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| News and comments concerning real estate in Switzerland, France and elsewhere. |
| On this page you will find timely information that is are likely to have an impact on real estate prices in Switzerland and France. On the comments part we strive to interpret the news and advise on how you can profit from the situation. |
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| News / Comments |
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January 31st 2007
NEWS - SWISS FRANC AT ALL TIME LOWS
The Swiss Franc has reached an all time high against the Euro at 1.626 today. The Swiss Franc has been very weak against the EURO and the POUND, mainly due to the so called carry trade, whereby investors borrow in a low yielding currency like the Franc or the Yen, and apply the proceeds in currencies that pay more interest.
Carry trades have reached around $34 billion, the highest since a financial crisis in Russia in 1998, Barclays Capital said in a research note on Jan. 26, citing calculations it made based on the CFTC figures.
SNB President Jean-Pierre Roth last week said the franc's 2.5 percent drop in the prior six months was ``short term'' and the outlook for the economy and currency was ``excellent.''
Roth said the SNB would remain ``very vigilant'' on any inflationary pressures created by weakness in the franc, which increases the cost of imports for Swiss consumers.
``A weak franc means high import prices,'' he said in an interview on Jan. 25 in Davos, Switzerland, at the World Economic Forum. ``If a risk appears from that side, we must act.''
OUR COMMENT:
The CHF has lost 11% of its value against the EUR since 2003. This in conjuction with a faster increase in real estate prices in France compared to Switzerland, makes Switzerland a bargain. Prices in Montreux (Switzerland) for instance, are much lower than prices in Divonne les Bains (France). In 2001 the opposite was true. Should the carry trade go sour (it will, sooner or later, and in our opinion the bell is ringing), the CHF will become much more expensive. So, if you are thinking of buying a house in Switzerland, you might consider thinking of a strategy to benefit from these ultra low prices. Swissdom will be happy to help you structure such a transaction in cooperation with a leading Swiss bank.
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February 1st, 2007
NEWS - THE TONE GOES UP
Report: Chirac says Iran would be `razed` if it used nuclear weapons on Israel (AP)
OUR COMMENT:
The tension is obviously going up. Considering the upcoming french elections, and Mr. Chirac's previous comments about weapons, maybe this can be ignored. However, every action brings a reaction, and I wonder what the Iranians are thinking right now. This type of situation favors selling in France and buying in Switzerland.
MORE NEWS
Study: Anti-Semitic attacks reached record level in U.K. in 2006 (Reuters)
Ahmadinejad reiterates stance that sanctions against Iran would not be effective (DPA)
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February 8th, 2007
A. Geopolitical Tensions
4 factors are working together to increase risks of a confrontation in the Middle East in the short term:
1. Archealogical searches in the Temple mount and the reactions thereto.
2. Establishment of the court to judge the Hariri assassination.
3. Squirmishes along the Israel/Lebanon border
4. US/ Iran tensions, threats increasing, weapon tests.
The more negative factors come together, the bigger the risk of escalation in the conflicts. The markets are, nevertheless, rather relaxed.
B. Swiss commercial property
Interest in swiss commercial property is increasing, at least as far as we can tell. No wonder. High yields, a undervalued Swiss Franc, a booming economy, plenty of worldwide liquidity are certainly the main reasons. Swissdom is increasing its offer of swiss commercial real estate. For confidentiality reasons the info on those properties is usually only available upon request. For more details please contact us at realestate AT swissdom DOT ch or use the contact button.
February 27th UPDATE
The Swiss Franc has repeatedly tried to break the 1.63 level, with at least 4 approaches to that level between the 9th and the 22nd of February. A further upward attempt is not excluded, but several technical analysis, from which we would single out Mizuho bank's, indicate that the party may be over. The factors that could favor the CHF and the JPY in the following months have been repeatedly noted by ourselves, but now there are some more news that favor our position:
1. Several M&A flows
Companies (most of them) are not stupid. The purchase of Swiss companies will occur as a natural consequence of the undervalued franc.
2. The ongoing subprime debacle in the US. The consequent avoidance of risk will favor the CHF.
3. An increasing number of worried comments by several bankers. Follow the smart money, as they say, and the smart money is getting out of the carry trade. There are still many advising it, but there is a difference between what some people say and what they do...
