Property and ‘The Tipping Point’

In my last entry, I warned of the dangers of ‘following the herd’ and ignoring common sense for the sole reason that ‘everyone else thinks it’s a good idea’ because you risk getting into a market just as everyone else decides that it’s about time to get out.

So getting into a property market too late is definitely a bad thing to do. But is there a danger at the opposite end of a spectrum? Is it possible to get into a market too early?

These thoughts have been on my mind for the past few days because Albania has been on my mind. It first came on the agenda because my girlfriend is looking for a new job. She started as a real estate agent in Latvia in April, which proved to be very unlucky timing for her as it exactly coincided with the downturn in the market – the result being that very little property is moving in Riga at the moment, so she’s not earning any commission.

I told her in May that I thought that she should get involved in selling overseas property in Latvia. As was the case in the UK ten years ago, Latvians now realize that there is good money to be made in buying property in an emerging market and, if there aren’t any gains to be made at home, then it’s time to look elsewhere to catch the next wave.

She wasn’t convinced at that time that it was a good idea but, sure enough, there has been a large number of companies established here that have started selling overseas property to rich Latvians. Many of them are selling the same Bulgarian properties on the Black Sea that the Brits are getting a bit wise to the problems of.

But anyway, she has an interview on Monday with a company selling property not only in Bulgaria but also in Montenegro (now that’s better!) and, interestingly, Albania.

The same day, I saw some articles that were based on a press release from UK developer Barrasford & Bird publicizing a new development that they’re promoting in Albania.

I haven’t done a lot of research into the market in Albania to date because I considered it too small and undeveloped to be viable yet, but I began to ask myself whether now was the right time to start looking at it or is it still too early?

Perhaps like you, I have been constantly kicking myself for not having bought in markets earlier. “If only I’d bought in Montenegro last year,” I sigh or, “prices in Sharm el-Sheikh are up 20% already this year – I should have bought there in December.”

But what if I’d bought in Montenegro or Sharm el-Sheikh five years ago? What would have happened is that I would have seen the value of my investment hardly increase at all for the first four years of that period. I would have been a lot better off investing in Bulgaria or Latvia.

So what influences the timings? One of the most influential books over the past few years has been Malcolm Gladwell’s ‘The Tipping Point – How Little Things Can Make a Big Difference’. In it, he talks about “social epidemics”, or sudden and often chaotic changes from one state to another. In all of the examples he gives, changes do not happen steadily or regularly – there is a sudden breakout, which is better explained by the graph below:
Take the Internet as an example, once again. For several years, the only people using it were a bunch of academics and computer geeks. Then, in the mid-Nineties, everyone suddenly discovered it and, within just a few years, everyone was online.

So why do these changes suddenly occur? If you’d really like to know, read the book, or a synopsis of it here.

Looking at the graph, it’s easy to see that the same curve can be applied to all of the other property hotspots in the past, so it’s almost inevitable that it will happen in territories like Albania as well. The only question is: how far along the curve is Albania at the moment?

The other factor affecting property prices is the basic economics of supply and demand once again. Prices are only going to start skyrocketing if demand substantially exceeds supply.

Is that really the case in Albania today? Probably not. Not yet, at least, but it is sure to come. The trick is to predict exactly when. Ideally you want to get in just before other people start talking about it. The fact that I’m talking about it here and you’re reading about it shows that the process is already starting.

Albania’s big plus point is that it is the last remaining piece of the European Mediterranean to be discovered. If you want some beachfront property in Europe for under EUR1000/m2, Albania is your last chance of getting some.

On the downside, however, Albania was, by far, the most screwed up country in Eastern Europe and there is a hell of a lot of work to do to bring it up to European standards. There’s also traditionally been a lot of organized crime in the country which the government is struggling to tackle.

But let’s go back to supply and demand for a moment. In order for there to be strong demand, someone is going to need to occupy the properties – the economics of jet-to-let simply don’t work if a property lies empty. So who is going to be living in these new apartments?

Local Albanians? No chance – the only people with money in Albania at the moment are the mafia dons, and they’ll be buying their own palaces for sure – not renting 60m2 off you!

Ex-Pats? Doesn’t really have all of the comforts of home, does it? I think that even the most adventurous of souls would think twice about moving from Basingstoke to Vlore just yet.

Tourists? Do you know anyone who’s been on holiday to Albania yet? Or anyone who’s considering it? I didn’t think so. There isn’t really any tourism infrastructure in place in the country yet – most important of which are charter flights into the country, let alone some decent hotels in order to accommodate them once they are there.

“But what about Bulgaria and Montenegro?” you may ask. “Their tourism industry grew very fast.”

This is true, but you need to remember that Bulgaria and Montenegro were major holiday destinations for Eastern Europeans all through the years of Communist rule, so they didn’t need to build a tourist industry from scratch – they just needed to bring it up to Western European standards.

In summary, although such cheap prices for beachfront property do seem very attractive, I don’t think that they will see the same rapid growth as Montenegro and Bulgaria has witnessed until the Albanian Tourist Board is able to start attracting tourists to the country in significant numbers. Personally my strategy at the moment will probably be to buy in Egypt, keep the property for two or three years and then the time might be right for Albania.