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.

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.