Property Investment International - Newsletters
January 2009 - international property markets reviewed
Dear Investor,
I’m feeling even more philosophical than usual this month (though I’ll try and spare you this time) after spending the Christmas period in India. Although I’d been there before I still woke up every day and couldn’t believe what was going on around me. A place with so many people (over a billion) in a land of such natural riches which obviously has massive potential for growth in most market sectors you may choose to look, including property. Yet it is also a place with huge social, infrastructural, red-tape and environment problems.
It will be interesting to watch a place like India (or China and the like) over the coming years and how it paves its path towards its future. Personally, from a property point of view, I think I’ll be watching these markets from the sidelines, despite the amazing demographics. India is undergoing huge change, the risks are still very high and the short-term future too uncertain and still vulnerable to worldwide events. Longer term it will be a winner, with educated and hard-working people and a huge desire to improve their lives, for sure a massive consumer society is brewing.
The property market, for example, in Mumbai, is falling rapidly as people speculated on over-priced new semi-luxury build property (which may sound like a similar story to those that have invested in many cities across Europe in recent years!?). Unless I was either investing on a truly large scale or had family connections and/or a local property partner I completed trusted I don’t see the need to risk my money in such a market (when I don’t need to).
I’m strongly of the opinion that you don’t need to take large risks to make large returns in property. So let’s take a look at the risk and rewards a number of markets around the world offer, in my opinion, in 2009 ...
Markets review Q1 2009
I’ve not had a chance to fully update our online worldwide property market report for 2009 as yet, and in a way given how rapidly the world is changing at the moment so much it is likely to be out of date long before the year is up. So here below is a brief taster (written from the point of view of an individual residential property investor) of how I see a number of worldwide property markets at the start of 2009:
| Czech Republic | So far the Czech Republic has not still felt the full effects of the world’s economic crisis. Over the coming few months I expect such realities to start to come home to bite as unemployment slowly creeps up. Developers have been hard hit, demand has dropped since summer 2008 and more limited finance has led to project delays, sales and new partnerships. Medium term the supply restriction can only be good for the market. Prices have come off their peak by around 0-10%, with many sellers starting to be more realistic if they really want to sell. I see the market continuing to slowly go downwards for at least the next 6 months. Medium term the economy will rebound quickly, interest rates are still low, salaries are rising etc etc. 2009 will be a great year to buy well priced property in the Czech Republic – let me know if you have one for sale as I’m still buying! |
| Poland | Like in 2008 prices will continue to soften. Fundamentals remain healthy, taxes are being reduced and growth will come back strongly after the bottom is reached. Good buying opportunity will abound this year. Mortgage finance is tougher than previously. I’ll do a more complete review of all the Polish markets in the next few months. |
| Slovakia | Prices had already peaked before 2008 came to a close. Bratislava again suffered from its perennial problem of oversupply. Economically the worldwide crisis will hit Slovakia though the full effects will take time to filter through. Costs of Euro entry will be quickly overcome. For anyone looking for buying opportunities in Slovakia there is no panic until at least the second half of the year. Medium term a lot of supply will still come onto the market, so buy carefully. |
| Bulgaria | Bulgaria is going to suffer for some time to come with its property markets on the coast and ski resorts. Economically it’s not robust enough. Mortgage finance is still not particularly competitive. I don’t see these factors changing much for the better in 2009. Only buy here if you’re confident you’re getting a stupidly low price. |
| Romania | Romania is perhaps the biggest mess of all the European property markets (though Latvia and some others are fighting hard for that position). When over the last 2-3 years literally everyone was saying Romania is the best place to invest I’m glad I had the fortitude of mind to disagree, its saved me a boat load of money and stress. Romania’s property market was perhaps one of the most speculative markets I’ve seen in recent times, you only had to drive in from the Bucharest airport to the centre to see hundreds of signs, in English, with “land for sale” or “apartments for sale” to know that something wasn’t quite right. Much of the new build was quite poor quality for the price being paid, and I could never quite work out what the true fundamentals of the market were (other than sales hype, as seen on the Bulgarian coast etc). Now that the, for so long, promised mortgages for foreigners have not appeared many investors are stuck or worse. This uncomfortable position is only further compounded by falling prices and economic woes (the economy like the property market was always high on the bubble list). Currency swings with the Euro/RON are also hurting investors. Unfortunately, for many, this is a hard lesson in risk management amongst other things. So next time you see promises of 30-50% capital growth a year for the next 5 years please walk away from both the investment its promoter. On the other hand those brave investors with cash and market knowledge could well pick up some bargains this year. |
| Hungary | I’ve never been a fan of the Hungarian property market. Poor mortgages, oversupplied and highly priced. There has been clear economic and financial dangers for years. The country’s financial system is now in a tatters. Currency risks are huge and are hurting both the government and ordinary borrowers due to huge amounts of borrowing in foreign currencies. Avoid this market in 2009. |
| Baltic's | Like Hungary the Baltic’s are in a financial mess, with Latvia leading the way. Property prices are falling heavily and rental yields remain low. Mortgage finance very tough. Avoid for a while until things become more stable. |
