With Real
Estate Bubbles deflating in the USA, the UK, Spain and most countries in
the World, it is now also happening in Belgium.
Posted September 10, 2010
Not
easy to explain WHY the Belgian Real Estate bubble will burst and for the
(potential) real estate owner extremely hard to understand WHY the price of
Belgian real estate can and will fall by at least 60%.
The Belgian real estate cycle is lagging on the
American cycle by about 2 to 3 years because of the social system and the local
taxation system.
The origin of any real estate bubble is
fractional reserve banking, the creation of fiat money out of thin air and the
misallocation of these funds. Misallocation we have as soon as
supply is not regulated by an increase in demand but rather by a self feeding
speculation. Because of an artificial excess of funds and artificial low
interest rates incorrect signals are sent to the market: builders continue to
built in a market where there is no shortage of homes and people continue to buy
Real Estate because they think prices will continue to raise. (would you buy a
house if you knew you could buy it at a price which is 25% lower next year?).
The action becomes self feeding like any bubble (the Mississippi scheme, the
Tulip Mania, the Dot.com bubble) up to the point where the demand stalls. Demand
stalls because Real Estate prices have become so expensive that even at historic
low mortgage rates they become unaffordable: the market dries out. As the
recession becomes a depression, taxation increases, more people loose their
income and real spendable income drops (because of inflation), the consumer
spending pattern changes.
The marginal trades make the price of the
street. As sellers have to lower their asking price to meet Demand, the
price of Real Estate continues to slide down. The Bubble busts....and the price
decrease becomes self feeding.
Note: a mortgage is a consumption
credit only and not-self destructing. Hence it is not a vital part of an
economic boom.
Posted December 2009
Posted July 15, 2009
-
Belgian Real
Estate rose 'proportionally' as much as in other countries.
We have a Global Economy. For this reason alone, it is incorrect to
pretend Belgian did not have a bubble. There is and was no such thing as a
micro climate for Real Estate.
-
Belgian Real
Estate is compared to other countries, extremely expensive...and also
'old' Just check the examples
below.
-
Belgian Real
Estate is a HOCG (High order Capital Good)
and its real value will fall as a consequence of the recession/depression
during the coming 5 years. During the recession, maintenance
expenses and taxes rise and (Potential) Rental income falls in nominal
terms. We are rather sure Belgian Authorities will impose Capital
Gain tax and Wealth tax in the near future.
-
Belgian Real
Estate will fall as Long Term interest rates soar
as a result of the (hyper)inflation. All Real Estate will.
-
Belgian Real
Estate is unable to keep up with the Inflation.
Expressed in Real Money or Gold, Belgian Real estate sits in a solid Down
trend
-
Commercial Real
Estate is the next shoe to drop. As the
recession/depression gets worse, more and more commercial properties are
"for Sale" and/or "for Rent"...but as there is NO demand, they stay
vacant.
-
Equities can
correct in only months' time, Real Estate needs years.
Compared to Equities (Equities also are Real Assets), it takes a lot
longer for Real Estate to correct the incurred loss.
-
Stocks are
'liquid' (contrary to Real Estate),
assuming these are quoted on a major stock market (most are).
Posted January 10, 2009
After Euphoria
comes denial and after denial comes panic.
Only when we see panic is the time to buy.
Japan's house prices peaked in 1991 and 18 years later still stand an
average 60% below
their peak.
Posted December 22, 2008
Where is the idiot
pretending there is no Real Estate bubble in Belgium? According to inside
information the Belgian bubble has already busted.
1 =
1 + 1 + $ 5,000
=
+
+
$ 5,000
-
Sell
one 60 year old worn out 1,000
sq.ft./100 m˛
town house with no central heating, no
AC, bad or no isolation for €150,000 or approx. $ 220,000
-
Buy
one historic renovated Cottage (2,800 sq.ft./280 m˛ built – high ceilings – hard wood
floors - historic building) for $110,000
-
Buy
one $ 100,000 lovely renovated family home
(3,000 sq.ft./300 m˛ house – renovated, central heating, AC, lovely
garden)
-
and save $ 5,000/€ 3,250 cash.
click here for more
Updated
December 27, 2008
Not only do prices of Real Estate come
down. Rents are also falling. Even in Belgium Supply is larger than
Demand and more and more properties are offered as a rental because they
simply cannot be sold. Demand has fallen as all who could afford
have acquired a property. The price of apartments along the North Sea
coast have 'officially' come down by 20% .
Posted November 11, 2008
Professionals start to admit that sales
of Real Estate in Belgium is slowing down and that we have entered a
buyers' market. Prices are down at least 10% to 15%.
