Bavaria and the real estate bubble

324 posts in this topic

5 minutes ago, fraufruit said:

 

Only those who have debt and/or go into their margins. Many of us have never done either.

 

If you are hanging on to the stocks others are selling, the value of your portfolio goes down even if losses are not realized.    

 

 

 

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1 hour ago, mtbiking said:

 

If you put yourself in a position of never needing to sell that sounds like a great opportunity to get richer.

 

 

I am not speaking for myself, but many of the people i know who invest do it for a specific goal whether that is to get extra returns on money for a down payment on a house or car, college tuition or startup money for their kids, or retirement.    

 

If losses don't impact you or your lifestyle, then congratulations, but not everyone is in that position and it does impact market dynamics. 

1 hour ago, mtbiking said:

I “lost” money in 2008/2009 and kept investing nevertheless - in index funds and real estate in a couple countries.

 

Just to be clear and i don't mean to antagonize you, an index fund is very weak diversification and would not have provided protection in 2008 or in 2000-2003.   

 

In addition, if you have real estate in a couple of different countries which are liquified by the same central bank or are dependent on other economies, that really is not diversification.  

 

Find assets which do not move in tandem or with a high correlation during downturns.   Take currency adjustments and liquidity into account and if you find something and have other ways to increase your odds that history will repeat itself in the event of a downturn, then you have diversified.   

 

We wouldn't want someone new to investing to think they are diversifying when all their assets are directionally correlated throughout the cycle.  

 

Constructing a truly diversified portfolio and keeping it up to date is really hard work.    

 

 

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11 hours ago, Hutcho said:

 Cash in the bank, especially at negative interest rates, is your least safe option at the moment.

 

We are at the end of a multi-decade era of fiat money which we have been on since 1971 since Nixon brought us off the Gold Standard. Fiat currencies which are money conjured out of thin air, are only meant to last 30 or more years and it's amazing that they survived this long. The first alarm call was 2008 and absolutely nothing was done to correct it, in fact the value of debt today is of an order of magnitude worse than '08. The next crash which is a few years away, will be deadly. 

 

For information on the trillions of US debt which is a national security issue, I refer people to Catherine Austin Fitts.

 

We are headed back to the Gold Standard in the next decade. Gold is the only safe holding now, and silver. Gold is the currency of kings and silver the currency of knights. Go check out the gold price which is rising.

 

 

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On 9/14/2019, 12:03:50, Hutcho said:

 

You say it's nuts to buy a house for a million that you could never pay off, but had you done it 10 years ago, your house would now be worth 3 million euros, so if you run into financial troubles you could sell it, pay off your loan and still have 2 million euros in the bank and you'd have lived 10 years in a really nice house rather than a small shitty apartment.  Sounds like a good deal to me.

Any investment looks great if you can predict the future... I could replace "house" by "Amazon stock" or "Bitcoin" and the sentence would still make sense... except there is no such thing as a sure investment!

 

 

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I agree 100%.  I'm actually not suggesting that stocks, houses or anything else is a good investment.  What I'm arguing against here are people saying that one way is right or wrong.  The example I gave was merely a rebuttal to lisa13 who was suggesting that buying a million euro house that you could never pay back makes no sense: it can indeed make a lot of sense - or it can destroy you.

 

But just saving money in the bank, especially at current negative interest rates and in times of quantitative easing is almost certainly not the right idea.

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On 9/14/2019, 12:04:15, mtbiking said:

 

There’s a lot of wealth in Munich/Bavaria to dampen the effect of a major recession (like in 2009) and almost all mortgages have the low interest rate fixed for a long time. If it all crashes down and never recovers (equals mass unemployment) the debt levels in Munich won’t be the biggest problem - the banks would crash with all the insolvencies. But this won’t happen, as the industry and the state will react and years later the economy will be in an upswing again (it’s almost like the economy is cyclical..).

Not if the auto industry crashes down. The German economical model is (literally) running out of gas.

