Follow the Money in Property

There aren’t many people in the world who would argue that the fundamentals for Spain are better than the United States. But one man who’s gone on the record with that very thought is investor Michael Drapac.

The Australian Financial Review did a small piece on the ‘veteran property player’ this week. He’s got some interesting observations. Drapac’s spent the last four years buying up distressed US real estate. He has three syndicates that own property in different parts of the country. Drapac is just about to launch a fourth. In 2016 he thinks he might pull out of the States completely and take the gains elsewhere.

Drapac’s hoping to repeat the success of his US property investments in Spain. Real estate prices there are still relatively depressed, but Drapac sees the potential for a big upside.

Drapac managed to time the recovery in the US housing market beautifully. According to his numbers, residential prices have risen 25% or more in some US cities, and surplus housing ‘is cleared. Now he’s buying up land on the expectation for the homebuilders to kick into gear.

Check out the chart below of the iShares Dow Jones U.S. Home Construction ETF. You can see it’s moved into a strong uptrend since mid-October. It could be due for a nice run over the next couple of years. Watch this space.


Of course, there are plenty of people who think the US housing market is teetering on the edge of collapse if interest rates rise. But there’s little to suggest a move like that happening anytime soon.

Indeed, the Guardian reported last month that the UK government will pay off £218 million of debt that dates as far back as the eighteenth century and also the First World War. These were undated bonds (no redemption date) paying around 4-5%. The government is able to refinance the bonds at a lower rate and reduce the cost of its interest bill.

But it’s not just in the US and UK that we’re seeing recoveries. You might be interested to know Spain will see the highest number of IPOs since 1989.This not only points to present recovery, but also represents a substantial investment potential in future years. Subscribers of Cycles, Trends and Forecasts will recall we noted that in the last issue. We call it the ongoing comeback of Europe.

Here’s a snippet of what we wrote last issue:

‘What’s happening in London alone is staggering. The riverside at Hammersmith is getting a makeover, so too the awful flyover that
goes right through the middle of the town.

‘The Old Oak Common in West London (near Acton), a derelict 100 acres, is about to see thousands of homes built there. That means an entirely new London city quarter. Hong Kong developer Knight Dragon is to build 10,000 new homes elsewhere on the Greenwich Peninsula.

‘This is 1.6 miles of riverfront, with 150 new shops and restaurants and 48 acres of open space to be included. It will end up another bustling London district (not far from the Emirates Air cable car, for those familiar with London).

‘Building has just begun. Lodha Group, India’s largest housing developer by sales, this year announced its intention to become one of London’s largest residential property developers. They have announced a US$5 billion buying schedule. They are starting from scratch.’

The countries hit hardest in the carnage of 2008 are bouncing back. Colleague Ronan McMahon, editor of Real Estate Trend Alert had this to say about Ireland in his latest update:

‘News stories are filled with talk of housing shortages and fast-rising values. These reports are correct. There has been a strong surge in demand for family homes in desirable areas of Ireland’s main cities. The big buying opportunity there has passed.’

Land values are recovering worldwide. This will spur new construction, and, in time, looser credit as the banks scarred by the 2008 crisis start lending in earnest again.

Governments are also planning some major infrastructure projects. China’s certainly doing its bit. According to Bloomberg, President Xi Jinping said that outbound investment will total US$1.25 trillion over the next 10 years, 500 million Chinese tourists will go abroad, and the government will spend $40 billion to revive the ancient Silk Road trade route between Asia and Europe.

But there might well be an even bigger story brewing in China. It’s considering changing the way it treats rural land by allowing banks to mortgage it. That’s currently forbidden. More on why this matters — and why it matters a lot — next week.

Stay tuned.


Callum Newman+
for The Markets and Money Australia

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Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect.

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