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Saturday
May242014

Global Pressure

There was a recent blurb in The New Yorker about the housing market in Vancouver; a city where the median income is $70K, yet the price of single family home is close to a million. James Surowiecki writes:

When price-to-income or price-to-rent ratios get out of whack, it's often a sign of a housing bubble. But the story in Vancouver is more interesting. Almost by chance, the city has found itself at the heart of one of the biggest trends of the past two decades––the rise of a truly global market in real estate.

That's a crazy idea––to think that you're competing for a place to live with people who don't live in your place.

Surowiecki continues:

The globalization of real estate upends some of our basic assumptions about housing prices. We expect them to reflect local fundamentals––above all, how much people earn. In a truly global market, that may not be the case. If there are enough rich people in China who want property in Vancouver, prices can float out of reach for the people who actually live and work there. So just because prices look out of whack doesn't necessarily mean there's a bubble. Instead, wealthy foreigners are rationally overpaying.

When the price of Macallan 25 went from $250 to $800, I thought we'd never sell a bottle again. Of course, that mindset reflected what I knew about the global market at that time. When I finally got the opportunity to buy Mac 25 again, after a multi-month shortage, it didn't take more than a day to sell every bit of it. A gentleman from Hong Kong called me immediately, said he'd take all sixty bottles ($50K worth of single malt), presented me with a bill of lading as not to pay local sales tax (showing his intention to ship the whisky back to China), and sent a driver to pick up the goods. I quickly learned there were K&L customers out there I never knew existed.

So when you see these ultra high-end bottles evaporating like the morning dew off of your front porch, yet you can't imagine anyone you know purchasing them, remember that it may not be someone from your neck of the woods; it may be someone from a land far away, with deep pockets full of a currency that stands strongly against our weak dollar.

The boutique liquor industry has quickly become a global economy. When supplies are limited, savvy consumers will look elsewhere for their desired share. That place might be your local liquor store, or it may be K&L.

-David Driscoll