 

Also Germans are completely missing the biggest added value component in the XXI century: software!

I see it in my company: they still think they can be successful with products based on optics and mechanics. They have a very irritating disdain for software. Our main competitor (American) is half our size in headcount, but the software department is 3-4x bigger! Despite being half our size, they have similar revenue. Difference? They add value through Software, which is a strange concept to a German company.

 

On top of that, China is growing incredibly fast, not only in GDP, but especially in science and technology. This trade war is going to be the tipping point. Right now German companies are replacing American suppliers in China. Good for now... but China's plan is to never again rely on foreign tech, so within 5 years they will become self sufficient. Then German exports to China will go down heavily!

 

Bottom line: the German economical miracle is about to end. And those who invested in a house in recent years will be stuck: the houses will not value up and they lost mobility. On my side, when things go down the drain, I just pack and move!

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On 9/13/2019, 11:08:21, Hutcho said:

 

You can get 100% loans.  On a 1.000.000€ loan at 1% interest you would pay under 1000 euro a month in interest.

The house I'm currently living costs between 1.500.000€ and 2.000.000€. To that, add 9% of fees.

Even with an incredible 1% interest (which won't last for decades), with zero downpayment, considering a 20 years payment plan, it would mean something close to 8000€ per month, which is more than 3x what I pay for rent! How is that affordable??

Even with a 25% downpayment it would be more than 5000€ per month, which is still over 2x what I am paying now!

 

To make it remotely comparable to what I pay now, I would have to increase the loan to 40 years (which makes no sense, I would be over 80!) and still give in a 30% downpayment! The downpayment itself would be enough to buy 9 Teslas!

 

And this is assuming:

a) rates don't go up (for the sake of simplicity, I am also not considering inflation)

b ) me and my wife keep our jobs

c) we don't want to move

d) I don't have other investments type

e) I can't spend money on nice things like a Tesla or some fancy vacations

f) ...

 

Sorry, a 1.500.000€ house will not double or triple in 10 years, as someone claimed, because nobody will be able to afford it, as right now only people with less than 2 fingers of forehead will invest in such expensive houses. This is simply ridiculous. You guys are looking at the past and extrapolating to the future, but this does not work like that! House prices cannot go up faster than salaries forever and whoever thinks they can is an idiot.

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I'm not advocating renting or buying.  At the moment, rent is far more reasonable than the prices of houses.  But your maths above are certainly skewed.  I don't know what amazing deal you're on, but it's not normal. 

 

An 90sqm apartment in a good location in Munich would cost around a million, and would rent for 2k a month. Given the low interest rates, your repayments vs rent are not going to be that much different in most cases now.  Whether you want to take the negatives you mention regarding buying (or the positives that might also come from it, like they have in the last decade) is up to you.



 

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10 hours ago, MikeMelga said:

 

Any investment looks great if you can predict the future... I could replace "house" by "Amazon stock" or "Bitcoin" and the sentence would still make sense... except there is no such thing as a sure investment!

 

 

You're leaving out the part that requires you to borrow a shit ton of money to acquire the real estate, so replacing house with stock isn't quite the same thing unless you can manage to buy a million in stock with no capital of your own ;)

 

 

 

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18 hours ago, Hutcho said:

I'm not advocating renting or buying.  At the moment, rent is far more reasonable than the prices of houses.  But your maths above are certainly skewed.  I don't know what amazing deal you're on, but it's not normal. 

 

An 90sqm apartment in a good location in Munich would cost around a million, and would rent for 2k a month. Given the low interest rates, your repayments vs rent are not going to be that much different in most cases now.  Whether you want to take the negatives you mention regarding buying (or the positives that might also come from it, like they have in the last decade) is up to you.

150sqm house, built in 2014. Kaltmiete above 2K, 50 meters from U-Bahn.

Please show your math, maybe I did something wrong. 

 

And I forgot to put on the negatives house maintenance and renovation after a few decades.

