Are You an Optimist or a Pessimist??

The market has changed dramatically during the past four months.
Some of the vendors are getting realistic in selling their properties. For
others it will take a little more time to understand the change.
There is a definite nervousness in the market due to the
sub-prime crisis in the US and related problems in the stock
markets world over. Close to home few financial companies and
developers are feeling the heat. The real estate agents are
also feeling the heat with little or no response to their
advertisements. Auctions and Tenders are not as hot as they used
to be. There is a general feeling of gloom in the market. You can
pick up some great deals if you pitch in at the right price.
There is a saying in the real estate fraternity 'feed the greed'
to make sales. I am definitely not doing a good job at 'feeding
the greed' but I firmly believe that my task is to help my
clients build wealth by giving a realistic picture of the
current market.


Weighed against the problems in the US is the relative stability
in European markets and double digit growth in China and India
that shows no signs of slowing down. New Zealand economy is also
running strong and this is reflected in commercial properties
being more robust as compared to residential property market
which is showing definite signs of slowing down.

For the past fifty years American economy has dominated the
world markets. This is changing rapidly with emergence of new
financial centers and economies. This in fact is a very happy
development for the world economy. America however will continue
to be a very influential force for next few years. Any problems
in their economy will have an indirect affect on our
investments. Economists have been stating that the US has some
very serious problems of large deficits and nation spending more
than it earns. This has been aggravated further by the feather
brained leadership that has engaged America into two very
expensive wars that have dragged on for years with no solution
in sight . Great Britain lost her leadership of the world caused
by financial attrition of the two World Wars. USSR lost its Super
Power status by engaging in an arms race which their economy
could not sustain. Now it seems that the US is heading the same
path. But one must not under estimate the resilience of the
Americans. Whenever there has been a crisis they have risen to
the occasion. Whether it was the great depression or the attack
on Pearl Harbor. To write them off just yet will be a total
error. They have the capacity to turn around and once again
motor the world economy.

You can interpret the world and local economic events as an
optimist or a pessimist. I am an optimist. I think mankind has
enough resilience and resourcefulness to over come any crisis
and grow. Money supply is increasing in leaps and bound as never
before in the history of mankind. This is not because of
agriculture or manufactured goods as in the past. The world
economy will continue to grow exponentially because of the value
addition by the human mind in the intangible fields of software,
computers, entertainment and new forms of intellectual value
additions & efficiencies. It is not the population growth but
the money supply that will determine the property prices. Money
will chase stability and growth. We in New Zealand are
positioned perfectly to take advantage of this phenomenal
growth.

Property cycles are difficult to predict. There is a residential
property cycle that has seasonal fluctuations within the main
cycle. Last year most residential investors in a survey felt
that the property clock was at 2 O'clock. I would believe the
clock has moved further this year and is at 3 O'Clock position.
Things may not look so bad in the coming months due to the
approaching summer and the following election year wherein some
money will get pumped into the economy. There may be yet another
'dead cat bounce'.

The fluctuation in the commercial property cycle is more
difficult to determine as it does not change gears dramatically
because of the commercial leases tend to be long. Our economy is
running strong with historically low unemployment rate. It is the
external events and the media that I believe have psychologically
affected our market. As to how long this negativity will last is
any ones guess. The market fundamentals are strong and in due
course this should turn around the sentiment that is currently
affecting the market.

I have been investing in commercial properties since early
eighties. There was a bull run in India for nearly two decades
(property cycles have a funny way of mocking at our analytical
minds) before they not only came to a grinding halt in 1999 but
nose dived by around 20%. Everyone in my family and friends
thought that I was some kind of a property genius during the
bull run. Even I fooled my self in a similar belief till things
came crashing down. I must confess that I was totally confused
and unprepared when the property prices crashed & the down turn
that lasted for nearly 4 years. I think my real education
started with the hurt the down turn caused me. Before that I was
a dare devil cowboy who rode the property boom. The only good
thing I did in my fool hardy days was that I continued to buy
property. When the market nose dived I froze. I was totally
unprepared for it. Not only did my net worth go down but I lost
some of my tenants that effected my cash flow. To reduce my risk
I sold few of my investments and paid off all the mortgage on my
house. I had plenty of cash but did not buy a single investment
during that period of 4 years. My cash just sat in the bank
earning 7% giving me false sense of security. In mid 2003 the
markets turned around and grew for the next 4 years by 60% to
70% every year. My house that I sold prior to migrating to New
Zealand in April 2003 increased in value by 4 times in 3 years.
Why I am narrating my story is because had not the fear factor
frozen me into inaction during that depressed period I would
have been financially free today. I lacked the knowledge to
invest in the down turn market when the money is really made.

One of the good parts of my job is that I get to interact with
my clients some of whom are multi-millionaires and very
sophisticated in their investment strategies. Inter action with
them has been a great learning experience for me. Some of the
thoughts that I write are results of this interaction. Sharing
these thoughts with you is an enhancement process for both of
us.

Over the last few years I have also had the opportunity to play
various types of property board games to enhance my investment
skills. Each and every time one message comes out clear 'You
have to buy assets to grow rich'. This is specially so when the
markets and sentiments are down. Most people buy on sentiments
rather than market fundamentals. In case you freeze like I did a
great opportunity is lost and it takes years to get that
opportunity again. At present sentiments are down but the market
fundamentals of the New Zealand economy are sound. This is a good
time to hunt for bargains.

There will be hick ups in the world and local economies. This
will run sentiment down and create opportunities. Human species
is extremely clever and always finds ways and means not only to
survive but enhance itself. You have to take one look at history
and evolution of mankind to believe this theory. Please also look
at the property statistics of the past 300 years. The property
growth has survived all down turn in economy, wars & gloomy
predictions. The long term prospects are not only bright but
very very bright. I plan to buy at least two to three properties
before Christmas and will continue to buy into the next year
because I have unflinching faith in the future of mankind. The
wealth in this world because of technology is poised to grow
exponentially in the coming years to levels unsurpassed by
mankind. A large chunk of this wealth will flow into property as
it has done through the ages.

Happy Hunting !!

COLIN KUMAR
Commercial/Industrial
Barfoot & Thompson Commercial
m. 027 684 1114 | p. 09 358 0989 | f. 09 358 4048
PO Box 1798 . Shortland Street . Auckland City
c.kumar@barfoot.co.nz | www.barfoot.co.nz