The reason this misguided view has come about is all down to the success of the Warsaw market, that's my opinion.

I keep hearing comparisons between Warsaw when the market started to really grow and Bucharest now. And the conclusion that's drawn - invariably - is that Bucharest is 'expensive' by comparison.

And you know, this is such an irrelevant and misguided view. And one that as I say, will cost some people dearly.

Why?

Because, the people who draw this conclusion and yet still see the very obviously massive potential the property market in Bucharest offers, are automatically limiting their choice of investment.

More importantly, they are excluding the very sector of the property market that almost always (notice I say almost always), will generate the best returns.

I'm talking, of course, about that wonderful group of property buyers - the middle classes. Yes, the same group of people that have driven price growth in property markets in so many Polish cities and so many other central and eastern European markets.

You see, our misguided investor is not concluding that luxury property in Bucharest is over-priced. Luxury - real luxury, by which I mean the best development and, more importantly the right location, will always find a buyer. There's no ceiling on luxury and it's a sector that develops almost independently of the rest of the market.

The secret with luxury buys is twofold - either buy at a genuinely below market price, OR, buy into a unique development in a unique location. And I use that word 'unique' in its proper sense. I don't mean 'rare', I mean unique - there is nowhere else like it. Full stop.

So, that's luxury. If you can find a development like the one I've just outlined, a real gem, in other words, then I'd be the first to advocate piling in.

There's just one small problem and that is this: it's incredibly difficult to buy below market value in this sector and it's even harder to find more than the occasional uniquely located luxury development.

Middle class is key

So, what does our misguided investor actually mean by 'expensive'? He is really talking about the very developments that are aimed at the middle classes. The very developments, I can assure everyone, that are going to provide - and are providing - the most widespread excellent returns.

So, this investor will either go to the bottom of the market or the top. If they find the right deal at the top, fine. Like I say, this is hard work. Much easier then to look for what they consider to be cheap deals - a cheap development in a cheap area.

Big mistake.

Here are the reasons.

First, you can't compare Bucharest with Warsaw. Bucharest has a population of, what, 2.8 million. In reality, it's probably more like four million. Warsaw has a population of fewer than two million. This size is a factor because we need to bear in mind that in 2006, in Bucharest, there were just 3,000 units being built.

Are there enough middle class people earning the right kind of money to absorb these - and a great many more? Of course there are! That's why the market is so hot - demand exceeds supply by a long way.

The fact is we should not look at price but at growth potential.

The Panelak factor

Units in this middle class sector do seem higher than many people expect, sure. But there's a good reason for this - the free panelak factor!

The fact is that thousands of Romanians were basically given their panelaks after communism fell. So, they have locked in equity!

This is important because it relates to affordability and we really do need to get this straight about Bucharest.

Affordability is, of course, about two things - earnings and the availability and cost of finance.

For demand you need to add confidence to these two other factors.

Affordability is arriving

Let's look at the mortgage market in Romania and let me explain how affordability is actually taking shape as we predicted it would.

The products on the domestic market are appearing - as we said they would.

In fact, just last week, Alpha Bank was the first to announce it would offer 100 per cent finance to domestic borrowers. Several other banks are in the application stage to do the same right now. So, it is only a matter of time before the mortgage market really hots up - again, just as we said it would.

The way mortgages work in Romania is that you can get 100 per cent finance, sure, but only if some 50 to 65 per cent of your net income will cover the repayments. That will change as the market becomes more aggressive, but this is how things stand at the moment.

So, let's take an example.

I own a panelak, which I can sell at €900 psm and if I take on a tiny amount of debt, I can instantly buy a shiny, modern unit at €1,000 psm.

Now imagine what is possible with 50 per cent debt!

Let's look at a further example, and this time push things even further to see test the affordability factor.

Let's say I am a young Romanian and I have a good job, but no equity.

What do I need to earn to buy the new one-bed flat that tempts me so much and that costs €100,000?

Interest rates are 7 per cent and let's say, just to be conservative, that the bank will only take into account 50 per cent of my net income.

So, 100,000 x 7% = €7,000 a year = €583 per month over a 35 year loan period.

Plus, repayment of the principal = (100,000 / 35) / 12 = 238.

So, monthly costs of €821.

I need to earn €2,000 to cover this.

€2,000 salary - 16 per cent tax = €1680 / 2 = €840.

So, bingo! I can afford this apartment without putting down ANY deposit.

Are there enough people in Bucharest earning this kind of money to absorb the supply of new builds? As I said earlier, of course there are!

Factor in gearing

Now, do the same calculation, but this time with 10 per cent equity in the apartment, then try it with 20- 25 per cent. You get the idea. The middle class units we are sourcing are affordable and will become increasingly so to an ever growing number of people.

All that needs to happen - and this is already happening - is that a midst needs to change and people need to become more comfortable with the idea of borrowing - which they undoubtedly will. That's the third element I referred to above - it basically boils down to confidence

In fact, it's not just borrowing that they need to become confident about - it's also something else.

It's the idea of agreeing to buy something before you can see it and touch it. Buying off plan, in other words. I believe this is a legacy of communist times and a mindset that makes it difficult to believe that there are developers out there who apply professional, international standards and who care about their reputation, and who won't cheat you.

But this will change, indeed it is changing already.

In short, debt is going to appear in this market - and is already appearing at a very fast rate - and if you wait, you will miss the best opportunities. You won't miss excellent growth, of course, because there will be several years of that.

But it's worth noting that the strongest growth is always the earliest growth.

So, you will miss great buying opportunities - developments in the best locations - coupled with turbo-charged growth. I forecast that the Bucharest market will hit blast off within six to nine months. And that's on top of the 25 per cent growth we've already seen in the last six months.

Mortgage growth

Which brings me to another aspect of the mortgage market that I know concerns some investors. Mortgages for investors.

I'm an investor, and I've been thinking about this too. Let me tell you I'm no longer worried and the reason is that the market, once again, is developing just as we predicted. Products are emerging and the pace will only quicken as more come along.

Products are already available for foreigners - here's one I found the other day: 75 per cent LTV, 0 per cent for the first six months, three years interest only payments, a two per cent fee, and at Euribor plus 4.7 per cent, so a rate of 8.53 per cent.

Here's another: 75 per cent LTV, rates from six per cent for euro loans and up to 30 year repayment periods.

The point here is not to look at what is available right now, but to realise what was available just a few months ago - zero. The important thing is to see the pace of change in this market - and to realise that those who act in the earliest phase will be the ones to capture the greatest opportunities. The finance availability is talking care of itself.

Twin mindsets

So, ultimately, I'm talking about two mindsets here. The first is of the Romanian investor who will become (and already is becoming), comfortable with the idea of debt - the confidence factor. This will deliver massive growth in the middle class market in Bucharest (and beyond).

And, second, I'm talking about the mindset of some investors who look at a market in terms of whether it's expensive or not in comparison with other markets that simply aren't comparable!

It is growth (and what the numbers tell about this), and not price that is the key to successful investing.