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Living the Sub-Prime Life

Category: , Posted:02 Feb 2008 | 12:00 pm

As I sit in my hotel room in chilly Hong Kong, the TV is blaring news of a market meltdown. Major indexes are capitulating in the US, Europe and across Asia like the EKG of a heart-attack patient. Grabbing headlines in America are two leading democratic, presidential frontrunners sparing in something akin to an Ali-Fraser rematch. In Thailand, the lights are on, but nobody is home in a vacated leadership role.
Far too many questions remain unanswered, while the "recession" buzzword keeps popping up with unsettling regularity. I'm reminded of the words of the late, great Hunter S Thompson, uttered during the bleak Nixon era, resonating with, "When will it end, oh Lord, when will it end."Being neither an economist nor a polished political commentator, I have no idea when it will end. My lack of insightful analysis into the current state of affairs puts me in the same boat as the majority of property investors and market watchers.
The trigger that was pulled to start the chaotic events of the past few months appears to be the US sub-prime mortgage crisis. Viewed from a distance, tales of people losing their homes and being evicted are akin to a replay of Hurricane Katrina, with most people wondering just how this can happen in a developed, first-world economy. Go deeper and what's often overlooked is that many of the foreclosures are on second- and third-home purchases. The home-loan industry has evolved into something similar, with junk bonds and scandals in savings and loans.
During the feeding frenzy over the past few years, property has been bought with zero cash down. In many cases, there has been negative equity, often with more than 100% of a property's value, with perks offered to buy furniture, automobiles or vacations. It was as if someone at the bank left the vault open and nipped out for a cappuccino. Banks, institutions and private-equity firms fed a frenzy that was geared towards top-line growth, increasing stock options and million-dollar bonuses.
As for property in Phuket, it's difficult to ascertain what it all means. Looking back to the real-estate boom in Phuket of six years ago, it interesting to analyze what the market fundamentals were. The compelling dynamic was an accessible, international resort destination, a reasonable cost of living, access to health care, schools, golf and marinas, and the hospitality of one of the most exotic cultures on earth. Development shifted into high gear and construction on the island went into overdrive.
I am a part-time developer, sometimes an investor and most often a consultant. I'm not throwing in the towel just yet. Real estate, for the most part, is about long-term, stable investment. If you bought on fundamentals, chances are that over time, the yields will rival those of any other investment. The past few years have seen something of a casino-like atmosphere in Phuket. If you want fast money, I'd suggest heading to Macau or Hong Kong, but remember that the house always wins and you might find yourself borrowing money just to get back to paradise.

There are storm clouds out there and the climate can be unpredictable. For those already on board the property boat, it's going to be a choppy ride. Time to kick back with a good book, sip on something alcoholic and wait it out.

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