I used to be indecisive.
But now I’m not so sure.
Which is why I am having a devil of a time trying to decide where to invest my own hard-earned cash.
There are a lot of opportunities for investing in real estate which I am sure are going to lead to very good returns over the next two years or so. But I don’t just want ‘very good’. I’m greedy. I want ‘the very best’!
I’ve narrowed the contenders down to just two after much deliberation. I quite fancy Sofia still – that would probably have been my third choice, and I would also love to invest in Podgorica, Montenegro if anyone was developing some offplan properties there, but I haven’t seen any yet.
So my final two contenders are Hurghada on Egypt’s Red Sea coast and Bratislava, the capital of Slovakia. Initially I was more keen on Sharm el-Sheikh than Hughada with regards to opportunities on the Red Sea, but I later discovered that foreigners can only buy property in Sharm el-Sheikh on a 99-year leasehold basis – not freehold. While it’s probably not a big deal, there’s just something psychological knowing that, at some point in time, the value is going to go down as someone looks at the amount of years remaining on the lease and decides that it’s not a very good investment for them. I also heard some information recently that interest in Sharm is starting to wane a little compared to the Hurghada region.
So Hurghada and Bratislava are my favourite two opportunities at the moment.
But how to decide between the two of them? Although I think that they both have great potential for short-term gains, you really couldn’t find much more different investment locations within a few hours' flight of the UK if you tried. So I have decided that the only way to decide where to invest is to put them both to the test in terms of a ‘fight out’ between the two of them – a fight to the death over ten rounds.
In the Blue (Danube) corner, we have Bratislava, a.k.a. Pressburg – one of the older cities in Europe dating back to the end of the first Millennium. Bratislava has spent much of its time being a regional city administered from somewhere else – Budapest, Vienna or Prague, before finally becoming capital of Slovakia from January 1, 1993.
So which of these two locations is going to make for the best investment. Let’s have the two of them slug it out over ten rounds to see which one is the victor.
Round One: Entry Price
Hurghada looks very confident on this one. Prices in Hurghada are still astonishingly low compared to either anywhere in Europe or the other new seaside hotspots like Morocco or Turkey. With prices starting from around EUR600/m2, it’s possible to pick up a small studio apartment for the price of a new car – and not a terribly good car at that. For EUR18,500 or GBP13,000, you could get a basic Ford Focus or a studio apartment in Hurghada. I’m not saying that the Ford Focus is a bad car, but I’d much rather own an apartment in Hurghada than one of those, thank you very much!
Prices in Bratislava are still pretty low compared to anywhere else in Eastern Europe and a steal compared to anywhere in Western Europe. But at EUR1750/m2, it’s still going to cost a fair bit of cash to get a decent apartment. For EUR100,000 or GBP 70,000, which is what it is going to cost you to get a nice apartment, you could get a very nice car indeed.
So Hurghada wins round one with ease.
Round Two: Price Appreciation to Date
After Hurghada’s runaway success in round one, it has a bit more of a tougher fight in round two as both locations have seen property prices appreciating fast in 2007. According to the Slovak Spectator, property prices in Bratislava increased by 20% in the first half of 2007. However, the old-timer still can’t compete with the young upstart when Hurghada’s prices have increased by a minimum of 30% over the same period. It’s another victory for Hurghada, making it two in a row.
Hurghada 2: Bratislava 0
Round Three: Security
After taking a bit of a battering in the first two rounds, Bratislava comes back out fighting when it comes to the Security round. Hurghada is not a great destination for anyone who is completely risk averse. Although the resort has not suffered any terrorist attacks in the past, Sharm el-Sheikh on the opposite side of the Red Sea did suffer from a very serious attack in 2005 resulting in the deaths of 88 people. Although the Egyptian government is trying to take a pro-Western approach, it is still a Muslim country which has a not terribly good human rights record, is not a true democracy, and where 16-20% of the population lives below the poverty line – which is going to create a bit of friction.
On top of the political situation, you also need to take care that your property is built to the best standards. There are no EU-regulations in force in Egypt and the standards of local Egyptian builders do not have a great reputation.
Compared to Hurghada, even the most nervous investor can relax when it comes to investing in Slovakia. As a fully-fledged member of the EU, there are no more risks involved in buying in Slovakia than there are anywhere else in Europe.
A comfortable win for Bratislava in this case.
Hurghada 2: Bratislava 1
Round Four: Economy
Egypt, perhaps looking enviously at the stellar success of the UAE in recent years, has certainly moved up a gear economically compared to most of its Middle Eastern rivals, finishing 2006 with a very respectable growth in GBP of 5.7% - that’s well ahead of most Western European countries, including both the UK and Ireland. It must be remember, however, that Egypt’s economy was so poor until recently – only 13% of the UK per head of population - that this was not such a miraculous achievement.
Slovakia, despite having a much healthier economy, still managed to beat Egypt with GDP growth of 6.4% in the same period, benefiting from a lot of foreign investment, such as the new assembly plant from Kia, no doubt lured in part by Slovakia’s flat tax rate of 18%. So robust is Slovakia’s economy now that it looks likely to become the second of the Eastern European territories to enter the Eurozone after Slovenia, currently on schedule for 2009.
Another victory for Bratislava leveling the scores.
Hurghada 2: Bratislava 2
Round Five: Ease of Access
No one should really buy a property without checking the market out thoroughly and, after you’ve bought, it’s always a good idea to go and check on the property from time to time, so access to cheap flights is a definite advantage. There are now some good, cheap flights from the UK to Bratislava from both RyanAir and SkyEurope, with a flight time of under three hours. With Hurghada, the only option is to fly on a charter flight. These are harder to find, are more expensive and it’s going to take five hours.
