My "big picture" view to speculating in real estate is summed up in Chapters 24-27 of CI90's. In brief my argument is that vastly improving technology has made it unnecessary to be in or near the cities to work. And you don't want to be near them anyway; they're crowded, dirty, highly taxed, and socially explosive. Rich people will increasingly locate out in the countryside, but not, obviously, just anywhere. They'll go where the scenery and climate are beautiful, but also where there is enough infrastructure to offer some of the advantages of the big city. Make no mistake, there are plenty of disadvantages to investing in property. But land is a likely beneficiary from current trends in technology. And although a government can always steal it from you, at least it can't just evaporate, like stocks or currencies can and do. The template for this trend is, as I've long said, Aspen, Colorado- more on that peculiar burg below.
The best time to buy straw hats is the winter, and the best time to buy property is during a financial crisis. I was in Indonesia and Thailand during April with the intention of doing some bargain hunting.
Indonesia isn't so much a country as an empire, composed of about 16,000 islands populated by around 200 million people. Although it was clear to me the real bargains would be in Jakarta, I decided to pass. The city is a dump, where I've no desire to be in the best of times, and with the army running around shooting rioting students, and the general population warming to a cyclical purge of the ethnic Chinese-well, you have to draw the line somewhere. It seemed to me that Bali, the next island east of Java, but with a totally different culture, might offer a good compromise between risk and reward.
I spent a couple of days driving around with brokers, trying to make them understand what I wanted: something large, private, on the beach, and absolutely first class. I won't bore you with the details; I found a couple places that would make the cut, but even after the collapse of the rupiah the prices didn't impress me as a bargain; you actually get more for your money in Hawaii these days, thanks to the Japanese exodus. The problem is that Bali is entirely driven by foreign, mostly European, money; it's insulated in many ways from the rest of the Indonesian economy. Food and labor are truly dirt cheap, but the foreign influence is too strong. Property owners think in dollars, not rupiah.
The next stop was Phuket Island, Thailand's premier beach resort. When you see the travel posters from this country with incredibly beautiful rock formations, white sand beaches and crystal clear water, they were all done in this area. Incidentally, I far prefer it to Bali, which is awash with over-priced mega-resorts, hotels indistinguishable from those on Miami Beach, unless you go far into the interior, where there's basically nothing but villages. Unfortunately, although Phuket prices were more realistic, i.e., off about 30% in the last year, there were still no bargains, again because the market caters heavily to Europeans. My advice is that if you want a pleasant vacation in either place, you reserve at an Aman resort. You'll pay $500 a night, about triple what the abominable Hyatt or Sheraton chains get, but Aman hotels are far above whatever is in second place (probably the Four Seasons); it's worth the money, assuming any hotel room can be worth that much.
I then went to Bangkok, a hot and crowded place, but my favorite city in this part of the world, probably even ahead of Hong Kong. Poor planning got me there in the middle of the Thai New Year, which meant everything was shut down for a week, and I didn't get a chance to see a lot of property. On the other hand, the whole city goes wild with a water festival; you walk down any street and after five minutes you're completely soaked from squirt guns and buckets of water thrown at you, day or night. It's great fun. Bangkok reminds me of L.A. without the social problems. If you're thinking of living in the Orient for a while, this is the place.
I'm in touch with a number of property brokers in Bangkok, and will give you specifics in the months to come. There must be a hundred tall, see-through buildings, that can be had for a fraction of replacement cost. I don't see any particular rush to buy, however, because the financial meltdown here isn't over yet. But it is time to start looking so you know what to buy when the bottom arrives. Even at present prices, however, it seems that a I 1% per month triple net return is available.
A Word On Aspen
When will the 40 year bull market in the Aspen property market come to an end? Frankly, it's been "overpriced" relative to almost everything for at least the last 20 years, and it's dangerous to call a top on any trend that's both so long-lived and driven by such powerful fundamentals. But at this point it's simply out of control. One house on Red Mountain recently sold for its $20 million asked price, and there are dozens appraised at over $10 million. The average sale price is around $2.2 million, and that typically gets you 3-4,000 square feet on a small plot; an acre lot in a good area can go for $3 million, or more. That's pretty rich for a town of 6,000 located more-or-less in the middle of nowhere.
Other than the fundamental factors I've detailed, what's really driving Aspen has been the stock market. Guys who have made tens of millions of dollars are taking their businesses public are buying without looking too hard at the right side of the menu. When stocks head down in earnest it's going to have a devastating effect on Aspen.
But it's not just that which gives me pause; maybe the "New Era" really has arrived, and stocks will go up forever (not). The real problem is that an atmosphere of active class warfare has taken over the town. It used to be that one of Aspen's nicer qualities was that you could go to a party and expect to find the millionaires socializing with the cab drivers and ski bums on an equal basis. No more. The city and county governments are totally controlled by doctrinaire socialists, sandal-clad busy-bodies without experience, money, sense, or merit, who aggressively try to punish the rich with one new tax and regulation after another. Meanwhile, they're literally filling the small valley with thousands of price-controlled "employee housing" units, occupied by people who can't afford to live there, many of whom work for the rapidly expanding governments, and all of whom can be counted on to vote for politically correct candidates. They actually seem to believe that if they can get rid of the rich folks they'll be able to move into their deserted mansions. It's no longer a gemutlich little town.
The valley swarms with police cars, and the cops no longer have a mellow small town attitude. The one main highway is often bumper-to-bumper with traffic, even in the off seasons. Parking in town is almost unavailable, in part because of the masses residing in subsidized "stack-a-shack" housing put up by the city and county. Rich women have to be careful about wearing fur coats, for fear of being insulted. Crime is becoming a real problem, whereas as little as ten years ago most people wouldn't have thought of locking their doors. Probably a third of the county's l5,000 permanent residents are illegals from Mexico and Central America, mostly living in densely packed trailer parks. I have no problmem with that in itself, but a lot of those you see wandering the streets seem to be unemployed and looking for trouble these days. Very few speak any English, even after several years; when you hire one (typically for $l0 or more hour, paid in cash) you'd better be able to speak Spanish. Construction costs for anything you'd care to live in start at around $200 a square foot, not counting fees, site preparation, and other expenses.
All in all it's an unstable situation, and deteriorating rapidly. At some point people with money are going to figure there are nicer places to be. Aspen property has been very good to me, but I'm cashing out. Where to go? Prices have been soaring in small resort towns everywhere, especially those with skiing and a local college. One I'm going to check out this summer is Sheridan, WY, but I fear there are no bargains anywhere in the U.S. The U.S. resembles Indonesia in l996 to my way of thinking. It therefore makes little sense to try to "invest" in the U.S.
Aspen property prices are an excellent indicator of the current financial mania. Other indicators? Large yachts are selling for all-time high prices, and manufacturers are backordered for years/ the same is true of personal business jets. The price of polo ponies is up by 50-l00% in the last year alone.