Currency appreciation helps!

January 22, 2013


The currency in the country in which I live has appreciated gradually for the last 12 months. Because so much of my net worth is tied up in assets that are denominated in this currency, and because I count my net worth in dollars, I have seen a $30K increase in my net worth just based on appreciation (assuming I can sell when and if necessary at my very conservative valuations – which shouldn’t be a problem). Also, from what I can understand, the government here recently changed a law on sales tax on second homes (I have two here), cutting the tax by half. All of this is good stuff. They also changed the LTV rate at which banks can make mortgages. These rates are still much higher than those in the USA (I think they require 30% down here) but all of these moves should have positive effects on property values here. In 2007, when I bought my first place here, I bought just as the bubble was bursting, but I bought a place so unloved that it wasn’t really affected by the bubble anyway. I got lucky because the government planned a subway line that goes right by that place, which immediately put a floor on the price right after I bought it. The second place (where I am living) will be affected by the new law. Future tax payments (you pay sales tax in phases here) will reflect the new law.

I bought my second place during the prolonged housing slump in this country. I really didn’t plan it that way, but I did see quite a spate of news stories about people who are “house poor,” meaning in this context that they cannot sell their places for what they originally paid. I don’t want to paint the people of my host country with a broad brush, but during the housing boom proper, there was a strong “herd mentality” on display, with the TV showing images of people lined up around the block to buy into some new apartment village going up – at rates that would climb even while they were standing in line. Even then, I thought, “Why don’t they recognize a frenzy when they see one?” Most were buying with the hopes that they could immediately list it and get a “premium” of about $30K, sometimes even before it was necessary to pay all of the taxes on it. I ran into plenty of bag-holders while shopping for my second place, but none were really interested in selling at a loss, even though I stood ready to buy and was prepared to walk away, which I did more than a few times before an offer finally got accepted. The thing is, there are few people here who are so overstretched that they can’t make the payments if necessary. They’re willing to wait.

That isn’t to say that some people’s finances here aren’t a mess due to their speculative home-buying. There are cases of people only employed part time juggling the payments for two or three properties (which are sold years before they are built here). They can brag to their friends and to anyone else who will listen for about six months how they “own” these properties here and there, after which it comes time to start making the payments, which, if the place is new, is often $25K every three to six months, with a balloon payment (30%) due when the unit is finished. This allows them time to bail or dump the place but many fail to do so, and should a real slump in the economy come along, they’re stuck and the place goes to auction, which really isn’t well known here. I looked into buying at auctions but from what I could understand, 1) the banks want just as much as you could get from any real estate agent, and 2) you were dealing with sharks (and snakes) when it came to where the real easy money could be made. I met a few women who worked in real estate offices who had gotten in over their heads and were using their offices to cart anyone who walked in looking for anything over to look at their obviously overpriced apartment (typically housing various family members). I also know that it is the politicians’ wives who make the big bucks here, as their husbands come home and tip them off about where the next apartment village will go up, with the wives then scrambling to buy farmland from farmers with no more than an elementary-school education; they get a few million dollars waved in their faces, sell immediately, and then the politicians’ wives sell to the government housing authority for as much as a 10x profit. This is a regular feature of real estate in the third world, and is a well-known phenomenon here.

My next step is my USA place, which will likely be in the desert southwest. I am going to the USA in April and will make reasonable offers should I find anything. It is also helpful that Zillow now shows foreclosures. Work has slowed from the crazy Oct/Nov/Dec period, but it is steady and I am busy. I am of course getting closer to paring it down greatly to just a few good customers and moving back to the first world. Like I noted in an earlier post, younger people have plenty of energy and can deal with the hassles of living in a country like this, but once you’re looking at 50, those hassles really are hassles, no longer quaint or one of the wonders of travel, and you know that every day you are not living in one of the world’s most convenient and developed countries is one less day that you will ever do so – giving up your birthright in a sense. I hope to be gone from here by 2014, with both places rented to stable tenants whose employers pay the rent straight into my bank account here, from where I can transfer it, all in one shot, to an American bank already converted into dollars. There will be bumps on that road, but by then I’ll have one million little shock absorbers.