Steve Hemingway

The findings echo a recent warning from the National Housing Federation (NHF), which concluded that a "massive crash" in the housing market is the only way that UK workers on an average salary or other moderate income will be able to afford a property of their own. Even if this did occur, the NHF speculates that many workers would still be unable to raise the necessary funds to buy a home of their own.

This is from Assetz - read the full article here. The author, knowing that whatever the information the article is based on he must conclude that the news is good for Buy to Let. So a 'massive crash' becomes good news because tenant demand is stimulated.

What a complete joke.

Did you know that 80% of urban Chinese houses are owner occupied? Actually I think there are very few actual houses, but if 'apartment' is substituted for 'house' in this sentence, it would appear that this is true, according to the Economist.

It is true that house prices have risen by 30 since 2002, but with GDP rising at a rate of around 10% per annum this is no less than one might expect. In fact the ratio of house prices to disposable income has fallen by 25% since 1999.

As I have mentioned elsewhere, I spent last week visiting China to look at properties for investment. Certainly the market seemed to be pretty solid to me, but it is nice to see some professional economists give their imprimatur.

The authorities seem genuinely interested in controlling house price inflation. The most obvious way in which they do this is to lay down infrastructure at a furious place and permit developers to build factories, offices and apartments at a commensurate pace. The other way is to restrict foreign ownership of real estate, and to impose various transaction and capital gains taxes which bite if property is sold within five years of purchase.
References:

Economist article on China Housing Market.

The China Economic Quarterly.

I went to Lord's Cricket Ground today to watch my son play for Cambridge. It was a great day out, and, rather pleasingly, free. Slightly bizarrely the concourse was full of Morris Oxfords and Austin Cambridges in conditions varying from near-showroom to somewhat tired. Excitingly I was able to go into the Pavilion, which contains the famous Long Room. I can reveal exclusively that although the member's enclosure gives a jolly good view of the match, the benches lack any sort of padding and are really rather uncomfortable - maybe necessary to compensate for the effects of finishing off a bottle of Lord's Claret in the Long Room Bar at lunchtime. I actually prefer to watch from a square leg or cover point position.

Although I am an Oxford man, I cannot say I was particularly pleased by the result, which you can read here.

This article is about how American laws which explicitly forbid buyers and sellers transacting with each other at a price which is agreeable to both of them.

It is a bit polemical but it makes the case very powerfully. High prices signal shortages, and these signals are received by suppliers who act on them to exploit them, and in doing so bring down those prices.

There does seem a deep-seated human instinctive resentment of traders. I recall a study in experimental economics where traders who did a lot of work determining the state of supply and demand in some institution in conditions of shortage (a prison?) were resented by the non-traders, even though the effort the traders expended exceeded the spread they made on the items they were trading. I wish I had a reference for this study.

I heard an Econtalk podcast by Russ Roberts in which he interviewed Gregg Easterbrook. The interview is about his book 'The Progress Paradox'. You can read about the book here.

The core message of the book is that we are hugely better off than our ancestors were. We are, on average, better off than we were ten years ago. Productivity is the key to this, as by being more productive we are able to consume more stuff than we used to.

Stuff doesn't just mean more TVs. It also means more health care, education, personal care, leisure, travel, heating, air conditioning, food, culture. The extent to which we are better off is much greater than most people imagine. Our standard of living is hundreds or thousands of times higher now than a hundred years ago. It is either being bad at maths (not understanding how even a few percent improvement per year when compounded over a century can add up to a huge aggregate increase in welfare.

There is a romanticism about the past. We mainly remember the chroniclers of the evils of the Industrial Revolution, but must be remembered is that urbanisation happened in the UK because the towns were better places to live than the country: otherwise there would not have been a huge migration to them. This is equally true throughout the world now, but especially in China.

I joined this on the suggestion of Tania Dimitrova. She is a valued friend, and I was impressed at the quality of the people on the site.

I thought I'd use it to make contact with people who can collaborate with me in my new venture to invest in Chinese real estate in the Pearl River Delta area (Zhuhai, Shenzhen etc.).

I am looking for a webmaster/SEO expert and someone with accountancy skills as well as someone who would like to create content for my website (i.e. a writer).

