Albania Revisited

Once of the most popular blog entries I have made to date is Property and the Tipping Point, in which I discussed the possibilities of investing in real estate in Albania.

In the article, I argued that I thought that it was too early for their to be large gains in property prices for a number of reasons, the main one being that there is very little tourism to Albania at the moment and I didn't see that there is the likelihood of their being much in the short-term.

Since I wrote that article, I have received some new information that I thought was worth sharing with you.

Firstly I was referred to some statistics from the Albanian Statistics Office to show that tourism is increasing to Albania. In 2004 there were 645,000 tourists visiting Albania, with the figure rising by 100,000 per year. These numbers are higher than I would have anticipated, but are still not that large by the standards of any of the existing markets.

Secondly, my girlfriend recently met with a developer from South Africa who had been touring Eastern Europe looking for development opportunities. He said that he visited Albania earlier in the year, but didn't think that the infrastructure was ready to start investing in the territory. He mentioned the fact that it was quite normal for the electricity to be out for a couple of hours each day. Not something that the majority of mass-market tourists are going to find acceptable (I certainly couldn't put up with it).

Instead he is planning on investing in Romania instead, a decision that we at Propertastic! would agree with as the climate for investment in Romanian property is currently looking very bright.

Most damning of all though was a recent article by Athena Kalaitzoglou which I discovered on the SMAnalysis blog written by Stavros Markos.

The article is entitled "Investment in Albania - High Risk" and mentions the fact that there is widespread corruption in the country and a severe lack of a legal framework.

It mentions that the government coffers are currently empty and so the country's finances are being supplemented by imposing fines on foreign investors for the most arbitary of reasons.

The article goes on to mention that there are often ownsership issues with regards to land and property. It is easily possible to buy some real estate, only to find that other payments are due down the line in order to clear up ownership issues, meaning that the overall cost can end up as being three times the initially agreed purchase price.

The article also mentions the same facts about power blackouts that we heard from the South African developer.

Another blog entry by a British expat who has been living in Albania's capital, Tirana, on July 4 also gives a similarly pessimistic view of the current potential for investing in the country. He has been living there for many years and so knows the market firsthand.

In summary, I am even more sure now that it is just too early for Albania to be a serious investment target, even though beachfront property is still very cheap compared to neighbouring Montenegro or Greece. Sure, if you have a large property portfolio it might be worthwhile making an investment as part of a longterm strategy, but it's going to be on a high-risk basis for a long time to come.

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 Prizefight - Hurghada vs. Bratislava

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.

In the Red (Sea) corner, we have Hurghada, a.k.a. Al Ghardaqah. Hurghada is very much the ‘new kid on the block’, having only been founded just over a century ago. Up until 20 years ago, Hurghada was a simple fishing village until it went on to become Egypt’s leading tourist resort because of the excellent aquatic sports facilities on the Red Sea.

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.

Hurghada 1: Bratislava 0

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

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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.

Buying in Budapest - Good or Bad Idea?

I received an email earlier today from a Propertastic! visitor asking for some more information on the current state of the property market in Budapest as he is thinking of buying there. I thought that I would post it here in case anyone else is wondering whether now is a good or bad time for buying there.

This is what he wrote:

I'm an italian man who wants to buy an apartment in Budapest to rent it. I'd like to know the tax I have to pay to buy a property in Hungary (the different tax of Italy) and the prices of some apartments. May I have some information about agencies (web sites) which sell properties ? Is it convenient buying an apartment and renting it ? Can I rent it all year long (12 months) ? Hungary entered in EU some times ago, is it convenient again to buy something in Budapest ?
Best Regards
Loris Terzi

And this is my reply to him:

Hi Loris,

Thank you for your email. It is nice to hear from you.

Let me start with your last question first: Is it a good time to buy in Budapest?

This very much depends upon whether you are looking for a short-term or long-term strategy and your attitude to risk.

If you don't like taking risks and are looking for long-term growth rather than to make some quick money over the next one to three years, then perhaps Budapest is the right market for you.