 

Regarding good location, that is a relative term. I would hate to live in Schwabing and since my last and only experience in living in an apartment I refuse to do it again.

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It’s straightforward, nowadays the bruttorendite oscillates between 2.5% (bad) and 3% (normal) or more per year. If your kaltmiete is €2100 then your house would cost between €840,000 and €1000.000. If you’re paying a bit over €2000 month for an apartment worth over a million euro then your landlord is a freaking idiot.

 

i give you a lot or reason, but I’m still of a different opinion. There are eight DAX companies with headquarters in Munich, and only one is BMW. The others are at most tangentially auto related.. I can tell you that we have 30 positions opened for highly qualified, well paid jobs and it’s very difficult to fill them, we’ve in fact been talking lately about how the incoming crisis is good for us, to fill those places that is. I’m also counting (pessimistically) with climate change to make Southern Europe more or less unlivable and people to want to move even more to core Europe. I’m hoping that’s just me, however, and that it won’t come through. 

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22 minutes ago, mtbiking said:

It’s straightforward, nowadays the bruttorendite oscillates between 2.5% (bad) and 3% (normal) or more per year. If your kaltmiete is €2100 then your house would cost between €840,000 and €1000.000. If you’re paying a bit over €2000 month for an apartment worth over a million euro then your landlord is a freaking idiot.

 

 

are you honestly suggesting the landlord just bought the place?  As that's what would have had to happen for your argument to hold any water whatsoever.  

 

 

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20 minutes ago, lisa13 said:

 

are you honestly suggesting the landlord just bought the place?  As that's what would have had to happen for your argument to hold any water whatsoever.  

 

 

 

?? No, I know that Mikemelga just rented it, and I know that you can sell an empty house for market prices. If the landlord still proceeds to rent if for a lot less than he  could to a complete stranger  and not even for social reasons then he is, I repeat, an idiot.

 

In other words, It doesn’t matter for what price and when  I bought the apartment. If the market value is x and I get y monthly rent, then my rental dividend is 12y/x.

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3 hours ago, MikeMelga said:

Please show your math, maybe I did something wrong. 

 

I'm not sure what you want me to show here.  In the post I gave two links to immoscout24 which showed basically the same apartment in the same location, one for sale for a million, and one for rent for 2k a month.  That is a fair representation of the current market.

I'm glad you're getting such a great deal on your place, but that doesn't really mean anything.  Fact is, you can pay 2k a month right now in rent for a place you could get for another 2k a month with a 1.5% interest loan locked in for 30 years with 1% Tilgung on a million euros.  There isn't much in it.

Of course, there are advantages and disadvantages to both, and I'm not advocating either.  One thing I would advocate is not being a landlord under the current conditions.  You'll get a shitty return and likely get screwed by your tenants because of their rights, which are only getting stronger (get ready for even tougher rent caps, which will only make this whole problem worse).  You can get a 2% return that is a lot less hassle in plenty of other places, and I don't see the house prices going up significantly so you're probably out of luck there (of course, I could be wrong, but that's how I see it right now).

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On 9/14/2019, 12:06:51, jeremytwo said:

 

We are at the end of a multi-decade era of fiat money which we have been on since 1971 since Nixon brought us off the Gold Standard.

 

The world has been in a Eurodollar system since the 1950s or 1960s.    There is no official beginning point, but it can be traced back to the Chinese parking their USD offshore during the Korean War or the Soviets worried about having USD in the US.   

 

https://en.wikipedia.org/wiki/Eurodollar

 

70-80% of global payments are done with dollars and there won't be a replacements any time in the next few years.   Europe's banking systems are largely dependent on Eurodollars.

 

Something to think about when talking about diversification.  

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On 9/13/2019, 10:23:19, MikeMelga said:

In which planet do you live?? The Tesla costed 55k, the downpayment for the house I'm living is 400.000€!!!

 

So, you live in a 4 million EUR castle.  I see.  For that property if I was the owner I would expect 80-120k in rent per year.  Of course you will tell us you are renting it for 1000€ warm because you are such financial genius.  Or your numbers are crap.  I think the later.

