Churchouse Letter
July 2015               by Peter Churchouse

Where Does Global Real Estate Go From Here?

The last 7 years have brought about the worst economic recovery of any previous recession...
But with unprecedented monetary easing and low interest rates we've seen a surge in asset prices, and the word 'bubble' being used in many real estate markets.
Will real estate be a problem for our portfolio or a big profit driver going forwards? We outline our thoughts in this edition.

My father certainly didn’t have the easiest start in life, like many of his generation. Scratch that – all of his generation.

He quit school as a young teenager during the recession of the 1930s, to help out on the family farm. After World War II broke out, he lied about his age to head overseas in the Allied war effort.

Captured in North Africa, he spent three years as a prisoner of war in POW camps there and in Italy. After several attempts, he finally escaped, falling in with a band of local partisans who took him into the mountains of northern Italy. Later he captivated me with some wonderful stories of the exploits he had with these hardened mountain folk. It was there that he acquired his love of grappa – and learned how to make some potent brews.

But a taste for Italian liquor and tales of misery and adventure were the only things my father brought back from the war. He finally managed to get across the border to neutral Switzerland around the end of the conflict and was ultimately shipped home. To pretty much nothing.

Growing up in the post-World War II era was a pretty humble experience. Folks were simply glad that the fighting, death, separation and deprivation were finally over. Aspirations were simple. Get a job, put food on the table, and find a roof over your head. That was enough for now.

My father had to make a life for himself with limited education, no training, in a war-torn and depressed economy. It was clearly not easy.

But my parents made it. They brought up three children, all of whom went on to university, something that they and their generation did not have time to contemplate. Incidentally, this week my university called me up to reveal they were honouring me as a ‘Distinguished Alumni’ of Waikato University.

I have my parents to thank for that opportunity.

Their values in that post-WWII era were simple. This was homespun philosophy; lessons handed down over generations from father to son, mother to daughter. These were deeply held beliefs.

Words of Wisdom

One of those fundamental ‘truths’ stuck with me:

The world moves in cycles of seven years.

It sounds simple, simplistic even. But to my surprise, over the course of my life, it has turned out to be true time and time again.

Perhaps that is why the number seven has special meaning in ancient religious mythology, both practical, earthly, and heavenly. In the Bible, the number seven is more significant than any other number. It appears 600 times – or so I have read. The number seven has special meaning in other faiths also – in Islam, Buddhism and Hinduism, as well as ancient Greek mythology.

“Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine” Genesis 41:29 and 41:30, King James Bible.

To Have and Have Not

Well, it has been seven years since the world started on the biggest financial experiment it has ever seen. It has been an experiment of truly biblical proportions.

But seven years into this great monetary feast that our central banks have fed us, it remains unclear if it has been a period of great plenty or a period of famine.

It depends where you started from. How you have reacted to change.

If you happen to have been an investor and owner of financial assets, the chances are that it has been a period of plenty for you. Stock markets have rallied to record highs. Bond markets have pushed further into a multi-decade long bull run. Real estate all over the world has recovered, and prices are now often at record highs.

But if you have NOT invested in financial assets, life has been rather different…

For a saver with money in the bank, or for a pensioner relying on safe, recurring interest income to put food on the table, it has been a lean time, if not a famine.

Central banks have aided and abetted the well-heeled capitalists of the world and crushed its cautious savers.

I suspect many of our readers have enjoyed some recovery in real-estate prices, depending on where they live and what kind of property they own. Those holding equities and bonds have likely bounced out of the post-GFC hole and are now in positive territory.

But those trying to live off income from bank deposits or other interest-bearing investments have been kicked in the stomach. Or lower.

The Seven Year Hitch

We are now at that mythological seven-year marker. Will this be a turning point, following the traditional pattern of cycles? Will we turn from a period of plenty to a period of famine, as the good book puts it?

Or will we move into a seven-year cycle that is more blessed than cursed? Has the current cycle still got healthy growth prospects for our investment “crops”?

