‘Robopaddy’ has suddenly realised that buying property abroad doesn’t spread the risk.
Back in 2005 a strange creature emerged out of the Irish property boom. He could be seen at regional airports all around Europe, but particularly in Britain.
You might have seen him, sweating, laden down with paperwork, Celtic away strip with unsightly wet patches under the arm, squinting up at the monitor to see just how long the Ryanair flight from Teesside is delayed.
What does he care: he has just picked up half a dozen council houses in South Shields, just outside Newcastle, for half nothing. Do you remember the movie Robocop? Robocop went around the world trying to save the place, whereas our new character – Robopaddy – flies around the world trying to buy the place.
Like Robocop, he is an invincible good guy – an indestructible force – driven by his own mission, which is to buy as much foreign property as humanly possible. Robopaddy lives on his wits, by the seat of his pants. He is curious, adventurous and loves life.
He has never been to Newcastle until this one afternoon driving around in the company of a matey Geordie salesman. It’s not too bad really. The conversation revolves around Newcastle United, Shay Given and Gazza. The city is in the middle of its own buy-to-let boom. Rick the salesman sells about 40 per cent of his stock to Irish investors. They deal quicker and in bigger amounts than the equivalent English buyer, ask fewer questions and cough up deposits on the spot.
Rick purposefully drives him though the better areas, the leafy redbrick suburbs with clean Waitrose shopping centres, red pillar boxes and alarmingly precise road signs – all staples of upright, balanced, suburban England. The place is a shrine to red Vauxhall Astras, Courage pubs, dyed blond hair, sports and leisure wear and ill-advised Argos male jewellery endorsed by a premier league footballer.
This is Ant and Dec land – the interface of middle England and underbelly England which the Labour government is intent on privatising — and Robopaddy is a beneficiary, or at least he hopes he is. He checks out the show house, which has been vacated and tarted up for him. Neighbours peer over walls and from the white van parked in the driveway.
He’s seen enough, shakes on the deal, and by the time he is sitting down to his pale ale at the Formica tables in Teesside Airport, fruit machine flashing away as another work-shy feral Darren or Lee gambles away his giro, Robopaddy has added to his portfolio: ‘‘11 per cent yield – where would you better it?”
Today, in early 2008, Robopaddy is worried. His overall portfolio is looking shaky. He tried to offload the Geordie council houses and got nowhere. More to the point, he is now realising that his entire portfolio is interlinked.
It is slowly dawning on Robopaddy that the global property market, which he had argued was diversified, is in fact one large bet on a single asset class. Most crucially, this bet is subject to contagion.
When one market suffers, others do too. This idea of intertwining bets and contagion was reinforced for me years ago when I met an investor on a business trip to Hong Kong in 1997. A savvy investor, facing losses in Asia, he started asking questions about Ukraine where he had exposure. He flogged his Ukrainian assets to cover his Asian losses, despite the fact that there was nothing intrinsically wrong with the Ukrainian economy. The same is happening now in the global property market.
The Irish, who have been the biggest foreign investors in Britain, are now trying to flog their British assets to cover losses in Ireland. The only problem now for Robopaddy is that the British market is weakening quickly.
It is becoming apparent that the credit crunch in Britain is leading to the following dilemma: British banks are demanding more credit to restructure their balance sheets but other British banks are lending less because they are trying to do exactly the same. So the home builders caught in the middle with huge leverage are getting hammered. This is the macroeconomic backdrop which explains Robopaddy’s anxiety.
Because housing markets move slowly and underlying problems take months and years to play out, the best way to get a snapshot of the fundamental state of the British property market is to examine listed property shares. The picture is not pretty. For example, British Land’s share price has fallen by 45 per cent in the past year, wiping out all the gains it made in the past four years.
Last week, Britain’s second largest home builder announced that house sales had fallen by 14 per cent in the last quarter of 2007.TaylorWimpey, Britain’s largest home builder has seen its share price fall by almost 60 per cent, while Barratt Development has lost more than 70 per cent. Meanwhile, weakness from the housing market has seeped into industry with the Confederation of British Industry revealing this week that 44 per cent of its survey respondents confirmed declining order growth and 70 per cent believed the credit crunch would last longer than six months.
All this should be prompting the Bank of England to cut interest rates but it is in a catch-22 situation because underlying inflation in Britain is on the rise, particularly with food prices, which have risen by 5.3 per cent, and petrol prices, which are up 16.5 per cent. Even if the Bank of England wanted to cut interest rates to save the housing market, higher inflation prevents it.
This policy confusion is weighing very heavily on sterling which is below its all time low against the euro and still falling. Interestingly, the last time sterling was so weak, Ireland had a currency crisis prompting a major devaluation in 1993. This time we can’t devalue, so all the pain of the adjustment will be felt in the real economy, mainly through ever weaker house prices.
