The banking/financial system raises all kinds of worries with zero rates, which are a sort of cancer of money, central banks that do not know how to raise interest rates, banks with terrible balance sheets that are levered to the hilt, coercive and menacing laws (BRRD, Sapin 2, freezing of accounts, as we’ve mentioned the last time). And little by little, one phrase emerges: Get Out of the Banking System!
Getting one’s money out of the bank – at least a large portion of it – is one thing, but what is one to do with it? The preferred investment, the most reassuring, according to observations and some polls, is real estate. It is true that real estate’s performance, especially in France, has been great with a steady progression in prices, which should reassure potential investors.
That being said, one thinking of investing today in the real estate market should ask oneself some questions, instead of just following the recent trends without thinking. It is a long term investment – one must look far ahead, and several risks are to be taken into account.
First of all, there is the risk of a bubble, notably due to today’s extremely low interest rates that provide artificial fuel to the market. If rates were to rise, prices could crash seriously.
The fiscal risk is also important: Household owners are the easiest to “fleece”, being part of the middle class, already heavily taxed in France, whilst the actual owner, a “rich man”, must pay as well. There is no end to fiscal imagination, by the way, and the stupid idea of a “fictional rent” is taking ground, discreetly, waiting for some government to implement it – the rent an owner doesn’t pay would be considered as “revenue” that should be taxed. This is quite scandalous, but little bureaucratic hands are diligently working on it. As a matter of fact, a think tank linked to Matignon, France-Stratégie, has spun this idea in 2016...
Finally, one must think about the resale value and, for that matter, project oneself into the future. Demographics weigh heavily, and the future doesn’t look bright. Fertility rates in Europe are extremely low – way below the generation renewal rate. They are at 1.4 children per woman in Germany, Italy and Greece. Thus, “100 grandparents have an average of 42 grandchildren, which is the perfect example of a pyramid resting on its head”, as Charles Gave, from the Institut des Libertés, points out. He goes on, “Those grandparents all have decent lodging... to think that real estate is going to go up when there are 42 buyers for 100 sellers is an interesting idea, but I fail to see the logic in it”. France is, of course, a little bit less threatened by this phenomenon, but it will play out also.
Over the long term, real estate is no longer the must-go-to investment. One must look elsewhere, and the first place to look is physical gold, of course. Gold is cheap in relation to real estate, but it is not sufficiently taken into account by the French savers.
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.