You’ve heard about Japan’s epic government debt.
You’ve heard about the terrible demographic profile of the population.
You’ve heard about the reckless ‘money printing’ of the Bank of Japan.
Japan is a basket case — or so they say.
But if all that’s true, then either someone is not telling the Norwegians…or they know something we don’t.
Norwegians? Why should you care what they do?
Because Norway has money, and plenty of it. Their sovereign wealth fund has about US$839 billion under management. They’ve amassed this fortune from the oil wealth of the North Sea.
Shares and bonds currently make up 95% of Norway’s sovereign wealth fund. But that’s changing. Norway intends to increase the weighting of real estate within the portfolio from 2.7% to 5%.
And now this…
The Nikkei Asian Review reported last week that Norway’s sovereign wealth fund is hunting for yield in a stable market…and they like the look of Japan. The article says it could bring hundreds of billions of yen to the Japanese market:
‘Rents in Tokyo have been slowly rising thanks to strong demand for offices. In addition, redevelopment of commercial facilities is expected to pick up ahead of the 2020 Tokyo Olympics.’
In Cycles, Trends and Forecasts last month we showed readers why the real ‘winners’ from the Games are decided long before the athletes arrive.
The real game is about capturing the windfall gains in the real estate market that the Olympics generate.
For 2016 in Brazil, for example, the winner is property tycoon, Carlos Carvalho.
The Games will be held in an area called Barra de Tijuaca.
As we reported at the time, in 2009 the land was worth an estimated $870 per square metre. This was when Rio’s winning bid was announced.
Since then the public has paid to upgrade the metro line, plus install a rapid bus service, new highways, power lines, and water services.
The government also forcibly removed thousands of poor people and relocated them elsewhere. Those who resisted moving were shot at.
The land is now worth around $2600 per square metre. It has trebled in five years. That’s faster than prices in the centre of London.
That’s one reason Carlos is a billionaire. As the city grew up around — and on — his land he watched his wealth grow with it.
The Guardian reported him as saying:
‘[It] has been exponential. Like owning an oil well right on the surface.’
But hey, you don’t have to believe me…even our new Prime Minister is giving the game away.
Look what Turnbull said recently about funding public transport:
‘We also have to look creatively at how we capture the value that arises from the increase in property values and the improvement in the utility of adjacent land from the building of infrastructure like this. This might be by owning part of the land or it might be from some sort of differential rating arrangement. There is a lot of angles to it.’
Turnbull — who’s made millions in property — wants to capture some of that uplift for the government.
A Professor Newman (no relation to me) estimated that Perth’s southern rail line boosted land values around its stations by 42% over five years.
Turnbull’s scheme has zero chance of getting ahead. Too many vested interests don’t want to see this happen I’m afraid.
The rules of the game don’t change.
It’s Monopoly. Whomever owns the best properties wins the game of wealth. That’s why Cycles, Trend and Forecasts can put you ahead of the pack.
If you want the best guide to profit from real estate, check it out here.
You need to be building multiple sources of cash flow. That’s another point we can take away about Norway.
I mentioned above that the country has a huge wealth fund. It saved that wealth from its oil fields and investing.
Now currently the price of oil is taking a beating. That means the Norwegian economy is slowing down. The government will most likely run a deficit, possibly for the next few years.
When governments in countries like Australia and the US do that, they have to borrow to fund the difference.
That means being on the hook for interest and paying it back.
Norway is smarter than that. They saved their rainy day fund and are about to make the most of it.
The Australian Financial Review reported last week that the Norwegian government will dip into the sovereign wealth fund for the first time to tide it over.
As the paper says of the fund, ‘The current income, which includes interests, dividends, rental income and so on, is almost equivalent to the budget deficit.’
It’s called passive income. And what a clear demonstration of its power. The Norwegian government doesn’t have to put its hand out for a loan. It can act from a position of strength.
As an investor, that’s exactly where you want to be.
Associate Editor, Cycles, Trends and Forecasts