We've decided to revive an old tradition here at Property Secrets - the award for the week's most misleading headline!

We started the contest a few years back - way back, actually - when there seemed to be a never ending flurry of headlines basically predicting the end of the world.

And yet, often, if you were one of the few people who actually read the text, you'd find that the doomsday headline presided over copy that said something rather different.

No one's denying that there are serious economic problems out there: plenty, in fact, from credit squeezes, to rising inflation, probably followed by many of the major economies facing rapid growth slowdown and recession.

And property markets in developed economies look, well, a little sickly right now. Never has our advice to consider property investment as a long term venture been so apposite.

But there is nothing like some ugly numbers to bring out those two ultra-enthusiastic writers, Messers Doomsday and Armageddon.

When things are bad, they like to make out they're catastrophic and, more scarily, that there will be no end, no upturn. It's into the abyss time.

We've been in this territory before, of course. Who can forget that award winning splash in the London Standard in 1999, quoting 'experts' advising everyone in London to sell up and rent NOW!

The Economist, no less, did it, too, in 2003. They used the p/e ratio as used to value equities, applied it to property (misguidedly), and advised everyone to sell and rent too.

Nice one! Great advice! How to lose out on around 100% growth with one lousy decision.

Of course, UK property prices are falling, and fast - no one's denying that. But they are falling on very low volumes because as employment is (so far) still high, people in large numbers are not being forced to sell.

Anyway, that's old news.

Now, media attention will increasingly turn to markets other than the obvious ones of the US, UK, Spain and Ireland, where we know there's a steep slide.

In fact, it already has turned. We spotted a great piece in MoneyWeek. As the headline was, 'Worst is Yet to Come for Eastern Europe', you can imagine it aroused our interest.

Well, it's one way of attracting attention - write a headline that bears no relation to the story.

'After years of strong growth and stronger spending in the ex-communist countries, life is about to get tough for consumers,' said the strap line.

But actually, no. What the article said was that Latvia, Estonia and Lithuania were in for a tough time because of their ultra inflationary wage rises and consumer spending binges. We agree with that.

But these are small states in Eastern Europe. What about the bigger economies - Poland, Czech, Slovakia, Romania and the smaller Bulgaria?

Despite the dire headline, the article surprised us. It agreed with us entirely!

Admittedly, you had to scan to the latter part of the piece to find the commentary on these bigger and far more significant markets, but it was there.

Czech, Poland and Slovakia - "....suffer least from the imbalances and deficits that threaten most of the region, and their growth has largely come from productive investment, rather than overheated, debt-fuelled consumer-spending binge or an asset-price bubble. Growth will slow, but overall effects will be fairly mild."

The worst is yet to come, eh.

What about Romania and Bulgaria? Dire straits? Er, not really...

"The consensus on Bulgaria and Romania sees them slowing from their current 6% growth, but remaining fairly strong."

Which is exactly what we've been saying for months!

The small and clearly over-leveraged economies of Latvia, Lithuania and Estonia, as well as CEE's sick man economy, Hungary, are exceptions.They have a rough time ahead.

But the fact is that no CEE economies will be immune from a general economic slowdown, maybe outright recession, in the more developed countries, especially in Europe. But the key is that the slow down in our key markets - Czech, Slovakia, Poland and Romania - is from a very rapid pace of growth, so the effects will be milder.

They are safe havens for investors then.

But 'CEE offers investment safe haven' doesn't have the drama of "The Worst is Yet to Come' , now, does it?

Feel free to add any of Headlines of the Week you may spot. We may even give a prize for the best one. Free Spanish villa on the costas, anyone?

Italian banking giant UniCredit carries out some of the best and most in-depth research into CEE markets in the business.

And it's not surprising - 22% of the bank's €13 billion of revenue now comes from CEE markets.

So it's always worth listening to the bank's analyst briefings, one of which they gave in London the other day.

The main thrust of its report was that while its investment bank wing was being hurt by the US subprime fallout the rising shining star was still central and Eastern Europe where the Italian bank plans to open 502 new branches this year.

Chief Executive Officer Alessandro Profumo said growth had been ``healthy growth'' at its central and eastern European businesses.