The history of Budapest's property market is something like this:

Of all of the cities in Eastern Europe, Budapest was the first to see large price increases as a result of foreign investors and speculators entering the market. Budapest was especially popular with buyers from Ireland, the UK and Germany.

The result was very fast appreciating prices in the 12 months before and after Hungary joined the EU on 1 May, 2004.

However, since that time, growth in property prices started to slow as the market became saturated and supply of new properties coming onto the market started to exceed supply. In addition, the Hungarian economy, the most robust of all the Eastern European countries during the 1990's, started to run into some problems, leading to a cooling of the economy. The result was that, during much of 2006, prices were actually dropping slightly, although the year did finish up with a slight gain.

The current situation is that the market in Budapest is quite static - prices aren't going down, but they aren't really going up either.

This doesn't sound very promising, does it?

However, the fact that prices have been so static over the past few years means that prices in Budapest now seem very low compared to other major Eastern European properties.

If you look at our Key Statistics page of the site, you will see that currently prime Budapest property costs around EUR2250/m2. This definitely looks cheap when compared with Warsaw at EUR3500/m2, Prague at EUR3000/m2 or Ljubljana at EUR3250/m2.

The chances are that, at some point, the Hungarian property market should take off again and prices will rise to join those of its Eastern European neighbours. However, it is anyone's guess as to when this will happen. If you are looking to remain in the market for at least five years, then I am pretty sure that you will catch the 'next wave' of Budapest property increases, but you might have to sit back and watch your property's value remain the same for the next two or three years. The likelihood that prices will go down much further though is quite low - Hungary is, after all, a very stable country (even if it is not going through the best of times at the moment).

You can read more of our thoughts on the stats of the market in Hungary in our Hungary -Overview section.

If you are still undecided about Hungary and are looking to see the vale of your property increase faster, then maybe it is worth looking around 120km north-west of Budapest to the Slovakian capital of Bratislava.

Currently Bratislava is our top tip as the prices are still low (EUR1750-2000/m2) yet are increasing fast - showing 20% growth in the first half of 2007 alone.

If you want to know more about the reasons why we think Bratislava is so interesting a market, you should read our Slovakia - Overview section or a recent entry about Bratislava's potential that I posted to this blog.

Moving on to your other questions now about taxation:

You can read all about the different stages that you will need to pass through in order to complete purchase of an apartment in Budapest in our Hungary - Buyer's Guide section:

The tax system in Hungary is rather complicated compared to many of the other Eastern European countries and it is highly recommended that you speak with a qualified Hungarian accountant in order to advise you as to what would be the best way to buy a property. The main ways are to either buy as a person, or to establish a Hungarian company and to buy the property in the company's name.

The disadvantage of buying a property through a Hungarian company is that it takes an investment in both time and money in order to register it and keep it running. However, the costs should be more than made up for by the tax savings that you will receive over the duration of the time you keep your property.

Here are the main taxes and how they vary according to the different types of ownership:

Tax on rental income:
Personal: 20%
Corporate: 18%

Deductions for expenses:
Personal: Not allowed
Corporate: Allowed together with 5% depreciation on property and furniture, etc.

Capital Gains Tax:
Personal: 20% (but lower if you hold the property for at least six years)
Corporate: 10% (but you can reduce this to 5% if you sell the company and not just the property)

VAT:
Personal: 25%
Corporate: 25% (but you can reclaim the VAT on all purchases that you make through the company including the property itself)

Hungary has a Double Taxation Agreement with all EU countries and so you will only be charged once on your income - not in Italy as well.

Next question: What are the prices of property in Budapest?

As has been previously mentioned, prices for high quality apartments in areas where there will be good demand from people looking to rent is around EUR2250/m2 - so around EUR135,000 for a 60m2 apartment.

Obviously there is a huge difference in the prices depending on where you are looking to buy and the condition of the apartment. Cheaper apartments could be 50% cheaper, but there is the risk that no one will want to rent them from you. Super-luxury apartments could be 50% more expensive, but will attract premium rental prices.

Information on web sites with properties for sale:

You can find links to all of the companies you will need to deal with in order to buy a property in Budapest in the Hungary - Directory section of the site.