 

 

On 9/15/2019, 1:25:19, MikeMelga said:

The house I'm currently living costs between 1.500.000€ and 2.000.000€. To that, add 9% of fees.

 

Oh, I see, it is not a 4 million EUR castle.  It is that you do not understand how mortgages work.

 

 

On 9/15/2019, 1:25:19, MikeMelga said:

Even with an incredible 1% interest (which won't last for decades), with zero downpayment, considering a 20 years payment plan, it would mean something close to 8000€ per month, which is more than 3x what I pay for rent! How is that affordable??

Even with a 25% downpayment it would be more than 5000€ per month, which is still over 2x what I am paying now!

 

While I agree with your point that at the moment you MIGHT not rent something better you could own, the issue is that you do not need to buy the castle as your first property, and second, you do not need to fully pay a mortgage before upgrading.  So depending on how the market is developing you can live in a property for some years, sell it and upgrade.   Or reach the break even point, rent it and move on with a new mortgage and keep both properties.

 

I bet your first car was not a Tesla, it was maybe a 15 years old Golf.

 

On 9/15/2019, 1:25:19, MikeMelga said:

 

To make it remotely comparable to what I pay now, I would have to increase the loan to 40 years (which makes no sense, I would be over 80!) and still give in a 30% downpayment! The downpayment itself would be enough to buy 9 Teslas!

 

If your mortgage were close to what you pay for rent why would you care how long does it takes to fully pay it?

 

On 9/15/2019, 1:25:19, MikeMelga said:

 

And this is assuming:

a) rates don't go up (for the sake of simplicity, I am also not considering inflation)

b ) me and my wife keep our jobs

c) we don't want to move

d) I don't have other investments type

e) I can't spend money on nice things like a Tesla or some fancy vacations

f) ...

 

I could write similar risks about investing in the share market.  Why that obsession that the share market is the ultimate investment?

 

On 9/15/2019, 1:25:19, MikeMelga said:

 

Sorry, a 1.500.000€ house will not double or triple in 10 years, as someone claimed, because nobody will be able to afford it, as right now only people with less than 2 fingers of forehead will invest in such expensive houses. This is simply ridiculous. You guys are looking at the past and extrapolating to the future, but this does not work like that! House prices cannot go up faster than salaries forever and whoever thinks they can is an idiot.

 

A 1,5 million house may not double its price in 10 years.  But a 120k studio might.

 

I like how you start with "YOU CAN'T PREDICT THE FUTURE" and then proceed to predict the future.

 

9 hours ago, mtbiking said:

It’s straightforward, nowadays the bruttorendite oscillates between 2.5% (bad) and 3% (normal) or more per year. If your kaltmiete is €2100 then your house would cost between €840,000 and €1000.000. If you’re paying a bit over €2000 month for an apartment worth over a million euro then your landlord is a freaking idiot.

 

His numbers obviously do not make sense.

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21 minutes ago, Krieg said:

 

So, you live in a 4 million EUR castle.  I see.  For that property if I was the owner I would expect 80-120k in rent per year.  Of course you will tell us you are renting it for 1000€ warm because you are such financial genius.  Or your numbers are crap.  I think the later.

 

 

 

Oh, I see, it is not a 4 million EUR castle.  It is that you do not understand how mortgages work.

Read my other post regarding downpayment on a 20year loan vs renting.

 

21 minutes ago, Krieg said:

I bet your first car was not a Tesla, it was maybe a 15 years old Golf.

Company car for 14 years. My first personal car was a 2 year old Mercedes C class.

 

21 minutes ago, Krieg said:

 

 

If your mortgage were close to what you pay for rent why would you care how long does it takes to fully pay it?

Yes, but it would not be.

 

21 minutes ago, Krieg said:

I could write similar risks about investing in the share market.  Why that obsession that the share market is the ultimate investment?