Loan growth would probably rise 28% this year, he said and the region offered 'exceptional opportunities.'

Interesting in itself, but even more so are some of the numbers from the bank's recent report into the financial wealth of CEE households 2007 - 2009.

This provides a great insight into the real investment potential of this region unobscured by the credit crunch fallout that seems to overshadow everything right now.

And, to be clear, when it refers to CEE countries, it's talking about Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia and Turkey.

Financial wealth of CEE households topped €718 billion in 2007 'thanks to strong economic growth and improved labour market conditions and given limited impact so far from the US sub-prime crisis.

'In the years to come, good economic prospects will continue to support the accumulation of financial wealth, although with some lowering in its dynamic.

'The growth of financial wealth will continue to greatly exceed that of the real economy averaging 14% a year in 2008-2009 to reach 64% of GDP by 2009.'

What is significant here is not so much the amount or the pace, but both of these relative to Western Europe. The gap is still big and the pace of growth very rapid indeed.

At the end of 2006 CEE household financial wealth reached almost €600 billionn (up by 15 % year on year), and posting double-digit growth for the third year in a row.

Although CEE wealth and euro area wealth are converging very quickly, there is still a significant gap.

In 2006, household financial wealth over GDP equalled 56 % in CEE, versus 205 % in the euro area (in CEE, the same ratio was 54 % in 2005 and 43 % in 2000).

This then is a measure of huge potential and also very fast growth of CEE spending (and investing) power.

And what of the credit crunch? We've heard a lot about how CEE banks are relatively immune as they lend based on deposits, but the fact is that in a modern banking system no bank can isolate itself in this way - especially when so much debt in CEE is foreign denominated, making it vulnerable to external interest rates and currency volatility.

Here's what UniCredit says on the matter: 'The recent "credit crunch" has raised fears that house- hold debt might be overstretched in some countries and that the future growth of household wealth may be unsustainable.

'While financial markets are typically subject to cyclical swings and excesses, we believe there is a good basis for continued sustainable growth in the medium term.'

Here's a summary:

• Strong economic growth and quickly developing financial markets are driving the accumulation of financial wealth
• High levels of consumption and high demand for new houses and renovation continue to spur the growth of the level of household debt at a higher level than that of financial assets, resulting in the stabilisation of net financial wealth relative to GDP
• Households are however continuing to save, increasingly shifting towards the real estate market

'Household debt still appears to be relatively low compared to GDP, reaching 18 % in 2006 compared to 55 % observed in the euro area, although these levels are converging at a fast pace.

The credit boom was connected to the household sector's desire to acquire durable goods and housing and to the improved access to the credit market. Quickly developing real estate markets also contributed to an increase in the household sector's willingness to borrow.'

And here are the summaries of some key CEE countries' prospects:

Bulgaria

Despite a rapid surge in debt in H1 2007, the household sector reconfirmed its position as a net saver.

Deceleration in the pace of household debt accumulation will keep net wealth as a share of GDP on an upward trend in the next few years to reach 30 % of GDP in 2009.

The continued rapid development in mortgage financing and the high propensity to invest in real estate assets will continue to support a further increase in corrected net wealth, expected to reach 44 % of GDP in 2009 from 37 % in 2007.


Czech Republic

The financial assets of Czech households grew by over 13% yoy in the first six months of 2007. The trends within the sector changed a bit, with investment now more evenly distributed in relative terms between bank deposits and other forms of savings.

Household liabilities drastically increased by about 30% yoy in the first six months of 2007. The lion's share of growth was again due to mortgages.

Overall, we still anticipate double-digit growth rates in both mortgages and consumer loans in the next few years, despite some slight easing in the overall pace of expansion in total liabilities compared to the recent past.

Driven by rapidly expanding financial liabilities, the net wealth to GDP ratio of Czech households is expected to decrease further accompanied by a stable trend in the corrected net wealth to GDP ratio due to the high demand for housing investment.

Poland

Remarkable acceleration in the accumulation of wealth in 2006 and 2007 was driven by rebounding economic activity and a rapid increase in household income.

Despite vigorous growth in household debt stimulated by relatively low interest rates, net financial wealth as a share of GDP increased significantly, reaching 44 % in 2006, and will exceed 47 % in 2007.