One thing that is completely essential if one is to purchase property in China is some money to pay for it. As I plan to explain elsewhere, the best approach to this is to grant Power of Attorney to a local representative who can sign documents and transfer funds to the vendor.

This is all very well if the Power of Attorney is in place, but initially there are big problems transferring money to an unrelated person in China. There are two problems. One is that UK banks are reluctant to transfer to China as has some kind of elevated risk status. The other problem is that when they do the money takes ages - up to two weeks - to arrive. We are not talking about banks that keep their ledgers using quill pens, or even sable-hair brushes - these are banks that can set up a new account on their computer systems within ten minutes of the customer walking in through the door.

I spoke to a helpful, English-speaking, employee of HSBC Hong Kong. I was advised that as long as I bring along my passport and proof of identity I can open a bank account at any branch of HSBC in Hong Kong, and that I can have this account in HKD or RMB.

Take a look at this page on RMB credit cards and this page on general RMB banking.

I had toyed with the idea of using Citi as an alternative, but it seems clear that HSBC are the leaders in this field.

To buy a property in China I have been advised to give power of attorney to a local proxy. Obviously this requires that one locates a local in whom one can place a huge amount of trust. In my case I trust my employee Lua very much, and have chosen to grant the power to one of her close relatives.

The power of attorney must be in Chinese, of course. The initial draft, translated, of the one I have been looking at is as follows:

* make decisions of sale price,
* sign for buy/sale agreements
* assist buyer(stephen) to do all paper work
* assist buyer to deal with the mortgage
* receive rent and pay tax on ur behalf
* all other aspects which relate to the above

My initial view is that 'make decisions of sale price' is not only grammatically dubious, but also unnecessary.

I bought myself another laptop when I was in Hong Kong the other week. I am a complete sucker for technology, as you will already know if you ever bother to read my various blogs over the years.

It is a Lenovo Thinkpad T61. It has the Santa Rosa chipset, whatever that is, 2MB RAM, 160 GB disk, and Windows Vista. It also has a nifty Nvidia graphics processor. It is reputed to be able to run Second Life! Vista seemed a bit of a struggle to get going, and I am yet to connect it directly to my printer (a Tally Genicom 8008), but I can connect via another PC in the house, and generally it seems much better than the reports. I have yet to find any significant software that it will not run.

It has a wide format screen, which I am growing to like, slowly. I got the shop to put a screen protector on it, although it is not touch-sensitive like my Motorola Ming phone, or a tablet PC. The protector may be tough, but it is very reflective, which makes the PC difficult to use in strong light.

Anyway, the PC is pretty good. I paid about HKD 13000, which is pretty good, I think, certainly more than I've seen it for in the UK. It is a very new model, but cheaper than the T60p, which is what I thought I wanted. I got it from Protech. A very helpful and knowledgeable guy called Marco Wong served me. They are based in the Mong Kok computer mall - floor and floors of computers and components.

I have been fiddling with the fingerprint reader. I have never used such a thing before, and I consider it a bit of a gimmick. In fact it is linked to a local security vault, but like all password managers, it makes you totally dependent on it and incapable of using any other PC, particularly one in a cyber cafe.

The one think of tremendous value I have found about the PC is moisten your fingertip before trying to use the fingerprint reader. My old skin, in the relatively dry atmosphere of the UK just is not recognised at all. Although humidity here is usually high, the relative cool of interiors means that skin is often quite dry. I suppose I should start using moisturiser.

Futures trading is a bit of a game. Unfortunately it involves real money. The theory is fine: you open up highly-geared positions, depositing enough with the broker to cover your losses for an 'extremely bad' session. You can make sure that you never lose more than this by setting stop orders to close your positions whenever the price moves to a point when the losses may wipe out your margin. Alternatively you can just unwind your positions when you are close to receiving a margin call. As a last resort you can actually make the margin call - i.e. add more liquid funds to your account.

In practice you will find that whenever you liquidate a position for margin pressure reasons you will find the market rebounds with extreme violence, sometimes within minutes of making the trade. It is uncanny. Yes, I am a believer in the One True Faith of the Efficient Market Hypothesis, but I have seen this with my own eyes.

Over the last few days stock markets lurched downward in response to the impending meltdown of sub-prime lenders, and prime brokers who fund flaky hedge funds, and banks that securitize all their mortgage receivables, to clean up their balance sheet end up retaining the "toxic waste" tranche of risk right their in a note to those accounts.

