Bratislava / Prague / Polish cities

[Howitzer]

Ok just to correct one inaccurate assumption. Gearing. Do even the most basic search on how CFD's have ruined many equity investors in the current stockmarket downturn and you'll see that gearing isn't a one way bet to untold riches. If you can't appreciate how this correlates to property gearing then I'm not going to bother spelling it out.

Other than that I say let them eat cake.

I'm certainly not saying people can't make money on foreign property, that would be a laughable statement, but if you're going to recommend somewhere at least back it up with some real facts and figures, not hackneyed truisms that have been peddled by every real estate agent. Martin77's posts on Amsterdam are the most informed I've seen here in a long time. It's a pity we don't see more like them. Otherwise how can anyone make an informed decision.

 

[z106]

Ok just to correct one inaccurate assumption. Gearing. Do even the most basic search on how CFD's have ruined many equity investors in the current stockmarket downturn and you'll see that gearing isn't a one way bet to untold riches. If you can't appreciate how this correlates to property gearing then I'm not going to bother spelling it out.

The stock market is far more volatile than the property market due to its liquidity though.

I'm no expert in CFD's but are you not required to top up your margin as the overall portfolio decreases ? i.e margin call?

DO these margin calls affect peoples cash flows?

This is not present in property - i.e. a crash only affects you if you HAVE to sell. If you don't have to sell then you can just sit through it renting out your property as prices will inevitably rise over the long term.
Whereas with CFD's a crash does affect you directly as you have to top up your margin

I have a general knowledge on CFDs but am not an expert.

Do people who are knowledgable on both areas (i.e. CFD's and property) agree or disagree with my analysis of the differences between the 2 outlined above and why?
i.e. Am i correct or incorrect in saying that howitzer should not have directly compared the 2 forms of investment?

 

[Howitzer]

Gearing works for you in a rising market, it works against you in a falling market. The intrincicies of how you are forced into realising the loss on your investment is, in my opinion, irrelevant.

 

[z106]

The intrincicies of how you are forced into realising the loss on your investment is, in my opinion, irrelevant.

Surely this isn't open to opinion. Are we not talking about the fundamental workings of both investments?

Surely it is very relevant if,depending on the performance, you are forced to close your position in CFDs but not in property.
Historically both have risen over the long term. However in CFDs you may not be able to realise the fruits of that rise due to either being closed out or else your cashflow being seriously dented to maintain the position.
And that is the fundamental difference in both.

That is why I am saying you cannot compare the two directly just because they both use gearing - particularly given the voltile nature of equities means you can be closed out quite easily and lose your deposit.

To lump them both into the same basket just because there is gearing involved is far too simplistic
There's more to it than that.

You seem quite willing to ignore the intricicies of the workings of both however it is these intricicies which make them entirely different investment types.

Ignore them at your folly !!

 

[Martin77]

This is not present in property - i.e. a crash only affects you if you HAVE to sell. If you don't have to sell then you can just sit through it renting out your property as prices will inevitably rise over the long term.

Oh really? Prices always go up? And you can always find tenants that pay your asking price?

Do you have long-term property and rental price graphs for these ex-communist countries to show how their local property markets behave? Maybe you could point to a graph for Bratislava covering the last say 50 years.

Surely it is very relevant if,depending on the performance, you are forced to close your position in CFDs but not in property.
Historically both have risen over the long term. However in CFDs you may not be able to realise the fruits of that rise due to either being closed out or else your cashflow being seriously dented to maintain the position.
And that is the fundamental difference in both.

How is a geared overseas property investment different if you have an 80% LTV mortgage, if the value of your asset decreases because the foreign investment stream from Ireland dries up, if you cannot get local tenants on a local wage to generate sufficient income to cover your finance costs, and yet the bank insists you keep on paying the mortgage premiums or else will foreclose?

A geared investment is a bad investment if you have not got cash to ride out a "perfect storm," no matter what the technicalities involved.

And precisely because property is not liquid, and it is a long term bet especially in an emerging market, you need to reckon on that perfect storm hitting at some point, and have a strategy to cope.

