Property tips for 2008 purely investment (ie not self holiday) (except CV/Bulgaria)

[Johnny D]

Re: Property tips for 2008 purely investment (ie not self holiday) (except CV/Bulgari

Hi All,

I would think the days of consistant strong capital growth are over in most places and it's anyone's guess what markets might buck the trend.

For that reason I would recommend concentrating on markets that may provide steady growth, but more importantly have good rental yeilds and a strong rental market. This will protect your investment if things turn nasty. All investment booms have their day and I have a feeling this worldwide property boom is running out of steam.

Central Warsaw still looks cheap enough for the most important city in Eastern Europe.
Avoid suburbs anywhere in the world, as suburbs will suffer most in any downturn.

 

[Evolu]

Why oh why do people persist on looking at capital appreciation as there starting point for 'investing'?

I'm a professional investor for over 3 yrs having a engineering degree from an Irish University in the early 90's and I've nearly 100 properties...

I only tell you this to give weight to what I am about to say. i am still only in my mid thirties and while I learned and done a lot, I've a lot to learn! This is my second post ever here, but I do enjoy reading the posts daily. Congrats to AAM for a very useful site!

Anyway… many of the 'big boys' I ever come across/deal with, even my lowly self (in comparison to them) never 'invest' unless we are fairly sure of some sort of guaranteed return! With the majority of their/my cash, it’s never 'I wonder where is going to do well next'.

I take investing from two simple points of view...

1. Some sort of quick capital turn around of capital. E.g. A building for sale in an area that has apartments in similar buildings close by. I know or do a serious amount of work as to my chances of planning and purchase the building accordingly. Example - purchased in a uk city 5 mts ago for £305,000 (incl purchase costs) and just received planning. The 5 apartments will fetch 650,000 (total) plus if I develop them myself, after costs, I'll make over 1/4 mill euro (before tax). If I sell now I can sell for 425k plus... 100k plus sterling in less than 6 mts and that’s just this building!

Look at Sean Dunne Berkley court... derek Quinnlan many many shopping centres. The list is endless.

Coming into this deal and many more, i had a very high chance of making a min of 100k sterling in 6mts because I was 'fairly sure' of a return. (There are example where I've bought similar and given people a lowly 5k sterling to wait 6mts while i look for planning on their building and buy subject to planning... with a simple option contract!)


2. The second simple thing I do is buy for rental yield. i dont want to go into my strategy here... but i promise you, within a yr I could have ANYONE (without any bad luck) start with 50k sterling but 20-30 units over the course of 2008 in certain good rental areas and by the end of the yr have the portfolio producing 5,000-7,000 per month euro after interest costs (before management costs and voids). Why, especially in the current climate would you try and second guess as to where the market is going next?. Especially with no 2 above which is available to anyone and is just repetition, once the properties rent there is that 'gain' guaranteed! With chasing capital gains, it’s too hit and miss!

Yes I take a certain % of my capital and put it into emerging markets/areas suggested by associates or researched, but its an extremely low % in comparison to what I invest % in my more or less guaranteed return projects!

In no 2 above, who cares about market fluctuations. Once the properties rent at that level you'll get north of 5k a month (after interest payments!). This is, while a little more difficult repeatable at a higher level with commercial, possible to replicate at any level!

So when investing or when reading in the SBP or STimes or where ever about some big fish that has done a deal... read between the lines and ask yourself how is he/she making some 'more or less' guaranteed capital from the deal or monthly revenue stream!

For what its worth, unless you know your areas DONT go into any new markets for a few mts for capital appreciation. Asset repricing is going on world wide at the mo, take stock and see where it lands... time is on your side! BUT, if you have a deal for quick capital turn around or especially a monthly revenue stream... then do it! (imagine adding even 500 - 1k every 6mts to your bottom line for the next few yrs!)

For what its worth... my small % punt will be in the USA from what we reckon next autumn on (could be longer...). (But to buy for revenue stream and its hardly rocket science as to why USA!).

