jeudi 7 novembre 2013

Part 3: Value, mergin and price

But the growing value is not the price ! the value is the necessity meaning the adaptation of the living to the environment. If the living is not adapted, it will be outmoded and obsolescent and the price will not be dependant on the value but the pressure of the demand to be housed which is to be bad. I want to stress the point the value is not the confronting point of the demand and the offer but the sum of the constituting elements of the building.

For example you have a castle in a deserted zone where nobody lives : the castle has a value which will be its historical dimension, its ornementation and the way of the cutting of the raw materials. The castle will have a big value this way except if the interior living is not adapted to the modern needs (TV/internet connections, high comfort in each room, domotic systems,etc). Moreover if nobody wish to live there, the price will be low even under the value of the castle ! 

So if the value has to be upgraded significantly, the real estate building norms  have to be too ! Otherwise the value will be dropped ! That’s why the investor needs to be very care in his purchase and not to invest in buildings no longer corresponding to the state of the market.

I mentioned the duality or the complementarity between the value and the price and pointed the main feature of the latter which is the market game meaning on one hand an offer of goods and on the other hand a demand based on growing incomes and borrowing capacities.  

I will describe you in a first part the Eurozone housing market.

The housing market is over 100 Billion of Euros being oligopolistic based on some major international groups such as Bouygues, Nexity, Vinci in France, ACS in Spain, Hochtief in Germany and a myriad of small companies operating mainly as subcontractors.

Margin is fixed between 8% and 17% meaning a price pivoting around 200,000€ for a 3 rooms apt in 2013 (by the way the prices are kept by the builders outside the impact of the crises but i will be back on that later) so if i told you earlier is true you have to add the added annuel value + this margin and you will get a price for the same good around 400,000€ in 2020 meaning a growth of 13-14%/year ! which seems outstanding but understandable if i take 5% of added value + 8%/9% for the builder.

Well the picture is far from this but an healthy market should work like that! but yes ! we are not in a healthy market !

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