Just ask investors in credit funded share accounts from Legio Lease, or more recently some people in the UK market who did not have sufficient financial isolation between their individual buy to lets which then fell like dominos on a cash crunch as interest rates rose and tenants could not be found. Both would have come out well ahead if they could have stuck it out, but both came out badly burned as forced sellers.

 

[z106]

A bad geared investment is a bad investment if you have not got cash to ride out a "perfect storm," no matter what the technicalities involved.

QUite right.

However - The difference is with a property,assuming you have tenants,you will be able to ride out the storm easier than CFDs due to margin calls with CFDs and the relative volatility of equities.

WIth CFDs a blip can force you to close your position - even though it may go up in the long term you may not be able to realise that.

Now I accept that with property i am basing it on an assumption of having tenants that pay off the mortgage.
But if you limit the risk involved by selecting a property in a good location (i.e. where there is a proven demand for rent e.g. city centre) then the rent - even these days - does pretty much pay off the ineterest repayments and therefore the landlord is hopefully never forced to sell - something which can ineed happen a lot easier with CFDs.
This enables an investor to ride out downturns in the property market - not so with CFDs - and remember, equities are far more volatile which further increases that risk.

By the way - I do accept your point that being unable to repay a mortgage resulting in reposession is in effect a margin call too.

I suppose basically what i'm saying is that mixing gearing with equities is a far far riskier game that propertry - and for that fundamental reason alone they should not be compared directly just because they both use gearing.

 

[Martin77]

QUite right.
I suppose basically what i'm saying is that mixing gearing with equities is a far far riskier game that propertry - and for that fundamental reason alone they should not be compared directly just because they both use gearing.

I'm not sure I agree on this point. At least stock markets are fairly transparent and also have a reasonably long history for basic investments. So I'm really not sure that CFD's are a "far far riskier game than property" given the (lack of) data I have to hand on emerging property markets. The only stuff I have seen is garbage put out by newspapers and developers. Whilst Bratislava may look promising, I have no idea how to quantify downside risk. Maybe someone can help with a verifiable data source?

 

[z106]

You must however agree that equities are more volatile than property though?
Which in itself is a large part of the risk given the structure of CFDs.

 

[Martin77]

Coming back to an earlier point you made.

I think people should view a negative cash flow situation like they do their pension. i.e. It may cost you on a month to month basis today but in the long run it will produce the returns?

Errm. Not sure if you're being serious here. My company gets 100% tax relief on my pension contributions against income. Not sure I'd compare that to subsidising an investment property where I'd get 0 tax relief on any hard earned (and taxed) cash pumped into a property, and would have to pay tax on profits too. The difference is not insignificant.

Now your latest truism.

You must however agree that equities are more volatile than property though?
Which in itself is a large part of the risk given the structure of CFDs.

According to some serious research I have seen, general indices tracking house prices over a large sample in a developed market seem to perform more like bonds than equities, so yes, property as an asset class seems to be generally less volatile than an equity class. I do not rule out that when accessing this asset class via a very small sample (one flat in Bratislava) that it will behave in the same way as a complete market (of several hundred million homes in North America). Especially if the flat in question does not have a transparent market price to start with, as seems to be the case in Bratislava. I have seen several references to lack of price transparency in this market, so you don't know if you've paid too much compared to a local, which is itself a significant risk, especially in the case where such a direct property investment makes up a large percentage of a small portfolio. Similar research on controlling volatility and risk in private investment portfolios that I have seen suggests investing a max of just 5-10% in property assets whereas an allocation of 20-75% equities is the norm, with the rest in bonds and cash.

But if you show me your numbers on Bratislava, that'd take away some of the hand waving in our discussion.

 

[z106]

Ok - taking your 2 pionts above seperately.

The first one re pensions:
I know nothing about pensions but do these normally go into equities and the like? I really don't know the aswer to this so i stand to be educated on this front.

But - if the contributions do normally go into equities,then the foundation of your investment is in a non-geared investment.(I'm presuming pensions don't go into CFDs)
If you decided to use your pension contributions as a top up for any shortfall in a property instead then the foundation of your investment is a geared one.

The crux of my question is this - Regading monthly contributions going towards a pension versus using it as a top up on any shortfalls on an investment property,do the tax breaks your refer to for pensions, in the long run, compensate for the lack of potential returns that could be gained through a property given that your contributions currently go towards a non-geared investment versus a geared investment? Assuming of course both will rise over the long term.

