Re: Budapest!
Hi Tommy and Dantoearth
Thanks for the replies. The fundamentals seem to me as follows:
1. We are moving into an era of low inflation or possibly even deflation. (See Mairead's excellent post elsewhere). This has provided the marvellous paradox (marvellous for we property investors, that is) that at a time of low inflation house prices have nonetheless been subject to high inflation. It has been an exceptional time. An era of falling interest rates combined with increasing values. A better era even than the 70s and 80s when high inflation also pushed up prices but was accompanied by high interest rates that made investing quite difficult. What we have therefore just witnessed is the ONE TIME boost to property prices resulting mainly from the move from high to low interest rates. BUT, from now on, rates have no further to fall. The new trend is established. We are in a low inflation environment with, at most, the prospect of house prices increasing over the long term at, say, 1% above the amount by which wages inflate (ie not much). Add in a correction, or instead if you like, the usual effect or reaching the top of the cycle, and the prospect for further growth in Irish or UK house prices across the board looks bleak. I forecast not so much a recession, but instead an exceptionally boring decade when the market basically stagnates.
2. Throw in another paradox. The housing market is somewhat contra-cyclical the general market. If we pull out of recession, interest rates increase and dampen house prices. Save that at the top end of the market people probably borrow less and may have savings that allow them to benefit from increases in interest rates. So if any segment will do well it will be the higher end, but certainly not the buy-to-let type sector.
3. Conclusion - Irish (UK, Spanish and Italian - but less so French, Austrian or German) property is getting dangerous (or at least boring). So yes, we are all right to be investigating Eastern Europe.
BIG QUESTION
If we move into a low inflation / deflationary era can we nonetheless expect certain sectors of the market to see significant capital appreciation? If salaries in Western Europe stagnate, will that mean stagnant salaries in Eastern Europe too? I personally suspect not. It seems to me that cheap travel to Eastern Europe and convergance in labour rates must have an upward effect on property values in the beautiful old cities of the East such as Prague, Budapest (and yes, Tommy, Llubliana - don't know anything about Pecs, though, Dantoearth - why's it so good?...). Whilst Tommy, your point about not automatically considering only attractive cities is a good one, I feel attractive old buildings centrally located in old cities probably are the best bet.
Some other pointers.
1. Look for an economy where interest rates have still to fall. As they fall borrowing costs will fall and push up prices.
2. Do not necessarily avoid going with the herd, but try and be there reasonably early. It doesn't take that many investors to push up prices and so long as they carry on coming prices will remain firm. There is potentially a tremendous flight of investor capital out of property in the UK and Ireland, and, like dung, money has to be placed somewhere.
3. Also, do not necessarily look at housing. Surely Budapest would be an excellent place to buy a hotel or serviced apartments. (If anyone knows of a hotel for sale do let me know...)
4. An earlier post very sensibly pointed to the problems with 60s type housing with its poor build quality. I would say avoid anything 20th century unless of very good quality. Look instead to older buildings centrally located. They aren't making any more of them as Mark Twain said of land, and presumably they will always be in demand.
5. Finally, don't forget the hassle looking after just one flat at a distance. One needs several to make it all worthwhile. If that stretches one too much, then maybe look at syndication or other ways of investing.
Hope some of this makes sense.
Stephen. (info@barneslaw.co.uk)