My normal response would have to have panicked and liquidate, only to see my positions come back from the dead. In fact I hung on in there, except for a few interest rate hedging positions which I liquidated to reduce my margin requirement, but should have been uncorrelated with the credit problem news. I have been duly rewarded, although only to the extent of getting back to where I was last week.

The funny thing is that the financial press always reports the bad news, but almost never reports the resilience of markets in coming back after a shock. Maybe I read the wrong papers, but the FT seems congenitally disposed to be bearish. Clearly there are very bad problems in some credit markets, but it seems to me that the general outlook for the world's GDP is fairly positive.

For what it's worth I am bullish on Asia. My recent trip to China might have something to do with this. It is quite possible that HK is overvalued, but it's the nearest thing we foreigners can get to exposure to the markets on the mainland, as far as I can see.

I found this article This article is profoundly disturbing. It suggests that CAPM, the cornerstone of modern portfolio theory, is empirically falsifiable. I didn't pick this up when it first appeared, but the theory was mentioned in the current Buttonwood column in the Economist. In this latter article Buttonwood makes the comment "All this confirms what most investors who lived through the dotcom bubble must feel: investors are not always rational and markets are not always efficient. But, judging by the subprime saga, spotting those irrational moments is no easier than it ever was."

All this suggests that infrastructure funds and utilities are where we should be investing. These were attractive anyway because of their lack of correlation with equity markets, but if they produce higher risk-adjusted returns too, there should be no holding us back. I suspect that fundamentally the discipline of paying out a large proportion of profits is likely to produce a better return to investors. There may be no magic in leverage, but there is a magic in financial discipline.

There is a lot of fuss in the UK about the fact that private equity masters-of-the-universe pay a lower tax rate than their cleaners, who, it is implied are paid around the level of the minimum wage. There are similar concerns in the USA that very rich people, again private equity managing partners and hedge fund equivalents are paying very low tax rates.

In the UK many anomalies of taxation have been carefully preserved by Gordon Brown, for example:

1. variable but low tax rates on trusts,
   
2. very low tax rate on capital gains,
   
3. very high payroll taxes (employer's and employee's national insurance contributions) resulting in earned income being taxed at a much higher rate than unearned income,
   
4. special low rates for income from odd activities indulged in by the very rich, such as owning forests,
   
5. the notorious non-domiciliary rule that allows those with some pretext to argue they may not be permanently resident to escape all tax on their un-remitted income,
   
6. an inheritance tax law with threshold so low that most home owners in London are likely to pay it, but is so full of loopholes that anyone who is prepared to pay a decent tax lawyer can avoid it entirely,
   
7. very high marginal rates of tax with a very narrow tax base.
   

There are many press articles on the unfairness of these laws, but nobody seems to point to the reasons behind the existence of such blatantly unfair laws. Politicians want to win elections. If we assume they are rational and with to win elections, how could it be that laws such as these which are unpopular, and economically damaging remain on the statute book. Could it perhaps have anything to do with the fact that the rich people who the senior politicians depend on to keep their parties solvent like these laws very much indeed?

I have come in for some intemperate reaction to my post in this thread in the Singing Pig investment forum. I only really reactivated my membership of Singing Pig in the hope that I'd attract some interest in my offer of syndicated direct participation in the Chinese real estate market. Contact me for details!!

I am not sure what Pod is talking about: he doesn't actually refute any of my points, but simply calls them 'stupid advice'. Having invested via a limited company for about a decade now I am fairly confident that there are no major tax penalties: I haven't paid a penny in tax on my investment, so I don't think that investing personally could actually lower my tax rate.

Of course the key tax to avoid is Capital Gains Tax. I have had various conflicting pieces of advice about this from a number of fully-qualified Chartered Accountants. I believe that the correct interpretation of the law is that Chargable Gains is payable as part of the Corporation Tax charge if the gain is not offset against current-year costs.

I have recently been advised by a very well-connected party that conversion requirements for REITs will soon be reduced to the point that AIM listing is all that is required. Of course the reason that the tax authorities have taken such a generous approach to taxation to real estate investment companies is that they want to prevent them moving overseas. I have no idea of the benefits of doing this.