Although the rate of growth is decelerating overall, the fast convergence of income levels is expected to keep the accumulation of net financial wealth
on an upward trend, reaching 49 % of GDP in 2009.

The recent vitality in household wealth has been positively influenced by a rapid increase in asset prices. So far, prices have been only marginally impacted by the recent turbulence on the international markets.

Downward adjustments in equity prices next year and a high level of consumption
are expected to limit financial asset growth to around 15 % in the forthcoming period.

Sustained growth is expected to continue in household debt, mainly driven by the continuing strong demand for housing investments.

Improving financial conditions for low-income households will provide further stimulus, especially in the personal loan segment.

Romania

The accumulation of household financial wealth further accelerated in 2007, reaching 26 % of GDP, driven by a strong upsurge in household bank deposits.

This increase has been stimulated by improving real returns and the very dynamic performance of the stock market.

The stock market has been only marginally impacted by the recent turmoil on the international markets.

Despite the sustained accumulation of financial wealth, the high demand for both consumer and mortgage loans will cause a further decrease in net wealth over GDP from 11 % in 2006 to 10 % in 2007, while corrected
net wealth is expected to stabilize around 13 % of GDP.

Overall, these developments confirm that Romanian households are generally reluctant to save, despite some slight improvements anticipated in the years to come.

Slovakia

In the first half of 2007, the accumulation of financial assets remained on a stable upward trend driven by strong economic performance and increasing real wages.

Fast increase of household debt driven by falling interest rates that increased the household sector's access to the credit market and its demand for loans for both consumer goods and real estate investments.

In the forthcoming period, the ratio of net wealth to GDP is expected to remain fairly stable around 36 %, given the willingness of households to maintain a high consumption level and to direct their savings towards the real estate market.

Low interest rates will probably gradually slow down the growth of bank deposits. On the liabilities side, mortgages and consumer loans will remain the main driving forces.

Here perhaps is some real perspective on the current state of the property market in the US and - if you follow one logical line of argument - also by extension the UK property market.

The Wall Street Journal is currently featuring a piece about how bargain hunters in the States are starting to circle in some of the areas most badly hit by foreclosures.

Deals are there to be done and some are spectacular - 40% and more off asking prices.

And, while some buyers are hanging back in anticipation of even more mouth-watering deals, it seems many buyers simply can't resist the kind of prices on offer. There is evidence of bidding wars over distressed properties and one agent describes how the showings they conducted tripled in February over the same time last year.

Near the bottom?

So, does this indicate that we are near or are nearing the bottom in the US, simply because the bottom fishers are becoming active? Could be.

Now there's no doubt that the US property market has been hit far worse than the UK's - so far.

Not so, in Spain's case, however, where the property market is currently being hammered on a US scale. The Spanish press is talking of falls in home purchases on the secondary market of about 35%. Total lending to home-buyers fell almost 28 per cent to €13.4bn. Anyone looking at the costas is going to find a lot of choice. No evidence of bargain hunters gathering there yet. But they surely will at some point?

In terms of the UK market, we've seen lots of evidence of some minor price falls, mortgage lending falling and even the BoE's Mr King has said he will be 'surprised' if real UK property prices are much higher in a few years' time than they are now.

Putting aside our faith in Mr King, few would disagree with that, surely. He added that such an adjustment in real prices would be a good thing - surely few would disgree with that either. There is no suggestion though that the medium to long term outlook is anything but positive.

So, if we believe the UK market will go where first the US and now Spain are going (two markets like the UK that have seen huge property price growth fuelled by cheap credit), then we may, in the US at least, see some glimmer of perspective about the so-called 'meltdown' we keep hearing about.

Why?

Because what really leaps out of the WSJ piece are the numbers.

Meltdown

It's often the case that the extreme pockets of the market are where the focus ends up - the huge price falls. These are what lead to talk of a 'meltdown'.

But when you look behind the rhetoric, things are a little less dramatic. The most distressed state is Florida - home to THE most distressed area in the US in terms of property price falls - the Cape Coral-Fort Myers metro area in southwest Florida, according to RealtyTrac of Irvine, California.

