Today’s Profit Watch needs a dash of sunshine and blue water.
Where better than to head to Greece?
Admit it — you’d forgotten about this little place.
It’s hard to believe now that it held central bankers, finance ministers and the world media hostage for a time.
Everyone wanted to know whether Greece would default and leave the eurozone. It didn’t.
The world moved on. 2015 is a long time ago now.
If there’s one advantage to analysing the world each day, you see how things turn, and turn out.
That’s why the latest news from Greece is vital. Nobody is watching anymore. No one will appreciate this — except you and me.
It shows why the world’s biggest real estate cycle in history is still building…
We’re going full circle in Greece
Did you see the news back in July?
Greece has a new government formed from a group called the New Democracy party.
New Democracy turfed out the mob called Syriza — which made a big fuss about rejecting the onerous demands of the European Union, only to bend the knee when the crunch came.
The old is new again.
New Democracy was the party in power from 2004-2009. You know — part of the period of lavish borrowing that led Greece to its current predicament.
What is the first thing that New Democracy does once it gets back into government?
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*Drum roll please*
The Financial Times reported yesterday on the Greek Finance Minister: ‘Mr Staikouras has already pushed through parliament his first piece of legislation, cutting an annual property tax by an average of 22 per cent per household.’
This is a very populist move. The property tax in Greece — known as the ENFIA — is the most despised.
That’s because it’s almost impossible to avoid — and tax evasion is historically a national sport over there.
I think it’s safe to assume that plenty of people in power within New Democracy own a lot of Greek property.
But it’s perfect proof (again) that all the ‘lessons’ and ‘safeguards’ put in place after the 2008 real estate bust are being rolled back.
A little knowledge of history helps here.
The IMF suggested Greece install a heavier property tax to try and capture more of the wealth that rich Greeks like to export to Switzerland or hide from the Greek tax man in property.
Tax revenue is pretty important for a country with a massive government debt and a mediocre economy.
This latest move would suggest that Greece is going back to its old ways.
And is it any wonder?
Such is the massive bubble in bonds that the yield on Greek 10-year debt fell below 2% back in July.
But the effects of this property tax cut go further…
Get rid of them debts, I tells ya
I suspect — but cannot prove — that this move is also designed to help the Greek banks keep offloading their large pile of debts.
These debts stem from Greeks who have stopped paying back their loans.
Bloomberg reported back in February:
‘Borrowers are failing to meet payments on almost half the debt owed to Greece’s banks.
‘In other words, there’s 88.6 billion euros ($101 billion) of bad loans weighing down the balance sheets of Greek lenders, equivalent to about half the country’s annual economic output.’
Here’s where I’m going with this.
Any reduction in tax on property immediately capitalises into the selling price.
That means Greek property values just got a lift from this government cut.
It might even make Greek property a touch more appealing to international buyers.
We’ve reported before that Chinese buyers are scooping up apartments in Athens.
More importantly, this tax cut could help any distressed property borrowers start paying back their mortgages.
The most important thing for the Greek economy is to get these bad loans off the books of the Greek banks.
Greek banks can start lending again to the economy once these debts have cleared.
The Greek government is trying to make this happen with various plans to buy the debt in some sort of government-sponsored finance facility.
It’s all dragging on much longer than it needs to. Greece is not important enough for anyone to care anymore.
The French and German banks are no longer exposed to the Greek debt at risk of a haircut (why there was a panic over Greece in the first place).
Why do we care about any of this?
It shows there’s precisely zero difference to the basic economy now compared to pre-2008.
Greece will be like Australia soon enough.
Very shortly, the Greeks will go back to buying and selling real estate to each other at higher prices…with credit created from nothing…and the Greek property cycle will boom again.
If you fancy a pad in Athens or on one of the islands, don’t hang around waiting. Go buy it now.