Greek Real Estate Sale: 40% Off

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I feel a lot better today. But’s it not because the US market is up.

It’s far superior to that. The British newspaper The Times says the Spanish are on track to have the longest life expectancy in the world.

Why is this cause for celebration?

The Spanish smoke. They eat lots of red and cured meat.

They plough through fresh bread (and it’s made with white flour!) They drink wine.

They have a sugary breakfast.

Yep – everything you’re not ‘supposed’ to do.

None of them give a damn about eating broccoli, quinoa or any other ‘superfood’ claptrap.

I can vouch for this. I’ve spent a lot of time there over the last decade.

There’s a photo on our fridge at home. The glittering palette of blue from Ibiza’s sky and water is behind us. Summer days…

But the world is not stupid. They can see the beauty and the lifestyle.

Ibiza, for one, is booming. Rents are skyrocketing as landlords buy up properties and lease them on Airbnb.

The locals are getting priced out.

Busloads of property buyers hit Athens

Reuters reports that Greek real estate is now attracting busloads of Chinese buyers. They go straight from the airport into the arms of real estate agents.

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Greek property is still down 40% from the peak.

Buyers can nab an apartment with a view of the Acropolis hill and a five-year European visa for 250,000 euro.

This shows how money is still hoovering up the dregs from the 2008 wreckage.

This will continue for years. The expansion in middle-class wealth out of Asia practically ensures it.

If you’ve got the money, a Greed pad sounds rather nice, don’t you think? It’s unlikely to stay this low for long.

I said the same thing about Spain in 2015. The major cities are booming there now.

The Chinese government is also warning real estate investors in China not to expect any easing of restrictions in the domestic property sector.

That makes foreign markets more appealing.

In the case of Greece, it could also help clear out the bad debts from the Greek banking system.

This is still a problem. Over 40% of Greek loans are still ‘non-performing’.

These loans need to be bought out, written off or made performing again before the Greek economy can really resume its growth.

The market has long priced in these bad debts. But while they hang around, they restrict the ability of the Greek banks to provide credit elsewhere.

The Financial Times reported that US private equity group KKR bought a second tranche of these loans in July. But Greek bank stocks have been wobbly this year. Investors are still worried about their capital levels.

But if enough pricing pressure can come into the Greek real estate market – say from Chinese money – it could help Greek borrowers get out from negative equity. Or it could make the loss less burdensome to the Greek banks.

Here’s the deal. If the banks sell bad debts below their book value, it triggers a loss that eats into their equity buffer. They can only cop so many of those before they have to raise more money.

Would you lend to a Greek bank right now? Me neither. The debt woes in Italy aren’t helping here, either.

The bad debts in Italy and Greece are difficult, protracted affairs to resolve. But as the system slowly digests these, economic growth will improve.

There’s latent potential for Europe to perk up once this happens. Whether or not it can happen before the US economy peaks remains to be seen.

But the picture gets brighter every day, this issue gets closer to being resolved…

Aussie housing ‘crisis’ overblown

It’s always the credit markets you have to watch.

That’s true of Australia as well as Greece.

We keep being battered with the notion that Australian housing is going to crumble, perhaps from a credit crunch.

I don’t think so.

There’s no doubt that the big four banks have stepped back from the market.

But there’s plenty of non-bank money stepping in.

The Australian Financial Review reports on another pool of private equity forming to fill the breach.

A Melbourne businessman called Joseph Gersh is launching a $500 million property development finance fund.

He’s certainly not the first.

This is not to say the property market is going to heat up in a big way. Only that the doom scenario seems unlikely to me.

It’s interesting to note that ANZ is steady in early trade after releasing its full-year results this morning. That would suggest the market has priced in the current banking troubles.

Let’s not forget, either, that our new Prime Minister has an election next year.

I’m sure the party apparatchiks are doing everything they can to get these doomster housing headlines out of the picture.

Stay tuned for some government ‘help’ in this area too.

Regards,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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