Not only will you find details of real estate agents in Budapest, but also other companies that you will need to deal with such as lawyers, accountants and letting agents.

It's also worth checking out some of the ads on the same page as well which advertise Hungarian property.

What is the rental market like?

Propertastic! usually recommends investing in capital cities rather than coastal holiday resorts because there are more options when it comes to renting out the property. With cheap flights to Budapest, the city has a tourist market year-round, so you aren't just dependent upon a few months in the summer to make all your income.

But where capital cities really score over holiday resorts is that there is a good market for long-term rentals - either to ex-pats or to wealthy Hungarians. Although the price per week is lower for long-term rentals, there is a lot less hassle involved and there are likely to be only short periods when the property lies empty.

The occupancy rate that you get on your property is very much dependent upon the property's location and condition. We recommend getting the best apartment that you can within your budget as, the more centrally located and the better condition a property is in, the more you can charge in rental fees and the more bookings you will get.

Rental yields in Budapest are currently quite good at around 6% net. This means that, on a EUR135,000 property, you should be looking at generating an income of around EUR8,100 per year, or EUR675 per month.

Hopefully this answers all your questions. It is advisable, however, to speak to as many people as you can regarding possibilities for purchasing property in Budapest in order to get as clear a picture as possible as to the potential of the market.

Good luck!

Kind regards,

Nick

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Have you got any burning questions about Central & Eastern European real estate that you would like an answer to? Then just drop me a line at nick@propertastic.com and I'll be happy to answer you.

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.

Our First Customer Feedback

The first press release spread throughout the Web quickly and the site received its first few visitors. One of them, as we had requested, was kind enough to contact me with some feedback.

Here’s what he wrote:

Budget flights to Belgrade and Podgorica

Hi,

On your key statistics page, you have said there are no budget flights to either Serbia (Belgrade) or Montenegro (Budva or Podgorica)

I would say that Jatlondon.com has some pretty reasonable flights (eg under £100 return) to Belgrade & Podgorica.

ThompsonFly have very reasonable flights to Dubrovnik in Croatia which is only an hour's car journey from Budva. (I paid £64 for a return flight at the end of May booked 5 days beforehand.)

Best regards


Davie

I was so excited at getting feedback from a real live visitor for the first time, just three days after the site had gone live, that I got back to him immediately:

Hi Davie,

Congratulations! I just wanted to let you know that you are our first real visitor to the site who has taken the trouble to drop me a line.

The site only went live in the wee small hours of Tuesday morning and so we're still ironing the bugs out at the moment.

I feel like I should send you a medal or a bottle of champagne or something, but we've spent our entire budget on Latvian codemonkeys to build the thing!

So at this moment, all I can offer is my sincere thanks for being the first of hopefully many visitors to the site.

How did you find us, by the way?

As for your comments about the flights, yes you're right that the cheapest way to get to Montenegro is via Dubrovnik. We mention this in the Buyer's Guide to Montenegro section.

The problem with compiling the 'Key International Property Statistics' is that there are many cases where there is no definite 'yes' or 'no' answer, but that it should really say 'depends'. But I wanted to avoid adding pages and pages of footnotes to the information there as it's complicated enough already!

Thanks again for taking the time to contact us. I think I'm going to head off and frame your email now!

Have a nice weekend.

Kind regards,


Nick

Davie was kind enough to indulge my craving for information and got back to me later that evening:

Hi Nick,

I feel privileged to be your first visitor. Thanks.

I found your site whilst looking for news about Montenegro in Google news.

I have a property in Montenegro that I bought for investment purposes and I tend to watch fairly closely how Montenegro's boom is being regularly reported (especially recently in UK newspapers)

As well as Monte, I keep an eye on the property markets & what's happening in Serbia and Albania - Now there's a high risk/possibly ?! high reward market for you - I guess you'll add this country to your guide at some point.

