Brazil Boom and an End to the Emirates?

A very quick post here tonight folks! It would appear some of our suspicions here at the Investment Property Rumour Mill are starting to gain some momentum after a conversation last night with some good friends in the industry, and also a few phone calls that has bought a couple of things to light.

We received a call earlier from someone working at one of the largest developers in the Emirate state (and beyond) claiming mass lay offs of staff were underway! We won't name the company specifically at this point, but it really is rocket science to figure out who. (The developer in question is known for its culinary expertise amongst other things, we have written about them in previous posts)

Infamous for starting, cancelling, restarting, doing the hokey-cokey and no end of other things besides, the rumours from within from 3 separate sources so far would suggest that mass downsizing is going on, culling of staff is at rate of knots only seen at old peoples homes when the reaper is in town. Rest assured, the moment we have independent confirmation of this from somewhere, we will post it for all to see.

The conversation with old friends last night threw up a couple of points which make a great deal of sense, as well as confirm what could be the end of a very short era for the Emirates as a whole.
A bit dis-jointed as it's going to look here, we will try to convey the point as best we can.
The discussion itself was about Dubai and the Emirates in general, my friends had been in conversation with some very prominent banker types in the middle east recently. The bankers when asked where the future of property was and was not for the foreseeable future.

On the positive side, Brazil came up. Now we know that a lot of peoples eyes are going to roll at that one, and cries of "that old chestnut" can already be heard. However, consider this.
Brazil is somewhat larger than just Natal and Fortaleza. (The only places that most of the west has heard of.)

Brazil has long been a producer and user of Ethanol, importing little oil of any kind. In the past 18 months it has discovered one of the largest oil fields and one of the largest gas fields ever recorded. This puts them in a position to export heavily and given the price of oil and the lack of it, the last man with a pot of oil will be a wealthy one!

Brazil has an enormous populous, infrastructure although crude in places, is nevertheless in place and scalable.

Brazil has now made 100% mortgages available to nationals. Granted they are not for high amounts, but the increase in commerce internally, and rapid expansion needed soon internationally for export and tourism, the country finds itself with a very large and expanding middle class with money.

On the negative side of where the future of investment property lay, Dubai and the Emirates was the response.

Why? Several reasons.

Infrastructure. Understand that the Middle East is still classed for the most part as a desert. Sand gets everywhere, nothing lives there primarily because it can't survive. Putting a bunch of shiny revolving buildings on it doesn't make it a great place to live, nor does it ensure the future of entire country.

We could put the office cat in a spacesuit. It does not however mean that the cat can firstly fly a rocket, nor does it mean that he can survive in space. Regardless of how much money we throw at him.

With all of the engineering skills and advancement in the world, subsidence happens. You build on sand, you will get some sinkage. Fact.

Attitude and/or ignorance. You only need to read the statements made to the press that we reported on from one developer saying there was no recession and prices would never fall.

Like it or not, and the Rumour Mill will go on record here, Property prices in the Emirates are going to drop. Hard and fast.

We believe by as much as 60% in the next 12 months or less. Sound like a wild prediction? maybe, but remember, we don't publish anything we haven't researched well, cannot prove, haven't heard on good authority or don't actually know.

If you have invested in the Emirates, stay for the long haul, it should recover. If you are in for the get rich quick, you've done your money. Expect to here the phrase "Enchala" (Arabic for "God Willing") when it comes to expected completion times, rental projections being met, and re-sale opportunities.

COMING SOON!

Shiny pictures of yet another Costa del Sol behemoth agent closing some of its offices and downsizing.

A report on investment property forums. Are they worth the web space they occupy? Can you trust the opinions in them? We take a look at some of the best and the most notorious and ask if they serve a real purpose and if the owners are being responsible with them or have an ulterior motive.

New services designed to help the investment property owner as opposed to relieve them of all their money.

Ocean Estates - The Poseidon Adventure?

This week we take a look at what Ocean Estates is (or perhaps isn't) up to. As the title would suggest is a tale of much peril and trepidation.

Ocean Estates has been around for some 22 years under different owners and guises, of late though, it all seems to be coming to an end with their application for voluntary liquidation of the main business.

A different story from that of Viva Estates that we reported on last week with Ocean having had the foresight to spread its wings into the international market much quicker than its main rival of the times.

The problems that have finally bought it all to a head of late however are interesting to say the least. Earlier this year, there was talk of a takeover of Ocean Estates by none other than Hestiun, "Official Leisure Property Development Partner of Manchester United" under the name of "Royal Resorts"

After much negotiation and book checking however, this threw up a little problem, an outstanding tax bill dating back several years, as a result Hestiun quite rightly pulled out. Well done Hestiun. What has been left behind though is a bit of a mess to say the least.

