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Untitled Document
Real estate investments make up the most traditional forms of investments with the end being financial gains and family savings.

Amongst the motives that have encouraged many Italians to concentrate a consistent part of their savings on real estate investments is the progressive increase in value that has gone hand in hand in the last decades, consolidating it, the national economic growth. A growth which has by now become part of the collective memory, becoming almost a given..

 
 

This doesn't mean that what has happened in the past will necessarily repeat itself in the future. Obviously though, we hope is this case.

But a prudent attitude and a critical eye towards attitudes that are commonplace should encourage every wise investor.

Even in Italy in the last decades, in certain areas and for certain types of real estate investments, even for long periods, there has been a decrease in prices quoted.

 

Beyond that, Japan's experience shouldn't be forgotten. This is a place where for years there has been a serious crisis in the price of real estate, which has had a huge negative effect on the entire Japanese economy. The crisis in the Japanese real estate market can't be underestimates on a global level, in as much as Japan makes up the second most powerful economy with regard to GDP and is also, thanks to the savings accumulated by Japanese families, the first credit lender world-wide. Beyond that, Japan boats very high construction standards, uniformly, and important urban areas. To be precise, Japan holds 128 million inhabitants in the Greater Tokyo area, with 30 million residents, it's the largest metropolitan area in the world.
The case of Japan should particularly worry Italy. There are many similarities that exist among the economies of the two countries that up until a few yeas ago, were often cited: citizen's high propensity to save, an aging population accompanied by a shrinking birth-rate, and economies that aren't very liberalized, especially in their banking systems. All of these are similarities between the economies that for a while, in particular since the Japanese railroad has shown signs of quickening that haven't been mentioned.

On the other side, the country that had the most dynamic European real estate market last decade, Spain, with average prices practically doubling in the last 6 years now shows sign of slowing sales and lowered prices.

In particular, Re-Max International, the second largest US intermediary real estate firm, has reduced the value of over 5 thousand Spanish housing units, with lows of even 26 percent.

This happened while RR de Acuna & Associates of Madrid, a Spanish real estate agency was cutting 10 percent off of the price of vacation homes.

Even in Italy there is certain stagnation in sales and it's since 2005 that "housing values have stopped growing".

This is what Federico Oriana thinks, President of the National Real Estate Companies' Association. According to Oriana, at the moment, Italy is not on the verge of a housing market crash. "For a series of reasons, I personally think this doesn't exist in Italy because: 1) the average prices in real terms are not higher than those in 1991; 2) It's at least one and a half years that prices have stopped growing; 3) the demand for new housing, is still larger than their supply on the market; 4) we are amongst the European countries where the average (housing) prices are lower and we are not amongst the countries where they have grown more in the last 8 years"

He continues to say, "There is no risk of a crash, then but of course there is the danger of a prolonged stagnation caused by the government's decision taken from 2006-2007. In Italy the rate of family home ownership is one of the highest in the world ...so, a drop in prices would affect almost the entire population. Thousands of real estate units in bankruptcy would be immediately put on the market, triggering a domino effect, construction activity would slow down as a result of the scarcity of new investments, with a huge negative effect on GDP and the unemployment rate. These are the question that the government ought to ask itself, while there is still time, a real estate crisis here (in Italy) wouldn't find adequate compensatory gains in other economic and productive areas".

To these stances, which certainly have a "political" meaning, but that can't be ignored, must be added other worrisome signals. This is the study, for example, done in March 2007 by the real estate group Sarpi Spa of Milan, with information that is particularly relevant to the centre of Milan where, as a result of degrading situations (drug dealer, prostitution etc.) in certain areas, the price of real estate has suffered a heavy blow. Some streets specifically neighbouring: Buenos Aires 30%, Corso Como and Corso Garibaldi 25%, Viale Vittorio Veneto 15%

Of course these are particular situations but in many main cities, these days prices frequently go the way of "leopard skin spots", affected by factors like immigration and general degradation.

This is not to devalue the hypothesis of a possible future depression of real estate in Italy. Absolutely no! We think and hope that, for motives that are typically attributed to Italian characteristics, the value of real estate will go up just at the moment of greatest stasis, but will maintain in the long run, positive values.

In favour of our conviction is the scarce propensity for change in the investment strategies of Italian families. In fact, Italian diffidence towards financial investments is motivated beyond the scarce comprehension of the dynamics that regulate such markets (and they have a point!) but also by the concrete fact that many families still take for granted the negative repercussions on their savings that would come from crises in financial markets, maybe not recent ones but for sure some that haven't altogether been absorbed. Both financially, most of all, but also psychologically. This is just to keep in mind, for those who had forgotten, the future in the economy, beyond forecasts, is unknown. And that such a possibility cannot be excluded.

Each investor, without overlooking all of the possible analyses of the actual market and the entire hypothesis regarding future scenario, should practice with humility that which is usually defined, in technical terms as "differentiation".

If it is not scientifically possible to see into the future, an intelligent differentiation of assets also leads to a differentiation of risk. This protects savings from eventual events (which can hit only one part of these investments). In the long run, it's not the reduced rent off investments that cause damages that can be at times irreparable. It is the destruction of initial capital (even somewhat) or of the good that produces rent.

To be precise, with this, we don't intend to give investment advice and the table above is purely for reference.

The world has changed a lot in the last century. Huge capital investments are just a distant memory and collective memory is lacking in this drama both human and economic, caused by the shift from an agricultural to industrial society. And still we are (despite the resistance) transforming into a post-industrial society, abandoning the very industrial economy that seemed to many the final point of arrival. And the world around us in changing quickly. Really quickly.