JUst to reiterate at this point - I don't know anything about pensions. If your pension contributions do go towards highly geraed investments then you have a fair point.

As for the second point you are quite right in what you say re transparency in apartments in far flung destinations. That is indeed a considerable risk.
Also - individual areas can have high volatility.
However I am making the assumption that a person will do proper due dilligence first re the price they are paying for the property. During the course of their due dilligence they should also hopefully decide on a destination with a level of risk they are comfortable with.
During my threads I wasn't referring specifically to Bratislava at all (Admittedly i am guilty of straying from the title of the thread).
I was referring to property in general in any city assuming appropriate due dilligence.

 

[Howitzer]

It would be great if some of the figures and resources that would facilitate someone doing a due diligence were posted here ......

 

[GDE]

It would be great if some of the figures and resources that would facilitate someone doing a due diligence were posted here ......

Heres some facts and figures I know from the top of my head, perhaps someone else can take the time to get some more stats

0% Stamp duty
0% capital gains after 2 years of holding
19% flat income tax rate
Changing over to euro in 2009 - which I beleive means meeting a host of criteria providing for an improved investment climate
Direct flights from london and dublin
new low cost aire line wizzair putting on over 10 new routes from europe this year
GDP 8%+ 2006
inflation 2.5%
unemplyment has dropped by 50% between 2001 and 2007
2.3 billion foregin investment in 2006 with 20% coming from Germany - (most for car factories)

not much I know but some positive points. At the moment my only negative on bratislava is the possiblity that prices are artificially inflated

As regards my earlier comment about it beeing a hub, I base it on fact, and if you look at the reason, it becomes clear its not a hackneyed truism.
Bratislava is connected by a brand new motorway to Prague, Budapest and Vienna improving logistics and transport immeasurably.

I dont think you can compare property and stocks and pensions etc in terms of risk, the latter are far riskier, stocks are fickle and their value can be determined by mere opinion and manipulation. Pensions havent exactly been rock solid in the last few years
Property is more solid, and while it can go down in value of course, if you follow a few basic rules, the chances of your investment being wiped out are incredible slim - natural disaster, war perhaps. http://www.independent.ie/business/...to-market-woes-ndash-be-prepared-1231323.html
has property lost these kinds of values in a declining irish market?

Of course im in a position to know that if I invest in Sunny beach or something similar, Im not likely to rent my property and make an money or appreciation off it, many novice investors wouldnt be aware of that.
Stick to a few basic rules though investing in property and for me its not even in the ballpark for risk with stocks yet you can make the same gains if not more

what good would a graph showing bratislava's rental trends for the last 50years do? considering the countries advances in leaps and bounds in the last 5 years and the whole face of the country is changing- banking, infrastructure, economy, politically that would be totally irrelevant but for the last 5 years.

 

[z106]

I dont think you can compare property and stocks and pensions etc in terms of risk, the latter are far riskier, stocks are fickle and their value can be determined by mere opinion and manipulation. Pensions havent exactly been rock solid in the last few years
Property is more solid, and while it can go down in value of course, if you follow a few basic rules, the chances of your investment being wiped out are incredible slim - natural disaster, war perhaps.
Of course im in a position to know that if I invest in Sunny beach or something similar, Im not likely to rent my property and make an money or appreciation off it, many novice investors wouldnt be aware of that.
Stick to a few basic rules though investing in property and for me its not even in the ballpark for risk with stocks

Here here - at last somone who doesn't disagree with my mindset.

For the last few montsh anytime i've raised a point most peopele tend to disagree with me.

As for due dilligence - here are a few basic rules of thumb which i operate by

1) Stick to capital cities
2)Stick to good areas of capital cities
3) Stick to countries/areas where the property market is supported by locals
4) try to pick countries with significant FDI
5) For a risky venture with corresponding returns perhaps pick a country where the mortgage market has just developed

 

[Howitzer]

Just to correct an incorrect assumption or 2.

