China’s Greater Bay Area gets a big green light
Last year, China laid out a big, visionary plan to drive economic growth and social development to one “bay” area… The Greater Bay Area (GBA) initiative> READ MORE
Last year, China laid out a big, visionary plan to drive economic growth and social development to one “bay” area… The Greater Bay Area (GBA) initiative> READ MORE
I know you didn’t sign up for Peter on Property to read about cryptocurrencies… but please, just this once, hear me out. As a veteran financial market and real> READ MORE
From the early 1990s, my trips abroad (as the Asia head of equity research and regional strategist at Morgan Stanley) to share Asia's financial secrets and> READ MORE
One time I bought real estate without even laying eyes on it. It was a small property. I ended up earning a decent return on my investment. I was lucky. I’ve> READ MORE
Cornelius Vanderbilt might have been the greatest capitalist in history. When Cornelius was just 16, in 1810, he borrowed US$100 from his mother. Using that money,> READ MORE
In my decades in finance and real estate, one thing I’ve learned is this: the core underlying principles of investing rarely change. You see,> READ MORE
One of the life lessons that has struck me time and again, is the importance of listening. The primary ways that information enters our brains is either through> READ MORE
Many people shy away from owning investment real estate. They worry about the hassle and risk. Tenants can sometimes be a pain in the neck. Or you can face periods> READ MORE
Last year, China laid out a big, visionary plan to drive economic growth and social development to one “bay” area…
The Greater Bay Area (GBA) initiative includes nine cities in Guangdong Province immediately to the north of Hong Kong, plus Hong Kong and Macau.
The GBA is meant to evoke images of other dynamic, successful bay areas… such as San Francisco, Tokyo and New York. This initiative is meant to drive economic growth and social development through a series of practical steps and processes that will help stimulate business, investment, social development and tourism in what is already a hugely dynamic region.
I was initially sceptical of this big, grandiose plan. But I recently attended a big seminar event on the GBA by Hong Kong’s chief executive as well as other leaders in business and policy in this area.
And now, I’m more convinced than ever that it’ll happen.
The GBA is already huge. It embraces some 66 million people – more than the entire population of the U.K. The region currently has a combined GDP of roughly US$1.4 trillion, representing around 12 percent of China’s total GDP, a GDP roughly equivalent to that of Australia. It is also the most international region of China.
It contains one of the largest ports in the world… It is the world’s largest agglomeration industrial development and manufacturing output… And it ranks in the top league of global financial centres.
Macau is also the largest gambling centre in the world, many multiples ahead of Las Vegas, the next largest. And the area is a globally important technology centre, both in terms of research and development and production of technology-led products and services.
So why is there a need for a government driven initiative to boost the region’s economic and social development? It is already immensely successful.
The GBA straddles three international borders. Yes, Macau and Hong Kong are technically Special Autonomous Regions of China, but they operate functionally as three separate countries. There are more restrictions on flows of people, goods, services and capital between these three “nations” than there are between the 27 countries in the European Union or between the 50 states of America.
These three “countries” have different legal systems, different currencies and different rules and regulations on everything from tax to transport to accounting to health care, pensions, education and data and information. They also have different customs regulations, environmental rules and municipal services. And even within China, there can be different rules and practices between cities in this sub region. These differing conditions act as barriers to development of the region.
Put bluntly, there is a lot of friction in the system between these three jurisdictions. These frictions add to the physical difficulties of doing business and liaising across the borders, as well as the cost. They also limit the ability to “do stuff”.
The GBA initiative is aimed at reducing these frictions, easing the restrictions, cutting costs and making the free flow of capital, labour, people, ideas, services, data and information easier and cheaper. It is intended to propel the region to even greater heights both economically and socially.
Now, this might sound like an impossible dream. But this is going to happen.
Why do I say that?
There are three reasons why I firmly believe that this initiative has legs, and will provide increased growth and business prospects for many companies focused on projects in this zone.
First, at recent high-level events, President Xi Jinping has openly endorsed the GBA initiative. When the big boss gives his blessing to a proposal like this, it gets a lot of attention from the party high-ups. What Xi says, goes.
Second, adding even further credibility, Xi has formally linked this initiative to the One Belt One Road project (OBOR). As we’ve shown in the Asia Wealth Investment Daily, this initiative is happening in a big way with a huge commitment of financial resources and talent. Being formally part of OBOR gives the GBA initiative an even greater push from the top.