Distances seem almost zeroed. The global economy (beyond all the demonizing of it) is by this point a reality. Everyone can see this simply by watching the container ships pull into the port of Miami. Huge, imposing containers marked on the side: China. The scene is very impacting. Not just because of the size but also because of the implied cultural exchanges that come with these containers. The stretch of containers is impacting, gigantic cranes unloading these containers from docked ships that then are moved onto trains that carry the goods within across the country.
But, this spectacle doesn't end here. The surprise continues when one takes a trip around a shopping mall, the shops within of all types and sizes that characterize Miami carry goods that come almost exclusively from abroad.
And in these ostentatious displays, the country of origin of the products is labelled visibly unlike in Italy where the country of origin is hidden. Where many important "labels" and "brands" only subject their merchandise to "quality control" in Italy, occasionally attaching a button and the "made in Italy" tags to this very merchandise produces in India or in Eastern Europe.

 

It isn't possible to know if American companies and their mangers have chosen the correct path by almost completely delocalising production activities to third parties in other countries. The economic results in the next decade will be the ones to say so. We know that these decision were made completely independent of political or ideological conditioning, in accordance with opportunities that were offered by the market with the end goal being long term profits, in the long run, for their respective companies.

Markets are sovereign judged so, we will see in the next few years.

Well then, in these global scenarios, what is to be said then about the "brick" world?

Simply that the real estate market, amongst the oldest markets known, exactly follows ancient rules even within the context of big changes.

 

We are obviously speaking about the real estate market understood as "revenue and investment" because those properties that are bought with personal use of the good in mind don't have to necessarily respond to the requirements which include for example: profitability of the investment, propensity to appreciate within a certain timeframe estimated for the investment or factors including the risky-ness of a country or it's currency.
 

In the case in which one were to want to buy a house to live in, especially in accordance to the habits of Italians that maintain ownership of houses in which they reside for long periods (in the USA the average window of ownership for a home is around 5 years) parameters for which the buying price can scarcely be significant if compared to the arc of time in which one will have ownership of said house, an arc which could extend even for decades. The acquisition of a house in which to live, in which the "use value" prevails, still is at the same time, an investment and can become in time, especially if the deal was made with a cautious eye, an excellent means of family savings.

Even the acquisition of the classic second home for personal or occasional "mixed" use, responds mostly to criteria linked to the perception of the level of gratification derived from possession, beyond it's utility, even for breve period, of the same good. Even in this case, one often proceeds with the classic lines of reasoning: 1) I like it 2) I have the money to buy it or I can have the money lent me because my income allows me to pay interest on capital 3) I'll buy it.

 

Obviously the "investment" part in this case is more relevant, in as much as personal use is, from the temporal point of view, more limited than in the case of residential housing. The expected appreciation of the real estate unit prevails in this case, rather than those coming from revenue on the place. In this case too, we are talking about an excellent vehicle in which to channel family savings.

The last case is the one in which the investments is purely focused on both the revenue that the property can generate as well as the prospective appreciation of the property. Even in this case alongside financial instruments, this provides and excellent outlet for the protection of personal or family savings.
Obviously, the "investment" part would require greater "coldness" of mind in the decision making phases. When people say that the future cannot be foretold, they are no saying that calculated forecast can't e made. Uncertainty of the future is part of the risks businesses have. Therefore, each investment, even real estate one, in as much as they are similar to the investments company's make, requires a forecast analysis.
Not just that but, the tools with which to direct one's investments should be placed next to this forecast calculation, this process takes the technical term "asset allocation"..
To synthesize, based on the actual political, economic and financial scenario, decide the actual amounts of savings to direct toward financial products (follow the choices of certain sectors, and types, titles and obligations and the currencies in which to invest) and that which to direct in real estate (follow choices from sectors and types from geographical areas and currencies and yields on hold). This is a criterion that should be followed independent of financial availability or income. In practice a little bit here, a little bit there. If there were just a little to put away, maybe the less risky investment would be chosen. But, one cannot leave out this analysis.

Let's return to the real estate investment. In the case that enough savings or income was available to be leveraged, and one decided to proceed with a real estate investment, the acquisition of a property require a series of passive voices and a series of active voices that are worth summarizing.

The passive voices consist essentially of that which can be called "financial passivity", which are maintenance and building coasts, consultations and taxes. Beyond what we can define as "immaterial passivity" made up of the costs the investor incurs to bring himself up to date with the socio-political norms of the country in which he has invested, an investment which is rather immediate if that country in which he is investing is also where he resides, more onerous if he has invested abroad. In practice the management of what is referred to as "country risk".

The active voices instead, comprise the "financial assets" which include everything from the rent made on rentals to the eventual re-evaluation at the moment of sale, the "immaterial assets" which include the gratification for use of the property and the possession of the good.

To conclude, just like today there are tools available for financial investments that allow for wide differentiation between "currency risk" and "country risk" making it so that consistent part of Italians' financial investments has already been moved outside of Italy, also for real estate investments, the reduced cost of long-distance flights together with the propensity to take long trips for vacations, has made commonplace, always for a larger part of Italians travelling abroad and getting to know new countries. These regular visit are encouraging an ever-increasing number of Italians to invest in real estate abroad.

The main motivations include: a family vacation home or study abroad experiences for their children (especially in English-speaking countries). In these last years, the number of Italians that have taken on real estate investments abroad for rent production has also grown.

 

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