| Albania | Albania is unlikely to be affected to the same extent as western European countries. The market has potential – only buy in areas with restricted supply, quality services and in a quality project. Are the returns worth the risk? |
| Ireland | Ireland’s years over boom are now over for the foreseeable future, jobs are being lost many of which will not return as they’ve been moved to Poland and the like. Property prices were sky high and residential yields extremely low. This imbalance is now rectifying itself with falling prices. Expect the pain to continue in the short-term, medium term you can’t ever discount it. |
| Turkey | Along with Albania, Turkey (and I’m only talking about cities such as Istanbul) may be one of the few places to show property prices growth. Istanbul has excellent demographics and a burgeoning business environment. Mortgages are now theoretically available for foreigners. |
| Germany | Not my favourite market at the best of times. High tax and regulation. Very illiquid market. Poor mortgage finance. The economy is now in recession meaning it could be another 10 years before the property market shows any sign of growth – even if it did the very high taxes/costs and poor mortgages would stop me buying. If the German economy does pick up I’d take a counter play and invest more in the Czech Republic which exports a huge amount to Germany and will benefit greatly from any German economic pickup. |
| Spain | The property market is a complete mess, oversupplied and with falling prices. No end in sight to the current pain. Unemployment rates have just hit 14%. Spanish government are freezing foreigners bank accounts etc. |
| UK | Prices will continue to fall this year, for how long no one knows. The UK economy is suffering as is the pound. This troubles will not be sorted quickly. With a little patience (and perhaps some inventive financing) there will undoubtedly be some great opportunities later in 2009. |
| USA | Huge price falls, many foreclosure and new problems every day. It is a large and diverse market so opportunities will always remain. Like the UK market I would wait for the market to fall further. 2009 could be a great year to buy up a piece of American real estate at bargain prices, if you know what you’re doing. |
| Canada | Prices had already peaked when I was in Canada last summer. Prices are falling but they will not go down to the same extent as the USA. Mortgage lending was never as lax and commodity prices will pick up again soon benefiting Canada greatly. |
| Panama | Certainly the best place to invest in the Central Americas still. Huge offshore banking, low taxes, large ports, trade and investment. Watch for oversupply and overpriced buildings sold to foreigners. |
| Brazil | I have to cringe when I hear Brazil being mentioned as a property investment location. Sure it has a lot of opportunities if you know what you’re doing – but unfortunately most fast talking property sales guys on big commissions don’t. Beware of any company promoting such sunshine destinations with pretty pictures and pseudo investment facts. |
| Scandinavia | Between 2004-2006 the Scandinavian markets (particularly Denmark and Norway) had some of the highest property price growth rates in the world. They are, of course, now, like many places suffering from such excesses and prices are falling. Putting the high tax issues aside you can’t discount these countries, well educated, hard-working and with large natural resources. My pick would be Norway which still has plenty of oil (as well as fish and timber) and when commodity prices pick up, which they undoubtedly will, and the property market bottoms Norway could see some substantial price growth once again. |
| Middle East | I understood why these markets grew so much even less than Romania. I don’t like them at all, maybe it’s the fact that they are not free markets, but ones controlled by governments, and their lack of fundamentals. Despite all the so called facts I just could never get my head around why I’d want to invest in, for example, Dubai. Booming prices and rents, a megacities being created out of nothing … is it really sustainable, my guess is not. And recently prices have been plummeting – ouch! What goes up fast generally comes down equally fast or worse. Avoid until the region becomes much more established. |
| Asia | Prices in much of Asia have hit a peak or are falling, including China, India, Singapore etc. Perhaps the only markets I would consider would be Cambodia (like Albania in Europe - huge potential but immature market) and Mongolia which is a commodities driven market that will continue to grow and provide investors high returns but for a lot more risk/uncertainty. If you’re based in the region Malaysia, HK and Singapore will offer the best and safest returns, but beware of government meddling and speculation. If you’re based in Europe of North America I’d suggest sticking to the bountiful opportunities closer to home. |
Apologies for the brevity of the above, if you need more detail / information on a market or if there is a market that I’ve missed that you would like me to cover next month then just drop me a line.
Thinking and thinking big
At the end of the day much of what we see around us, how we feel and behave is a function of our mind and how we think.
There is going to many winners and losers in 2009 and which one you become is all in your mind. Our mind is truly the one thing we can control in life, so I hope you put it to good use and think lots of big positive thoughts as such simple things can have a big effect on your life and investment goals.
The world is changing and opportunities of all sizes abound, so why not train the mind to look out for some big ones!?
Our Services - Price Promise
As part of our continued price promise effort to provide the best service at the best possible price; towards the end of 2008 we reduced our “hands-off” property management service fee to only 9% + VAT and we can also now do kitchens, for cash strapped investors, from as little as 80,000 CZK.
As an aside there is talk of the Czech VAT rate being reduced from 19% to 15%.
Closing remarks
As I reasoned in last months’ newsletter I believe 2009 will be a year to think big and take advantage of a raft of opportunities and get ready for the next asset bubble. Personally I’m already spending a large amount of my time looking for discounted property here in Prague, typical deals are currently available at approx 30% below market value. I can’t buy them all (though I’m trying) so I’m looking for serious partners to invest with me – if that would interest anyone drop me a line.
I hope 2009 proves to be a fruitful year for all.
Regards,
Simon Tweddle.
www.propertyinvestmentinternational.com