0% capital gains after 2 years of holding

This point has little relevance. Even if you hold the property for 2 years and become liable for 0% CGT in Slovakia you are still liable for 20% CGT here, your overall tax liability is unchanged.

Changing over to euro in 2009 - which I beleive means meeting a host of criteria providing for an improved investment climate

It is not definately changing over to the Euro in 2009. It will only change over WHEN it meets certain criteria on inflation and budget deficits amongst other things. This may happen in 2009 but is certainly not guaranteed. See bottom link.

unemplyment has dropped by 50% between 2001 and 2007

Currently at 9%
http://en.wikipedia.org/wiki/Slovakia

inflation 2.5%

Currently at 3.3%. Wikipedia isn't always the most up to date source.
http://www.freshplaza.com/news_detail.asp?id=11005


Yet more truisms posted without a single reference. An article in the Indo regarding Irish consumers doesn't really count (I didn't bother reading beyond the first paragraph so apologies if the story deviated wildly thereafter to discuss the Slovakian property market).

 

[Martin77]

At the moment my only negative on bratislava is the possiblity that prices are artificially inflated

....

what good would a graph showing bratislava's rental trends for the last 50years do? considering the countries advances in leaps and bounds in the last 5 years and the whole face of the country is changing- banking, infrastructure, economy, politically that would be totally irrelevant but for the last 5 years.

It would possibly help show if your fear was true or not by comparing property price growth to other [local] economic indicators such as real wage growth, rental price growth, general consumer and factory gate inflation? It is by the way my fear too. This is precisely my point. There isn't even 5 years of reliable data available as far as I can see. How can you quantify downside risk in what is clearly an emerging market without having reliable data to hand? The country may be improving in leaps and bounds, or it could simply be in the midst of high and artificial property inflation fuelled by foreign speculation temporarily distorting the market as per the Bulgarian resorts. So how can you definitively state repeatedly that an investment in Bratislava is much safer than an equivalent in the stock market, when you are looking at an emerging market through the eyes of experience formed by studying long term developed and open markets? If there is a property bubble forming there due to overheating by foreign buyers, your risks will be high regardless of what you invest in. The price differential between the capital and just outside of the capital is enormous as far as I understand. I'm not saying you won't make a profit, but this is not how I evaluate investments. Call me a pessimist, but I always want to understand the down side risk and my exit strategy.

 

[GDE]

Just to correct an incorrect assumption or 2.



It is not definately changing over to the Euro in 2009. It will only change over WHEN it meets certain criteria on inflation and budget deficits amongst other things. This may happen in 2009 but is certainly not guaranteed. See bottom link.
Piece from the link below - Accelerating inflation therefore confirms the view that the decision as to whether Slovakia will join the Eurozone in 2009 will be more dramatic than thought,' Danske Bank analyst Stanislava Pravdova said in a note to clients.

'Furthermore, we suspect that both the Slovak central bank and the Slovak government are genuinely less optimistic that the country will make euro entry in 2009 than that which both authorities have declared publicly.'
----so the government and central bank are saying it will not be a problem, but Stanislava Pravdova in a note to clients suspects that it won't. Perhaps Im a bit of a gambler but I'll stick with the people who can actually control inflation so that they can meet the criteria, if there is any inflation issues----





Yet more truisms posted without a single reference.


---Perhaps my approach isnt suitable for this kind of forum for the academic posters with analysis paralysis backgrounds. I dont have a financial background, my knowledge of real estate and economies comes from experience on the ground, and I often disagree with financial analysts. All I can do is post my personal knowledge of markets and let posters who are more pedantic like yourself tie yourself up with wikipedia and stats.
It might sound Im having a go at you, but I do respect your approach to a degree, I have a bigger penchant for risk so I'll more follow trends as opposed to exact stats, and its good to have people like yourself point out the faults in my approach when they are valid----


An article in the Indo regarding Irish consumers doesn't really count (I didn't bother reading beyond the first paragraph so apologies if the story deviated wildly thereafter to discuss the Slovakian property market).

that was simply to show that stocks are plumeting and pensions have plumeted to highlight the pitfalls. the very nature of the word pension has, or used to have a stigma of security attached to it. For me after seeing what happened in the uk over the last decade and whats happening to funds here, the last thing I would do is put my future in the hands of a pension fund

