Brexit, the future of global real estate & how technology can help you?

I have been fascinated over the last week about all the commentaries about Brexit and whether real estate was going to go up or down. I have also been fascinated how strong the arguments have been written by some that Brexit means that US property will be good, or that there will be great opportunities in the UK by others, or why it is good for emerging markets, like South Africa, etc.

There seems to be one resounding theme. The people who write the articles have a vested interest in proving why their markets are going to benefit from Brexit. My business partner Dr Dolf de Roos, author of New York Times Bestseller Real Estate Riches, has a great saying, “Statistics are a bunch of numbers looking for an argument.” I believe that this sums up many of these commentator’s reports.

The bottom line is no one knows! This is unprecedented and has not happened before.

So what next?

Firstly get the facts. Here is a recording of the webinar I did - https://youtu.be/DlcvA78PT6s

Well from my experience of investing in global real estate markets for 17 years and being the author of Property Going Global, the authority on international property investment, it comes back to 5 things:

1. History repeats itself
2. You have to focus on the fundamentals
3. You need a system to make the correct decisions
4. Use your common sense
5. Technology can help you

Let’s review these in more detail.

1. History repeats itself

For many centuries economies have risen and fallen, there have been bubbles and busts, bull markets and bear markets, buyer’s markets and sellers markets, etc. This is explained well in Wikipedia:

Tulip mania or tulipomania (Dutch names include: tulpenmanie, tulpomanie, tulpenwoede, tulpengekte and bollengekte) was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed.[2]

At the peak of tulip mania, in March 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble (or economic bubble),[3] although some researchers have noted that the Kipper- und Wipperzeit episode in 1619–22, a Europe-wide chain of debasement of the metal content of coins to fund warfare, featured mania-like similarities to a bubble.[4] The term "tulip mania" is now often used metaphorically to refer to any large economic bubble when asset prices deviate from intrinsic values.[5]  https://en.wikipedia.org/wiki/Tulip_mania

Having had lunch with Jim Rogers twice, one of the most recognized businessmen globally, he explained how markets move in 8 year cycles. He believed that 2016 was going to be a very tough year, but the governments would create more debt and get through. He believed it was actually 2024 where the governments of the world would not be able to print their way out of the crisis.

Robert Kiyosaki, in his book Second Chance (which I highly recommend) talks at length about about market cycles, but most importantly the economic and political forces behind them. In 1997 and again in 2002, he published books like Rich Dad Poor Dad where he predicted the crash of 2008 being a smaller crash and then the major crash being in 2016.

Are you starting to notice a trend? 8 year cycles? History repeats itself and so the question is more, what is going to be the catalyst to cause the global economy to slump. In 2008 it was the sub prime crisis, but what will it be in 2016? Brexit could be it, we just don't know, but we do know one thing, based on history, it is going to happen.

2. You have to focus on the fundamentals

The most important lesson I learnt from the 2008 crash was that those that focus on capital growth, are betting against winter, it eventually comes and you lose, sometimes everything. Those who focus on income not only survive, but actually thrive in times of economic uncertainty and even crisis.

Let’s look at London at the moment. Prices have once again this month reached an all time high. The London property promoters will tell you that there is such a large shortage of houses and therefore this will stimulate more growth. However let’s look at the fundamentals. The average British person can borrow between 3 ? to 4 times their personal or combined income. The average gross yields are between 2% to 4%. The majority of new properties being bought are being bought by foreigners and the only reason that the properties remain attractive is they are cash flow positive (interest rates are the lowest they have been in over 350 years) and the expectation of capital growth.

Let’s consider a couple of things. I had lunch with a friend on Saturday and his son works for GE (General Electric), one of the biggest companies globally. They have said that if England goes through with Brexit they would move their head quarters from England to Europe. There are many other major businesses which will be affected in this way and I have read reports about how office rentals could drop 20% in London. Richard Branson, who I have had the privilege of spending a week on Necker Island with in April, also said that should Brexit go through he expected a recession. Immigration is going to tighten, there will be less jobs and therefore there will be less demand and tenants. If and when interest rates go up, the foreigners will want to sell, as the properties will no longer be cashflow positive, but there will be no buyers and the British can’t afford the properties. The average income in the UK is below ￡25 000 and in London ￡100k to ￡150k is a massive salary. That means this person or family could only borrow up to ￡600k, but properties in zone 3 and 4 are well beyond this now and therefore the only way for foreigners to sell will be with a market correction. Watch this video I made in 2015 in London to explain this.

This doesn't mean there is not opportunity in London and the UK, but you have to be very careful, know what you doing, get the right Information and the right Partners.

