Interesting property markets

New Zealand (North Island, countryside)

There are several appealing markets in which to buy property. Among the markets we cover, we consider the best buying to be the Philippines for capital growth, as well as satisfactory yield. Japan offers compelling yields, however there is less prospect of much capital growth in the medium term. Mind you, since the government will likely resort to printing money in order to pay off the public sector deficit, expect some nominal price increase in property and equity assets, but of course that will be inflation-based. They might however be offset by higher property taxes and a GST increase. I see no new taxes in the Philippines, just higher compliance measures. Despite high nominal taxes, people in the Philippines pay amongst the lowest taxes in the world, i.e. 16% of GDP. Its a good deal if you can scam it. Don't be a proud taxpayer....most of your taxes goes to corrupt people, or serves inefficient purposes. You are the best custodian of your money. No one respects it as much as the person who earned it. That which was well-spent you would have been happy to finance if you had a choice. Don't believe you had a choice when you voted in the last election. You have no real or effective choice.

The NZ property market is less appealing at the moment. The currency is consolidating around 0.70 USD and there is the prospect of rising interest rates constraining price growth. Equally problematic is the exodus of NZ'ers to Australia. NZ population growth is just 0.5%, with the exodus of NZ'ers balanced by Asian and other immigrants.

Some commentators are expecting a collapse in Australian property prices. Frankly, I don't see it when the economy is supported by a lot of commodity projects and immigration. Expect business investment in the mining & energy sectors to remain strong. The Resource Rent Tax interestingly will hurt, particularly if they talk about it, then decide to defer it, or not do it. It will leave investors in limbo.

Another positive is the tight housing supply. There is no doubt this is due to the hefty increase in immigration. Immigration to Australia has risen from 100,000 in 2004 to almost 300,000 today. It was doubled from 2007. Clearly the government saw immigration as a means of avoiding recession. It looks like the govt wants to use immigration and mining taxes to finance the retirement of babyboomers.....as opposed to doing what it ought to do....removing the cap on private sector activity. By cap I mean the excessive involvement of government in the economy...stupid arbitrary statutory law, subsidies, welfare transfer payments, etc. Sound idealistic? Well, you would be surprised how counterproductive these measures are at remedying problems. Government solutions are the problem.

1. Housing affordability a dream? Blame the arbitrary restrictions of government zoning which prevent land lot availability.

2. Can't get a job? Blame government cumbersome planning approvals, and most particularly public infrastructure funding and minimum wage limits.

3. Can't make money in a volatile investment climate? Blame government for distorting 'free' markets to ensure they get elected. They don't care if they channel billions into wasteful, unproductive investment, just as long as they get elected.

4. Can't find good workers? Blame the public education system which offers a low-standard for the private sector schools, which fake it, and sell their reputation.

5. Can't even make good friends? Blame a political culture which sets the standard in self-delusion, political correctness and subjective value judgements. Same for forging lifetime relationships. Divorce rates manifestly come from the same problem.

NZ Property Guide Philippine Real Estate Guide Foreclosed Japan Guide

AuthorAndrew Sheldon Applied Critical Thinking | www.SheldonThinks.com

Japan's debt - is it a crisis?

Japan periodically attracts a lot of attention for all the wrong reasons. There is no question that Japan has a large debt. The question though is just how serious the 'crisis' is. I would suggest the problem is serious, by there are authors who envisage a dire crisis. Such authors conjure up a dire scenario where Japan is left with the sole inevitable need to raise interest rates, and that this will of course force up interest rates around the world. Think again.

Almost all of Japanese indebtedness is to the Japanese people. The implications are several:

1. Japan can simply raise taxes to reduce debt. This is not attractive when you are trying to encourage spending, but its not impossible when you have little choice. The GST seems to be the most popular choice, but I would not be surprises to see a land tax.

2. Japan can reduce public spending to reduce its debt obligations. This is not easy for a social democratic party, however its an option, particularly if its an efficiency drive.

3. Japan can print money to repay debts. This is easy because all the debt is Japanese, so no forex implications.

4. Japan can boost immigration. This is not a popular policy, but in some point in the future, people might accept it. I doubt it, but it remains an option. The reason is because, unlike the rest of the world which accepts immigration as an easy way to artificially stimulate domestic economic activity, Japan does it the 'real way'. Don't give the Australian govt kudos for strong economic growth when the population is growing at 2% because they doubled immigration numbers.

