Back in April I wrote a blog entry on my property site about real estate in China so those of you who follow my writings about real estate will not be surprised at what is currently happening there, and what that is likely to mean in the future for the rest of the world.
You will have been forewarned, and not been surprised at what is going on in Germany right now, and how this whole mess is likely to play out.
Read the original article HERE.
Towards the end of my original article I make a bit of a miscalculation. Here is what I said back then.
'The whole operation is a massive fraud. Ponzi schemes always end badly, but as with all predictions these days, one cant tell when the implosion will occur. Maybe this fraud will continue for another decade, or maybe even another generation, but I cant see it running beyond that.'
Oh dear. My timing was a bit out. Evergrande, the biggest of these Chinese property companies is bankrupt. Idiotic Chinese owners of these bankrupt properties have been paying Evergrande money to keep it going, which means they were throwing good money after bad. Their life savings are gone. Their properties are falling down, or haven't even been built, and they are facing ruin.
This is going to end badly.
You might think this is all happening a long way from home, but I mentioned Germany at the beginning of this article. Have you been following what's going on there? If not, perhaps it's time you woke up and paid attention because something nasty is eating at the property fabric not a million miles away. Maybe what is happening now in China will shortly be happening, but in a slightly different way, in the EU.
The bottom line is, governments are coming for real estate.
There's a lot of talk about stock markets crashing. There doesn't seem much chance of that at the moment, but who knows? I dont have that all-essential crystal ball. But if your pension funds are invested in real estate companies you might like to have a look at the political ruckus that is stirring up in Germany.
There is a proposal to break up property companies because they are controlling the rental figures. Are you invested in such a company to provide for your pension? If so, there could well be trouble ahead. Property owning companies may well be about to be destroyed. First in Germany, and then, maybe, all across Europe.
I assume that if a company only owns one property that will be exempt, but any more and that company will be at risk of being taken over by the government.
This has been on the political radar for some time. There are two rather serious aspects to what is currently happening in Germany.
First, we have to look at one obvious factor that is centre stage in politics. Most advanced countries are broke or rapidly going broke. The covid experiment seems to be working rather well on some levels due to the unbelievable stupidity of the more ignorant souls, but on a basic level the whole operation is proving to be a disaster. Not only is it costing money which isn't in the piggy banks around the world, but it is destroying the commercial base of so many countries, and that is particularly the case in Southern Europe.
You only need to see the collapse of one important sector of an economy to note how the various parts of that economy depend upon each other. If one important sector goes down, there is a knock-on effect. This is particularly obvious in the Algarve, and all across eastern and southern Spain. But there is a more insidious effect all across Europe, and indeed, the world, But I will write about that next week.
And the hospitality sector is about to take a hit from another direction. Maybe not this year, maybe not next, but not far out is the prospect of virtual reality starting to make a serious impact upon travel. Why spend all that money and put up with all the inconvenience of travel when you can experience foreign parts simply by putting on a headset? And the millennials will love that, and, like it or loathe it, they are the future.
But that wasn't the point I was intending to make. How are governments going to try and balance the books? The obvious way is to print money, and devalue the currency, which will make us all poorer.
The other way is to take more money from people. What are the easy ways to do this? Think about it, what is the easiest thing to tax? Your home. You have to declare it, as everyone you deal with is going to know your address. You can't hide it. Some people have tried that. I seem to remember someone building a house partly inside a stack of straw bales. And your house is valuable. It's a sitting target.
Is Germany the first country in Europe to start a serious attack upon real estate? The proposed playbook is to start attacking the giant property owning companies. We are currently waiting to see how this will play out as the general election has disrupted the timetable. Will there be an attempt to break them up? Or nationalise them?
Already in the UK one is penalised for owning real estate, and harried for being a landlord. Yet pension plans are more often than not founded upon investing in such companies. It is going to be interesting watching what happens over the next few years.
The real problem is that once property rights are in the firing line for whatever reason, we are facing a big problem. Once property rights are no longer sacred, nothing is. Real estate is called real for a reason. Take that reality away and what does any value rest upon? That's the first thing a communist state does, take away your right to own land. Ever come across a communist state that survived for very long, or made living conditions better for its people?
We live in a world where the perceived political direction for the near future is a massive surge to the left. This is somewhat puzzling until you realise that a large section of the public these days has very little education, and almost no knowledge of the outside world, or even recent history. If they did have any education you would think they might be able to draw a few conclusions about the way far left principles work. There are plenty of current examples, and even more from the recent past.
How about this little list? China, Zimbabwe, Venezuela, Cuba. Not a pretty sight. I bet not a single reader would want to move to any of those places. So why would anyone with half a brain espouse those principles?
This new developing world order we inhabit is not a happy place. And sadly, it is likely to get a lot worse from here.
By John Clare