As to your site ... well I think its nicely laid out. I like the idea of a seperate area for businesses to add their links if they wish and the directory is a great idea. It would be an idea to add some contacts to some of these directories to get things started. (I've added a link to the Bar Association for Monte under Lawyers) The quick guide is fine and the guides are an OK starting place.

Some (hopefully) constructive criticism - perhaps you should think about going into more detail in your country guides (such as the Red Guides and some other magazines attempt - though they do charge a helfy price for pretty obvious info) You could add more info as to where in each country are the (possible) hotspots and interesting possibilities off the beaten track (eg skiing resorts in Monte/Lake Skadar etc) - not just the capital cities - and not just off-plan properties - I never go for these having heard so many horror stories about developers not delivering. For example, having visited Poland recently, some tertiary towns such as Gliwice, Nowy Sacz and Lublin and some of the smaller mountain towns (eg Zywiec, Wisla) are experiencing greater gains than the likes of Krakow, Warsaw and Wroclaw. The guides could also include a little more info about the actual countries and the people.

I must say that nothing beats actually visiting these countries and meeting local agents and foreign property investors and it's obviously difficult to try to give a lot of info i n a couple of pages.

In addition to Albania, have you considered including Moldova & Ukraine ?

Anyway, best of luck.

Best regards

Davie

I do like to write and, if someone takes the time and trouble to give me their thoughts then I am more than willing to reply with my own:

Hi Davie,

Thanks for coming back to me so quickly and with such a detailed response.

At the early stage of the site's development, feedback like this is like gold dust as it's easy to get into a 'can't see the wood for the trees' situation after living with the thing for six months.

Albania - did you read this piece plus the comments on it?:

http://ourmanintirana.blogspot.com/2007/07/only-way-is-up.html

The plan is definitely to fill in the gaps when it comes to countries such as Albania, Moldova, Bosnia and Macedonia. We needed to make a start somewhere though and to cover 16 is taking enough resource as we've got at the moment.

Thanks for the link to the Montenegrin lawyers. There was supposed to be more entries for the directory before the launch than there are, but the guy who was filling it in for us quit a couple of weeks ago and so didn't get to finish it in time.

You're right that more detail would be useful. This is certainly in the plan - we're just at that 'journey of a thousand miles starts with a single step' stage at the moment.

The techies are still at the end of my 'need to have' list at the moment before they can start on my 'would like to have' list - these are the things that we hope will take it from a good site to a great site.

As it says in the About Us section of the site, the idea for it came about because I had bought together with my girlfriend a couple of cheap apartments in Latvia which doubled in price in 18 months. I feared that the market was over-heating and so was looking to get hold of some data where I could see all of the statistics of all of the other Eastern European countries side-by-side. After hours and hours of Googling, I was still none the wiser. The information is all out there on the web, but it took a massive amount of time to assemble it all together. I noticed that other sites covering these subjects 'cop out' if information is difficult to get hold of and just talk in generalities rather than real numbers.

I noticed that not many of the other property sites are using 'Web 2.0' concepts in terms of attempting to form a community of users who are contributing their collective wisdom to inform one another. One of my favourite sites these days is tripadvisor.com and I wanted to apply the same concepts that they do.

No single person is ever going to have enough knowledge about all of these markets to cover all of the possibilities for investing in 16 different countries. As we all know, two properties just half a mile from one another can have totally different levels of potential, so a site like ours is only ever going to be a very broad starting point. But after inputting all the data and seeing the stories that it told, together with the latest news from each of the countries, I could see which countries had the most potential - and this is not something I was able to get from any other site I visited.

The next phase is to get local 'stringers' in each of the market translating content from the local equivalents of the FT because there's a lot of information from the local markets that never gets translated into English. The Latvian press has been saying that the market here has been on its way down for three months now, but very little of this has filtered onto the web yet. Good news spreads fast on the web because there are sales agents all trying to hype their developments, but they're going to keep quiet when the news is not so rosy.

Before that though, I'm planning on producing podcasts for each of the countries - basically phone interviews with agents in each country. Of course they'll all be trying to sell their territories hard, but I'll be asking them tricky questions so it's more than just more PR-puffery.