Lastly, I never buy for capital appreciation. Capital appreciation is a nice by product of the market cycle... that’s it!

All the above figures are pretax... yes, its a simple look. But it is that simple. (lastly, if I dont/cant sell the developments I let them out for revenue stream after taking out my costs in a remortgage).

I hope this helps... it’s an insight into what I do. I’ve taken the time to write this in that hope that at least 1 or two will no longer just seek out ‘investments’ for capital appreciation…

Take care out there!

 

[eiredaisy]

I think you may want to lower your sights a little bit - Have Irish people become so high on this whole property bubble that we think 12% annual return is normal?

 

[thomsk]

I am just wondering if the answer to investment is staring us in the face, ie Ireland (and UK) Many people mention investing in USA at some stage, cause prices are falling. OK, there's the weak dollar - but then there's the hassle involved in finding tenants, maintenance, etc from such a distance away. With Ireland and UK prices falling, maybe there will be opportunities nearer home - especially reposessions.

 

[MichaelDes]

I am just wondering if the answer to investment is staring us in the face, ie Ireland (and UK) Many people mention investing in USA at some stage, cause prices are falling. OK, there's the weak dollar - but then there's the hassle involved in finding tenants, maintenance, etc from such a distance away. With Ireland and UK prices falling, maybe there will be opportunities nearer home - especially reposessions.

Thomsk you are right, these matters always stare you in the face. Indeed last week one of the major banks put through auction, five turn key 3-bedroom properties for £135k from the previous £185k. Banks are no longer rollling credit and foreclosing on builders with tight credit positions. In Banbridge a builder was escorted out of the bank by the police in the last day or so. Again the bank are forcing to put his houses onto the market at much reduced levels to collect on their loans. A lot of distressed sellers are providing ideal tenants too in the scenario. The position may fix itself if interest rates fall to 5% by the summer. So the imperative to seek a bargain might be now. Rent per month also increase as BTL's are put to market without tenants. Check the prices these properties make as they will be published following [broken link removed]. Prices paid will be well below published values sought IMO.

 

[Ancutza]

I've got a US citizen staying with me for a couple of days who lives in Kiev, Ukraine.

He purports to have experienced a 10-fold rise in prices for apartments in his district since he bought his apartment in 2002. Apparently the Germans are buying everything around them alongside the rich locals of which there are estimated to be 150,000 from a total population of 4 million (in Kiev itself that is).

My american buddy holds his apartment in his own name and says that next year he'll be able to buy land also in his own name since the market is being opened up and liberalised to foreigners.

He says that the political situation is becoming more stable by the day and that the Ukraine is working towards fulfilling a couple of preconditions for the WTO which will see further inward investment.

Being a Yank he was also pleased to note that US support for the Ukraine has increased vastly since they stopped selling sophisticated armament systems to every banana republic with a check book.

Maybe one for the long term, huh?

Myself, I came across a good 'un in my conversations with a friend of mine who owns some farmland here in Romania. Apparently he gets 70 Euro per hectare per year for allowing his 30 hectares of land to lie fallow. Now I understand why so many Italians spent the last 5 years buying all around them here.

I can still buy land in the village where I have my Summer house for around 300 Euros per hectare so at a return of 70 euro per hectare per year it starts to look mightily attractive and apparently the money from the EU applies irrespective of whether you are talking about individual hectares, (one here, one there) or large tracts of land.

Anyway I still have to check this one out to verify its veracity but I'll keep you posted. There has to be a catch right?

 

[MichaelDes]

I can still buy land for around 300 Euros per hectare so at a return of 70 euro per hectare per year it starts to look mightily attractive and apparently the money from the EU applies irrespective of whether you are talking about individual hectares, (one here, one there) or large tracts of land.

