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Credit crunching in the UK; Slovakia - the little tiger that's ready to roar again; and Zagreb, any signs of growth?
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As I made my way into the UK forum at the Munich Expo 2007, I was curious to what extent the credit crunch would be tackled by the panel and what the general opinion would be.
Giles Barrie, Editor of Property Week and moderating the forum, starting by saying he “was not sure what was going to happen” after 2 good years for the UK property market and then opened it up to the panel.
Not a gateway to recession
The general conclusion was is that it is not the disaster or gateway to recession that some commentators would have you believe.
It’s natural to talk up a crisis – its what makes it newsworthy – and as Marketing Director at Property Secrets I’ve had journalists contact me in recent weeks asking for case studies of our members that have been forced to sell up or have lost everything!
I don’t know of any of our members that have been forced to do this and the reality is, in my view (and supported at the show), much different.
Cash is what it's all about
Cash is king. That simple. As long as you have good cash flow and you are not leveraged to the hilt, you should not have a problem.
In fact, brave (but clever) buy-to-letters may win if you follow the golden rule of buying below market value.
If you have scarcity in the market – which the UK housing market has – then house prices will always rise.
The recent credit crunch will just mean that house prices will rise less speedily, or even fall back somewhat.
A classic market correction then, rather than full scale panic – with the rental market catching up with the investment market in commercial, retail and residential. How long will this take? Well, no-one had a crystal clear view on this with answers ranging from 6 months to 2 years.
Interest rates
What was interesting to me was the interest rate discussion. We have moved quickly from assuming it was only a matter of time before there was another interest rate rise to a position now where the forum believed that there will not be another rise – in fact if anything, a cut would be more likely.
It was only a few months ago that there was whispers that the Government would introduce a developers land tax in this Autumn’s pre-budget financial statement. Unlikely given recent events was the popular consensus at this morning’s forum. That statement was this afternoon and I’ve just had a quick scan of the FT and BBC site and no mention of any land tax.
Darling did say that the fall-out from the global credit crunch meant UK economic growth in 2008 would be 0.5% lower than previously predicted - but that it would bounce back to its expected rate of 2.5%-3% in 2009 and 2010. So again, supporting the market correction viewpoint here.
So – the Munich Expo UK forum agrees with the recent Property Secrets view on the credit crunch in the UK. Stay calm and rest assured that the fundamentals of the UK market are still strong. The market just needs to cool of a bit.
Emerging markets
But what does the credit crunch mean for emerging markets? For those investing in property in emerging markets, the main message is that it is good news.
The global credit crunch is likely to mean that these already booming economies are now in an even stronger financial position within the global economy as a whole.
The economic fundamentals are so good in many Central and Eastern Europe countries that it makes most of these markets less risky than ever before. So choose your favourite market(s), find a great deal and go for it. Europe less risky for property investment than the UK? Who’d have thought it…!
Posted by Tim Crighton
Slovakia – is the little tiger about to growl again?
Robin – There seem to be three key factors all lining up by happy coincidence that are ready to propel Bratislava back into the limelight as a location with fantastic growth potential.
They are: the completion of the Vienna to Bratislava motorway next year; Slovakia joining the Schengen area in December this year, which will mean no border checks between Slovakia and Hungary, Poland and perhaps most importantly , Austria. Plus, the country will adopt the Euro in 2009.
To me, these three developments seem to have the potential to really turbo charge Slovakia’s economic growth.
One the key challenges for the country, as we heard today at the ExpoReal seminar, is going to be how it moves gradually away from reliance on the car industry and develops more as a knowledge economy – after all, the car industry is probably going to move on to higher value locations in some 10 to 15 years.
Meanwhile, though, it’s likely that investment in the motor industry hasn’t yet peaked and we’ll see more manufacturers coming from the West.
What says a huge amount to me, though, is that here you have a small country with a population of some five and a half million, and yet it has, as was pointed out, pretty much Chinese levels of GDP growth AND yet is still able to qualify to join the Eurozone.
This combination, plus the Bratislava-Vienna highway - which will cut driving time between the two cities to under an hour - and the already low flat tax of 19% must attract the eye of big providers of FDI as they head of on their flight to quality. To me, it seems Slovakia offers great growth AND ultra low risk.
Exactly then, the kind of location property investors should be looking at?
Neil – yes, very positive news is coming out of Slovakia. Time passes very fast and I remember the time when everyone was worried about the new nationalistic government taking power amid fears that they would role back reforms – but not a word (or any real sign of fear) of that today.
However, I took the prediction about the car industry moving on in 15 years with a pinch of salt. I reckon it will be where it is for 25 years, however, the sentiment expressed was that Slovakia knew and had already started to roll out the knowledge economy.
I also buy the view that Slovaks are comparatively well educated and – crucially – will return home once the lifestyle offered in Bratislava is good enough. That means there is a ready and willing middle class population ready to take up the new jobs and buy the new apartments.
What also struck me is the effect of tax on price ceilings of property. There was some debate about the luxury end of the property market having problems – this is any property in the 2,500€ to 4,000€ m2 price bracket.
I share the view that currently, the population in Bratislava able to afford luxury is small and with expats buying their own place, these may be difficult to rent or sell.
However, I also buy the view that for every extra €5,000 in salary earned €4,000 will make it into the pockets of the staff. Compare this to Austria (just over the border, where you’ll end up with €2,500 after tax).
