Sunday, November 1, 2015

Buy at Totalitarianism's Peak?

FT is out with a Gideon Rachman feature section, Where are the world’s riskiest property buys?

He writes:
[A]s I travel the world, I can’t stop thinking about property prices. In fact, my interest in property is only stimulated by my day job as the FT’s foreign affairs commentator. As I stare into estate agents’ windows in cities around the world, I find myself wondering how local political conditions are going to affect property prices.

I have even developed a theory of how global property investors should think about geopolitics — call it “the geopolitical play”. The thing to look for is a combination of good fundamentals and bad times. In other words, a place that should be prime real estate, but that has been messed up by politics. The idea is to buy now, when times are bad, and wait for politics and property prices to improve.
The problem, of course, is to know when totalitarianism is peaking and when it still has decades to go. Rachman understands this:

However, anybody tempted to make a geopolitical property play needs to keep in mind many different considerations. I would point to four in particular: timing, morality, currency and security of tenure.
The case of Cuba brings together all of these considerations. As a young journalist in 1990, I was inspired by colleagues who had made their careers by having the foresight to move to Prague or Warsaw, just before the collapse of communism. I considered making a similar move to Havana to await the counter-revolution. Thank goodness I didn’t, because I would have been waiting a long time. Since political change has been slow to come to Cuba, Havana, the capital, has not enjoyed anything like the same property boom as places such as east Berlin or Moscow.

However, as John Paul Rathbone reports, things are now beginning to move in Havana with the restoration of diplomatic relations between the US and Cuba.
Still, if you get the timing right, the rewards can e significant. The story contains this table and pay extra attention to the East Berlin play (Note well: The 1991 price was 2 years after the Berlin Wall came down) :

Where are the plays now? FT says there may be a second opportunity with Moscow.
Jack Farchy, the FT’s Moscow correspondent, writes: “For expats accustomed to boom-time Moscow of the past decade, the collapse in the rouble has raised a tantalising possibility: entering the real estate market at knockdown prices. ‘Business class’ residential property prices have fallen about 45 per cent since the end of 2013 according to Alexander Shatalov, head of IntermarkSavills. That means a small flat in central Moscow, such as the one I live in, might sell for about $300,000. That does not suggest an opportunity on the scale of the 1990s, but it still tempts. Shatalov reckons the market is bottoming out. Nonetheless, I am holding off. The future of Moscow property prices depends more than anything on the price of oil and President Putin’s foreign policy...
And there may be much more upside to Havana, but its complicated.  John Paul Rathbone, FT Latin America editor, explains:

Today, although there is a chronic shortage of housing, lots of foreigners are wondering again if they can buy a slice of Havana, the “Paris of the Caribbean”, as it was once known. Most assume they can waltz up, put money down and watch their asset’s value grow. Prices certainly seem to be spiralling up. But it is not so simple, thankfully. In my limited experience, the best way to get things done in Cuba is by making sure everyone benefits. One legal problem: only resident Cubans are allowed to own property. That means you need to find someone you can trust enough to hold title while you finance the project. Marriage offers some guarantee. But you hear as many happy stories as unhappy ones.
For the very daring there is  Kinshasa, Congo. Tom Burgis, FT investigations correspondent and a former correspondent in Africa, writes:
 Today, a geopolitical play on Kinshasa might seem insane. Joseph Kabila is showing every sign of wanting to blow a hole in the constitution to extend his presidency beyond term limits. The national fuse has been lit once more.
But what if Kabila, for years said to be happier playing computer games than engaging in matters of state, stood aside instead? That is conceivable, if still a long shot. Congo just might stage a respectable transition. Its many fine minds might be unleashed. Kinshasa has the style, the music, the bars. It is a dash of tarmac and some hydroelectric power away from really humming.

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