5. Japan can keep working harder. I really don't believe Japanese employment numbers. In any respect, a great many people in the economy are under-employed, or under-utilised. This is particularly the case with women, who remain boxed in glass ceilings, if not padded cells. There is however a huge challenges retaining these people to make them productive. I think mothering is perhaps the most likely option. :) Some of them seem pretty useless. Its hard to believe the 'real workers' can work longer hours, so I guess its more outsourcing low-value labour to China and working more efficiently. Less drinking for them, which means more for me. Sorry I'm not there!

Personally, I suspect they will do all of these to some extent.

NZ Property Guide Philippine Real Estate GuideForeclosed Japan GuideAuthorAndrew SheldonApplied Critical Thinking | www.SheldonThinks.com

Experiences buying property in Japan

Follow this link to some people who have bought properties in Japan. All of these cases represent people who have bought property through the traditional broker market. The problem is they paid maximum price, when they bought of secured property more cheaply through the foreclosed market. There are however benefits to going the private route. When price is no object, or you want a customised property, the private route offers more choice. The foreclosed market however is surprisingly large, and don't under-estimate the opportunity to refurbish the frame of an old home. i.e. We might my place at less than land value. The house was essentially a gift 1 hour from Tokyo. We could have stripped this two story house like our neighbour who paid full (market) time for the same dormitory next door. The previous owner bought that property for just Y2.23 million. I know because I missed out by $1000. :) It was my intention to set up a school to teach investment and English to Japanese kids, as there is a private school next door. I have just one neighbour - the 'distressed' person who sold me the property by default. He is a lovely guy though. Learn more about people who have bought properties in Japan here. The other attraction of foreclosed property is that you can actually buy cheap properties without needing a loan. I just paid Y2.3 million in cash for the 1st property, and we paid Y3.8mil for a second property which was ready for occupancy/rental at Y60,000/month. A lovely place too.

It took me about a week to clean that house up in outer Saitama. Really enjoyed the mountain biking in the mountains around that town. Some of the best trails I've done.

NZ Property Guide Philippine Real Estate GuideForeclosed Japan GuideAuthorAndrew SheldonApplied Critical Thinking | www.SheldonThinks.com

Election implications for Philippines property

I was actually in the Philippines immediately after the election result. Just for 6 weeks mind you, but long enough to observe some of the political play, as well as time for a holiday. I visited Camiguin Island and Puerto Galera. Camiguin Island was recommended to me years ago by a resort developer there. Having been there, it has some attractions, but its way too under-developed. I will publish a separate post on the place, as well as Puerto Galera for property buyers interested in those places.

El Nido, Palawan, Philippines

My assessment of the election is that the economic spending will fall a bit after Arroyo's unsustainable 'spend' on roads. I am suspicious of the new president Aquino's anti-corruption credentials based on some statements, but his appointments look credible. He has conveyed that his economic policy is the same as Arroyo by appointing her finance minister. The Philippines GDP grew 7.1% last quarter....as anticipated by us 18 months ago. The fundamentals for the Philippines are very good. A lot of construction going on, remittances continue, call centre business grows. Expect the poor Aussies and Kiwis, etc to come over for their dental services next, and Americans for their 'uninsured' medical. Out-sourcing continues.

NZ Property Guide Philippine Real Estate GuideForeclosed Japan Guide AuthorAndrew Sheldon Applied Critical Thinking | www.SheldonThinks.com

Election implications for Japanese property

The upper house elections in Japan did not deliver the desired two-house majority for the Democrat Party of Japan. Who is to know whether they will be able to get a reform agenda going. One might hold out for the prospect of defections from the LDP if they prove to be obstructionist. There is a lot of discontent in this country...so reform will come eventually. I think the Democrats are still trying to develop policy. Anyway, yields are ok in Japan. One of my readers tells me they recently bought a high rise building in Osaka offering a 12% yield. No other data that that sorry!

The reason for the decline in support for the Kan-led DPJ administration is talk of an increase in the consumption tax. Clearly people want to see support for consumption or domestic demand to support jobs. Really, however the nation needs to cut costs and raise money from wealthy land-owners who will not be spending anyway. I am not a supporter of taxation, lest not welfare states, however the budget does need to be balanced, and assets ought to be taxed not income in these times. I would not be surprised to see a property tax increase in Japan in order to address the budget deficit. Japan's taxation as a % of GDP is on par with the USA, at 27-28%. I suggest in these times it ought to be taxing assets not private spending, since there is a critical need for it to cut government spending. Taxing assets will place pressure upon asset holders to increase the return on those assets, or dispose of them, such that others might.