Great post. Keep us informed. I like the math’s of it. On the subject, anyone living in the EU on a plot of 1 acre or more can apply for an EU grant to keep it fallow even if it's garden. On the subsidy, I thought it was €30 an acre. A hectare is 2.42 acres? Apparently Europe’s agriculture commissioner, Mariann Fischer-Boel lost her cool two weeks ago when she discovered that over thirty golf courses in England were claiming the subsidy, which under law they were fully entitled to!! This is an interesting article as the EU are targetting farms of the . More details please, ASAP.

 

[z106]

Re: Property tips for 2008 purely investment (ie not self holiday) (except CV/Bulgari

Central Warsaw still looks cheap enough for the most important city in Eastern Europe.

What doe "still look cheap" mean.

I had provisoionally booked a one-bed in murabo(beside the ibis hotel- ideal location) recently but backed out due to personal financial reasons.

The price was €200k - that's not that cheap.

As i said in a different post - u can't compare one city with another city - it's like comparing apples with oranges.

 

[MichaelDes]

Re: Property tips for 2008 purely investment (ie not self holiday) (except CV/Bulgari

What doe "still look cheap" mean.I had provisoionally booked a one-bed in murabo(beside the ibis hotel- ideal location) recently but backed out due to personal financial reasons.The price was €200k - that's not that cheap. As i said in a different post - u can't compare one city with another city - it's like comparing apples with oranges.

QWERTY, you are on the nose as always on these issues. I only quantify cheap in relation to the fundamentals. If a Warsaw property, hypothetically yielded e20k for e200k investment then I'd term that a good as well as cheap financing investment. Though I like the sound of a €70 return per year on a €300 land investment but let's face it that's too good to be true. Inversely but likewise, if a Warsaw apartment was €20,000 and produced €600 in rent per year, this would be termed an expensive financing investment. So it's important to judge these basic fundamentals first otherwise as you say its comparing apples to oranges, judging one cities prices against another.

Other fundamentals to consider after yield are unemployment, market conditions, taxation rates, government stability etc, disposable income relative to HPI for instance, is average property costing still less than four times average local income. If the checklist is good then normally capital appreciation should follow. Never buy with only capital appreciation in mind. Otherwise it won't be apples nor oranges but more likely a big ugly turkey. Apt for the time of year ...

Glad you didn't buy in Warsaw. Fundamentals to me looked skewed by FDI; salaries are to low for the locals to participate therefore it's a bubble in the making if not developed. Although I stand to be corrected. What's the average salary to HP?? Simple answer please, no cheerleader talk.

 

[Ancutza]

Checking out more on this EU grant thingey for agricultural land in Romania today. My friend whom I talked to in the first instance confirmed again what he told me. I enquired about the admin side of things. Apparently it's just a matter of lodging a declaration in the village hall between the beginning of January and the end of March each year and then waiting for the subsidy to come in in the form of a check in the post.

I then got in touch with my accountant who I remembered knew someone who works for the agency which distributes farm subsidies. He made a call. The deal is that the EU gives you 50 Euro per year per hectare for set-aside. The Romanian state gives you a further 20 Euros. Hence 70 Euros per hectare per year.

Called my neighbor in the village who informs me that there is currently 11 hectares for sale on the outskirts of the village for 700 RON/hectare or about 200 Euro give or take. Now I'm seriously tempted!!! A 30% + return!?

Add to this mix that the fact that I can borrow up to 40,000 Euros in the form of a personal loan at 7.5% from Raiffeisenbank, no questions asked, and the plot thickens further.

Interesting stuff or what???

 

[ringledman]

Fascinating reading.

Where else in CEE can you get such cheap land?

What about land ownership issues?

 

[roland]

Am going to reinvest as soon as i can. there seems to be loads going on out there and its ALL generating great returns!

If you are going to reinvest the proceeds back in the same market, why would you have incurred the (significant?) costs of exiting and then re-entering that market?

 

[Rosinsky]

In my view, investors should stick with developed markets that have an established resale and rental market instead of all these "emerging markets". The growth as mentioned in some of the previous post is artificial and the result of FDI and not domestic demand factors especially for residential real estate.

In developed markets there are much better opportunities to purchase below market value, snap up foreclosure properties or renovate.