Third, the National Development and Reform Commission (NDRC) has been charged with implementing the initiative. The NDRC is one of the highest-level government agencies in the land. I fully expect the NDRC to soon – if it hasn’t already – form an internal ministry or bureau that will implement the necessary regulations and on the ground actions needed to execute the program. It will probably form some kind of legal entity that will bring senior officials from all of these cities together into a joint body to set priorities for action and prepare the details for execution.
Given what we have seen coming from the top, I am extremely positive about the impacts of the Greater Bay Area initiative. And we’ll see companies involved in the project – like property developers – profit in the months and years ahead.
I know you didn’t sign up for Peter on Property to read about cryptocurrencies… but please, just this once, hear me out.
As a veteran financial market and real estate investor, I was extremely sceptical about digital currencies when I first came across them a few years ago.
Any article you read about bitcoin had the words “bubble” or “black market” in it.
And a lot of investors are still wary of cryptocurrencies today… particularly, I’ve found, those who focus on hard assets like real estate and gold, and those who have come of age investing in stocks.
But the more I’ve learned about cryptocurrencies, the more I’ve put my concerns behind me.
And rest assured, it is a learning process. Simply put: I truly believe cryptocurrencies and the technology behind them will change our lives over the next five to ten years.
That’s why now is the time for everyone – even old-school bricks-and-mortar investors like me – to own a little bit of bitcoin and learn about cryptocurrencies.
As an asset class, I categorise bitcoin as similar to U.S. dollars, sterling, yen or any other currency. It is a form of currency. And as such, it should be looked at as something between say, dollars and gold.
Due to bitcoin’s scarcity (i.e. limited supply) and the inability of anyone to “print” more of it, it clearly has a lot of similarities with gold. Likewise, it does not give you an interest rate as currencies do, so it’s similar to gold in that respect.
The other important thing to remember about bitcoin is that it’s not actually controlled by any central organization – the Federal Reserve, the Treasury, the Bank of England or the European Central Bank.
There’s no company, there is no CEO, there is no chief financial officer. I think there’s every reason to believe that the importance of cryptocurrencies will grow over time simply because it is something that is not controlled by governments.
I read last week how Axel Weber, the Chairman of Swiss Investment Bank UBS and former Bundesbank President, expressed his scepticism over bitcoin. It made me chuckle to hear him say “I get often asked why I‘m so sceptical about bitcoin, it probably comes from my background as a central banker.”
That’s the whole point Axel! You can’t keep printing bitcoin like you can euros!
And as I said earlier, bitcoin is limited in terms of the amount that can be put into circulation. So it has a scarcity value, which does not occur with U.S. dollars where the Fed can just keep pouring U.S. dollars into the global economy.
With bitcoin there is a limit on how much can be put into the system. So there is automatically a scarcity value that is going to be created.
While bitcoin may still be misunderstood by most, it’s quickly becoming a topic in regular day-to-day conversations.
The favourite topics of dinner party conversations in Hong Kong and around the world have always been about property prices and airline travel. But I now see bitcoin and cryptocurrencies becoming part of the dinner party conversation.
But still, even people who are very financially literate, who have been in investment for many years, who are very up to speed with that’s going on in the world, have very little information or understanding of what these cryptocurrencies are. So although bitcoin is increasingly cropping up in conversation, very few of these people own any bitcoin.
That suggests to me that despite this big recent bull phase, there’s a lot of runway ahead of us in terms of upside.
Bitcoin and other cryptocurrencies at this point are little more than a proof of concept of the technology behind them – the blockchain, or distributed ledger technology. Distributed ledger technology is going to be applied across all facets of life and business. For example, just about every major bank and central bank in the world is looking at applications of distributed ledger technology in finance.
To me, cryptocurrencies are important, but what’s perhaps most important and will be earth shattering over the next five to ten years is how we’re going to apply blockchain to every single part of our businesses and livelihoods going forward. That is the real key part of cryptocurrencies.
And as we go forward, I think we’re going to see huge numbers of middle-aged and older people start to adopt bitcoin and other cryptocurrencies as the barriers to buying it keep falling.
Think about it right now… the total value of bitcoin in circulation today is around US$70 billion.
Sounds like a lot? Well, by comparison, Apple has three times that amount of money in cash on its balance sheet… that’s just one company! And we’re talking about the possibility of bitcoin becoming a global digital reserve currency in future.
I envisage that in the next few years we could easily see the entire cryptocurrency market valuation hit a trillion U.S. dollars.
Is this a given? Of course not. But putting a little bit of your capital into bitcoin and other cryptocurrencies is an asymmetric bet – risk a little, for a potentially massive return.
