restless. Britain has increased stamp duty to 7 per cent for multi-million pound homes, which are mostly bought by foreigners, and the Swiss have voted in a referendum to limit the number of holiday homes in tourist areas to 20 per cent of housing stock, because locals are fed up with being priced-out of the housing market – great news by the way for owners of existing Swiss holiday homes, because their assets have suddenly attained rarity value.


These tax increases and construction caps are mild however, and in themselves little to worry about, except that they could be the start of something more ominous – growing resentment of wealthy foreigners. As any politics lecturer will tell us, when you have one line of division (nationality) compounded by another, (contrasts in wealth), then the potential for conflict becomes exponentially worse. The Occupy Movement has focused on banks, but it would not take a great leap of the imagination to see its supporters outside under-used and over-furnished, luxury flats at One Hyde Park. Squatting has been on the rise across the world for several years, another sign that we need to close the gap between rich and poor. Inward investment should always be welcomed, but it must benefit the locals. That is the only way to ensure real, lasting security for wealthy outsiders moving into “safe havens”.

Wednesday 21 March 2012

HOW TAXES AFFECT HOUSING MARKETS

Small is beautiful if it's a tax rise

Tax cuts and tax rises - they are good indicators of where a property market is at, but can they influence where it is headed? Invariably, finance ministers, like Britain's Chancellor of the Exchequer, raise property taxes (like he has today) when housing markets are strong and cut them when weak.

The British property market maybe weak overall, but its luxury end, the sector for GBP2 million+ homes, on which Chancellor George Osborne will levy stamp duty at 7 per cent from today, has reached record highs in London. This sector will also be affected by his decision to close tax loopholes that allow wealthy foreigners to pay stamp duty at 0.5 per cent when purchasing property via a tax haven.

The Italian government has raised property taxes too. Its retrospective 0.76 per cent annual levy on the market value of homes owned by Italians overseas is effectively a tax on the London housing market, because that is where many Italians buy second homes. Neither the Italian nor the British tax measures are likely to impact significantly on the prime central London housing market. Most overseas buyers will continue to buy London property, because they are doing so for political or extreme wealth preservation reasons - wealthy Middle East businessmen concerned about the Arab Spring, wealthy Greeks and Italians wanting to have assets outside of the crisis-ridden eurozone, Africans looking for a safe haven for their money, Chinese looking to escape autocracy and corruption back home, and Russians looking to avoid punitive taxes which they expect newly elected President Putin to introduce.

If Putin does over-tax his country's rich – and he must be tempted because Moscow's property market is surging, then more of them will move capital abroad – bad news for Moscow vendors and estate agents, but good news for those in London, Paris and other locations favoured by wealthy Russians.

Here's another example of tax increases in one country bolstering property markets in another – newly introduced higher capital gains taxes in France has led to an increase in enquiries for low-taxed Monaco homes. And another example - Chinese money is finding its way overseas via Chinese businesses - the only legitimate way for Chinese to export capital abroad, following property tax rises in China and subsequent price falls – values are forecast to collapse 30 per cent in 2012, more than Beijing would like, so now it is looking to cut taxes again to stabilise the market. Hopefully, it won't be too late, because tax cuts don't always work when other factors like sentiment are overwhelmingly negative - just look at Spain.

Spain's Socialist government cut VAT on new homes from 8 per cent to 4 per cent for six months in 2011, and some developers subsidised the remaining 4 per cent, so that effectively it became 0 per cent for buyers. Madrid's new conservative government has extended the VAT holiday until the end of 2012. The affect on the housing market? Negligible, though some developers around Marbella, where the market is starting revive, say every little helps. In Cyprus, where the market has been troubled since 2007, VAT cuts made in October 2011 have had no tangible affect, though it is still early days of course. These two countries' economic problems are just too great for these tax cuts to make much impact.

So, can tax cuts and rises affect a housing market? Only if they are so large they become more significant than other issues. Increasing stamp duty from 5 per cent to 7 per cent for multi-million pound homes in Britain is not a large tax increase. Still not convinced? The increase in stamp duty from 4 per cent to 5 per cent for GBP1million+ homes, implemented 11 months ago, is now completely forgotten.

Wednesday 14 March 2012

BUILD MORE FLOATING HOMES

....they are getting prettier

We love living by water, but not on it. If we can overcome our primeval desire to live on dry land, then we could partly solve two big problems – the housing shortage in cities and the affects of flooding.

Most cities are built by bays or rivers – these are a rich, mostly untapped source of residential “land”, ample space for floating homes. Unfortunately, few people are attracted to the idea of living like“sea gypsies”. The image of a floating home is bad – depending on what part of the world you come from, it might be a narrow boat too small to pirouette in, a trailer-trash home on a metal tray, a converted fishing boat or another piece of cramped, cough-and-cold-inducing residential flotsam or jetsam.


But times are changing– architects are designing warm, dry, spacious and exciting homes that float. Architects in the Netherlands are leading the way. Studios, like Aquatecture, have designed attractive floating homes, pictured here, for Dutch canal dwellers. And outside the country's ring of dikes, 46 floating homes were created at Maasbommel by the DuraVermeer Group in 2005 – securely attached to moorings they go up and down with rising and receding flood waters – they survived a nationwide flood in 2011.


British studio, Baca Architects, has designed Britain's first amphibious home next to the river Thames, which will be built by the end of 2012, and the country's first floating community at a Glasgow marina, scheduled for completion in 2020.


Over the coming decades, floods will become more frequent, because of rising sea levels and fiercer storms resulting from climate change. Meanwhile, housing will become increasingly sought-after and expensive in cities, because the production of new homes can't keep up with the reproduction of humans, and there is a finite amount of land available. Yes, we can keep building upwards, build on green fields or reclaim more land from the sea, but creating floating homes is quicker, less expensive and less environmentally damaging. They can also be fun to live in.

Thursday 8 March 2012

HOUSING HOTSPOTS TRACKER

Follow the agents who follow the money

A few weeks ago I wrote a piece for the Financial Times about how the world's top end estate agencies are expanding their international networks to service the growing demand for luxury homes from HNWIs. These agencies spend a lot of time and money tracking capital flows around the world - Knight Frank has 20 researchers in London doing it assisted by overseas staff. The agents follow the money that fuels the markets. This got me thinking - wouldn't it be a good idea to start a regular Housing Hotspots Tracker that shows which agents are opening or expanding branches and where.

So, here it is - if you are thinking of buying a home and want to know where the agents believe the market is hotting up, then check out the Housing Hotspots Tracker. The Tracker will be updated monthly.



HOUSING HOTSPOTS TRACKER

Estate agency branch openings since January 2012 -

Savills - Gibraltar

Strutt & Parker - Westbourne Grove (London)

Haus Properties - Fulham (London) Expanding. Opened in November 2011.
Winkworth - Canterbury (Kent), Cheam (London), Worcester Park (London) and Grantham (Lincolnshire).

Sotheby's International Realty - Canford Cliffs (Dorset), Chelsea (London), Stratford upon Avon (Warwickshire)



If you know of any agency openings/expansions that could be added to this list, then please tweet me @richardgwarren or add them to the comments section below.

Thanks to Loubie Vaughan, Emma Ward-Hunt and James Trimble for being helpful eyes and ears.

If you want to read my piece on expanding estate agencies in the FT then copy and paste this link to the address bar, and click - http://www.ft.com/cms/s/2/28b251d0-428d-11e1-93ea 00144feab49a.html#axzz1oRm1k1sC