Ocean still has its' Thai operation running. This was a separate entity from the very start, does very well and provides a fantastic service for clients in Thailand. On trawling around the forums, speaking with a number of agents and ex employees, Ocean Estates Spain does seem to be in rather a pickle.

In a nutshell, Ocean has filed for voluntary liquidation after the outstanding tax bill having been thrown up be the Hestiun/Royal Resorts audit prior to the offer to buy out. The tax bill in question is apparently in the realms of 200k or so. (Not a lot in the high flying world of international real estate!)

Whilst the proposed buy out was being drawn up, much of the Ocean data and sales material was moved over to the new operation, along with a number of members of staff all smiling as they went. At the same time, all of Oceans referring agents (Lead generators) were all being told "All is good, commissions will be through shortly, send us your invoices and we'll get them paid"

Needless to say the situation now for many of those agents is not good at all. The initial filing for liquidation took place around April time this year. To date there is still no resolve. Some agents were asked to "keep sending leads, they will get dealt with" When pushed for payment by agents, Ocean eventually declared the liquidation filing (After requesting invoices for payment) and simply threw up their hands saying it "Was all in the hands of the courts now" Of course, you can't submit the same invoice for payment to another company whilst it's being held up by the courts, so many agents are not thrilled at all.

The Public have not been amused with Oceans antics either, looking at the very popular forum on Eye on Spain there are a number of very unhappy folk, some of which are also ex staff.

Will Ocean survive? Unlikely. As slow as Spain can be in processing paperwork and filings for this kind of thing, if they were able to trade out of the hole, they would have done by now. Ocean is down to one main director as far as we are aware, Paul Blagden who busily fields the calls from agents wanting payment. The Banus office is still there (just) but really just waiting for the final wave to crash over it and drag it to the bottom of the sea.

Why has this happened? The tax situation in Spain is open to much interpretation to say the least having several loopholes in it. What you cannot do though is just say "Oh we didn't know" and expect the tax man to say "Oh that's alright then"

Next week The number of stories out there are extensive to say the least, we still have Red Hot Homes to cover, (We are awaiting confirmation on a couple of things before we bring you that story, please be patient) Polaris is being looked at as we write, and we are compiling something about the various forums out there concerning the real estate industry, both public and insider. Can they be taken seriously? We shall see!

Spanish Developer Colonial, The Next Martinsa Fadesa?

This week we see yet more doom and gloom emanating from sunny Spain in two hefty stories.

The first is regarding the ongoing process of sorting out developer Martinsa Fadesa. In a post on Saidiavacations.com by David Hewitt, Fadesa have failed to file it's half year accounts on time with the CNMV (The Spanish equivalent of the Financial Services Authority) with respect to it's finances. The reason for the delay apparently is two-fold, firstly Fadesa want the approval of the liquidators, and secondly "The chairman of the company, Fernando Martin, declared personal bankruptcy shortly after the company went into liquidation in an effort to separate his personal assets from those of the company." It is claimed that the filings will be made in "A few days more"

A few points of what this likely means to the everyday person out there once you read through the mumbo jumbo and take into account the "Spanish" take on things,

Fadesa wants approval of the liquidators - Likely to mean there is some shuffling to be done with respect to what is where on the finance front, and we have a lot of shredding to do.

Chairman of the company declared personal bankruptcy - Well as much as we don't enjoy kicking someone when they are down, but this could well mean that he knew it was coming, I mean how many billions in debt do you really need to be before the penny drops? Protection of personal assets is likely to be what that is about.

A few days more - Anyone who has lived in Spain has come across the word manana. Contrary to popular belief, it does not mean tomorrow, it means not today. It doesn't state when, just not today. If this is the literal translation of what has been said, then it will be a lot more than a few days before the CNMV get their papers!

Do note though, whilst all this is going on, Fadesa Maroc is still OK as far as we are aware, see our last post about the Morroccan arm of the company.

The second company with major interest is Colonial, they are off for a meeting with shareholders and creditors according to Reuters to have a chat about the possibility of a debt restructuring deal worth 8.9 Billion Euro, a right old tea party by the sounds of it with several major players involved, including RBS (Royal Bank of Scotland) who's shares closed down 3.51% on Friday.

There are others involved in the talks, the likes of Goldman Sachs, as well as Banco Popular and La Caixa, which earned the equity after swapping some debt earlier this year. Some earning that was eh guys!

These two developers will not be the last, Colonial is making the best efforts possible to avoid liquidation, but this isn't likely to disappear over night unfortunately, after the developer bankruptcies, the agents will follow. Some are already in that particular cauldron steeping as we speak, Viva Estates, Ocean Estates, and Red Hot Homes for example. From what we hear, it is sadly unlikely that any will recover.

