I had to laugh this morning when I opened my emails. A well known property investment advisor was knocking new build developments in the city centre and surrounding desirable areas of Bucharest based on his calculations on average Romanian wages. Why did I laugh? Because it is such a good example of how statistics can lead you to really bad investment decisions. This chap's argument was based on a measure of AVERAGE wages. And he concluded that you and I would be mad to invest in £60,000 flats in central Buchaest. His argument (let's call him Mr Average for his love of statistics) is that because he caculates average wages in Romania as £1,800 - that no one will be able to afford flats in central Bucharest. What Mr Average has missed, and we've explained on this site a couple of times, is that averages don't work very well in Romania and work especially badly when considering capital city and central / desireable neighbourhoods. Simon Blakebrough explained this well in his recent blog (see the links above under Opinion). We've also highlighted that Romania and Bucharest is a country/ capital city that will be sharply divided - more like an asian city than a UK city. This means that its property price growth experience will be very different from that of UK cities. Remember, the UK took 200 years or so to urbanise - Romania might only take 20 - from where it is now! What the average salary figure masks is the huge disparity of wealth and earnings in Romania. Most Romanians are farmers - the city populations are still (by UK standards) small. Therefore, most Romanians earn a lot less than Mr Averages' average wage of £1,800. And of course, a significant minority will earn vastly more. And who will rent to buy a flat that costs £60,000 and will double in price? Well, clearly, not the farmers. The analysis by Mr Average is all the more curious because he doesn't make the same argument about Poland. For instance, yesterday we launched a Investment Report with an interview with Robert Chojnacki in which he pointed out that good managers in Warsaw are now earning 10,000 Euros per month (that is £80,000 per year - or 3 times earnings is £240,000 per year - a professional couple could feasibly afford a half million pound mortgage). It was not like this 2 years ago in Poland when we begin investing and it'd be fun to know what the average wage figure for Poland was 3 years ago (and before the property market took off). Robert speaks of very rapid wage inflation amongst the professional and young middle class - perhaps 25% in some sectors - in Warsaw and big Polish cities. He doesn't say that Polish farmers are going to earn that kind of money, of course, because we can see that this is entirely irrelevant. So, what matters to investors is what is happening to: a) the wages of the urban/ professional middle class (who will buy and rent those flats) b) the size of the middle class populations (which is expanding rapidly from a small base) c) the migration of people from the country to the city (often via universities) to expand that population further Anyone thinking of making investments in growth cities would be wise to consider these factors -and becareful of applying average statistics - for fear that average advice might give you average investment returns. Hope this helps. Cheers Neil

Did anyone else see this crazy investment logic?

Yes, and my thoughts were similar to yours. Just goes to show how stats & numbers can be used to 'fool' the mis-informed!