For Robopaddy – the swashbuckling property prince of a few years back – it’s becoming clear that all markets are related. The English market, which many Irish investors deemed to be stronger than our own, has proved over the past few months to be just as vulnerable. It is now not easy to sell in one housing market to offset losses in another. What goes up together, goes down in unison.
Having had my bollocks in the vice of a mega-mortgage on Black Wednesday 1992, I vowed: “I’ll never make that mistake again”. And I haven’t. Financial sobriety. Slow but sure incremental and iterative gains. The hare and the tortoise, etc. The ‘wisdom of crowds’ is, once again, revealed to be mass hysteria. Mob group-think. Get rich quick or die tryin’ as 50 Cent put it. Only he is open about being an amoral thug gangsta. Unlike the average British Estate Agent. As mortgage costs rise inexorably on overpriced ‘assets’, the future opportunities are limitless for the wise and the cautious.… Read more »
Excellent article but let’s not forget botox betty who bought a holiday home in florida and every other section of Irish society caught in this extended pyramid scheme. I wanted to respond to the “The game is up for the housing hype-peddlers”article but can’t find it, some of attacks on david in the comments section of the irish independent seem to say so what?, property will lose 15-25 of it’s value that only effects those whose bought in 2005 and 2006. This would have been true if there was an honest drop in the price in october 2006 when the… Read more »
Interesting you mention British Land. As you may recall, they quietly withdrew from the Irish property scene about 4 years ago. Telling, indeed.
If you’ve got a site with full planning permission then there’s never been a better time to build. I was reliably informed at the weekend that blocklayers in Galway have reduced their prices from 1.20 – 1.30 down to 60 cent per block layed.
I so wish you’d stop trying to coin all these phrases like “Robopaddy”, “Botox Betty” etc. They make me cringe for you!
But on the subject, you can’t deny that “Robopaddy” has made a tidy fortune over the last 10 years & with regard to the UK property market, ultimately it will recover strongly as structurally they have a HUGE undersupply of houses relative to their population growth…..
Cringe away Mark! Economics is far too important to be left to academics and their dry, inhuman analysis. No one is trying to coin phrases, rather I am trying to bring economics to life. Communication is about images. If you don’t like it, don’t read it! On you substantial point, the data show that the vast majority of Robopaddys got into the UK market in the past three/four years and, far from making a tidy fortune, most have not sold. So unless you are given to the panglossian impulse to value and asset before anyone has bought it, I’m not… Read more »
Nostromartus, The following is a cruel analogy but oh so true. “Economics is the invisible hand that guides all our choices, quite a few young men today might choose the pragmatic option of simply breaking up with long term girlfriends to maintain a standard of living they’ve become accustomed to, as one time these women were an asset doubling their monthly income, the reality of supporting a partner and children is like a cold bucket of water that brings their situation into focus. Men can act the maggot for another 10 years until house prices are more reasonable and will… Read more »
Nostromartus, The following is a cruel analogy but oh so true. “Economics is the invisible hand that guides all our choices, quite a few young men today might choose the pragmatic option of simply breaking up with long term girlfriends to maintain a standard of living they’ve become accustomed to, as one time these women were an asset doubling their monthly income, the reality of supporting a partner and children is like a cold bucket of water that brings their situation into focus. Men can act the maggot for another 10 years until house prices are more reasonable and will… Read more »
The 1990’s saw similar sizeable decreases in property prices that created much hardship for house owners in the United Kingdom who bought on borrowed money at the height of the bubble. When the property boom of the late 1980’s suddenly began to falter, most people either never noticed or refused to take heed. However, the signs soon became obvious when some began to notice that property was not selling as quickly as it had been. At the time prices continued to edge higher, but there was a distinct slow-down in the numbers of homes being sold and worry soon began… Read more »
P.S There is one big difference between what is happening in the UK and what is currently happening in Ireland, the fact is that Ireland is facing a housing slump with higher and not lower interest rates. No country in the world has ever faced the prospect of negative equity and a falling housing market without the cushion of falling interest rates.