It is my experience that a lot of UK residential property investment is conducted by people who are in a position to achieve non-domicile status, who put their properties in overseas-registered limited companies. It is really quite extraordinary how much ingenuity is generated by the cash incentive of reduced tax liabilities.

Shenzhen is an explosively-growing town in Guandong Province. I was going there on my next visit to China. I had been advised by foreigners and Chinese alike property prices are set for even faster accelerating growth. This is in part due to the completion of the western corridor bridge linking Shenzhen with Hong Kong.

The authorities must have had the same idea. I was alerted to this article on restrictions of foreign property ownership on Singing Pig. This probably rules out my buying in Shenzhen, but is likely to boost demand in alternative locations. I would imagine this means other Pearl River Delta towns, particularly Zhuhai.

If you would like to discuss this, please send me an email or call.

I am on Linked In. Tania Dimitrova invited me originally. I am beginning to see the use of such a system. I may use it to find people I can collaborate with in the future. Maybe people will find me through my profile on it. I would certainly like to find people who would like me to source Chinese real estate for them right now as I'm about to travel to China on a shopping expedition.

This is Steve Hemingway's public profile on LinkedIn. If you know me and are not in my contacts, then please click the relevant links to add me. You can just create a free profile and link to me, I'm pretty sure.

When I contacted Ian Wilson to link to him on Facebook yesterday his response was "I was probably the last person on the planet not on Facebook!!"

I think that this is not strictly true, but Facebook must be on a path to overtake MySpace in a timescale measured in weeks. Certainly Rupert's relentless plugging of MySpace in The Sun will have done nothing to attract it to People Like Us.

Steve Hemingway's Facebook Profile

Here is Ian Wilson's profile (I think you need to be logged in to view this, or you can just search for Ian's facebook profile on Google.

The tiresome fact about this type of site is that it gets sold on by the originators to an old-media corporate with lots of money but no understanding of the Internet with the result that everyone decides to leave and go to another one. This has happened with Friends Reunited (bought by ITV) and with MySpace (bought by News International).

I went to a talk yesterday by Prof. John Stein. I was reasonably convinced that it would be a good thing to have a kipper for breakfast several times a week. Rather than trying to summarise the evidence here I recommend that you read the links below. The evidence for all the benefits is not utterly compelling, but I'm fairly convinced that it is worth eating more oily fish, and giving supplements to pregnant women and those thinking of getting pregnant as well as giving them to schoolchildren. It would be nice if school dinners offered mackeral or herring or sardines occasionally.

Guardian article about behaviour effect of omega-3 fatty acids.

Wikipedia has a long article on omega-3 fatty acids. You can read it here.
RSC article discussing health benefits of increasing omega-3 fatty acids

Impact on Heart Disease
George Monbiot on why our fishing policies is making it harder for us to get the right amount of Omega-3 fatty acids

This entry needs a lot of tidying up, but I thought you might find the links interesting. Steve.

Chinese Bank with Large Western Ownership

RMB accounts for HK residents (maybe visitors)

FT article on Chinese private property law.

RMB exchange rates.

Problems with sending money to China.

Buying process for Chinese property (specifically Shanghai). This implies that Chinese bank accounts with internet access are available.

Interesting article on Chines real estate market as a whole.

Zhuhai Apartments advertised on an english-language website.

Shenzhen apartments on Sublet.

Lawyer with offices in in Macau, but they look expensive.

Page explaining what is needed to own property in China, and something on tax

World City Rankings for China Cities - Zhuhai comes out with a silver medal.

High proportion of Bejing apartments being purchased by foreigners.

New Shenzhen - HK bridge. And its high cost.

http://www.iht.com/articles/2006/06/15/news/rebuychina.php

measures to stabilise real estate, about shanghai, where prices
are much higher.

http://www.chinadaily.com.cn/english/doc/2005-05/13/content_441874.htm

same kind of story - from 2005

http://www.kotlermarketing.com.cn/chinese/en/2007/0425/692.html

long interesting article about opportunities for overseas real
estate development, aimed towards the
actual real estate
development company - e.g. MacQuarrie.

http://en.allexperts.com/q/Non-Laws-2525/real-estate-law.htm

This answers the question
What is the process of selling real
estate property in guangzhou china and how long does it take?
but
the answer is unreadable on this pc.