The fundamentals never change and need to be considered in any investment. Most people make ‘gut feel’ decisions, but actually if you want to be a successful global real estate investor you need a system to analyse the fundamentals, look at the research and then know where to invest, when and why.

3. You need a system to make the correct decisions

I presume there are many systems out there, but the one we have developed amongst our partners is called the GIDDS (Global Investment Due Diligence System) which is the combination of our combined over 227 year’s experience of investing in global real estate markets. There are 10 layers which take into account all the fundamentals you need to access:

I don't have time to go into all the details, but the system helps us avoid using our ‘gut feel’ of whether the market is going to go up or down and rather uses long term research, fundamentals, big data and algorithms to supply the simple factual answers.

Here is an example of how we analyse which country we should invest in,only one of the 10 layers in the system and it is all based on economic data.

This then provides us with a framework:

And once you have chosen a country and city, do you have the system or models to know where to invest within that city?

Our system has helped us invest and facilitate over $1,34 billion on 5 continents and tells us where to invest, when to invest, who to partner with, what structure to invest in and how to maximize the returns on the investment long term.

We are not stuck to one country or one city, because that is all we know, we have the ability to invest in the best global opportunities with the best global partners when the time is right.

In the last 10 years I will show you one graph which I believe will show you how this works, based on our results:

Don’t have a ‘gut feel’ about Brexit, have a system and certainly don't listen to people who have a vested interest in only one product or one country.

4. Use your common sense

Do you think it is by design or a flaw in the system that most people are not trained about money, wealth or investing in the schooling system? Do you think it is a coincidence that they are then told that they don't understand money and so they must trust their financial advisors and financial institutions who understand these complexities and will look after their financial well being into the future? Do you understand that in the western world less than 1% of people actually retire wealthy and yet financial institutions are some of the wealthiest companies on the planet?

The truth when it comes to wealth is that what I have learnt from the wealthiest people I have met, is that creating and preserving wealth is all about common sense.

Here are a few examples:

• In tough or uncertain times, wealthy people invest in fixed assets with intrinsic value which provides a stable income. An example is where they buy real estate below the market value or replacement value and then invest in the long term stability of the income.
• In the first world there is an aging population and there is more and more need for medical attention. Medical experts are needed, if not more in uncertain economic times and therefore make for very stable tenants. Medical professionals tend to stay in one place and don't move due to the setup costs and licenses of establishing themselves. Medical professionals are also not accountants and so tend to sign favourable long term leases. It all provides for a robust and stable investment.
• In Australia, one of the most expensive property markets in the world, there is a strong trend towards densification closer to the city centers and more affordable property. If you read my last post on understanding the value chain of real estate, you would understand that it is better to move higher up the value chain to the development cycle when existing property is too expensive.
• In the UK, there is also a drive into the commuter areas. Rather than investing in central London, the existing people who live in London (that should always be your target market as this is based on fundamentals) are moving out to the commuter towns due to affordability. This is now where you will find the best value, safety and returns in the UK at the moment.
• Wealthy people tend to invest more in commercial real estate than residential real estate. Watch this video from Dr Dolf de Roos about why this is.
• Finally most wealthy people diversify their investments into multiple countries, markets, currencies and asset classes. They are true global citizens.

Until recently, even when people knew where to invest, based on common sense, the barriers to entry were too high. However now with technology this is being democratized for everyone.

5. Technology can help you

As with Uber, where it cuts out the middlemen, dramatically reduces the cost, increase the trust, transparency and accessibility, technology is doing exactly the same thing in real estate. I published my book, Property Going Global to teach people to to invest globally, give them a system and also show them where to get all the up to date information so that they could make the right decisions for them and their families.

Today we are able to use technology, big data, systems, algorithms and soon artificial intelligence to take all the complications of what is explained in my book and make investing in global real estate a simple, safe and trusted experience. Technology is truly now allowing someone to play globally monopoly investing in the best real estate opportunities globally, with the best partners and not be limited to one country, one market, one currency or even one asset class.

In conclusion we always say to people there are only 2 things which they need to be successful as an investor in global real estate – the right Information and the right Partners. Technology is now providing a solution for you to get access to both.

Will Brexit have an impact, well as we said, the world is holding it’s breath. There is one thing for sure though and that is that history will repeat itself and the fundamentals of investing never change. Do you have a system to make the right decisions and take advantage of the impact that Brexit (or something else for that matter) is going to have on the markets? Ultimately, this, common sense and your use of technology will empower you and give you access to the wealth you want in your future.

Here is a recording of the webinar I did - https://youtu.be/DlcvA78PT6s

We live in very exciting times!

Scott Picken

Founder & CEO Wealth Migrate

#wealthmigrate #realestate #wealth #fintech