 

[GDE]

It would possibly help show if your fear was true or not by comparing property price growth to other [local] economic indicators such as real wage growth, rental price growth, general consumer and factory gate inflation? It is by the way my fear too. This is precisely my point. There isn't even 5 years of reliable data available as far as I can see. How can you quantify downside risk in what is clearly an emerging market without having reliable data to hand? The country may be improving in leaps and bounds, or it could simply be in the midst of high and artificial property inflation fuelled by foreign speculation temporarily distorting the market as per the Bulgarian resorts. So how can you definitively state repeatedly that an investment in Bratislava is much safer than an equivalent in the stock market, when you are looking at an emerging market through the eyes of experience formed by studying long term developed and open markets? If there is a property bubble forming there due to overheating by foreign buyers, your risks will be high regardless of what you invest in. The price differential between the capital and just outside of the capital is enormous as far as I understand. I'm not saying you won't make a profit, but this is not how I evaluate investments. Call me a pessimist, but I always want to understand the down side risk and my exit strategy.

Yes you make a good point Martin, and if it wasnt for that particular fear we have both mentioned I would have been developing in bratislava by now.
My opinion on stocks in comparison to property is really based on one big thing - that a stock can devalue completely before you have time to blink, whereas a property can devalue but still has options to rent, and is still there, bricks and morter. I look at it in a black and white way as opposed to adding in the various relative factors which can be argued put the two on a more level playing field, socrates vs moore for financial philisophers!

 

[z101]

I dont know if anyone was reading in the papers last weekend that 25% of German companies that went into Poland and Romania are now pulling out citing problems with workforce (Non loyalty, absenteeism and poor work), delivery times been consistently late and inability to function due to corruption. That figure is staggering considering as they are there just a wet week. How bad will that get before it gets better. There is no template for how such markets will perform in regards to property and I would be dubious of all this talk about them. Bratislava at least is central is practically a suburb of Vienna and has 2 large car plants which employ alot of manufacturing jobs. However that does not make a boom there as wages are very low and growth has, in my opinion, been overly factored into preoperty prices all ready. The did have a business friendly government but not anymore and most of the country is very poor.

 

[Propman]

I dont know if anyone was reading in the papers last weekend that 25% of German companies that went into Poland and Romania are now pulling out citing problems with workforce (Non loyalty, absenteeism and poor work), delivery times been consistently late and inability to function due to corruption. That figure is staggering considering as they are there just a wet week. How bad will that get before it gets better. There is no template for how such markets will perform in regards to property and I would be dubious of all this talk about them. Bratislava at least is central is practically a suburb of Vienna and has 2 large car plants which employ alot of manufacturing jobs. However that does not make a boom there as wages are very low and growth has, in my opinion, been overly factored into preoperty prices all ready. The did have a business friendly government but not anymore and most of the country is very poor.

Ceatharlach,

Have you been to either Poland or Romania?

Have you toured the huge business parks and industrial estates in Poland that make Shannon industrial estate look small?

Are you aware that Poland received twice as many foreign direct investment projects as Ireland last year? (source: Ernst & Young)

And if I were to put a price on your dubiousness of all this talk about them, do you think a fair price would be that apartment prices in Warsaw were only 36% of that of Dublin? (source: Savills HOK, RConsulting Feb 07).

I believe that such a price difference is a fairish assessment of the risk, given that average industrial wages in Poland are 30% of what they are in Ireland (approx €9,600 vs €32,000).

 

[z106]

Ceatharlach,

And if I were to put a price on your dubiousness of all this talk about them, do you think a fair price would be that apartment prices in Warsaw were only 36% of that of Dublin? (source: Savills HOK, RConsulting Feb 07).

I believe that such a price difference is a fairish assessment of the risk, given that average industrial wages in Poland are 30% of what they are in Ireland (approx €9,600 vs €32,000).

I do think - or should i say hope - property in poland is still on teh up going by what i cabn gather from what i've read !

However - I think to compare prices of one city in one country to anotheer is very much like comparing apples and oranges.
It's pretty much impossible in my book to draw conclusions on one property market based on the prices in another market.

At the very most it can give a slight indication - property is far from an exact science.