A Hard Look at Hard Assets

Today I want to focus on “hard assets” and outline my case for continuing to hold faith in them, both in physical real estate and in certain listed real-estate entities.

Real estate around the world has benefited nicely from the monetary fertilizer that central banks have spread around since the global financial crisis (GFC) kicked in. For the most part, that recovery is set to continue.

The game is far from over. I will explain why.

And many more markets are about to feel the growth that stems from this monetary manure in the coming year or two. We want to be there to harvest this crop.

If the experience of what we have seen in recovering markets so far is anything to go by, we could see further double-digit returns as we move into the next phase of the cycle.

Real estate was at the core of the GFC. It so often is at the centre of financial crises.

Many real-estate markets saw the worst downturns in two or more generations. For example, the United States has not seen an aggregate decline of 30% or more in house prices since the Great Depression of the 1930s – the time of my father’s youth.

Some markets are still on their knees.

But the recovery that we have seen in core developed markets is not stopping here.

And markets that have yet to rise from the dead will do so soon.

All sorts of people quiz me on the current state of the real-estate market – readers, friends, colleagues and acquaintances. Sometimes it seems as if that’s all everyone is talking about.

Here are some common questions:

  • “The market is crazy! Should I be selling? Should I be buying more?”
  • “Property prices in my neck of the woods are going nowhere. I am underwater. Should I sell and cut my losses?”
  • “My holiday house in [Provence/Whistler/Tuscany/Queenstown/Bali] has been up for sale for three years. There are no buyers. What should I do?”
  • “Interest rates are going to rise at some point. Should I get out of real estate while the getting is good?”
  • “The government is trying to cool the property market. Will this lead to another property crash?”
  • “The price of great holiday properties in the Algarve/Costa Brava/Croatia/Mikonos/Scottish Highlands … wherever … is down big time. Should I be piling in?”

Before we dig into this, let’s take a deep breath, and step back just a bit. Let’s examine the “big picture” that is going to show us how hard assets will look in the coming year or two.

A Binary World

In all the years I have been following hard assets, I can’t remember a time when the major thought leaders in finance held such a divided set of opinions.

The views are so polarized that we’re in a binary world – there are seemingly only two options, a ONE or a ZERO. Good vs. Evil. Rally vs. Crash. There is nothing in between.


This side of the system says the world is about to plunge into Biblical disaster. Another financial plague is about to afflict us. The money printing and the rise in global debt will end in doom.

This next crisis will make the GFC look like a Sunday school picnic.

That is what the real bears would have us believe. And there are a lot of them out there.


The other side of the system tells us that we are about to emerge out of deflation into a “normal” world of growth, inflation and interest rates. The ma-nure that the world’s central banks have spread on the fields of the world’s financial crops will make them bloom.

Perhaps slowly, but the financial farming is taking effect.

There are a lot of serious minds making the case for either 1 or 0, a lot of people whose opinions I respect.

The End Is Not Nigh

The Armageddon folks have the loudest voices in the press, the digital media, and the conference circuit. Like a Pentecostal preacher, it grabs the imagination and puts people in seats.

Of course it would be foolish to ignore the risks. This great experiment in economics has no precedent. We don’t know precisely how it will play out. We have very little history to go on.

But the reality is that the world economy is struggling and there is little immediate prospect of soul-jarring adjustments to the current monetary and fiscal order. We are not going to be saved or cursed in an instant.

The entire financial world is obsessed with interest rates.

They shouldn’t be.

Interest rates are not going to rise so far and fast they will threaten our investments in the immediate future.

Here is why.

The Worst Recovery Ever

For a start, growth in the United States is anemic at best. This has been the most feeble recovery from a major recession ever. Even the recovery from the Great Depression ran at three times the rate of growth after this crisis.

U.S. Cumulative GDP Recovery for 5 years after market crashes from 1934-38, 1976-80, 1983-87, and 2010-2014.
Source: Crestmont

Recent Fed minutes suggest that while the likelihood of a raise this year is high, the longer term prediction of rate hikes is more muted than before.

