Why Are Old Media Property Tipsters Rubbish?

This is related to my last posting about journalistic integrity and which news is worthwhile circulating and which is not.

Just three weeks ago, my search for news came across an article from the UK's Sunday Mirror entitled, "Is Turkey The New Spain?" While the information contained within the article is not wrong, it is written in the style that the journalist seems to believe that she is the first to think of the possibility of investing in 'a brand new, developing market'. Although she goes on to contradict herself by saying that there is already an oversupply in some parts of the country.

While Turkey is still a good market to invest in and there is definitely money left to be made there, people have been buying there for man years already and I consider it as one of the more established markets - certainly the most established of the 16 that we cover on Propertastic!

It's not the first time that I have seen the UK's old media (newspapers and TV) get all excited about some market that is already way, way past its initial growth period and is starting to mature, so that all of the fast money has already been earned.

It seems to be the same for all newspapers - even the 'quality press' such as The Times and The Daily Telegraph always seem to be way behind the curve when it comes to their property tips. It's very rare that I find anything in any of their property supplements that is real 'news' to me and is thus worth passing on to Propertastic's visitors. The most useful information always seems to come from the English language newspapers in the markets themselves such as The Sofia Echo, the Turkish Daily News and the Warsaw Voice, all of which produce some excellent and fresh information relating to their local real estate markets.

So why is this the case? This is a genuine question to which I would invite any comments upon, because I really don't have a clue as to why the newspapers are so laggardly with their overseas property market coverage. OK, the TV shows I can understand are never going to be cutting edge - they have long lead times and are there for 'infotainment' and not news. Monthly magazines are also going to be up to three months late with their news.

But for the quality press in particular, I am clueless. Their pieces are presumably written by professional journalists with access to a wide variety of resources. Most of them publish material only once a week and so they should have plenty of time available to make some detailed research on markets. So why don't they? The property pages of the newspapers are always packed full of advertising, so I would have thought that it would be very much in the newspapers' interest to provide great coverage in order to attract the maximum amount of readers to the section.

Maybe this gives a clue as to the real reasons though - to keep advertisers happy. It's better for them to write yet another article on major markets such as Bulgaria, Turkey - or one of the even older favourites such as Spain, France or Cyprus because they have plenty of existing and potential advertisers who want to see positive coverage of these markets. If they instead concentrated on real new hotspots such as Montenegro or Romania, then they have less advertisers to benefit from.

This is just a wild guess as to what their motives are. Honestly, I have no real idea as to whether it is an editorial policy, lazy journalism or what.

No, if you are really looking for tips as to where the best places are for investment, you are better off forgetting about traditional media and concentrating on the Web. Of course I rate Propertastic! very highly as one of the best sources of information, but I would say that, wouldn't I. After all, its opinions are mine!

But in the interest of fairness I would also say that there are some other good resources on the Web (not too many though) that give some excellent tips as to up and coming markets with the potential of making excellent and fast returns.

The ones that I rate highly are:

Property Secrets
Amber Lamb
Global Property Guide

There are also some interesting tips on the Totally Property forum if you take time to search for them.

But as for the old media, the only use for them I can see is to keep an eye on them to see what Mr. and Mrs. Average - the Johnny Come Latelies - are starting to get interested in. Because when the mass market is starting to buy in a big way, it usually means that it is time to start planning your exit strategy because this will be the last wave of buyers into a market before it starts getting totally over-exploited (such as Sunny Beach, Bulgaria). If you miss your chance to sell to them, you might not get another one without selling at a significant loss.

Please feel free to add comments if you disagree with my opinions - I am most certainly open for a debate on the issue.

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.

The Herd Mentality

I spent much of 1999 watching Internet stocks exploding in value, seeing how everyone else seemed to be making vast quantities of money.

“But this just doesn’t make sense,” I spent 1999 telling myself. “There’s just no way that these unprofitable companies are ever going to make enough money to justify the kind of money that they are currently valued at.”

And so I sat back and waited to see what would happen.

By the start of 2000 though, I started to doubt what seemed to be common sense to me. I was no investment expert and everyone else who (theoretically – highly theoretically) knew what they were doing were leaping in and getting rich, rich, rich.

So on 1 March, 2000, I leapt into the market investing a big chunk of my savings. For the first week I saw some nice gains and was feeling very smug.