Having said all that, perhaps it is what the industry needs, a healthy cull within a much hyped business, where almost any Tom, Dick or Harry can set up shop and develop away, or flog houses to unsuspecting people, playing on the "left my brain at the airport" syndrome.

We are researching in depth into the number of developers and agents in main areas of Spain at present that have gone out of business in the past 6 months, and the results are staggering so far, rest assured we will post the report when we are done, and what you can do if you have been affected.

Spain - Will the last one turn the lights out?

Well Spain indeed! What is going on there? We have to be a little careful with this one on the account of a certain company that likes to sue, So we will ask that you read between the lines on this one!

The Costas have long been an investment hotbed for the Brits, all being cajoled into jumping on planes, leaving their brains at home, and then badgered in to buying way more than they can afford with the temptation of cheap mortgages and the "certainty" that it will all continue to rise in price, everyone will sell the 3 extra villas they bought using the equity in there family home and all will be good.

Now if you said that to a prospective buyer now, they would know you are on drugs, and probably beat you half to death.

You only have to stroll down any one of a number of streets on any of the Spanish Costas and you will see the empty agencies, and not just the small ones, some of the monsters of days gone by, Viva Estates, Ocean Estates and numerous Spanish ones too.

Where have they gone? Pretty simple, bankrupt or liquidation! Not all is doom and gloom though, and it isn't just the "Credit Crunch" that has bought this on, the reality is straight forward when you look at it.

Many of these companies were set up at the beginning of the boom, around 10 or 15 years ago, bear in mind Spain has almost no legislation in the real estate industry, even now. The government has tightened up the local laws, and insisted that anyone listing property now, must have the escritura for it. (the legal paperwork basically) This has meant the larger agents with thousands of listings have been facing 4000€ fines if they don't have them, and a mass of expense to get them.

Then we saw every company, their mother and their dog going to the UK every weekend to host exhibitions and property seminars, advertised to death as "independent" when all along every company is connected. Exhibitions aren't cheap especially when you have to fly all the staff from Spain put them up, move them around and so on.

On top of all of that, there are massive overheads in offices, admin, phone bills, fancy cars, advertising ad so on, as well as paying for the clients to come over, wine and dine them.

The novelty wore off last year, and everyone had been to one of these exhibitions purely because you literally couldn't go out for the Sunday paper without falling into one, and then the demise of the US economy started (Like no-one thought that would happen?) then we saw the rise of oil prices, rising interest rates and shaky stock market.

The major turning point? the moment that the developer shares started to dive after low profits. From there the people at the top started to get concerned.

Once upon a time, getting a mortgage in Spain was easier than getting sunburn in the Sahara, if one bank wouldn't lend to you, they would simply have another bank underwrite it for you, basically the banks would all just borrow from each other. Once the developers weren't making the big money any more, that stopped. All the over valuations and dodgy paperwork in the world won't get you a mortgage in Spain now.

On from there came the dive of the Pound, as much as selling all the gold off through the Bank of England seemed like a good idea at the time, bet you wish you had that now Britain!

Will it recover in Spain? and what of the enormous "Investment Property" agents?

Spain will recover, but it will take time, it certainly isn't going to get back to the growth it once saw, but we have gone past a very critical point that places like Cyprus and Portugal are still suffering from. The point in question is the local market. The Spanish are finally taking less than the "Bank Valuation" and pricing their properties sensibly and have finally realised that jonney foreigner isn't as gullible as they once were.

The Property agents?

Well this remains to be seen, some as I said have already gone and those in liquidation don't seem to be likely to return, even of they do, it won't be on the scale of before. Many of the smaller agents have upped sticks and moved to Brazil or Dubai to get on that bandwagon.

What should you do? and how can you take advantage of it?

If you have cash, hunt around, compare prices on the internet. There are a lot of portals around these days, just check to see that things are up to date. When you do find an agent, go for one that isn't too big that is well established, you can usually find these through portals. Niche agents are generally very good, usually with no more than 100 or so listings. Companies like this will normally give you a far better service, and be a lot more honest with you because they don't have corporate crap to hide behind, and they don't have massive overheads to support.

If you need a mortgage, get one offshore. Japan at present will give out mortgages between 3% and 3.5%, a serious saving when you look at it over the life of it, and if Japan suddenly spikes, you can always move it.

Bottom line, there are some serious bargains to be had in Spain right now, they wont make you a millionaire in a week, but they will rise solidly over the next few years. Avoid off plan that isn't built, many may well not get built, and most developers are having some serious sales right now. For example, 2 bed, 2 bath, 150,000€ key ready today if you know where to look on the Costa del Sol.