There are two subjects which I have learned to tackle with care. One is pets. I have to admit, I just don’t get the pet thing. No doubt this proves that I am a just a heartless, self-centred wretch so I won’t even go there!
But I will go to another dangerous territory. House prices. Here again there seems to be a great mass of hackles out there, just poised to rise up at any suggestion that good old bricks and mortar are not the best investment one can make.
London listed gold miner jumps
- The share price of Cluff Gold (ticker: CLUF) rose 8 percent today. This interest from investors came as the West Africa-focused gold miner announced its Kalsaka mine in Burkina Faso has been fully commissioned.
- Cluff forecasts production at Kalsaka for the full year will be 60,000 ounces. Broker Evolution says the company “should be producing gold at an annualised rate of 100,000 ounces a year by the end of calendar 2009.”
Escaping from the rain last week in glorious Devon I read Paul O’Grady’s autobiography ‘At My Mother’s Knee.’ In this O’Grady (the creator of Lily Savage) recounts a story about his father.
Back in 1946 Patrick Grady (the O’ was inadvertently added by the passport office later on) found himself the proud possessor of a farm in Ireland. But, alone in the house and with no great appetite for farming, he decided to sell up. The farm was sold for £885. His two sisters received £60, while Patrick Grady got £432 1s and 9d. The rest – £392 18s and 3d – went on legal fees!
Grady moved to England and, rather than invest this money in a new home, he spent the lot on fancy clothes, parties, and the girl who was to become his wife and Paul’s mother. ‘That money just slipped through our fingers like fairy gold,’ she explained. For the rest of their lives the couple rented a house in Birkenhead, and eventually came to regret that their youthful frivolity had barred them from the ranks of wealthy home owners.
What Grady’s story tells us about property ownership
To me this story carries two messages. The first is that the costs of owning property are high and often conveniently overlooked. True, I don’t think that even the most rapacious of agents and lawyers would walk off with 44% of the proceeds of a farm sale these days, but even so when you add up the costs of buying and selling property and then running it – furnishing, utilities, insurance, local tax and maintenance – owning property does not come cheap. But the other message is that all of us could recount similar tales…
Back in 1985 I bought a fairly grotty house in south London for £39,900 and was astonished to see it advertised for sale recently for £350,000 - a 777% gain! We all know that we would have been better off if we had bought property years ago – but does that necessarily tell us what the future holds?
Another item of holiday reading suggests not. This was the Government’s Green Paper on the funding of care for the elderly. This laid out a range of options, including one that could see elderly people compelled to pay up to £20,000 to insure themselves against the cost of being looked after for the rest of their days. Whether this is the correct answer or not, I don’t know. But the question is clear enough. The demographic pattern and lengthening life spans means that more and more old people must be looked after.
The outlook is not good for the property market
However this is done, whether the elderly are tended by visiting nurses in their own house or end up in a care home, this is not cheap. The State is certainly in no position to be generous, and so the costs must inevitably be borne by the old people themselves or their families. An awful lot of money, carefully saved over a lifetime, is going to end up in the hands of carers of whatever shape or form. Much of that money would have been passed down to the next generation, who would have spent it in the housing market.
Given the relationship between incomes and house prices the only way to explain the level of the latter is that most buyers have been able to put up a decent deposit, and much of this will have come from inherited money. Now, I think it inevitable that savings will be depleted by the cost of care and that the next generation will inherit less than they might have hoped. And I think that this is bound to have an impact on house prices over the next several decades.
So as an investment residential property just does not appeal to me at all. I would far rather go to the point where money is being made and not to the point, housing, where it gets spent. Fortunately the weight of government regulation and tax has not completely crushed the spirits of our entrepreneurs.
And down in the penny share reaches of the stock market I know of many companies that, unlike Patrick Grady, are making good money and are not frittering it away. You’re far more likely to find the next 777% gain there than you ever will in the property market.
Good investing,
Tom Bulford
For The Penny Sleuth
Recommended article: The Intelligence Test For Bankers by Bill Bonner
P.P.S. If you want to follow the insights of a small company investor, and uncover the hidden gems of the stock market, find out more about The Penny Sleuth by clicking here.