I would suggest that people at least pack a very small amount of their investable assets into cryptocurrencies, mainly bitcoin, as it’s the longest running and most established. But be aware that this is a speculative investment, it’s going to be extremely volatile in the short term.
From the early 1990s, my trips abroad (as the Asia head of equity research and regional strategist at Morgan Stanley) to share Asia’s financial secrets and opportunities with fund managers around the world often took me to Germany.
Despite leaving the banking world many years ago, I’ve continued to visit the country over the years as a hedge fund manager and in my role with private equity real estate in Hong Kong.
Back in the day, one particular trip was different. I had been invited to speak at a large investment conference in Cologne and was to go to Frankfurt from there. My colleague met me on the platform of Cologne railway station, telling me that time was tight and a car was waiting to whisk us to the conference venue. Scuttling out of the station into the bright summer sunlight, I looked up. My jaw dropped. I stopped in my tracks in outright amazement. I had never in my life seen a building of such awe-inspiring beauty.
It was Cologne Cathedral. I pleaded with my colleague to stop, and let me go and pay my respects inside. He indicated that we were already running late, and any further delay might mean missing my slot on the conference podium. I had to relent. And I spent many years thinking about going back to take a deeper look around.
Since then, I have marvelled at how that cathedral survived the devastation of World War Two. All of the buildings surrounding the cathedral are “new” – built in the 1950s and later, the originals having been bombed by the British during the war.
After many years of visits to the country, its fund managers, and some of its immensely wealthy and powerful family offices, I’ve also been impressed by how Germany has managed its economy and finances over the past 30 years.
But the story of Germany’s real estate market is equally intriguing…
When it comes to economic growth, Germany is the leading light in the Eurozone economic sphere.
Its per capita gross domestic product (GDP) has grown faster that its peers. At €34,500 per capita, it stands head and shoulders above neighbours France (€31,700), Italy (€25,900) and the Eurozone average of €29,600. Incidentally, the UK’s numbers lag significantly behind Germany at €31,400 per capita.
At 5.5 percent, the country’s unemployment rate is right at the bottom of the Eurozone heap. For comparison, France runs at 9.5 percent and Spain at 17.6 percent.
Germany also runs a huge current account surplus (it exports far more than it imports), driven by relentless exports of high-quality cars, trucks, household equipment, machinery, machine tools, chemicals and more.
(This surplus is a source of criticism from many outside the country. Germany benefits more than anyone from a ”cheap” euro, so the European Central Bank’s money-printing largesse, by weakening the euro, has helped make Germany’s exports extremely competitive.)
And the country runs what many would regard as an enlightened and fair social welfare system, where worker rights are protected, with a well-functioning public health system.
Well, Germany in not the haven of equality, fairness and social stability that some people on the outside might think.
While Germany’s overall economy is doing particularly well, the spoils are being shared very unevenly.
To everyone who thinks the Chinese middle class boom is an ‘old story’ – this is why you’re wrong
LEARN MORE HERE.
First, income distribution in Germany, as measured by the Gini coefficient, has widened by more than just about any country in Europe since 2007, and certainly more than the U.S., Canada and Japan.
The Gini coefficient measures the income distribution within a given population. A Gini coefficient of “0” would mean that everyone in the country earns the same. A Gini coefficient of “1” would mean that one person earned everything and the rest of the population earned nothing. The lower the number, the more equal the income distribution… the higher the number, the more unequal.
It is common knowledge that Gini coefficients around the world have generally been growing over the past decade. This reflects growing global income inequality, both in the developed world and the developing world.
Germany’s Gini coefficient is still significantly lower than other developed European countries, and certainly lower than the U.S. and UK. But the speed at which it has grown in the past decade tells us that income inequality in Germany is growing at a rapid clip. (This is shown by the big gap between the orange dot and the top of the blue column.)
That looks at income, but what about wealth?
Here is where the rubber really meets the road. Germany has the second-highest concentration of wealth in the hands of the top 10 percent of the population in all of Europe. Some 60 percent of wealth is held by just 10 percent of the people.
But even more telling is the fact that 40 percent of people have no wealth at all. No savings in bank accounts, no stocks, bonds, no assets at all. Nothing.
How can this be in a country as economically successful as Germany?
Unlike Anglo Saxon and Asian cultures, there seems to be little pressure to own a home in Germany.
People are perfectly happy to rent a home for life. And given that rent controls (which limit the speed at which a landlord can increase rents) are prevalent in most parts of Germany, families have some kind of protection with respect to their future rental obligations.
Globally, Germany’s homeownership rate is one of the world’s lowest at just over 50 percent.