Then, on 10 March 2000, the bubble burst and I ended up losing 75% of the money I had invested in just a couple of weeks before I decided to cut my losses and run.

It was a good – but very expensive – lesson in the mentality of following the herd. I vowed that I would never again let other people sway me from going with my gut feel – a gut feel that is based upon common sense and the most basic economic education, which is how prices are influenced by supply and demand.

I can understand how easy it is to happen because of my own experience with the Internet stocks, but it is still quite horrifying to me how people can forget about the laws of supply and demand and fall prey to sales hype coming from someone whose job it is to sell some development – whether or not that development really does have good potential or not.

I have seen two examples of this at close hand recently.

Just a few weeks before I met her in late April, my new girlfriend had signed a contract to buy an off-plan property under development in the ski resort of Bansko, Bulgaria.

My reaction was, “Noooooooooooo!!!!!!!!! How could you have done such a thing? All of the reports coming out are saying that Bansko is saturated and it’s going to be impossible to either sell or rent out the properties once they’re completed.”

Unfortunately this was not what she wanted to hear, and she ended up getting into a horrible temper. So now I have learned just not to talk about it at all.

Then, just yesterday, my ex-girlfriend called me up all excited. “Hey!” she said, “I’ve just been given a tip-off about a great new development in Bulgaria that’s got enormous potential.”

“Where in Bulgaria?” I asked.

“On the Black Sea Coast.”

“Where exactly on the Black Sea Coast?”

“Some place called Sunny Beach.”

“Aaaaaaaarrrgghhhhhhhhh!!!!!!!!!!!”

“But all of my friends are investing in developments there so it MUST be a good investment.”

I won’t repeat the rest of the conversation, but it had a lot of references to ‘a bargepole’ and ‘not touching it’.

I told her to go to Propertastic! and educate herself a little bit about what’s going on with the property market in Bulgaria right now. OK, so my opinion that the market is already saturated is just that – my opinion – which anyone is free to agree with or not, but it’s hard to argue with solid facts and news items telling the actual state of the market as it is already.

After a long conversation, I told her that she should check out Egypt as this is the market that seems to be happening right now. It’s not so easy to get out to Hurghada or Sharm el-Sheikh at this time of year as the temperatures are uncomfortably high – it’s currently the off-season – but when the charter flights start going out there at the start of the winter season in October, I think she’ll be going out there to check out the opportunities.

It is exactly the type of people like my ex and present girlfriends that we created Propertastic! for, so they can make an informed decision about which markets to consider and which to avoid. Neither of them are millionaires with vast amounts of wealth to invest. They are ordinary people who understand that investing in property is the best way of acquiring wealth in the long-term – providing that you get it right. Once you have developed a decent property portfolio, it’s possible to make a mistake from time to time and recover from it. In the early stages though, making the wrong decision concerning which property to buy can kill off someone’s chances of making it big totally.

My one hope is that we don’t end up ‘preaching to the converted’. During the countless hours that I spent online researching the market for international property, I have noticed that investors tend to fall into two distinct groups:

The first are very savvy. They have considered a large number of different options, researched each of them carefully and, after considering all of the facts, have gone with the best options. These are the people who are buying property and real estate in hot markets like Montenegro and Egypt right now. They realize that, if you get it right, there’s a huge amount of money to be made from international property and so it’s worth taking a while to make the right choice.

The second group are not so well-informed. They read the Sunday papers and read articles like “Bulgaria is the next boom market!” and then start contacting agents selling property in Bulgaria. Of course the sales people are quick to tell them everything that they want to hear and so members of the second group end up buying from them. It’s only a couple of years later when they end up with a property that’s impossible to sell or rent out that they realize that they have made a mistake. But it’s too late by then – their life savings are spent already.

Our hopes with Propertastic! are to make it as easy as possible for ordinary people to make an informed decision as to where to invest. The vast majority of information on the site can be found elsewhere, but it would require hours and hours of research to find it all and would require the reader to use their judgement to separate the hard facts from the sales hype and PR-puffery. Another problem is that most of the useful information is written in such a dry and turgid style that people can very easily get bored of the whole exercise and just give up.

Propertastic! has been established in an attempt to resolve all of these problems. We just hope that the second group of buyers are able to find us somehow in order that they avoid making some very expensive mistakes.