http://english.sohu.com/20060119/n227731745.shtml

article from Jan 2006, saying that prices had fallen in some
areas. that prices in Bejing were
driven up by the number of
universities there, that prices in Shenzen were driven by purchase
by
hongkongers, that even in Shanghai some properties were going up.

http://www.daft.ie/china/property_for_sale/
Irish
website offering expensive apartments in mainland china for sale to
(presumably) Irish investors.
this is actually re-sold from
Property Frontiers, see below.  

http://www.propertyfrontiers.com/countries/china.aspx

property frontiers seem to sell properties from all around the
world. It would be interesting
to call these guys, even see if
they want to do some kind of joint venture, because
clearly
properties in Zhuhai are much more affordable than those in Shanghai.

Regulation and other interference with the operation of the free market harms economic growth and leads to non-optimal allocation of resources. Capitalism as proved the most effective means of organising the means of production. There is a grudging recognition of this in the UK even by many Labour Party MPs although, sadly, not Gordon Brown.

Probably the market which is least free is the market in land. The Town and Country Planning act functions like the Soviet five year plan. Production targets for housing and commercial space are settled on by unelected committees and imposed on the building industry without any regard for price signals. A system like this creates some winners. I must admit to being a winner myself: because the price elasticity for the supply of housing in the UK is virtually zero it is possible to make money by investing in the existing housing stock safe in the knowledge that market forces will not increase the supply of housing and drive down its price, as would happen in other asset markets, such as the stockmarket. This effect, plus the incredible savings ratio of East Asia, and China in particular, which leads to a global glut of credit, has lead to UK house prices being higher than anywhere else on the planet - especially in London where supply constraints are greatest.

Unfortunately the system creates many more losers than winners. The English live in the worst houses in the developed world. UK interest rates are amongst the highest in the developed world, at least partly to constrain the rate of house price inflation. UK labour mobility is very low by international standards. There are many bad consequences of a planned economy approach to land use.

This is all presented, compellingly, by Alan W. Evans and Oliver Marc Hartwich in a paper for the Policy Exchange, the latest in a series pointing out the great damage created by the UK planning system. Sadly, no party is likely to make any significant changes to the current system. This is partly because it has widespread popular support. The authors of the report try to understand why voters support a policy that impoverishes them. It is possibly because voters enormously over-estimate the extent of urbansation in England as a whole and in the South East (including London). The figures are ten percent for England as a whole, and twenty percent for the South East. For the South as a whole the density is quite low as East Anglia and the South West have a low level of urbanisation.

I strongly urge you to read Evans and Hartwich's latest report, which is free to download. It is not a market fundamentalist polemic, but a balanced analysis of a severe but undiagnosed problem facing Britain today.

The best laid plans - How planning prevents economic growth

I enjoy listening to Russ Roberts podcasts on my phone. I heard a particularly good one, an interview with Bruce Bueno de Mesquita. He has a unifying theory of political power, that encompasses democracy and autocracy. The wonderful thing about his theory is that it does not require dictators like Robert Mugabe and Kim Jong Il to behave irrationally. In fact their behaviour, including the complete impoverishment of their population by maintaining a black market in their destroyed currency.

Prof. Bueno de Medquita clearly understands the Nomenklatura system, and I fear, expects his listeners to as well. Apparently it is the most perfect system for preserving the power of the person at the top of the pyramid, and for extending power down the chain of command.

The podcast on Econblog.

Selectorate Theory on Wikipedia - just a general idea, do not judge it from this.

All about the Nomeklatura.

This query shows you the results in a naive search for Steve Hemingway. Steve Hemingway the Raku artist still ranks ahead of me, but moving to this blog has definitely moved me up, compared to my old LJ blog which is nowhere.

It's much too late to be blogging, but I felt I had to justify the last couple of unproductive hours on the PC.

Today I visited Loughborough University. I was not exactly bowled over, although I was impressed to hear that the India 1st 11 was using the indoor nets, and that Raveena had managed to get her bat signed by Tendulkar.

It has always seemed to me that the current land planning system in the UK is about as effective in providing us with the housing and commercial built environment, and infrastructure, as the old Soviet system was in building high quality motor cars for the average Soviet citizen. My latest rant on this matter was written very recently and can be read here.