The story is similar in most other developed economies. Europe has even fallen back into a further economic funk.

Commodity-based countries like Australia, New Zealand and Canada recovered quickly from the GFC but have now stalled.

Economic growth risk has shifted to the downside. Central banks are cutting interest rates, not raising them. (We recently cut all our New Zealand recommendations due to substantial forecast weakness in the currency).

Emerging markets are bright spots but also slowing nearly everywhere, with a few exceptions.

Hard Times

Labour markets are still weak, and downright dire in Europe. Even if unemployment is falling, there is precious little joy in the pay packets of workers in developed countries. Real wages are still below pre-crisis levels. You may be in a job, but your pay cannot buy the same goods it could eight or nine years ago.

Like in my father’s time, you make do. It is hardly surprising that consumer spending in the developed world is weak. Consumer confidence in most of the developed world is fragile, and worsening in many larger emerging markets.

Belt Tightening

Oh, and by the way, households in key developed markets such as the United States and the United Kingdom are deleveraging. They are paying down that debt they piled up a decade ago. So there is less cash for that new TV, computer, and refrigerator.

There is precious little evidence of the “wealth effect” that central bankers harp on about. That’s when consumers go out and spend and spend, feeling flush thanks to higher prices for their financial and hard assets. Yes, that is what got the West into trouble last time around. For some reason, the central banks want to see it happen all over again.

I just don’t get it!

No Locusts At the Fed

When all is said and done there is precious little pressure in the developed world for any sharp and rapid rises in interest rates due to inflation.

Yes, we all know that the Fed is soon to raise rates. Maybe September, maybe later. But whenever this happens we can be assured that this is going to be a slow, drawn-out affair.

The Fed is not about to unleash a Biblical plague of locusts on us with a swarm of rate rises.

We have long held the view that the first U.S. rate hike will happen later rather than sooner. And slower rather than faster.

As for the rest of the world, let me tell you, rates ain’t going anywhere. In fact the opposite is happening.

More than 25 central banks have CUT interest rates so far this year.

But as I said earlier, we shouldn’t worry too much about rates when we look at real estate.

Come again? Real estate is the definition of a sector that is sensitive to interest rates! Low interest rates are great news for real estate markets. Right?

If interest rates don't matter that much to real estate at the moment, then what does?

Find out why Peter they aren't so important to real estate markets as they stand now.


  • The biggest factors at play in global property markets from London and the U.S. to Singapore, Hong Kong and Australia,
  • An investment that gives you all of the benefits global property markets are seeing, without having to buy a single house
  • How our previous property plays have performed in these unsettled markets, and which ones still deserve a place in your portfolio...

When you purchase your subscription to The Churchouse Letter, you get instant access to this month's investment idea, all of our previous double digit-returning recommendations, and all of it with absolutely ZERO RISK with our 50 day money back guarantee.


Or get started below...

Share This Article

LinkedIn   Facebook   Twitter  

Subscribe to Peter's premium publication, The Churchouse Letter, and get access to decades of winning investment expertise, insight and specific investment recommendations

Get your 1 Year Subscription to The Churchouse Letter for just US$0

* Required

E-mail Address: *
Password: *
  • 12 Monthly editions of The Churchouse Letter, our flagship investment publication
  • Free Subscription - To the Premium Edition of Peter's free newsletter
  • Unlimited Access to our entire research archive
  • Access to the insight, investment expertise and no-holds-barred opinions of Peter Churchouse, one of Asia's most respected voices in finance
  • Don’t Panic. Just Prepare. - Put yourself in a position to profit with these 5 things you can do to prepare your portfolio for the next bear market.
  • Special Bonus! Peter's Rules for Buying Real Estate – Lessons From The Trenches.... An invaluable guide to how Peter made millions in property investment
  • Your 3 Golden Rules - Peter's top three rules of investing, guaranteed to maximize your gains and minimize your losses
100% Money Back Gaurantee