Furthermore, the ongoing geopolitical stress is only increasing, not decreasing. Here is the list of stress points:
1. Iran - This is so talked about, that we will pass over it.
2. The instalation of a missile shield in Poland and the Czech Republic.
3. Increasing instability in Pakistan
4. The change in military structures in Israel
5. Venezuela - getting more provocative each day that passes.
6. Political instability in the US, France, due to elections
This does not mean that a further drop in the CHF against the Euro, or the GBP is excluded. It depends on the balance of forces in the next few days, weeks. If the greed of the carry trade is superior to fear, we will go up once more. One thing is clear in our mind: The higher we go, the further down we will drop, and the fastest that drop will be. It would therefore be wise not to be exposed to debts in CHF unless one does have CHF assets or income. Since the Euro is clearly overvalued relatively to the CHF, it may be wise to have some debt in Euros, in particular for those who have a EUR based income or rent. Swissdom will be happy to help you take advantage of undervalued/overvalued currencies, in your short term and long term financial planning. Please contact us for more details. |
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| Monthly Commentary |
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January 31st, 2007
Risk is in the eye of the beholder, just like beauty, and to judge from global asset prices, the beholders are rather generous. Global asset prices are extremely expensive, pushed up by a sea of liquidity and waves of unabated optimism. Stocks keep going up, real estate prices are exuberant in a great number of countries, apartments in Cannes, Madrid, houses in London, are sold for absurd prices that are only possible due to the buyer being convinced that the price can only go up. Or maybe because the buyer's money has been made easily, benefiting from the proliferation of financial deals in an economy that is more and more based on financial flows.
For every buyer there is a seller, and it remains to be seen if the sellers are reinvesting into the bubble or taking the money of the table. As long as money keeps coming in, prices will keep going up. The day the music stops, it will be a rush to see who takes the free chairs.
We at Swissdom suspect that D day is very close, and we are paying attention to what can make the market move. A property investment in Switzerland is the best protection against a global readjustment of asset prices, as one can conclude from the following analysis.
1. The carry trade
According to Barclays Capital, we are at a high of 34 billion USD of such trades, a high since the Russian financial crisis in 1998. This time the crisis will not be Russian, since Russia is not up to its neck in debt. The crisis will be financial and probably quite global. It is difficult to say what will make the carry trade unwind, but let us look at a few figures:
If the global position in those trades is 34 billion USD, this probably means that the yearly income generated by the trades is around 5% a year, which is the interest rate differential between a basket of high yielding currencies (USD, GBP, EUR, AUD, NZD, MXN, BRL to mention only a few) and a basket of two low yielding currencies (CHF and JPY). The 5% correspond to approximately 1.7 billion USD a year of revenue for the traders/investors, plus whatever capital gains have occurred since the trades were started. The traders that have put in the trades lately are of course the most fragile, since they came into the game late. That number of late players is rather large. We suspect that an increase in 4% in the value of the CHF and/or the JPY against any of the placement currencies will be sufficient to start a panic.
In the event of a panic, we will quickly get to EUR/CHF prices of 1.55 or lower, and the way down will be much more rapid than the climb. It took 4 years to go from 1.45 to 1.62. To go from 1.62 to 1.50 it can be a matter of months. It has happened before. The Norwegian Kroner was used as a carry trade placement from 1999 to 2003. It moved from 9.2 to 7.3 in 4 years. 12 months after the low of 7.3 it was up at 8.9?.
The fact that investors are willing to buy overvalued currencies and sell undervalued currencies, to gain 3%, 5% a year, is an indication that risk aversion is low. The fact that there are record bets against the CHF when the world is more and more unstable, is also an indication of a global disregard for risk.
2. Global financial asset prices
Stocks are expensive just about everywhere, because interest rates are still low in many countries, and that allows for massive borrowing that is invested all over the world. Prices will come down, starting with the less liquid markets, namely the emerging markets. Some markets may have signaled the move in advance, namely the stock markets in Saudi Arabia, UAE, and so on. The UAE benchmark NBAD index dropped 40% in 2006. It is difficult to determine what will fall and when, but when there are drops in the market, liquidity dries up, and that favors further drops. Since markets are interconnected, a big drop in one market can be the catalyst for a global drop.
3. Real estate price distortions
The prices of land in a large number of first world and third world capitals, cities and suburbs are much higher than in Switzerland. This occurs because local and international speculators make the price go up. In Switzerland such price pressure is limited due to restrictions to the purchase of property by non resident foreigners. If those restrictions did not exist, prices would be much higher. Switzerland has been spared a bubble, due to its laws. To have an idea what an avalanche of money can do to real estate price it suffices to take a look at some fashionable places like Verbier, where waiting lists for the legal registration of property reach into 2009, and prices are stratospheric. In Swiss towns that are either not fashionable, or where the law is not as flexible, assets have not benefited from that liquidity, and therefore remain reasonably priced. Smart investors are increasingly looking at Switzerland, as a suitable place to park money, buying hotels, offices, and of course homes. Many are moving into Switzerland, discretely but steadily.