This means as salaries grow in Slovakia more of that salary growth will end up as disposable income and a large part of that will be used to buy that nicer or bigger apartment.
Lastly, I have driven the old road from Vienna to Bratislava and the border is horrid! Slovak border guards are miffed because of Austria’s (still) restrictive employment laws and get their own back by slowing you down at the passport control. Lifting this and replacing the road with a highway is fantastic news.
It will effectively merge Vienna and Bratislava into one super high growth region that offers exceptional skill levels and language facilities with low taxes (in Slovakia) and access directly into major European markets.
We know that the Bratislavia property marketing is picking up – and these developments are going to accelerate the growth.
I’m very excited about these developments.
Zagreb – already high prices and growth curbed by high taxes?
Robin – I took away the impression from the forum on Croatia that we’ve not really seen much growth in the property market in Zagreb for a while – and we’re not going to see a whole lot in the near future.
The main reason being the fact that property is already pretty expensive relative to income and taxes are high and likely to stay that way.
Even so, there was a quiet confidence about the country’s long term economic future. High taxes, yes, but also high GDP and a capital city that dominates the country economically to a degree few other capitals in the region do.
But, right now, it was pointed out, the average domestic buyer in Zagreb simply can’t afford a big apartment and demand is centred around units sized up to 60 sqm. The experience from other CEE markets, though, is that we’ll gradually see demand shift to bigger units up to around 80sqm. But this won’t happen quickly.
The residential market peaked some two or three years ago and the big growth came between 2000 and 2004. Clearly now, the residential market is playing catch up, as prices have reached a peak of affordability for most people.
The other part of the market, though is the coast. And the Croatian government seems very keen to preserve this as much as possible and prevent it being swamped by cranes and huge developments, as per the Bulgarian experience.
Neil – I agree that Zagreb is the only location of interest to us to Property Secrets investors – unless someone is looking for a holiday home.
Most of the talk kept going back to the coast as that is clearly where the most interesting opportunities exist.
Typically, they are opportunities for land owners rather than end user buyers. But there were two things that stood out for me:
1.) The next 5 years will focus on ‘refurbishment’ of existing property rather than lots of new projects. This will keep prices high and, no doubt, keep some holiday makers travelling further south to Montenegro.
2.) The best opportunities are to buy an existing property with direct access to the sea as this right / proximity to the sea is not being granted to any new projects and therefore this is the scarce resource.
However, the outcome of this, is that most development will be in hotels rather than apartments and would be Croatian coast investors will become like their French counter parts who buy and renovate an old property.
Zagreb, a city I like very much, is hamstrung by very high tax rates and a government with too much debt to be able to reduce taxes. Apparently there is talk of flat taxes, but in truth there appears not to be the will nor the ability to reduce taxes.
This means that for every €5,000 increase in salary, the average Zagreb citizen will receive in his pocket around €2,000 – which won’t allow him to buy the more expensive or bigger apartment he really wants.
I’d never spotted this before – but a flat tax (and a low tax) as per Slovakia or Romania or Bulgaria (due from 2008) will massively empower the professional class who enjoy very rapid salary growth to buy and invest in property.
This means, I believe, there is a price ceiling in Zagreb and property prices will not move anywhere for 12 to 24 months.
In the mean time, prices will rocket in Slovakia (see above) because of the rate at which salary increases turn into disposable income.
My most likely scenario for Zagreb is that the coast will fill the government coffers enough to allow it to reduce debt prior to EU accession and that this will spur a reduced tax policy to compete with its newly low tax neighbours of Slovenia and (perhaps) Serbia.
Thus, the lower taxes will come to Zagreb, but until they do, there isn’t much prospect of rapid price growth in the city.
Posted by Robin Bowman and Neil Lewis
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POSTED BY
ROBIN BOWMAN
ON
TUE 9TH OCTOBER
AT
17:50 GMT
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CREDIT CRUNCHING IN THE UK; SLOVAKIA - THE LITTLE TIGER THAT'S READY TO ROAR AGAIN; AND ZAGREB, ANY
a quote
"investors are avoiding the volatile Spanish, Irish and UK markets and are heading for the stability of the emerging Europe"
... amazing... but true...
This is a paraphrase of a quote from the FT and as well as being a view expressed in the trade journals.
But consider this - Bulgaria (not the coast, but Sofia) is now believed to be lower risk than Western Europe.
Is it true? Well, I don't know - but that is an amazing 're-evaluation of risk'...
...incredibly the risk emerging Europe turns out to be the safe haven after all?
Okay, I'm pushing it to make the point - but that is a 180 degree turn around.
Right?
Cheers
Neil
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POSTED BY
NEIL LEWIS
ON
TUE 9TH OCTOBER
AT
18:16
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SLOVAKIA
I totally agree with your comments on Slovakia - been banging on in the same vein on here for ages!
Huw
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POSTED BY
HUW
ON
TUE 9TH OCTOBER
AT
22:43
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SLOVAKIA
Huw - just goes to show that if you stick to what you believe in, remember the fundamentals in place,and don't get too concerned about short term positions, it pays off. I agree that Slovakia has great medium term - long term prospects.
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POSTED BY
BRETT S
ON
TUE 9TH OCTOBER
AT
23:46
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SLOVAKIA
Im with you on this have looked at other areas but the fundamentals are so good. I think this will lift the country as a whole and not just Bratislava.
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POSTED BY
KPM
ON
WED 10TH OCTOBER
AT
13:43
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