Posted October 22, 2008
Even in case we don't fall into a
depression, we remain extremely negative for Real Estate. If you think
about Real Estate as a healthy investment, you at the same time have to
define the meaning of a 'good renter'. Today even a Bank and/or Insurance
company have become dubious renters. What about Joe-6-pack?
As the deleveraging of the financials goes on, they also
will have to sell Real Estate assets. Who's gone buy them at what price
and where will they get the mortgage from?
Posted October 8, 2008
According to Real Estate group Trevi, the price of Belgian Real Estate has
fallen by 15% since January 2008.
In the Real Estate sector, at first the market dries up. Next there is a
foreclosure on your neighbor's house...and it this forced sale which
brings down the value of your own house.
Housing
or a roof over your head costs money, weather one has the funds available
or not. By buying or building a home and paying hard cash for it one
forsakes to the compiled potential interest income over the lifetime of
the property.
Depending upon the
quality and location, renting a house valued at €300,000 yields from €800
to €1,200; half the financial cost of buying it. The renter doesn’t has
financial restraints, doesn’t pay any taxes on the property and all
maintenance expenses are paid by the landlord.
As most Belgian's are
Real Estate lovers and owners, the topic is extremely sensitive. For many
real estate owners, it is already difficult to accept a Home wears out
and gets technically old: isolation standards, heating, bathrooms,
kitchens,... Nobody wants to see his main assets and in many cases his
‘life savings’ erode. But they always do.
Belgian Real Estate is
in a similar position as US Real Estate was a couple of years ago; just
before ‘the bubble’ busted.
It is characterized by exactly the same
disbelief that was seen in the US just before the pin touched the bubble.
At that time, real estate brokers were using each and every arrow they had
left to get any possible property sold: 30 and 40 year mortgages and
flexible interest rates. Some builders went so far as to allow a
complimentary pool and automobile.
Today, buying a medium
sized house for € 300.000 with a fixed 20 year mortgage, costs €
2,000 per month + taxes and maintenance costs.
In 20 years from now, the
total cost of the property will be € 480,000. Assuming it is still worth
the initial € 300,000, the financial cost is € 180,000. This doesn’t
include taxes and maintenance expenses. If
however, prices stay stable or come down like we anticipate, monthly
losses can run up to € 1,687 + Taxes and maintenance expenses. Real
Estate is together with the Automobile 'the taxation' item by excellence:
you simply cannot fold it up and take it out of reach of the tax man.
For the
table below, the Total cost was calculated based on a fixed 20 year
mortgage.
|
Price expectations |
Market value |
Total Cost |
Profit/Loss |
Mo. Profit/loss |
|
|
|
|
|
|
|
60% price increase |
€ 300.000,0 |
€ 480.000,0 |
€ - |
€ - |
|
00% price fluctuation |
€ 300.000,0 |
€ 480.000,0 |
€ 180.000,0- |
€ 750,0- |
|
50% price correction |
€ 150.000,0 |
€ 480.000,0 |
€ 330.000,0- |
€ 1.375,0- |
|
70% price correction |
€ 75.000,0 |
€ 480.000,0 |
€ 405.000,0- |
€ 1.687,5- |
|
|
|
|
|
|
What happened from
1990 to 1993 in Japan is now happening in other countries in sequence!
Over the past years, each and every Belgian who could afford it and even
those who could not, either bought a home or built one. Goldilocks has
for years been holding the hands of Belgian Real Estate and not a living
soul that believes trees don’t grow all the way into heaven. Belgium is ,
like Manhattan, London city, California and Florida were, a NOT special
situation.
By today, Americans and
Brits have already experienced that Real Estate was nothing more than a
dream which was fantasized by Greenspan and his buddies. Many Americans
were sure the (potential) rental income would at least cover the mortgage
expenses and the Renter would pay for his investment. Bankers were over
happy to confirm this incorrect idea as each new Mortgage meant an extra
income. Reality shows it is not!
History shows over and
over again that even inflation has been unable to keep up the real value
of a Home. As inflation increases, the Taxation and the maintenance costs
increase. To please their voters, Authorities have invented different
mechanisms (ex. Indexation) to limit the increase of rental income. Even
the inflation index is being cooked in such a way its impact on the rents
is minimized.
Belgian birth rates have
been coming down for years now. Still the Real Estate bubble kept on
inflating against a background of growing supply and falling demand. What
we have, is a perfect Von Mises example of misallocation of funds in
Belgian style.
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Goldonomic, Florida, USA -
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