I have a very small mortgage, I was advised by a so called mortgage advisor, to borrow twice as much money as I eventually did, but I lived in the UK during the 1990’s so I never fully trusted the housing game after witnessing people losing the shirt off the backs, back in 1992 (some of them Irish). So I found a place that I could afford even if there was a downturn, much to the bewilderment of some friends and the bank. But, rather than patting myself on the back, I fear the worst for most of my friends… Read more »
SpinstaSista I’m not altogether sure that marriage is so strongly related to property, wealth in general certainly, but not particularly property. The history of marriage is quite interesting. In the UK, the marriage rate peaked in 1970, and has been falling consistantly ever since. The general rule is that the marriage rate is linked, generally, to the economy. In boom times it rises (or falls at a lower rate), and in recessions it falls (faster). Marriage may make a resurgence, but even if it does, it’s unlikely to the be old fashioned “for life” model. Men and women both have,… Read more »
Stephen, I was responding to Nostromartus post above – scroll up and you’ll see it. He and his ilk are happy to have a live-in girlfriend who has a full-time job and helps to fund a comfortable lifestyle, but are not happy to take on the responsibilities of fatherhood and family life. Instead they would rather “act the maggot” for 10 years or so and are deluded and arrogant enough to think that they can pick up nubile 20 somethings when they are in their 40s and have a bit of financial padding. They’ll probably have a bit of belly… Read more »
I’d like to plead the Eddie Hobbs defence on this one, he recently made a statement that at a time when women are just starting to make money a.k.a wealth in their careers coincides with a period (ages 30-35)when they are most likely to have children thereby stalling their earning potential. Even if they do start back after maternity leave they still have to pay childcare fees, if you add in pay freezes and current inflation then they could find themselves in a lot of debt without even buying a house, hence stalled earning potential – (inflation + previous debts+… Read more »
Hi David,
I put together this Youtube Video about roboPaddy
http://www.youtube.com/watch?v=TKB-s6La-xg
Enjoy
David,
There is more than a hint of outright snobbery in your article. Would you prefer to see your stereotypes drinking all day rather than trying to make some money? There is a large part of middle class Ireland who are willing a recession so that the so-called robopaddies will be put back in their place and the old order will be restored.We can go back to the Doctor/Solicitor/BankManager on top and all the rest kow-towing. No thanks!
Hi John, that’s not what i meant at all. I written extensively on why the credit boom facilitated a fantastic period of social anarchy where the old class system has been turned on its head. I’m all for this type of stuff because the Ireland of my teenage years was a country ruled by a tight-assed professional class who had access to credit and who strangled the place with their petty snobbery. This is a country i never want to go back to. I’m with you on your sentiments regarding “no thanks”. best David
Hi, Its hard to have any sympathy for our Robopaddies. I’m sure some of them are decent enough human beings, and most of them have been ripped off, driven mad by greed… But still there was always something distasteful seeing these guys (and girls) on their house shopping ‘holidays’ pricing people out of their own country. And whats worse, often behaving like complete c****s in the process. There is a huge story quietly unfolding in places like bulgaria where paddy last will end up with an apartment worth f*** all, but with an extra 100k on his irish mortgage, just… Read more »
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I’m not really interested in the social effects of what’s happening – que sera sera. People will adapt. I think what we’re seeing in Ireland pretty much mirrors what’s been happening in parts of the US since 2005. A period of house price stagnation, accompanied by “it’s just a healthy pause” advice from vested interests, followed by declines in prices and increasing foreclosures and repossessions, increasing defaults on other types of debt, government advocating fiscal stimulus, central banks doing what they do to no effect – and, eventually, the whole mess spilling over in to the real economy with severe… Read more »
“There was an infamous nightclub in Limerick where women with Electra complexes went to meet married and divorced men, it was a horrific sight of men pushing sixty with comb-overs, medallions , whiskey red noses and beerbellies with young women hanging off them. That was a level of hell I’d never like to see again, it reached it’s zenith in 1997 when it was still vulgar to be rich so no one talked about these places ,but there was a cross section of women of all ages there and the men were out numbered 2/1. Men today take a lot… Read more »
shtove, the social effects are definitely what interests me. I dont give a toss whether we get deflation or inflation….. whats important is what is the effect on me, my family and the rest of us …. the comments already made on the celtic tiger are spot on… great stuff! maybe that nightclub closed down when there was better opportunities for young women other than bagging some rich oul fella. Maybe it’ll reopen again this year?, we could call it Greenspans just look at the War on Terror… some social effects…. 1) the public have become much more tolerant of… Read more »
Hi David,
Sorry about the cringe comment. I think I was in a bad mood when I wrote that. Maybe I’m cringeing at the thought of these ‘robopaddies’, ‘botox betties’, ‘breakfast roll men’ etc. I mean, is that what we’ve become? Ugh!
I reallly need to get off this island for an extended period! Seriously……
Garry said, on January 22nd, 2008 at 5:17 pm “shtove, the social effects are definitely what interests me. I dont give a toss whether we get deflation or inflation….. whats important is what is the effect on me, my family and the rest of us ….” Well, deflation/inflation is THE serious one for everybody to ponder. Government will muck about and pretend to do things, but their efforts will be quite futile – in fact, they are certain to make things worse. Look how they let the bankers run away with the credit system during the “good times”! Those bonuses!… Read more »