Conclusions:
Our thesis is that the Swiss Franc is undervalued, property in Switzerland is undervalued and globally traded financial and real estate assets are overvalued relatively to Swiss real estate assets. We consider the following events as being likely to occur over the next few years:
a) Reduction of restrictions to non resident foreigner holding of residential property in Switzerland;
b) Unwinding of the carry trade, forcing an increase in value of the CHF in particular against the GBP and EUR;
c) Major unpleasant geopolitical event, which will reinforce Switzerland's attractiveness;
d) Social instability in several EU countries, increasing migration towards Switzerland:
Consequently, we should see both a strengthening of the Swiss Franc and an increase in residential property prices. Top end properties will most likely go up first. In the more internationalized parts of Switzerland, such as the Lake Leman area, prices have already increased, although they are still reasonable both in CHF terms and EUR terms.
Swissdom will be glad to help you plan your property investments in Switzerland taking advantage of a grossly undervalued Swiss Franc.
February 27th
Eastern Europe Real Estate - Is the party over?
The recent increase in conflicts between Russia on one side, and several eastern European countries on the other, forces us to recommend that investors either sell out or seriously reduce currency and real estate exposure to Eastern Europe, in particular to Poland, the Czech Republic and the Baltic countries.
For over a decade investors have forgoten about the fact that Eastern Europe was under the sphere of Russian influence, and became convinced that the "convergence" with Western Europe would be automatic. This explains the convergence in the currencies, and in real estate prices.
The leadership of some of those countries has been eager to take sides with the USA, against Russia. In fact, they have taken sides with the USA against the majority of the EU countries in at least two occasions: The Iraq war, and the secret CIA jail scandal. This tendency to ally themselves closely with the US has not been without consequences, and will have very negative political and economic consequences.
When Russia was weak, as a result of the policies of Gorbachev and Yeltsin, the US could ignore Russia's interests and dignity, and so it did. In doing so, it was eagerly assisted by most of the eastern european countries, which saw in their new alliance a way to get revenge from Russian domination. However, the recent positions of Poland and the Czech republic, supporting the instalation of a US missile shield in their territories are too much for Moscow. Russia will use several weapons against those that harm its interests, and which have participated in its humiliation:
1. The energy weapon. Poland has had a taste of it, but apparently not enough. The consequences could be rather nasty. Please note that Germany will be insulated from this since a gasoduct from Russia to Germany is being built BYPASSING POLAND.
2. Canceling imports. Russia has money, not debts. Contrary to the US who pays for its purchases with debt, Russia actualy pays for what it buys... The economies of Poland and the Czech Republic would suffer if Russia were to simply stop purchasing products from those countries. That has been done with a list of agricultural products, and it can be expanded to other products. The EU needs Russia more than Russia needs the EU, so the EU will not be able to do much about these actions. Russia can purchase high tech and consumer products in many other countries: Japan, Brazil, Switzerland, for instance, but where will Europe get energy from?
3. No Russian Tourists or Investment. If you are hostile to Russia you may as well forget about atracting Russian tourists and investors. Again, the importance of Russian tourists in the world, and in Europe in particular, is increasing very fast. Russians are very active buyers of real estate abroad, and you do not attract customers by being hostile to their home countries.
The scope of Russian retaliation to hostile measures by it's former Warsaw pact allies is rather ample. Unfortunately several of those countries entered the EU but seem to pay more attention to Washington than to Brussels. This will cause a mess. It will cause never ending arguments in Europe, as the atitudes of some of those countries are altogether insane. Here is an example:
Estonia's parliament has recently voted to remove a monument to the Russian Soldier, which was a symbol of resistance against the Nazi's and also, of course, of the Soviet empire. This is a clearly provocative act that has caused a lot of anger in Russia. For more details on this:
http://www.regnum.ru/english/786767.html
The emotional consequences of this act, and of the open discrimination and abuse against the Russian minority in the Baltic countries, will no longer be tolerated by Moscow. These abuses by the Baltic governments, clearly violate several EU and European laws, but where is the outcry in the West?
As far as we are concerned, we see it as another example of the growing cold war. Whatever abuse is commited in Russia is front news, but the abuses in the US and the EU are quietly ignored. Those abuses are numerous, and beyond the scope of this article, except for the fact that one can ignore facts at his own risk.
This reinforces our opinion that Switzerland is the right place to invest, as long as it stays neutral and out of the growing list of global conflicts. |
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