A couple of decades ago in Canada, there was a sudden upsurge of interest in collecting those picture cards that you sometimes used to find in packets of chewing gum -- you know, the ones with blurry pictures of your sporting heroes and a few details of their careers. All at once, the perception arose that these were an investment you could make money on. Shops opened up where you could buy cards to fill in the gaps in your collection, and some of the newspapers even started regular columns to report on the trend.
Needless to say, the chewing gum makers saw an opportunity to boost sales, so the issuance of cards multiplied dramatically. It's not clear what happened to all of the extra gum that you had to buy to get your mitts on the cards, but there's probably a lot of it mouldering in closets all over Canada. Of course, the jump in the supply of cards ended their appeal as an investment, and the whole mania just faded away. There's still money in trading cards for serious collectors who can get hold of rarities, but the idea that a lot of people could get rich off them was firmly put to rest.
I'm reminded of these events by the sudden downturn in the property market in Spain. A couple of years ago a work colleague was kind enough to let me use his villa on the Costa del Sol for a week. The villa was lovely (thanks again, Frank and Ann!), in an established neighbourhood and with the inevitable golf course right behind the back wall. But the signs of overheating in the market were everywhere. There were construction cranes at every point of the compass, and it was clear that most of what was being built was not of the same high standard as my colleague's place.
Spain has been building 800,000 properties a year in recent years -- far more than the number in more populous countries like the UK, Germany or France. Spain's indigenous population is hardly growing at all, so the premise for the whole construction boom has been the assumption that foreigners from colder climes would continue to pile in to the market to pick up holiday homes.
Until recently, the British, Germans and Scandinavians have been happy to oblige. But there's a real problem with the idea that everyone can make money out of being an amateur landlord. If you're buying a place to use for one month a year, then unless you're very rich you are counting on either a capital gain or a stream of rental income to make it worth your while. However, prices are set by supply and demand, not just demand. Even if the buyers keep coming, so long as developers keep slapping up more units, there's not much chance of a sustainable rise in prices. And as far as the rental income is concerned, the odds are that the guy you thought you could rent to each year has just bought the new place down the street.
A lot of people are going to get hurt as this bubble deflates. Property companies in Spain are saying that those who bought five years ago can still count on capital gains. With new properties being offered below the price of resales, I doubt if those gains will survive for long, particularly if a lot of owners panic and try to cash out. Properties purchased "off-plan", a favourite money-making wheeze until very recently, may never be built.
There may be some bargains to be had in the next year or two, but I would only be tempted if I thought I could make adequate use of the property myself. The days of making easy money in Spanish property are probably gone for a good long time. So where next for the more adventurous investor? Well, maybe it's time to take another look at hockey cards.
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