Former rogue states and rival to the US sure must make for lucrative commercial potential.
Consider this…it was only in April that the Wall Street Journal revealed that American airline manufacturer Boeing was in preliminary discussions to sell planes and aircraft services to Iran.
Now comes news that Boeing has now got a US$11.3 billion order from a Vietnamese carrier.
This is the first time that the company involved — VietJet — has ordered from Boeing since VietJet started operations in 2011. It’s ordered from Europe’s Airbus in the past, according to the Financial Times.
It’s the biggest airline order in the country’s history. It just so happened to coincide with the US government completely lifting a 50 year arms embargo on ‘Communist’ Vietnam. This came during President Obama’s recent three day visit.
The global dealmaking boom
There is just so much development and so many deals happening all over the world, it’s becoming hard to keep track of it. You might recall yesterday I told you about India’s massive road building program, happening now.
The Indian government has also agreed to finance and build a huge US$500 million port in Iran, close to the border with Pakistan.
Apparently India is looking to send goods into Central Asia but wants bypass the land route over Pakistan. In return, it can import gas via the port as well.
All this is bullish for world growth. Iran and Vietnam, for example, have 160 million people between them.
But perhaps the most interesting former ‘rogue’ is Cuba. The government there just announced that its legalising small and medium sized businesses.
This comes on the back of news in April from the BBC that US operators are in discussions with Cuban officials about running a ferry service from Florida.
Where this is heading is more businesses, tourists, transactions and trips. There are huge gains coming in Cuba. It will add to real estate values on both sides, too.
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Why you should watch this keystone state
Florida is actually an interesting place to watch for US real estate in general. The Economist put it like this recently, ‘Florida rivals southern California as the rich world’s most inventive, exuberant urban laboratory.’
Florida can be a trendsetter for the rest of the country. Apparently the latest craze in Florida is ‘ersatz urbanism’.
The idea is to blend city and suburb. So apartment developments come along with shopping centres, restaurants and cinemas. You get the feel of city life without some of the drawbacks. Apparently one of the sales pitches is you can spend your whole life in one district.
But underneath this trend is a more familiar one: rising land prices. One developer cited says south Florida is running out of places to sprawl because natural barriers hem it in.
That means it has to go up. So zoning laws are changing to allow this. And of course property prices follow to reflect the new height limits.
You don’t even have to look outside Australia to see this type of thing in action. The Australian Financial Review reported yesterday that Phileo Australia has booked a 164% rise on a development site it owns after being rezoned from grazing farmland to residential.
But back to the US. It’s interesting to note another reason given for the rise of this ersatz urbanism trend is young US families wanting to rent these type of apartments. But only because it’s hard to get mortgages for family homes. Credit is tight in the US.
But that is changing.
US Banks are loosening their criteria…
The Wall Street Journal reports that Wells Fargo — the biggest mortgage lender in the US — is now rolling out a new mortgage for borrowers making a minimal down payment. That’s as low as 3%, ‘while also allowing them to use income from family members or renters to qualify.’
The bank is going after middle and low income borrowers. No doubt the others will follow. This is a clear signal of the expansion of the credit system in the US.
Rising interest rates in the US will help this process. Higher interest rates increase the spread banks make. This is a good thing.
A lot of the mainstream media spout the line that low interest rates cause growth. This is bogus. Interest rates follow growth. As interest rates currently sit, major commercial banks actually have an incentive to borrow short to lend long back to the government. This actually inhibits credit going into the real economy.
It’s inevitable that there’ll be consistent forecasts of doom once the Fed actually does raise rates. You’ll be told that everything will unravel. If you want to know why such forecasts will be wrong, go here.
Editor, Money Morning