This is THE worst place in the whole, vast US property market, with a record 3,739 properties in some stage of foreclosure, or one in 84 households - that's nearly seven times the national average.

Average sale prices for family homes in Lee County, which encompasses Fort Myers and Cape, are down 17%.

That's bad, but remember this is THE worst. So, is this the meltdown we've been hearing about?

And the rate of price fall across the nation, in which the property market is regularly described as being in freefall? An 8% fall.

When you factor in all those huge discounted deals of 40% and 50% and suchlike are wrapped up in that figure of 8% overall, this starts to put matters in perspective, surely?

If this is a meltdown, it's not as we know it!

What is also very significant is that once the lending blockage starts to ease - as it will at some point this year - we are going to see a huge amount of hoarded money (hoarded by banks) aimed at investment through credit lines, and a lot of this is almost certainly going to head into property markets that look like they offer real bargains.

Where to invest?

Where else will it go? 8% down - even 17% - compared to what equities have done in the last few years is reassuring.

Now, while it may not be time to dip a toe back in the water of the UK market yet, because things will almost certainly get worse before they start to get better, maybe, that worse isn't really going to be so bad after all - even if it is still likely we won't see much growth in the UK for the next two to three years.

So maybe now - while sentiment is depressed and yet fundamentals are basically the same as previously - is the time to look at those markets that will really benefit from the pick up in confidence?

Those economies with huge potential for growth and which have previously attracted huge amounts of FDI. Which for any smart property investor brings us back to selected markets in central and Eastern Europe...surely!

"Europe’s periphery has emerged as one of the most vibrant parts of the global economy – a fact little recognised by investors mesmerised by the emergence of China and India"

FT, 8th Jan http://www.ft.com/cms/s/0/4f1867d8-bd44-11dc-b7e6-0000779fd2ac.html

How true is this?

This is a quote from the chief market strategist at Bank of America on the FT's site yesterday - 8th Jan 2008.

Well, I kind of want to say 'told you so'! And aren't you glad you have invested in these markets before the rest of the FT reading public?

But what is really interesting is that it is now becoming public knowledge that China and India have mesmerised investors into missing the opportunities in central Eastern Europe.

Why is that?

From BRICS to 'BRICEES'

Well, one possible (but false) explanation for why investors might have missed central Eastern Europe is because the opportunity isn't as good - but I don't believe this and nor does the Chief Market Strategist of Bank of America based on his recent article.

I believe that investors missed central Eastern Europe because it is a complex and diverse region and isn't as easy to prononuce as India or China.

As I argued in my recent End of Term Performance Report - the term BRICS (Brazil, Russia, India and China) has missed out the other most exciting (but also most stable and secure) region of central and Eastern Europe.

Hence, I propose that we should now talk about Brickies (BRICEES) and not just BRICS! (This also seems the most appropriate name given that we are interesting in property in this region).

It is much easier, for instance, to talk India - than it is to talk about the 12 new countries that have joined the EU in the past 3 years - along with as many languages and nearly as many currencies (Cyprus, Malta and Slovenia have now all successfully adopted the Euro).

Yet, this diversity is exactly why the region offers such opportunity. Whilst the Baltics have done their bit on property price growth for now - the focus has shifted to Romania and Bulgaria.

However, just as Czech Republic began a second wave of property growth last year, so Slovakia is re-entering the property price growth curve and will be followed by a second wave in Poland - in about 12 months.

The good news - is that many investors still haven't figured out where central Eastern Europe is - nor have they managed to stick any money there yet.

Hence, whilst these markets certainly registered excellent growth and are experiencing increased interest from fund investors - the region remains relatively untouched by foreign investors!

This would suggest that there is plenty more growth to come! But that you do need to know your Bucharests from your Budapests! And that is the sustainable advantage that Property Secrets can offer.