The locations which I have identified for residential investment purposes in 2008 includes certain cities in Scotland and Canada. Affordability in the specific cities is high, vacancy levels low and rentail yields very healthy and of course it is easy to resell.

For commercial investments, one location which has not been mentioned and have very good investment potential are some of the port cities in the Republic of South Africa - Port Elizabeth, East London for example. Warehouse and industrial in particular.

Commercial investments in Belgium and France should also continue to be a good options.

The USA does offer some very attractive opportunities considering the current conditions as a result of the subprime market problems. Plentifull foreclosure property. A location that I dont think has been mentioned yet is Texas - residential in particular.

Long term gamble - I am looking East. The countries with the biggest population growth, the cheapest labour costs and the highest increase in GDP growth. Especially the commercial property. High risk , but may well pay off. I know previously I mentioned staying away from emerging locations - I mean this in the case of a general punter.

 

[ringledman]

In my view, investors should stick with developed markets that have an established resale and rental market instead of all these "emerging markets". The growth as mentioned in some of the previous post is artificial and the result of FDI and not domestic demand factors especially for residential real estate.

In developed markets there are much better opportunities to purchase below market value, snap up foreclosure properties or renovate.

The locations which I have identified for residential investment purposes in 2008 includes certain cities in Scotland and Canada. Affordability in the specific cities is high, vacancy levels low and rentail yields very healthy and of course it is easy to resell.

For commercial investments, one location which has not been mentioned and have very good investment potential are some of the port cities in the Republic of South Africa - Port Elizabeth, East London for example. Warehouse and industrial in particular.

Commercial investments in Belgium and France should also continue to be a good options.

The USA does offer some very attractive opportunities considering the current conditions as a result of the subprime market problems. Plentifull foreclosure property. A location that I dont think has been mentioned yet is Texas - residential in particular.

Long term gamble - I am looking East. The countries with the biggest population growth, the cheapest labour costs and the highest increase in GDP growth. Especially the commercial property. High risk , but may well pay off. I know previously I mentioned staying away from emerging locations - I mean this in the case of a general punter.

And these locations aren't high risk!

Give me Poland over South Africa, Scotland, Canada or the US anyday.

Established Western markets are crashing if you havent noticed!

To say the growth is all down to FDI is nieve. There is a very healthy lcals market in Poland, Checz and slovakia.

 

[Rosinsky]

Re: Property tips for 2008 purely investment (ie not self holiday) (except CV/Bulgari

"And these locations aren't high risk! "


"Give me Poland over South Africa, Scotland, Canada or the US anyday."

Established Western markets are crashing if you havent noticed!

To say the growth is all down to FDI is nieve. There is a very healthy lcals market in Poland, Checz and slovakia.

 

[Rosinsky]

South Africa would be considered a high risk investment so would the properties in the East in locations such as India, Malaysia etc - I totally agree. You can reduce the risk if you have the local knowledge which I do have and if you have access to financing not regurlarly avaible to the average punter. You would also notice I refer to specific cities and types of investments.

Canada is certainly not a high risk investment location especially when you are developing or an equity investor. Property in Toronto for example are selling in the region of $CAD 550 per square foot and the resale market is extremely well established. Besides, developers mortgage are only drawn down on completion of 50% sales which also reduces risk. Vacancy rates as low as 1% in some of the cities. Rental yields are also very strong. It has also been unaffected by the subprime crisis in the US and lending criteria are much stricter. This market has been overlooked unfortunately.

I do believe that the UK will have problems in general - no doubt. I refer to a particular city in Scotland that should not be as effected and offers great opportunity. In relation to the US - you will be surpised how many Irish investors are making large profits out there as we speak. In general though I would wait till much later in 2008, Q3-Q4 before investing.