By contrast, the U.S., UK, Canada, Australia, Ireland and France all have homeownership rates of over 60 percent. And Italy, Spain, Portugal, Norway and Russia all boast rates of over 70 percent.
This is a big reason why 40 percent of Germans have zero personal wealth. If you own your own home and have been paying off a mortgage for a while, then you have some wealth to your name. Even if the value of the home does not go up much, over the years, as the mortgage is paid down, the homeowner has a stash of wealth tied up in the home.
At some point down the road, when a homeowner’s debt is cleared, he or she owns an asset that may be worth several hundred thousand euros. That asset can be monetised through a sale and used to fund a lifestyle.
That is why we keep pounding the table on owning real estate for future long-term financial security and independence.
Paying rent all your life to someone else boosts his wealth but diminishes yours.
Germans, more than any other European nation, do not seem to take this lesson to heart.
But their reluctance to own homes provides good opportunities for those who do wish to own homes and rent them out.
As I showed you, the home rental market in Germany is huge. And many companies are already profiting from this trend.
Companies like LEG Immobilien AG (Exchange: Xetra; Ticker: LEG), Vonovia SE (Exchange: Xetra; Ticker: VNR) and Ado Properties (Exchange: Xetra; Ticker; ADJ) all own portfolios of residential real estate that they rent out.
The easiest way to be a German residential landlord yourself – without all the hassle – is to buy stocks like these.
One time I bought real estate without even laying eyes on it. It was a small property. I ended up earning a decent return on my investment.
I was lucky. I’ve lost count of the number of friends and acquaintances of mine who’ve been badly burnt by buying real estate that looked good on paper – what was something else entirely in reality.
This happens a lot in Asia. Investors in this part of the world are ripe for the picking for developers in cities like London, New York, San Francisco, Vancouver, and Sydney. Asian buyers are cash rich, and love luxury new-build property.
Investors in Asia real estate – full stop. And many Asian real estate investors like to buy properties in countries that have lower political and legal risk than they experience at home.
Asian buyers are also used to closing a deal quickly. Hong Kong property investors will sign sales and purchase agreements within an hour or two of a viewing.
Often, they’ll sign there on the spot. I once bought four apartments on my American Express card in such a situation. Overseas developers and agencies love to tap into this trait.
Cities in Asia are constantly hosting agents and developers flogging shiny new properties “off plan”. The numbers of advertisements I see in the local press touting projects in London, Sydney or some other favoured destination says a lot about the conditions in that market.
Advertisements for London property are the most numerous. London is a valued “rule of law” country, and viewed by many Asians as the most important financial centre in the world. It is also known to be more tax and regulation friendly than the U.S. For decades it has been the preferred destination for people from all over Europe, the Middle East, Asia wanting to buy and hold some real estate as a hedge against conditions in their own countries.
Investors may have a general idea of the area they are buying into, but many don’t. They become victims of what can be a sophisticated sales exercise.
On paper, you can’t see the smoke belching factory just down the road, or the noisy freeway running past the end of the block, or the rail line rattling past the back window. Or that soon-to-be high rise next door that just received planning permission.
A number of people I know have recently been tempted into buying brand new properties off plan in a certain area of central London. This area is undergoing a regeneration, a rebirth that has been more than twenty-five years in the making, and which is getting off the ground now.
It sounds good. The only problem, though, is that the number of new apartments that will be hitting the market over the next three to five years is unprecedented for central London.
Oversupply is a certainty. And with it, prices and rentals are going to come under pressure.
Yes, it will be a successful regeneration – over the next generation or so. In the meantime, prices will fall… and, but only with time, recover.
My guess is that it will be a decade, maybe more, before the market for these properties reaches today’s levels.I say this having experienced a similar cycle in London myself.
The people who have asked me about investing in this area of London may have some knowledge of the city. But have not been and visited the area where they are looking at buying.
They are simply unaware of the massive amounts of building going on in the area, and the impact that this is likely to have on property values.
And of course, the developers and agents do not want to come forward with this kind of information.
Just think about it. Why is the developer peddling his new building off-plan to buyers located thousands of miles away? Simple. He doesn’t want you to visit the site – and he thinks overseas buyers will buy what his local buyers won’t!
Why else go to all the expense of advertising his London or New York property in Hong Kong, Singapore, or Beijing? He reckons that overseas buyers will pay a price that the domestic market won’t – because they’d check it out and know better.
