Tuesday 31 July 2007

The property factor and the effects on tourism

Financial analysts are worried about the property sector and how a collapse here could trigger a mudslide affecting the economies of many European countries.

Take Ireland for instance which showed the greatest increase in house prices in the E.U. since 1995. Domestic property prices fell in April, the first decrease in five years.

In France, housing starts have declined for the first time in six years and in Spain where unfettered development over the years is being challenged by a crash in the value of shares in developers and builders.

The European Central bank, preoccupied with Germany’s depressed economy reduced interest rates overall to 2%, far too low for the bubbling economies of France and Ireland. As a result, their property prices soared. Bank interest has since risen in seven rapid steps to 3.75% and expected to reach 4.25% soon. This has meant a doubling of mortgage payments with its inevitable consequences.

In Britain, the Chancellor has been more aware of the impact of low interest rates on inflation, and here a wholesale crash is unlikely. A number of factors will affect house prices in the next twelve months. One is the dampening effect of stamp duty. According to the Centre of Economic and Business Research, stamp duty will generate £7 billion for the Exchequer in this fiscal year. This has affected sales and currently only 7% of the housing stock is in transaction compared to 9% in the 1980s. Demand is been generated also by overseas buyers from Russia and India who see London as a particularly desirable place to live. In other areas it’s the “buy to let” market sector that has restricted house availability.

The new Prime Minister, Mr Gordon Brown, recognises the shortage in supply and promises to build 200,000 new “affordable” homes each year, but some of the land available is flood plains and the hazards they pose have been evident in recent days.

Britain will therefore avert an all out property crash but by 2008, prices will stagnate. The British and more seriously affected citizens of Ireland, France, Spain and Poland will feel less rich and that should affect their spending on other things such as retail goods and possibly travel. Home improvement may do well, because house owners who postpone a move to more expensive properties may choose to invest in their current homes with conservatories and the like.

However for countries that depend on tourism one way of boosting visitors is to make it easier for them to buy a home in your country. They will then visit more often, stay longer, spend more and encourage friends and relations to come too. Some enterprising owners will let their property to other people from their own country. All this will raise tourist numbers.

Since 1998, British visitors to Portugal have risen by 48%. Spain has enjoyed the same level of success, whilst trips to Italy have grown by 66%.

Much of this happened because of more cheaper flights by bargain airlines, an older and affluent UK population and a feeling of greater wealth caused by rapidly rising UK property prices. Your house is worth more, so you feel wealthier, save less and even borrow against your growing house assets.

Apparently more than 300,000 properties abroad are owned by the British. Political stability, warm climate, lots of inexpensive flights to convenient airports and affordable property have made Southern Europe so popular.

Judging by the advertisements on television and in the press, countries like Bulgaria, Egypt’s Red Sea Riviera and Dubai are also seeking the British house buyer.

However property abroad will have to grow in value and generate income from lets to offset initial purchase prices. With so many countries jumping the bandwagon there is an oversupply of such homes.

Selling houses to foreigners may help boost tourist numbers, but the basic laws of economics still apply.

Demand must match supply or there will be tears at suppertime.

Friday 6 July 2007

Advertising on the Internet - a threat to conventional advertising agencies?

The Internet as an advertising medium has been an amazing success. Last year it took over two billion pounds in advertising revenue in the UK and accounted for 10.6 % of all advertising spends.

Even more impressive was its relative speed of growth. In 2001 Internet ad spend was £166 million accounting for just 1 % of the total. Between 2005 and 2006 alone, Internet advertising grew by 48%.

This has panicked traditional service providers into jumping on the bandwagon without much understanding of how and where future returns on this new and large investment was to come from.

Consider where the Internet gets its advertising revenue.

77% of total revenue is classified advertising. Two-thirds of this is for search, an electronic and creatively more exciting version of the old directory advertising. Google dominates the search industry in the UK and elsewhere. None of its rivals have been anywhere near as successful.

Much of search advertising reaches people researchers describe as “engaged”. The distinction is between people who need to be “interrupted” from their usual preoccupations as when, seeing an advertisement for a chocolate bar, you stop at the local newsagent and buy the brand on impulse.

Engaged people are seeking, actively or casually, information about a specific category, product or service.

Advertising is not the only way to reach these people. Brands can raise their internet profile by clever web site design using more relevant copy, careful repetition and providing more information so that Googles web crawlers find it and push it higher up the rankings.

Advertisers can then also use search optimisation by buying specific keywords in an auction bid system. Actual keyword choices become important. Some advertisers use their competitors’ brand names to redirect their traffic. Knowing what price to bid is also very important.

Other than search, of the rest of classified internet advertising, £202 million is accounted for by the online recruitment sector. That slice of the cake is dominated by online specialist operators who account for two-thirds of this spend. Newspapers are making a strong bid to retain their minority share.

Which brings us to the area of traditional “interruptive “and brand advertising. In the internet online display field, banners, buttons, skyscrapers and interstitials rule.

Few advertising agencies regard this as mainstream.
After all it is difficult to be creative in such a limited format. Yet many advertisers think that all advertising on the internet is waste free. I wonder if John Wanamaker who first said: "I know that half my advertising is wasteful, I just don’t know which half " would agree with this view of the internet