And then the plan is to go out and visit the markets with a video camera and shoot some content, like a grittier version of A Place in the Sun?

Before we do all that though, we need to get a few advertisers onboard to fund all my megalomaniacal dreams!

From what I understand, Moldova is in a similar situation to Albania, though I believe that it is slightly more screwed up than Albania and doesn't have any nice coastline either.

I was in Kiev last summer for the first time and couldn’t believe how much development there's been already - it was like being in Dubai. The prices and the rents there looked totally insane to me. I think that Western Europeans should stay well away from it - the Russians have been buying up the country for a long time already and so they're the ones who've already made the easy money from the country.

As you may have noticed, we're also in the process of finishing the Russian version of the site. As they're the other big buyers in Eastern Europe (as you're obviously aware from being in Montenegro) they deserve their own version of the site.

Anyway, I'm sure that I've rambled on enough already, but thanks again for the advice and for listening to me.

Have a very pleasant weekend.

Kind regards,


Nick

So, as you can see, I am always interested in receiving feedback from visitors – whether by email to nick@propertastic.com or as comments on what I am writing here. And you can be sure that you’ll get a detailed reply (well, unless I start getting swamped, that is!)

Propertastic’s first Press Release

Just a few days after the site went live, I sent out the company’s first press release.

One thing that I have noticed is that, when there is good news about developments in a property market, you get to hear about it really quickly. The companies selling property in that market are very quick to let the world know about it and the news very quickly spreads virally through the Internet.

When there is bad news about a market, it doesn’t spread so quickly. Sure, the information is released by news organizations, but it doesn’t get picked up and syndicated in the way that the positive news does.

Latvia is one market that I have a particular interest in. The programming for Propertastic! is all done in Riga and so I visit the city on a regular basis. I also have a couple of properties in Latvia myself – not in Riga, but in the number three city in the country, the coastal town of Liepaja.

Together with my ex-girlfriend, we bought a couple of small properties there in good locations – one in February 2005 for EUR13,000 and a second in March 2006 for EUR18,000.

We got our timing right getting into the city as we guessed that the boom in Riga would have to spread to other cities in the country. By late 2006, the first was worth around EUR50,000 (after spending EUR8,000 on reconstruction) and the second one was worth around EUR40,000. We were kicking ourselves at not buying more property in the city while we had the opportunity.

After seeing such incredible returns in such short a time though, I feared that the market was starting to overheat. People had been talking about a bubble in Riga for over a year. While I didn’t think that there was such a danger of prices in Liepaja tumbling, I was pretty sure that prices couldn’t keep doubling annually as they had been doing and so decided that we might be better off selling up and investing elsewhere.

This was actually the impetus that led to the creation of Propertastic! I was sure that I could find a site online where I could see information on all of the emerging property markets side-by-side so I could make an informed decision on what market would be the next to boom. It proved not to be the case though and so I had to spend weeks of Googling in order to get all of the information that I needed – the information that was to become the first draft of the Key Statistics section of the site.

Anyway, to cut a long story short, around the same time, my girlfriend became my ex-girlfriend and we stopped talking with one another for a while and the properties remained unsold and so we still own them together.

This proved to be a shame as, if we had gone ahead with my original plan of selling them at the start of 2007 we would have got out of the market just at the right time.

It was April when things started to go wrong in Latvia. Property prices were already looking over-priced as they were, but the government had to take a number of initiatives in March in order to try and cool down the economy. There was no immediate price crash – for the first few weeks everyone adopted a ‘wait and see’ attitude. By May, however, those that really needed to sell had to start reducing prices a little in order to move them. When they still didn’t move, they had to reduce them a little bit more. By the start of July, prices had already fallen by maybe 5% in total.

I always thought that information on the Internet spreads at the speed of light but, after three months of the market in Latvia (and neighbouring Estonia) going into decline, there was very little information available in English about the current state of the market. Articles about the Baltic Boom were still being circulated.

So I thought that it was time to tell the world the real truth about what was going on in the markets. The results of which you can read in the press release that I issued:

Propertastic! Downgrades Property in Baltics