This is particularly true of London, where thousands of new high-rise apartments are springing up and being sold all over Asia, the Middle East, Eastern Europe. Why? Well the simple fact is that London folks really do not like living in high-rise developments. It does not suit them. Maybe they’ll get used to it, but that would be a slow process.
In the meantime they prefer low-rise living, with greenery on the side.
Asians, on the other hand in fact prefer high-rise living. They like the feeling of security that living in a safe, well managed apartment block can bring. The “lock up and leave” aspect of high-rise housing also has attractions.
Judging by London property advertisements I see in the local media in Asia, I’m amazed at just how big “Prime Central London” has become!
Remember… if it looks too good to be true, it almost always is….
Cornelius Vanderbilt might have been the greatest capitalist in history.
When Cornelius was just 16, in 1810, he borrowed US$100 from his mother. Using that money, he went on to build a fortune of around US$100 million. That would be worth over US$200 billion today. And it was roughly equivalent to 50 percent of the holdings of the U.S. Treasury at the time.
This kind of wealth was unheard of back then. It made Vanderbilt one of America’s richest men.
But within just 50 years of Cornelius’s death, the Vanderbilt family fortune was completely gone…
Cornelius started his shipping business by buying a passenger boat, which he expanded into a small passenger fleet. Eventually, he moved into the steamboat business. And having made a small fortune in shipping by his 50s, he turned his attention to building a railroad empire, which was his focus until his death.
Cornelius had a natural talent for business… handling the money, the competition, the costs and revenues, the deals and the relationships with everyone from the top to bottom of the food chain. He was a fervent believer in the merits of free competition, laissez faire (that is, letting things take their own course without interfering) and that government should play a minimal role in commerce. The entire Vanderbilt corporate life was built and operated under these beliefs.
For example, when he got into shipping, the industry was dominated by companies that had been granted monopoly rights on certain routes. Cornelius took them on with ferocious competition – cutting costs, reducing fares to almost zero and building and deploying faster ships. Almost without fail he prevailed, driving numerous incumbents either out of business, or into his arms. His opponents simply could not keep up. He brought this same mind-set into railways.
After his death in 1877, Cornelius’ son William took over the portfolio. Rather incredibly, William doubled the value of the Vanderbilt fortune to US$200 million by the time he died in 1885.
Then the rot set in…
William’s family inherited the Vanderbilt fortune and proceeded to squander it. They lived a lifestyle that their grandfather would never have contemplated. They built grand houses in locations frequented by the rich and famous… including ten palatial houses in Manhattan. These were all playthings, vanity projects to satisfy egos.
Within 30 years of Cornelius’ death, no member of the Vanderbilt family was among the richest in the U.S. And within 50 years of his death, the fortune was completely gone.
When I look at this story, I have to conclude that while Cornelius might have been the greatest capitalist on the planet, he was not a great investor.
Yes, we can lay the blame for the demise of the family fortune on later generations. But Cornelius essentially laid the foundations for this decline by his own hand.
First, practically all of his wealth was tied up in railroad and shipping stocks. There was little diversification across other industries, or across companies. It worked for him personally because he was intimately involved in running and managing these companies. But later, these companies were run and controlled by someone else. And as we’ve shown you before, having all of your wealth in one or two industries can destroy your portfolio if disaster strikes.
And having an entire fortune tied up in shares that can be sold at the drop of a hat made it all too easy for his heirs to say “I want to build this grand house for myself — let’s sell some shares today”. I think this was a key part of the demise of the Vanderbilt fortune. I am convinced that having an entire wealth tied up in shares allows undisciplined owners to react to whims and short-term pressure. Having a mix of assets, that perhaps cannot be sold on the back of a phone call to a broker can guard against short-term temptations and whims. We’ve always stressed the importance of diversification and have written about how to make sure your eggs aren’t all in one basket, here.
The second major fault in the Vanderbilt portfolio was that it held very little in the way of hard assets. It did not include much land or real estate. And he owned zero investment properties, mines, or large farmlands.
Yes, Cornelius built a nice house for himself, and had some offices and some commercial space for his businesses. But he never invested in the most spectacular urban growth story of the century. He was running businesses in the financial heart of the country, a city that was growing by leaps and bounds… but he never bought land in New York City for development into commercial buildings. He loved dividends but didn’t see the cash flows that would come from investing in New York’s burgeoning real estate market.
Just think of what the family fortune might have looked like if Cornelius had parked 20 percent of his shipping and railway generated earnings over the years into land and buildings in what has become a pre-eminent global financial centre.
