By Property Secrets' Investment Broker

For me, three key issues got me fired up at the recent Property Secrets Investor Evening in London - excellent to meet so many of you there by the way!

They all centre on the Romanian market - which is fair enough considering that's where I've been deal hunting recently.

The first is the price of property in Bucharest and whether it is 'over-priced'.

I want to tackle this one first, because it runs into the other two themes.

Some people say, "I want to invest in Bucharest, but it seems so expensive."

I think what they actually mean is that it seems expensive compared to their expectations. In fact, it's not expensive.

Let me explain why I say this.

What we can learn from Poland

Basically, I think the key is to compare the market in Romania to how the market in Poland has developed. When we went into Romania we were looking at prices of around €1,000 psm, which equates to around PLN4,000 - the kind of price you were looking at in Warsaw four years ago!

PLN4,000 psm sounded cheap then - I wonder why it doesn't sound cheap in Romania now - because it is! I'm convinced it's something to do with the fact that people understand euros far better than Polish zloty.

Anyway, back to the real point. Now, look at those Polish prices now - in the Mokotow area of Warsaw they're up in the PLN12,000 psm bracket.

The point I'm making is that the starting point for a market like Bucharest is actually spot on and equates to huge growth over the next few years - it equates to the pattern of development we saw in Poland.

Salaries and what people really earn

Which brings me to the next point - this one is related to price. It's salaries.

People say to me, "But the salaries in Romania are so low - who can possibly afford the units you've sourced? I'd only be able to sell to another investor."

Well, let me set the record straight on this one - exit strategy is one of my three big concerns when I look at any deal (see my last Blog).

I think the point about salaries is very important because it highlights how a lot of people look at data and statistics relating to a country and, because they don't apply enough analysis, they end up with a very distorted picture of a property market within that country.

It also highlights the danger of taking too much notice of averages - especially in a market or, indeed, a country, in which the variance from the average is so vast.

Even in a country like the UK, we see this huge disparity between salaries and its geographical property markets.

I'll come to Romania in a second; first, let's look at the UK, a market most of us are probably more familiar with.

The National Statistics office tells me that the average UK salary is now £23,000 pa.

And then I look at the London property market, and I can only conclude that, no one can afford to buy property in London! But, of course, that's ridiculous, as we all know because price growth there is strongest. Even allowing for foreign investment, domestic buyers are still the main drivers of this growth.

Averages can be misleading

Simply, this is because that average UK salary is meaningless in the context of London. Let me show you just how meaningless.

According to www.payscale.com, the salary research specialists, median salaries in London as of January 23 this year, were:

• Software engineer/developer/programmer - £30,000
• Project manager, IT - £43,000
• IT consultant - £40,000
• Management consultant - £45,000
• Consultant, business process - £43,000

These are my conversions from dollars and I've rounded them off, but you get the idea.

Now, from this we can see that the median in London is considerably higher than the national average; and, just as importantly, within this bracket there is going to be massive discrepancy also.

Consider what would happen to the figures if we drew an average for all types of jobs in London and throw in people who work in the City - and then throw in the multi-billion pound bonuses they share every decent year!

OK, so the point I'm making is essentially a very simple one; but it is worth pausing and considering when we think about how expensive or otherwise property is within a domestic market.

Now, if we take Romania and Bucharest specifically, the discrepancy between national average and what people in reality are earning in the capital is even wider than in London.

The average salary in Romania according to the World Bank in 2006 was €356 per month - €4,272 pa. Who on this salary can afford a €45,000-plus apartment in Bucharest or Constanta? No one.

But, when we look at PayScale's data for Bucharest, we get a far more interesting picture.

These figures, again, are from January, 2007, from a survey of professionals in Bucharest.

• Sales manager - €19,332
• Country manager, general ops - €15,900
• Senior software engineer/developer/programmer €15,919
• Mechanical engineer - €18,717
• Financial manager - €23,400
• Accounting manager - €8,909
• Human resources manager - €16,856

Again, these are just averages. But now, suddenly, we get a far clearer appreciation of how much better off people are in the capital, and other large cities, than in the country as a whole.

The reality is that the huge amount of poverty in rural areas gives a very distorted statistical view of the country's earnings profile as a whole.

And therefore affordability.

Rental markets

Now, finally, let me say a few words on the rental market in Bucharest, because this is also one that crops up a lot.

In fact, it doesn't matter how many times the reality of property markets is spelt out, some people still don't really get it.

Here's the kind of question I'm talking about: "Where can I find truly exceptional capital growth PLUS a solid and growing rental market to finance my investment?"

Answer: you can't.

Property markets just don't really work like that.

The reality is you can have one or the other, but you can't have both at the same time during the early, super-charged growth phase of any property market.

And this is what we find in Romania.

In short, you're going to have to put up with a shortfall on your cashflow of perhaps £1,000 or £2,000 a year for the first three years or so if you invest in Bucharest.

Does that put anyone off investing in Bucharest?

Well, it shouldn't because what you get in return is fantastic capital growth that will gobble up that shortfall many, many times over!

It's so simple really. Again, let's take London.

If someone convinced you that the London market would rise by 40 per cent in the next 12 months, would you rent, or would you do everything in your financial power to buy? Exactly!

And that is why the rental market in a place like Bucharest is weak - because the capital growth is so outstanding and is going to become even more outstanding now that the mortgage market has been freed up - see The Lewis Report.

The rental market will come, of course. And you will be able to rent a property now, but you may not be able to increase the rent, perhaps for around three years or so. At this point an increasing number of people will be hit by the affordability barrier and will need to rent - as they do in, say Krakow or Warsaw.

So, the lesson here is simple: if you're in early with a new development in a market in which new developments are still fairly novel, you cannot really go wrong. If you enter the Bucharest market, off plan in this way AND you get a good price and a fine overall deal, you will clean up.

What you won't be able to do is cover all your costs with a rental income.

But, who cares! You focus on the capital growth and take the profits as early as you need to before re-investing using only those profits.

Like I said, it really is pretty simple in Bucharest right now. But my advice is - hurry!