Bratislava eases into the lead.
Hurghada 2: Bratislava 3
Round Six: Financing
If you are re-mortgaging a property in your home country, then this isn’t going to make much of a difference to you. However, if you need to get a loan in order to buy your property, then you’ll find it a lot easier to do so in Bratislava than in Egypt at the moment. Mortgages for foreigners are only just starting to be implemented in Egypt so they are hard to come by and the interest rates are comparatively high. In Slovakia, mortgages are no more difficult to obtain than anywhere else in Eastern Europe and you can get up to 70% LTV.
Buying costs are also very low in Slovakia at 4.5% compared to 8% in Egypt.
It another easy victory for Bratislava.
Hurghada 2: Bratislava 4
Round Seven: Choice
In Hurghada you ‘pays your money and you takes your choice’. Taking the region as a whole, there’s a wide variety of property available. Some areas of Hurghada are pretty rough and properties are only going to appeal to locals or real bargain-basement tourists from Eastern Europe. At the other end of the scale, there are some super-luxury five-star resorts on the coast outside Hurghada such as El Gouna, Sahl Hasheesh, Zafarana and Gamsha Bay where you can expect to get top dollar in rents.
In Bratislava, you can also find plenty of cheap, but less than desirable properties from among the ex-Communist crumbling tower blocks. But why would you want to buy one? Although there are some very nice developments now being built in Bratislava, because it is not a major tourist destination (and probably never will be one) you aren’t going to get the super-luxury resort developments that are currently underway close to Hurghada.
A narrow victory for Hurghada in this round.
Hurghada 3; Bratislava 4
Round Eight: Yield
Of all of the rounds, this is the hardest to judge because you really aren’t comparing like with like. With Bratislava, in the vast majority of cases, you will be looking at renting out your apartment on a long-term basis to a wealthy, upwardly-mobile local or an ex-pat for a reasonable monthly rent. Global Property Guide believes that Bratislava has one of the best yields in Europe at 10% currently. This is probably a little optimistic as property prices have been increasing faster than rents this year – I’d say 8% net is realistic.
In Hurghada, you’re looking at tourists renting by the week. During the winter, which is high season on the Red Sea, you should be getting high occupancy at good prices if you have chosen the right property. In the summer though, you’re going to see the property vacant for long stretches which will bring down the average. Again, 8% net should be possible in the good locations as tourist numbers are constantly increasing.
So, after much deliberation, the judges have awarded this round as a tie.
Hurghada 3.5 Bratislava 4.5
Round Nine: Competition
Bratislava is quite a compact city and the topography is such that there aren’t that many vacant plots in good locations to build on. So, if you get a good property in a desirable location, you aren’t going to have to worry too much that there will be thousands of other developments competing against yours five or ten years from now.
Conversely, the Hurghada region has a lot of coastline to exploit and the town has developed so far as a long strip along the coast. Although beachfront property should always attract a premium, there is sure to be a lot of development inland. The construction boom in Hurghada is only just beginning. As property prices increase, it’s inevitable that more and more construction will take place until the place is likely to end up as some monstrous hybrid of Bulgaria’s Sunny Beach and a poor man’s Dubai. If your property is not in an A1 prime location, your yields are definitely going to come down over time as the supply of property begins to overtake demand.
Another easy victory for Bratislava this time.
Hurghada 3.5 Bratislava 5.5
Round Ten: Exit Strategy
Although it’s lovely feeling smug when you check property prices and discover that your property is worth double what you paid for it, it’s all academic until you actually sell the property and the profits are sat in your bank account. Therefore it is essential to plan your escape route from the market. So you need to know who is going to buy your property once you’ve made your money.
With Bratislava, it’s easy to imagine who would want to buy your property three or five or ten years down the line – maybe the upwardly-mobile local who has been renting it from you would want to buy it now he has finally arrived. As the Slovak economy continues to grow, more and more locals are going to be in a position to buy a good apartment, especially if they work in Vienna, as I discussed in a previous blog entry.
With Hurghada though, it’s not quite as easy to see who might want to buy it in a few years’ time. In the short-term, while property prices are increasing rapidly, there are sure to be other speculators wanting to get into the market. However, if you leave it too late, and the area gets overdeveloped in the same way that Sunny Beach has done and Dubai is heading for as well, then you could be stuck with it and might need to discount the price to make a quick sale. As nice as Hurghada is, it’s not got the same potential for selling to retirees as Spain or even Turkey has – it’s never going to end up as a Little Britain.
This potential situation needs a lot of serious thought right from the start because Egyptian law says that foreigners cannot sell their property until they have owned it for five years. You can get around this situation by either flipping an off-plan and selling it as soon as it’s built or by registering an Egyptian company to own the property and then selling the company. But you need to plan this in advance. If you fail to do so, and you buy a property today that is due for completion in 2009, then it means that you would otherwise not be able to sell it until 2014. In my view, you will definitely want to be out of the market by then as it will definitely not have much growth potential left by that time.
So one last resounding victory from Bratislava to make it the undisputed winner of the contest.
Hurghada 3.5 Bratislava 6.5
OK, so this was a pretty light-hearted ‘competition’ here. I still believe that both Hurghada and Bratislava have more potential than just about any other markets in Europe right now and there is plenty of money to be made from either of them.
A lot depends on your strategy and your attitude towards risk. If you are looking to flip a property quickly – in under two years - and you wouldn’t be totally wiped out if something went wrong, then Hurghada could still be the better bet of the two. But, as hopefully I have been able to argue above, Bratislava looks like a sure-fire and safe bet no matter whether you are looking to invest for the short medium or long-term.