The omniscient Martin Wolf has already, of course, fully solved this problem with an auction-based system that uses the price that developers are prepared to pay to develop land to determine where the need for building is greatest. Unfortunately, doubtless because Mr Wolf thought it would be an easy exercise for the reader, the details of how such an auction process were omitted from his article on the subject.

Fortunately Edward Davey and Tim Leunig of the Liberal party have filled in the details and have set out their proposals in today's FT, the key elements of which are as follows:

In stage one, the council asks any local landowners to submit sealed-bid letters stating the price at which they are willing to sell their land. Without existing planning permission – which would make the land more valuable – many landowners would be delighted to sell for five times current value. The landowners’ price would be binding , giving the council a call option for, say, one year.

In stage two, the council, in consultation with the local community, decides which land, if any, should be granted planning permission. It then auctions the call options to developers, thus capturing almost all of the increase in the land-value created by allowing development. With agricultural land averaging £10,000 and residential land about £3.2m a hectare, the council could potentially reap a profit of £3.1m a hectare from, in effect, selling its planning permission. Similar margins are available in urban areas. The council can spend these profits in any way, from subsidies for affordable housing, better local services to lower council tax.

The procedure described above seems to meet the requirements of

1. giving local control of development,
   
2. allowing local communities to capture the increase in land values that arises from the grant of planning permission,
   
3. removing planners from the allocation mechanism of allocating resources, thereby putting production of homes on a par with the production of bread or of motor cars.

I have always been puzzled about estimates of GDP. We regularly get told that GDP figures for China cannot be relied on, but by implication, figures produced by our own noble ONS will be accurate to the second decimal place. There are the known problems like the problem of non-monetary transactions being excluded from GDP altogether - such as the drop of GDP when a man marries his housekeeper. But the problem is much bigger than this.

This article by an FT staffer gives an insight into the scale of heroic guesswork are must be needed to get any sort of figure for GDP at all. It has often occurred to me, when involved in some transaction or investment or other that it is inconceivable that the state could possibly account for it as a part of the sum total of output or input that we label GDP. Most economics books talk a lot about the components of GDP and how they relate to each other but take the figure as an exogenous variable that may be measured as easily as we take the temperature inside a room.

This wouldn't matter so much if it weren't for the attention that is always focussed on this number, not least by GB in his mantra about continued avoidance of recession, defined in terms of changes in GDP, over his stint as chancellor.

It is quite astonishing that any attention is paid at all to the number, let alone the droning on of the Clunking Fist about how we've survived another quarter where this number has narrowly escaped going down again.

There was a fashion about a decade ago to measure inflation by looking at the GDP deflator - the number required to convert (real) GDP to nominal GDP. This went hand-in-hand with the idea that monetary and fiscal policy should target nominal GDP growth, rather than inflation. My own preference would be to target productivity, but as far as I can see, this suffers from all the difficulties of measurement as GDP and a few more.

In the same edition of the FT is this article by Martin Weald which again points out the distorting effects the very low rate of tax on real estate, especially owner-occupied real estate, compared to that on other assets.

The S&P500 fell 5% this week. I had a flood of margin calls, and the even more dreaded 'critical liquidity alerts' in my in-box.

The reason was telegraphed months ago. Banks are lending an incredible amount of money to dodgy hedge funds and private equity funds.

I have no idea why this happened this week. I am going to China tomorrow, where it will be very difficult to meet future margin calls.

My exposure is limited, but if I allow my broker to close my positions now I will undoubtedly have had my position closed at the bottom of the market. Whenever those damn clerks chose to place those sell orders on my behalf it will be the signal for global stock markets to rally in an uncannily co-ordinated unison.

You may think I am being ironic, or somehow not entirely serious, but this is not the case. My position (long or short) is an infallible predictor of sea-changes in bourses around the world. Sadly, however carefully I choose my investments, these major lurches in markets always serve to precipitate margin calls.

Seriously, it is a sickening feeling to see every one of one's carefully chosen-to-be-diversified positions tank in perfect synchrony.

I will be in an airliner in 24 hours time, speeding to China to view lots of properties around Guangdong.

I will be signing documents, notably Powers of Attorneys. I will secure myself a suitable Chinese name [insert name here].

I will be able to receive emails. If you would like me to find you an apartment to invest in, now is the time to send me an email. Just ping off a note to steve.hemingway[at]gmail.com.