And an added bonus of real estate would have meant less liquidity. It’s easy to sell traded shares on a whim, but it’s a lot more difficult to dispose of an office tower. Lower liquidity might have prevented such a rapid demise of the Vanderbilt fortune, simply because it would have been more time-consuming and difficult to sell assets.
Vanderbilt wasn’t the only family dynasty spawned in the 19th century. Two other families I am familiar with built up massive fortunes during this time. And both of those dynasties are still thriving 150 years later. I’m talking about the Jardine family (which co-founded the Hong Kong-based conglomerate Jardine Matheson (Singapore Exchange; ticker: JM), and the Swire family (which founded the London-headquartered Swire Group (Hong Kong Exchange; ticker: 19) conglomerate).
Both of these family companies started out in concentrated businesses – but diversified into a range of different businesses. Jardine started out selling opium, cotton, tea and silk. Today, the company is involved in motor vehicles, property investment and development, food retailing, home furnishings and luxury hotels, just to name a few sectors. There are more.
Meanwhile, Swire started out in the textile trade. Today, it’s involved in property, aviation, beverages and food, marine services and trading and industrial industries.
Real estate also became a vital core business of both companies. Both invested in Hong Kong back when it was a proverbial backwater. Today, it’s the Asian equivalent of New York.
These families did the two things that the Vanderbilts did not. And today, many generations later, both of these families are still worth billions of dollars.
The two things to take away from this story are that diversification and a core of “hard assets” should be guiding principles for all of us – even if we will never come close to mimicking Vanderbilt’s wealth.
With a well-diversified portfolio that includes hard assets like real estate, you can survive just about any crisis… and grow your wealth for years to come.
In my decades in finance and real estate, one thing I’ve learned is this: the core underlying principles of investing rarely change.
You see, the fundamentals aren’t new. Technology, computing, speed of information dissemination and transparency… sure, these have all helped change the game.
But throughout the span of recorded human history, the same lessons are there in plain sight, again and again… they are timeless.
So if you want to learn to be a successful real estate investor, just look back at the greatest real estate deals of all time.
For example, consider the Louisiana Purchase…
The “Mighty” Mississippi River is born a mere trickle in Lake Itasca, some 1,500 feet above sea level in the northern U.S. state of Minnesota.
From there it meanders its way south, gathering volume as the increasing flow from tributaries swell it into the 15th largest river in the world (and fourth longest, at 2,320 miles).
The river creates some of the most fertile agricultural terrain in America, along with navigable rivers, forests, prairies and mineral riches.
These bounties led France throughout the 17th century to explore the Mississippi River valley creating settlements across the region.
By the middle of the 18th century, the French held sway a length of terrain from New Orleans in the south, to Montana in the north.
To be clear, this “Louisiana Territory” was enormous… covering some 828,000 square miles.
Photo: Gateway New Orleans
The territory came to be, as historian George Herring puts it, a “pawn on the chessboard of European politics”.
France ceded control to the Spanish at the culmination of the Seven Years’ War in 1762 under the Treaty of Paris… however, Napoleon Bonaparte regained ownership from Spain in 1800 under the secret “Third Treaty of San Ildefonso” between the French and Spanish.
Around the same time, President Thomas Jefferson demonstrated considerable foresight and downright smart thinking by agreeing to increase American presence in what was a politically unstable area of North America.
However, he was concerned that political instability in the area could undermine efforts to occupy these lands and lead to further conflict with the American state.
Word filtered that that France had entered into a secret agreement with the Spanish to take back control of the Louisiana Territory.
Soon after Napoleon’s France was facing revolutions across its colonies, most notably Haiti and Hispaniola, where French forces suffered thousands of casualties from war and yellow fever.
Napoleon’s visions for the French colonies in the western Atlantic were in tatters.
His plans to use the Mississippi basin as a base for food production and trading activities to support French colonies in the region now made little sense.
The colonies were breaking… and French forces would be inadequate to protect the Louisiana Territory.
Moreover, plans were afoot for conquests closer to home in Europe. But he needed money to fund those military adventures.
To everyone who thinks the Chinese middle class boom is an ‘old story’ – this is why you’re wrong
LEARN MORE HERE.
Jefferson offered to purchase some of the territory from Napoleon. Specifically, they were prepared to pay up to US$9.375 million for New Orleans and its surroundings.
Napoleon countered, offering Jefferson a deal of incalculable value…
He proposed the sale of the vast Louisiana Territory… in its entirety… for US$15 million (roughly a quarter billion dollars today).
The Americans couldn’t believe their luck. The offer was completely unexpected. They were stunned.
