Foreign Perspectives

Archive for the ‘Economy’ Category

One of the big surprises in many ways is just how fast formerly eastern block countries are moving into the first world.

For example, not so many years ago the thought of a  luxury golf property in Bulgaria would have been laughed at. No longer though for the likes of Tharacian Cliffs, starting from scratch, seems likely to become one of the top golf courses in the world according to Gary Player.

The reason is simple of course: they’re able to start from a blank sheet and have lots of cheap land and labour to construct the courses. For the rest of us there are increasing numbers of cheap flights available to get us to the area.

Overall, a win-win situation for everyone apparently.

Although not too many people are doing it at the moment, this is probably one of the best times to consider buying an overseas property as prices are generally rather more depressed than they normally would be. Having said that there are lots more people selling or at least trying to these days which in itself brings up similar issues.

For a start there’s the different legal system to consider. Even if you’re European and buying or selling in another European country you can still find that, although illegal, the local authorities will retain some of the proceeds of a sale in case it turns out that you owe them any taxes. It’s worth pointing out to the legal person dealing with your sale that they are legally required to treat you as though you were a national of the country and that applied even if you fully intend to take the proceeds abroad afterwards so long as it’s to another European country.

Obviously with a property investment you can be talking in terms of quite substantial amounts of money and if you’re going to be changing currencies then it’s worthwhile looking into your options to reduce the costs of exchanging the money to the other currency and also of reducing the risk to you of there being a substantial move in the exchange rate. For example, this year the pound/euro rate has moved from around 1.10 to around 1.20. Ten cents doesn’t sound like much but if you’re looking at a typical property of around the EUR 300,000 mark that’s EUR 30,000 of a difference which is enough to cover legal fees with change or think of it as the swimming pool that you quite fancied.

How do you reduce these charges and risk? If you go to your bank as most people do you are likely to be hit with the maximum charge possible although the charge can be even higher if you just use the local legal people to send you the proceeds as they’ll add charges on top of that. The best way is to go to one of the specialist money brokers who can shave 5% or more off the charges that the banks apply and can also arrange to fix the rate you’ll get months in advance which eliminates the uncertainty in the amount that you will ultimately receive. Aside from the charges from the rate fix, there are no downsides as if the exchange rate moves in your favour you can let the fix lapse and exchange the money at the current rate.

On non-financial matters don’t neglect the time delays inherent in overseas moves generally. Not only does the money take longer to arrive (unless you just take it as a suitcase full of cash which is quite legal though may raise a few eyebrows), but it’s obviously going to take longer for the removal truck to move your stuff from A to B. There aren’t any formalities required in moving your own stuff around Europe although expect checks for illegal immigrants at the ports and be sure that the lorry doors are secured with a padlock (most aren’t) to avoid a few questions along the lines of the “have you packed the case yourself” familiar to air travellers.

It’s best to plan the move more carefully than you would for a normal domestic move as you’ll appreciate from the above that there are a lot more places that complications can arise.

Since the economy has taken something of a dive there are a lot more people around these days who are overpaying on their taxes, typically this can happen if your income this year is a lot less than last year but there are a variety of other reasons why you can end up with a tax bill that’s lots more than you were expecting.

Sometimes the biggest surprise is in terms of back taxes. Although you’d think that these can’t be much, it’s surprising just how large a bill you can get from this quarter. For instance, often seemingly small omissions can amount to quite serious amounts of cash owed if they’re over a number of years. This tax debt can even reach such levels that you need to look into the options of paying it off in installments which at least could reduce the payments to more manageable amounts.

On the other side of the coin people can also find that there are quite substantial tax reliefs which they’ve not claimed. You might think that if you’ve an accountant that this just can’t happen to you but, in most cases, the accountant doesn’t get out to actually see what you’re getting up to and you could be pleasantly surprised if they’ve completely overlooked an ongoing tax relief. Just as in the case of underpayments, missing out on relatively small amounts of tax relief can add up to a sizeable chunk of cash when counted over a few years.

Whether it’s over or under payments that affect you, it’s best to do something about them rather than taking the head in the sand approach that many people adopt when thinking about taxes.

We’ve lived for decades, centuries even, in an era when prices are, on the whole, expected to increase year after year for the vast majority of goods.

The only category of goods where we are familiar with the effects of deflation are electronic goods and in particular computers so it’s helpful to examine how we treat those. For these there is the expectation that each year will see computers that are a little bit better than their predecessors and additionally they’ll be cheaper. What happens therefore in our buying decision is that we wait until we actually need a new computer before buying one. Now in respect of computers “need to buy” is slightly different from normal products in that there is innovation in the software too which forces us into purchases that would otherwise be un-necessary: that would be unlikely to happen with a normal product.

On the other hand, in an inflationary environment we buy a car now rather than next year because we can be confident that the car will be more expensive and so it is with pretty much everything.

You can even see the effect yourself by considering petrol prices. Until a month or two back I filled the car as often as possible on the basis that the price was rising quite sharply and could be expected to continue doing so. Then things changed as prices started going down very sharply indeed. The approach then was to fill the car only when absolutely necessary as that would be likely to get me the lowest price overall.

In fact, deflation might be a good thing to have but the snag is the period of adjustment that would be required would be extremely painful for everyone. The change from a “buy it now” attitude that’s relevant in an inflationary environment to a “buy it later” attitude appropriate for deflationary times means that factories build up stockpiles and therefore need to cut back on production and the jobs associated with it ie unemployment jumps. At a more personal level, house prices drop dramatically both because of the increased unemployment and because people are moving to a “buy it later” mindset.

One side-effect is that innovation is forced upon many industries which is usually a good thing to happen. However, it’s not an option for a considerable number of products: when was the last time that there was a really innovative potato?

On the whole, it probably is a good thing, it’s just that the transition period would probably be far too painful for governments in general to accept that.

We were all assured just two months ago that we’d seen the last of the building society emergency takeovers with the demise of the Dunfermline but now it seems that we’re starting on yet another round of emergency takeovers as West Bromwich seems to be in its final days as an independent society.

The snag now is that Nationwide appears to have more than enough on its plate already and notably declined to take over all of Dunfermline which was a change to its previous approach of absorbing troubled societies in their entirety and merely took on the savings and regular mortgage parts of the society, leaving the part that caused the trouble well alone. Whatever society takes over the West Bromwich that seems likely to be the approach that they will take as otherwise those problems could well pull down the new owners as well.

Aside from the Nationwide which is probably too busy trying to integrate the societies that it has already picked up, the obvious choice would appear to be the Coventry although that seems likely to involve a number of branch closures over time given the similar geographic spread of the two businesses. The other problem is that the societies have a similar number of branches thus a takeover would pretty much double the number of branches to be looked after which could stretch the management a little bit too much in what are already difficult times. My bet is that, if it is a building society takeover, it will be a toss up between the Chelsea and the Yorkshire who will do it.

But what about the remaining building societies? Falling foul of the recent downgrade were West Bromwich, Chelsea, Britannia, Coventry, Nationwide, Newcastle, Norwich & Peterborough, Principality, Skipton and Yorkshire. Of these, only Chelsea appealed and Britannia is currently being taken over by the Co-Operative Bank.

As always, the safest place for your money remains National Savings.