It’s already doing very well, but is set, we believe, to boom exponentially.

If asked to name a city in the Czech Republic other than Prague, it’s fair to say that most people would struggle.

So, naming an investment destination in the same country that has the key ingredients for maximum growth and low-cost investment entry – and is also outside Prague, would probably be equally tricky.

OK, so we’ve established this place is not exactly on everyone’s lips as the next BIG investment location.

For anyone who’s read Eastern European Property Secrets, the Czech Republic’s second city, Brno, will be familiar.  It is tipped in the book as a place with excellent growth potential as yields in Prague start a general decline due to rapid capital growth.

This is an inevitable pattern as rents and capital growth rarely, if ever, move in concert.  In fact, almost the opposite is true, as we are seeing in the UK.

As capital growth increases, rents, while also growing, do not grow commensurately.  The result: falling yields.

If property prices slip, rents in relation to capital invested will start to rise; hence, rising yields.

We make this point only to lead to the next statement – the ideal investment, then, is one that provides both steady and above average capital gain AND yields that not only fund the costs of an investment loan, but actually accumulate to add to the final capital gains calculation.

In other words, not only does the rent on an investment property pay for the loan, it also produces a net profit at the end of each year.

Such investment locations – that represent outstanding capital growth AND great yields – are rarities indeed and they are, of course, every investor’s dream combination.

That is why the Property Secrets team believes anyone with an investment eye on Eastern Europe should look at Brno.

There are several reasons why the planets are all aligned, as it were.

Some have to do with the city’s natural growth process as the second city in a rapidly developing, new EU member country.  It is the second largest centre of academia outside Prague, with six state universities and 29 faculties.

So, Brno also has a good supply of highly skilled workers who are cheap relative to the rest of the EU.  It also has a forward-thinking administration that seems determined to attract as much direct foreign investment as possible.

But the reason that all these factors come together so well is because of those 1,000,000 cars.

That is the number of vehicles expected to be produced annually in neighbouring the Slovak Republic in the next few years.  the Slovak Republic has already been dubbed Europe’s own Motown, now it’s set to grow hugely.

Projections show that around 95,000 people will be directly employed in the car manufacturing industry in just six years time.

And by 2007 the Slovak Republic will produce the most cars per capita in the world.

The Slovak Republic is currently battling to add yet another major car manufacturer to its crown – the Austrian company Magna Steyr, which assembles BMW and Chrysler models.

If Magna Steyr opts for the Slovak Republic, as it is expected to, it is likely to take the total number of cars produced in the country to 1,000,000 a year. Rover is also considering the Slovak Republic as a manufacturing base.

With its strong tradition in electrical and mechanical engineering, who better than Brno to provide the base for the hi-tech, highly skilled end-of-production process for car manufacturers just over the border.  Already companies in Brno are revving up to supply this new and vast market.

Basically, the Slovak Republic has very attractive tax breaks for business and it has very cheap labour, but Brno has the skills and infrastructure to use those skills effectively. A great combination.

The city has a lot else going for it – excellent infrastructure, attractiveness - and it’s around a third cheaper to buy there than in Prague.

Brno’s administration is busy establishing the city as a centre for business parks, academic research and cutting-edge industries. The city is also selling itself as being in the centre of Europe – and it is.

Here are some facts about Brno:

• Prague’s second largest city with a population of just under 400,000 – 200,000 are economically active, ie working
• The industrial and business capital of South Moravia – population 2 million
• It is well on its way to becoming an educational centre of international importance in central Europe for science and research. It is the second largest centre for university education in the country with six state universities and 29 faculties

For all these reasons, Brno has already had considerable success at attracting big name companies, such as Siemens, IBM, FEI, SGI, Cesk?bil and Honeywell Controls, PVT, Minolta CR, Ceska Pojistovna.

Such investment has provided a steady flow of investment capital and fuelled a healthy employment market and increasing affluence.

But why do we think the property market in Brno is such a good investment bet?

Because Brno has largely been ignored by housing developers until now, particularly the larger ones.

Although, like Prague, Brno has a relatively high level of private property ownership, the lack of new-build flats, combined with the influx of workers from outside Brno, has created a vibrant rental market. Workers migrating from outside Brno are faced with no other choice but to rent.

Despite the fact that there is strong demand and a shortage of supply in the rental market, the relatively low purchasing power of prospective tenants keeps rental prices from locking into an ever-upward spiral.

Yields are attractive – generally around 7 per cent plus - because sale prices are still at domestic Czech levels with price ceilings at about CZK30,000 per square metre for good quality mid to upper range flats; compared to Prague’s CZK55,000psm to CZK85,000psm for the equivalent.

We see capital growth outstripping Prague over the next five years or so, so we put it in the 15 per cent plus range.

These factors combine for a highly stable and attractive environment for buy-to-let investors.

But, why not invest in the Slovak Republic?

Well, we believe, strongly, that the Slovak Republic’s time will come. But what the Slovak Republic doesn’t have, but the Czech Republic does, is a fast burgeoning middle class and, therefore, faster growing affluence and a more developed property market.

And one of the best signals of this is the rapidly growing mortgage market in the Czech Republic, which grows ever more sophisticated.

Look at this statistic from Eastern Europe Property Secrets:

Around 2.7 billion euros was advanced by Czech banks for mortgage loans in the first half of 2003.  This compares with 1.96 billion euros for the same period in 2002.

That’s a staggering rise of 38%!

This is a property market that is expanding fast.

Simply put, we at Property Secrets see Eastern Europe as a great property investment, but we believe in reducing risks in as many areas as possible.

One way of doing that is to look for highly reputable and large (ie very well-funded), developers. These are noticeably lacking in the the Slovak Republic market, as far as we can see. In fact, they are only now starting to move into Brno.

Furthermore, our research shows that the the Slovak Republic market is still plagued by a lack of good practice in the property development industry and - let’s be blunt - there is still an unacceptable degree of downright corruption.

Brno Business Park (www.lordship.cz/project_brnopark.php)

Czech Technology Park (http://www.technologypark.cz/)