In a single stroke the newly emerging America could almost double its total land area. And at a cost of less than 3 cents per acre.
Signed in Paris on the 30th April 1803, and aptly announced to the American public on the 4th of July, this deal became known as the Louisiana Purchase.
America went on to become the most powerful and wealthy nation on earth… as predicted by founding father Robert Livingstone, who said at the time…
“We have lived long, but this is the noblest work of our whole lives…From this day the United States take their place among the powers of the first rank.”
What we can learn from the Louisiana Purchase
Bear in mind, the Louisiana Purchase was more a political deal than an outright real estate one.
But still, there are a couple of major lessons that still ring true today…
Regardless, a motivated seller usually gives you negotiating power… in other words, the opportunity for a lower price.
And hopefully, you can pounce… which brings me on to the next lesson…
Had the Americans not acted so quickly, who knows what could have happened.
We do know that Napoleon’s two brothers were trying to talk him out of the sale!
Some of the best real estate buys I’ve made have been done quickly… sometimes completely on the spot.
Combining a speedy transaction with a motivated seller will give you a better price. Period.
Maybe there are structural issues, a leaky roof, asbestos… a new sewage plant to be installed close by! You get the picture…
The final lesson from the Louisiana purchase is this:
He frittered the entire proceeds on senseless wars and military incursions, squandering one of France’s greatest financial and economic assets.
Some time later Napoleon was reported to have said, “America is a fortunate country. She grows rich by the follies of our European nations.”
I couldn’t agree more!
One of the life lessons that has struck me time and again, is the importance of listening.
The primary ways that information enters our brains is either through the two eyes at the front, or the ears on either side. Today I’m talking about the latter.
Whether it’s listening to casual conversations, lectures, talks, opinions, even the media… I can’t tell you how many times a simple conversation, a brief comment or a short discussion has alerted me to something that has proved extremely interesting and often very profitable.
I’ve made a lot of money over the years from simple conversations that have alerted me to something, or some opportunity, that I might not have otherwise noticed or seen clearly.
(For example… the property I referred to in this article that I bought in 2006, came onto my radar during a conversation over a couple beers with a friend. That conversation ended up being worth nearly a million dollars.)
Keeping your ears open is not just about making money. It can also prevent costly mistakes.
Whenever you’re looking to buy property, you should take the time to ask your friends, colleagues and acquaintances for their thoughts.
It seems to be that every dinner party I’ve ever been to has involved at some point these two topics of conversation: Airline horror stories, and real estate.
People love to talk about property. Everyone’s an expert – or knows an expert. Everyone has a tale to tell. And you’d be wise not to dismiss this as small talk or idle chatter and tune in.
Whenever friends visit Hong Kong, I always ask about what they’re seeing in real estate back home in their neighbourhood or city. Always, always ask for opinions about property and the chances are you’ll receive plenty.
No matter how much experience you have or how much research you do, you can’t know it all. Real estate markets are huge, diverse beasts. In any city, real estate behaves differently depending on the district, street, neighbourhood and property type. There are constantly new developments coming on stream with different physical characteristics and different financing models. Councils and local authorities change planning rules, providing further opportunities to enhance value.
New infrastructure can have a big impact on nearby real estate, resulting in new opportunities – positive and negative. It’s impossible to keep track of all this in one city – let alone several.
To everyone who thinks the Chinese middle class boom is an ‘old story’ – this is why you’re wrong
LEARN MORE HERE.
Over the years, a passing conversation, informal chat or piece of gossip has led me to dig further and on many occasions resulted in making a profitable investment decision.
Talk is cheap, so why not listen?
Over my career, research and analysis have been my main professional endeavours, and they have contributed immensely to our overall wealth.
Understanding what goes on in certain markets – the trends, drivers, cause and effect, who’s doing what to whom and why – are all vital for making informed investment decisions.
Some of my most profitable calls have been made on the back of understanding what drivers are likely to shape trends in the markets in the coming months or years.
But as important in my mind as big-picture research is, so is listening and talking to locals who share knowledge that you would otherwise not be privy to. Before you make an investment, call a few people, shout them a coffee and see if they can add to your research.
What happens on the ground
Top-down research can give us the big-picture story. But digging into the subtleties and nuances of what is happening on the ground can bring even bigger rewards.
Getting the overall market call right is hugely important, but it is that knowledge at grassroots level that can really give you an edge when you’re making big real estate investment decisions.
Listening to people who are close to these very local forces is key to success. Yes, the big picture for the London market (or the Hong Kong, Auckland, Sydney, San Francisco market) may look good, but how do you invest in it? Ask a few locals and I bet they’ll have some ideas.