Japan has long suffered from a lack of leadership. Kan is accused of speaking idealistically when he mooted the idea of a consumption tax. The problem is not his honesty (i.e. revealing a tax prior to an election), but rather his lack of a comprehensive plan. The problem with Japan is that it lacks 'Western-style' or 'inspired leadership. I don't mean Obama of course.... I mean ME! ME!

NZ Property Guide Philippine Real Estate GuideForeclosed Japan Guide Author Andrew SheldonApplied Critical Thinking | www.SheldonThinks.com

Camiguin Island, Philippines

Visiting Mantigue Island, Camiguin - Mindanao, Philippines

NZ Property Guide Philippine Real Estate Guide Foreclosed Japan Guide Author Andrew Sheldon Applied Critical Thinking | www.SheldonThinks.com

Forthcoming Upper House elections

Six months ago we highlighted the importance of the forthcoming July Upper House elections.

No factor offers greater prospects for reform than a two-house majority by the DPJ. There is no question that a long period in opposition will help to preserve this coalition together, as well as increasing their zeal for reform. A greater deal of voter support I think can also be expected, particularly given the frustrations with the LDP.

During this period PM Hatoyama needed to convince the electorate of his leadership skills in order to secure a majority of the Upper House. This would have given him control of both houses, which would have allowed him to achieve substantive reform in Japan.

Critics will argue that Hatoyama was a 'lame duck' PM. If I allow myself to be generous, I suspect that he tried to be uncontroversial in these first 6 months in the hope that he would win popular support by avoiding controversy. This strategy has clearly failed him. On the 2nd June 2010 Hatoyama resigned as PM.

His failings were that he allowed seemingly uncontroversial issues like the relocation of Futenma air base, as well as party funding anomalies to define his administration. I think this created the perception that he lacked depth. He was trying 'safely' to secure both houses of parliament. Yet, I think it was the most honest Japanese political administration in a long time. If we reflect on what he did achieve - they were:

1. Child allowance

2. Abolition of public school fees

Clearly these policies were for the liberals in Japan. I suspect though that once a two-house majority had been secured, we might have seen significant reform.

Both Hatoyama courted controversy by receiving large sums of money from his mother without paying gift taxes. Hardly a huge breach of ethics given that it was for a public purpose, and in most countries political donations are tax-deductible.

The resignation of Hatoyama and Ichiro Ozawa allow for a fresh stand before the Upper House elections. The question is whether the new PM can achieve the community support he needs to win the Upper House. This is a big ask just a month out from an election. The leader will need to do a lot of campaigning. Any politician does start out with good ratings, though they also start with some history.

The most likely new PM is Naoto Kan, who served as DPJ president in the past, has been deemed by some as the top contender to lead the nation.

Another option is Foreign Minister Katsuya Okada.

Kan, a former health minister who rose to fame for exposing in 1996 the ministry's responsibility for the spread of tainted blood, has kept his distance from the contentious Futenma air base relocation issue (unlike Okada and land minister Seiji Maehara).

It will be interesting to see if the Social Democratic Party rejoin the ruling coalition, as the DPJ currently have a slim majority in the Upper House. In the DPJ's favour is that the LDP has also experienced its own form of controversy with a series of defections and internal bickering. The new leader will need to win over the hearts and wins of swinging voters dismayed by both sides of politics. Cabinet's approval rating has fallen from over 70% after the election to just 20% today.

So what would Kan do for the party. He has indicated little change in the direction of the party, which is a positive. He remains committed to the US alliance, and his focus will be job creation in daycare services for children and the elderly. This party is attempting to be the voice of the young, trying to achieve generational change.

Tarutoko, also vying for the PM role, has pledged to reduce the number of Lower House legislators by 80. Transport minister Seiji Maehara intends to support Kan. Senior Vice Finance Minister Yoshihiko Noda, leader of an important faction critical of Ozawa, is also supporting Kan.

The new PM will be established by 11 a.m. Friday to be voted in as prime minister, so a new cabinet will be announced soon after. The DPJ holds a strong majority in the Lower House. The fact that Kan will have so little time, will not aid his cause, but he at least over other candidates, has a lot of parliamentary and leadership history to be judged upon, and not so controversial. Kan has signalled that he will increase taxes to reduce the growing public debt. Kan will also be one of the few PM's not to come from a political dynasty, i.e. The last since LDP lawmaker Yoshiro Mori in 2000.

Given that Kan has signalled higher taxes, and these were always expected, it will be interesting to see where the increased tax burden will fall.

NZ Property Guide Philippine Real Estate GuideForeclosed Japan GuideAuthorAndrew SheldonApplied Critical Thinking | www.SheldonThinks.com