Poland, Slovakia and the Czech Republic I dont believe are "emerging locations" by the way. They are developing markets which I too believe can be good investments - it depends the sector and type of property investment you choose. Wont have my entire portfolio invested there. Some location are over hyped. Having said this, would you be able to sell your new off-plan property in any of these locations within 3-8 months at a profit? Probably not! Very difficult to purchase below market value. (Transaction costs in Poland is however very high for my taste and in most cases the cashflow is negative.)

 

[ringledman]

South Africa would be considered a high risk investment so would the properties in the East in locations such as India, Malaysia etc - I totally agree. You can reduce the risk if you have the local knowledge which I do have and if you have access to financing not regurlarly avaible to the average punter. You would also notice I refer to specific cities and types of investments.

Canada is certainly not a high risk investment location especially when you are developing or an equity investor. Property in Toronto for example are selling in the region of $CAD 550 per square foot and the resale market is extremely well established. Besides, developers mortgage are only drawn down on completion of 50% sales which also reduces risk. Vacancy rates as low as 1% in some of the cities. Rental yields are also very strong. It has also been unaffected by the subprime crisis in the US and lending criteria are much stricter. This market has been overlooked unfortunately.

I do believe that the UK will have problems in general - no doubt. I refer to a particular city in Scotland that should not be as effected and offers great opportunity. In relation to the US - you will be surpised how many Irish investors are making large profits out there as we speak. In general though I would wait till much later in 2008, Q3-Q4 before investing.

Poland, Slovakia and the Czech Republic I dont believe are "emerging locations" by the way. They are developing markets which I too believe can be good investments - it depends the sector and type of property investment you choose. Wont have my entire portfolio invested there. Some location are over hyped. Having said this, would you be able to sell your new off-plan property in any of these locations within 3-8 months at a profit? Probably not! Very difficult to purchase below market value. (Transaction costs in Poland is however very high for my taste and in most cases the cashflow is negative.)

Fair comments.

I agree on the US. Way too early to invest yet. another 12 months at least and things will look interesting.

You are right about local knowledge. it is invaluable. And as for Poland, I have recently found the transaction costs too be too high.

I would like to hear more about Canada. Can you enlighten us on the place? 550/square foot sounds at lot lower than I would imagine.

Cheers.

 

[Rosinsky]

Re: Property tips for 2008 purely investment (ie not self holiday) (except CV/Bulgari

Fair comments.

I agree on the US. Way too early to invest yet. another 12 months at least and things will look interesting.

You are right about local knowledge. it is invaluable. And as for Poland, I have recently found the transaction costs too be too high.

I would like to hear more about Canada. Can you enlighten us on the place? 550/square foot sounds at lot lower than I would imagine.

Cheers.

The Canadian market is not one you hear being advertised very often; however, prices have been growing consistenly over the last 5 years in the region of 10%. The average prices are in fact lower than the square ft I indicated.

Certain cities have seen more substantial growth - for details on the different cities I think you will find it on www.crea.ca and also the Canadian CSO. Forecasts do show a slowdown but what attracts me is that it is not swamped by foreign investors ( residential ). The properties is still very good value. When I first started researching the market I was surpised to find out the prices. Additionally, many Canadians are also buying second homes. The taxes are low and purchase costs is also very low.

The Toronto condo market is the biggest in North America and the unsold stock is at its lowest level ever. All the the indicators to me is attractive and in the times of uncertainty I do believe markets such as these are good options. Rent for two bedroom apartments are also very high - if I remember correctly it is approximately 1400 CAD per month - this is my real attraction.

Dont of course forget some of the other cities such as Vancouver and Montreal - all offer niche opportunities. Funny that no company is selling these - probably as a result of the low commissions on new property.

 

[almo]

Russian commercial properties are good at present, especially outside the 2 main centres.

12% is very high, unless you get "guaranteed rentals".

 

[Rosinsky]

Re: Property tips for 2008 purely investment (ie not self holiday) (except CV/Bulgari

Russian commercial properties are good at present, especially outside the 2 main centres.

12% is very high, unless you get "guaranteed rentals".

What is the situation raising financing in Russia. Is there any particular city / region you have in mind.