Just by listening and being alert and interested in property news and stories, I have chanced upon real estate investment opportunities – many of which have led to very profitable outcomes.
If you make it a habit to ask questions, and more importantly listen to the answers, you’ll put yourself in the best position to do the same.
Finding properties to invest in is often just being in the right place at the right time, following up on a hunch or a rumour that luckily enough leads to an opportunity.
Many people shy away from owning investment real estate. They worry about the hassle and risk.
Tenants can sometimes be a pain in the neck. Or you can face periods when the property is empty, where you don’t have a tenant paying rent… but that mortgage (if you have one) still needs paying every month.
Natural events can sometimes cause damage – floods, typhoons, storms.
But as I’ve said many times in the past, I believe owning rental properties is right up there among the best investments that you can ever make.
Let me tell you a story about my friend Rod.
I first met Rod whilst travelling with my wife in the deserts of northern Kenya in the mid-1970s. My legs were sticking out from underneath our Volkswagen Kombi as I wrestled to bolt the gearbox back into place. Rod rode up to the rescue in his Peugeot, gave me a hand and invited us to stay at his place in Nairobi. He offered the services of his company’s workshop to make a more permanent repair to our vehicle. He worked for a global company that made and distributed farm and construction equipment, tractors, ploughs, cranes, lifts, bulldozers and so on. We became very good friends.
A few years later, after about 15 years in Africa, Rod quit his job and returned to Auckland, New Zealand. He had no clear plan of what he was going to do. Soon after his arrival back home his brother invited him to come over to a friend’s house. They sat on the expansive deck of an expensive house, overlooking the harbour, enjoying a few cold beers and chatting. His host was clearly enjoying his delightful property.
Rod happened to notice a bell ring somewhere in the house every 15 or 20 minutes throughout the afternoon. He eventually asked his host what this bell ringing was all about. ‘Oh that’, he said, ‘is my happy money bell’.
‘Huh?’ Rod asked.
‘Yes, that reminds me that every time I hear it ring another $20 has landed in my bank account’.
‘How come?’ asked my friend.
‘From my portfolio of rental properties,’ was the reply.
LEARN MORE HERE.
‘And what’s more, it keeps ringing when I’m asleep at night, when I’m out fishing, and when I’m on the golf course.’
Rod did some quick mental arithmetic and figured that at that rate, his host was earning about $43,000 each month. That was a HUGE amount of money at the time, and even today is a substantial income.
What’s more, this regular income was coming in without working 80-hour weeks. The host enjoyed his fishing and was a handy golfer as well.
Soon after that Rod embarked on a small business venture buying and renovating residential and commercial properties. Some he would sell, and others he would keep for rental income. He invited me to join in a couple of his projects, and I still own the first property that I bought with him. It is a great little money earner. The annual rental income is now roughly 50 percent of what I paid for the property back then.
I always smile to myself when I remember that story. I have relayed it to many people. And that story has helped guide our own activities over the years to build a rental property portfolio that will keep turning out solid rental income year after year.
So, yes, owning rental properties is not hassle-free, nor is it entirely risk-free. The properties need to be managed. Bills need to be paid, and renovations undertaken from time to time. Tenants can sometimes be a pain in the neck. There can be periods of no tenants when the property might stand empty for some time. (That risk can be mitigated by ensuring you follow this critical rule).
But for long periods of time, not a lot needs to be done. You can just sit back and watch the rental income hit your bank account.
And in terms of reward for effort, I think it is right up there among the better investments that you might make. It certainly has proved so for me and my family.
It is also usually a pretty inflation-proof investment. Rentals do tend to grow along with the economy, incomes, and inflation.
Perhaps you should be thinking of ringing your own ‘happy money bell’.
I can think of several markets where that makes a lot of sense right now. Interest rates are low in most western markets and I believe they will stay below long-term averages for some time to come. In times of stress, rental yields (calculated as the annual rental income divided by purchase price) tend to be on the high side. And as markets improve, yields come down – normally because values go up more than rentals. I like that equation.
That is exactly where many real estate markets are positioned today. And here’s a market I visited recently that I think presents an excellent opportunity for investment real estate as well.
All content made available to you through our services are subject to and protected by copyright, and other intellectual property laws of Singapore and international treaties.
Legal disclaimer: The insight, recommendations and analysis presented here are based on corporate filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. They are presented for the purposes of general information only. These may contain errors and we make no promises as to the accuracy or usefulness of the information we present. You should not make any investment decision based solely on what you read here.