Paper Power – (Part II)

Written by Glenn Van Lendt

(Part I)

Salty Nuts…Anyone?

There is an amazing (but old) trend picking up steam around the world and you can buy into it, if you have a few bucks to spare. Countries (for various reasons) across the world are falling over themselves to let you in and grant you long term residency or even citizenship if you can meet a few financial requirements. You know, one foot here…..the other across the sea on another continent, and everything dangling in-between.

The gloves are off and your neighbour (who use to ask for your “poor and tired“, so that they could enter a land of greater opportunity), is prepared to grab at anyone with a buck to spare, reducing their citizenship to a commodity in an attempt to bolster consumption and investments at home. The traditional monetary responses such as lowering interest rates and the printing press are no longer the quick fixes they use to be, so all sorts of new money is required to help prop things up.

Bugger Thy Neighbour

There are some excellent visas being offered, such as the Malaysian MM2H (Malaysia My Second Home) 10 year renewable visa. It’s worthy of a second look due to its flexible requirements and well managed Malaysian economy. The MM2H visa should be considered by those who’d like access to a progressive low cost country with a harmonious population and safe environment.

Other countries however, are actively reducing their citizenship into a commodity and since the GFC, it’s accelerated forward in countries like Hungry, Spain, Portugal and Ireland, who have decimated their citizens wealth, and  are now sniffing around the world to see who can help prop-up local consumption and asset prices. Each new program (such as the latest from Spain, only requiring EUR 160k in real estate investments to qualify), competes with the next, offering easier and cheaper ways in.

Considering “Elsewhere”?

This is a big deal as countries now compete for growth especially through consumption and investments which account for a high percentage of western GDP’s. The money that financial refugees would have spent in their home country, will now be moved to a neighbour and if mass traction is gained across the world by these programmes, it will show up as lower consumption and asset values in the donor countries and higher ones in recipient countries.

With the middle class being dragged down in the West by ever increasing government regulation, unaffordable housing prices and high cost structures, financial refugees are on the move. They are getting long-term visas or permanent residency elsewhere to enable them to spend time in low cost and low tax environments. These refugees will mostly be littered with retirees, as declining income through low rates of return on investments and decimated pension funds, force them to consider “elsewhere” to live. After all, what’s the point in working hard all your life, only to suffer financially through your middle to late years as a result of ridiculously high western cost structures?

The table below easily highlights the cheaper cost structures of one country over the next (in this example Malaysia over Australia). As you can see spending three to four times less on average to acquire the same good or service looks very attractive indeed.

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For those lucky enough to see this trend starting to snowball, now is the time to plan your strategy as you may experience stricter capital controls or higher entrance rules later, that may prevent you from transferring your wealth to a new destination of your choice.

Paradise Pensioners

It is estimated that tens of thousands of Australian pensioners (and those from other nations) have rolled a “pair-ra-dice” and migrated into South East Asian countries such as Malaysia, Bali and Thailand.

Below is the power of an appreciating currency which was discussed in Paper Power, part I. You cannot blame these pensioners for “seeking elsewhere” when the purchasing power of their Aussie Dollar has done so well over the years.

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Australians are amongst the best placed people in the world to take advantage of this deflationary monster dubbed the GFC because we’ve gotten used to bricklayers turning up in Bentleys towing a cement mixer.

When you are accustomed to paying ridiculous prices for everything, hold a currency that’s appreciated over the past decade and can get access to a pension of $28,000 pa (couples) or $18,500 pa (singles), it’s not hard to see why paradise pensioners have pulled the plug in favour of a simpler and cheaper lifestyle elsewhere.

Paradise Yuppies

If you think that it’s only pensioners packing up, I can tell you that yuppies (young upwardly-mobile professional people) are thinking this way too. Many Australian fly-in-fly-out workers go home to SE Asian destinations, where they and their families are setup on a permanent basis, and enjoy a much higher standard of living than they otherwise would in Australia.

These are the early movers as they realise that they cannot attain the same life-style afforded to their parents before them. When talking to them, one cannot help being reminded of the fact that new blocks of land in Perth WA (maybe 20-25km out), were about 22% higher than the average annual income 30 years ago. Today those same blocks are roughly 8-10 times the average annual income. If you think that it’s all relative, I would have to disagree with you because, it’s not about the price increase, it’s about the ratio to average annual income, which is how we got into this mess in the first place.

The following information at the end of this article was obtained from the official website of the Malaysian Ministry of Tourism. Notice the kick-up in MM2H uptake as the GFC started to bite and I predict that this trend will continue for many years until cost and income ratios re-align in years to come. I see no reason why this trend should fall off, especially since I believe that the Aussie Dollar will continue its upwards trajectory for many years to come.

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Please note that this article is written for the purpose of information sharing and no responsibility is accepted for any losses incurred as a result of the author’s opinion. Readers are always advised to consult with a professional advisor.