I haven´t said a word about stock market in days, yet everybody assumes I see it as the only alternative. I actually have low risk investments in non-open trade company stocks.

 

21 minutes ago, Krieg said:

I like how you start with "YOU CAN'T PREDICT THE FUTURE" and then proceed to predict the future.

One thing is to predict the future, the other is highlighting the risks which were not present before.

 

21 minutes ago, Krieg said:

His numbers obviously do not make sense.

Ok, then please indulge me. How much would I pay per month for a 1.5M€ house, in 20 years, with a downpayment of 0% or 30%.

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Rates for 20 years are currently around 1.2% if you put 30% down or 1.7% if you put nothing down (taken from interhyp.de).

 

So if you put nothing down, your interest payments would be 2125 euros a month, and if you put 450k (30%) down, your interest payments would be 1050 euros a month.

 

Even at 2125 euros, it's cheaper than renting (rent on a 1.5 million euro house would be close to 3000 euros a month given the example I showed before).  Of course, there are maintenance costs, extra fees when buying etc which probably make it fairly similar in the end, assuming house prices don't go up further.

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11 hours ago, mtbiking said:

i give you a lot or reason, but I’m still of a different opinion. There are eight DAX companies with headquarters in Munich, and only one is BMW. The others are at most tangentially auto related..

Allianz and the whole insurance business will go down significantly, but that will take some 10 years, so no immediate threat.

MAN will also be affected indirectly by the transition to cleaner energies and EVs, not only in the truck business, but also on marine propulsion. Still, this might take also 7-10 years.

For Siemens, I don´t see an immediate danger.

Linde is not going well already. Although I don´t know the details.

OSRAM seems to be doing well (in terms of mid term projects), although asian competition will be hard in the next 5 years.

 

Does not matter to extend the analysis, MAN and BMW are more than enough to create a housing crisis. There could be 8 DAX companies here, but not all are of the same size as BMW.

 

11 hours ago, mtbiking said:

I can tell you that we have 30 positions opened for highly qualified, well paid jobs and it’s very difficult to fill them, we’ve in fact been talking lately about how the incoming crisis is good for us, to fill those places that is.

I interview around 50 SW developers per year. They tell me a lot about what is going on on their current companies. You can already feel a change since January.

 

11 hours ago, mtbiking said:

I’m also counting (pessimistically) with climate change to make Southern Europe more or less unlivable and people to want to move even more to core Europe. I’m hoping that’s just me, however, and that it won’t come through. 

Southern Europeans don´t want to come here, mainly because of language. And the Germans seem to prefer to import refugees than highly skilled southern europeans.

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43 minutes ago, MikeMelga said:

Ok, then please indulge me. How much would I pay per month for a 1.5M€ house, in 20 years, with a downpayment of 0% or 30%.

 

With the current rates, basically you pay whatever you want to pay.   I have the feeling you do not understand German mortgages.   In your example 20 years doesn't mean you will pay the whole debt in 20 years, it means you fix the interest rate for that period.   So you have to pay at least the interest, which at the moment is extremely low and it might become negative soon, and then you decide how much you want to pay back to the original debt.   The offers and conditions are plenty, some will have a minimum Tilgung of 2%, some 1%, some 0,5%.   Of course scoring a mortgage with very low interest rate, zero down payment and zero Tilgung would be very difficult, because that would be living for free.  Those loans are not meant for people like us, they are meant for 0,001 percenters.

 

Of course buying a 1,5 million property with extremely low Tilgung is a high risk even with the current interest rate.    I think it was @lisa13 who was mentioning getting bankrupt if the housing prices go down, yes that's a risk, that's why I have never taken more than one mortgage at a time and with amounts and conditions than being screwed by that mortgage would not bankrupt me, so basically that I could afford to lose the original mortgage amount, of course that would be a huge financial impact, but it wouldn't bankrupt me.   Those were my decisions because I am a low risk person.  Some friends at the time took much higher risks and those suckers are now swimming in profits.  

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