Cheers
Neil

ps. One last quote from yesterday's article 'Europe’s got its own China next door'

• 
  i) The city major is a senior figure in the ruling national government and is proving successful at tapping government funds for the city
• 
  ii) The city (well actually the village of Jucu - just outside the city – but soon to be incorporated in the metropolitan area) has just won the Nokia mobile phone manufacturing plant. This was in the face of stiff competition from an existing plant in Hungary and Brasov – also in Romania.
• 
  iii) The European highway will pass close by to Cluj-Napoca and so free the city centre and residential districts from national and international traffic and trucks
• 
  iv) Cluj-Napoca keeps large numbers of its young graduates – as they like the lifestyle plus they can find good jobs and excellent opportunities in the city. Equally, the city is smaller and easier to navigate that the capital Bucharest (A bit like choosing Manchester or Edinburgh in place of a London career).
• 
  v) The large student numbers are guaranteeing Cluj a steady workforce of young people every year (this is not the case in many cities)
• 
  vi) Significant numbers of highly influential ex-pat Cluj residents are returning to the city and importing Anglo-Saxon capitalism and professionalism
• 
  vii) The city is building two large shopping centres – as either end of the town and has plans for a third centre in the town centre with a fourth mall a future possibility.
• 
  viii) The population growth of the city has moved it from 5th largest to 2nd largest city in Romania based on latest figures

1. 
   The first multi-storey car park opened two weeks ago (a sad day of course, but clear signs of increased shopping power and cars – ie the ability to carry away a lot of goods in one go)
2. 
   At least two more multi-storey car parks are on the way
3. 
   2 years ago there were only 10 high street brands in Cluj (the rest were cheap Chinese stores or 2nd hand shops – see my article on what second hand calculators told me about the property investment market in Brno, Czech Republic
   Now, there are 200 to 300 high street brands in Cluj and the 2nd hand stores and Chinese shops have nearly disappeared (rents per m2 have risen from 75 to 250) and the new shops are thriving and making money.
4. The new city centre pedestrian area – Boulevard Eroilor – will open in Sept 07
5. 
   Any new supermarket launched in Cluj-Napoca was swamped the day it opened its doors

• M0 - ring road motorway around south and east side of city
• Redevelopment of Budapest container terminal
• Redevelopment of Pest city centre - Champs Elyses of Budapest
• Plans to develop the riverside (to remove traffic) from Pest side of the river
• 30% of Hungarian labour force is in or around Budapest.
• Buda and 5th District of Pest - are the expensive districts
• 9th and 8th districts are seeing large scale development (8th district still has a very poor reputation - and is regarded as dangerous). However, where the 8th district touches the Danube river, there is/ will be riverside living developments and the new National Theatre (like London's South Bank, I guess?)
• A new bridge is being constructed in the north - between 3rd and 13th district.
• 15th and 14th are panelak districts (although 14th contains some expensive areas)
• 16th districts - contains detached houses
  

Gyor - 2nd tier city
==============

Audi engine plant - producing 1m engines per yearUniversity townNew port on the Danube creating multi-modal logistics centre

Large new steel mill (Danish) nearby will transport rolled steel via the Danube Cultural city

Miskolc - 2nd tier city
========
Technical university
Centre of the poorest region in Hungary

Szeged - 2nd tier city
========
University city
Cultural city

Debrecen - 2nd tier city
========
University city
Biotech centre

Pecs - 2nd tier city
====
University city
Finish aerospace investment - creating 6,000 jobs
Relatively high unemployment - previously a mining centre
Cultural capital of Europe 2010
World Heritage site


Other towns - and key recent FDI

Szentgotthard
==========
Opel factory

Komaron
========
Nokia phone factory - largest in Europe (claim?). This has drawn labour from across the Slovak border. Note - a new Nokia factory has been announced for Cluj-Napoca in Romania (which I am visiting tomorrow).

Esztergom
============
Suzuki car plant - 300,000 cars per year

Szekesfehervar
==============
Phillips electronics

Summary
========

Budapest is the obvious place for property investment.

Looking around Hungary there is no obvious second city. Candidates for investment might be Pecs (which will be European Capital of Culture) or Gyor - with a new Danube port and proximity to Slovakia and Austria.

These would be my two candidates for 200% growth in the next five years - but perhaps we are ahead of ourselves by one to three years?

If I had to choose one city, it would probably be Gyor as having the greatest potential - although I have to admit that I haven't visited this city,

Perhaps we should see if the reforms work first and Budapest takes off before we head for the second cities?

Got a view?

... does this mean that Hungary now got its economy in order?