Hi Steve

interesting article and perfect timing for me as I have two units in Future City (Phase 1) completing at the moment. I'm trying to decide whether to do a quick sale now of one or both to reduce my main property mortgage which is pretty large or hold on for bigger returns.
Normally, I would simply hold as that it was I bought into originally but the problem is my main mortgage. I will come off a fixed rate in mid 2011 and believe that I wouldn't be able to remortgage the same amount so I MUST pay off some of the mortgage.
The question for me is - what will happen in the Krakow market and will my return at the start of 2011 be much greater than now or should I sell now?

Not an easy one to answer but I would value the opinions of PS and fellow investors out there

Alex

Hi Alex,

Steven Desmond here, I'll give you a call as this is a personally specific situation,

Kind Regards

Steven Desmond

Hi Steve,

this is great news if you are buying but but what about if you have already invested? I have heard that there is over supply in Poland but I thought that this website was always saying what a safe investment Prague was.

I am getting a bit concerned about my investment in the Kosik development. Will Orco have enough funds to even finish the rest of this development? Do you see the prices in Prague coming down much?

thanks
alex

Steve,

I do not 'need' to sell, but find it hard to justify not selling given the significant opportunity cost.

I have an asset in Poland worth approx 100K, which could be classed as volatile and should therefore command a risk premium. This asset currently costs me about GBP2.5K pa as well as time spent managing PS who manage the management agents.

If I sell I could invest the funds in a non time consuming risk free asset (or as risk free as you can get these days) which would produce an income of approx GBP 2.5K pa.

Given this reality, do you still stand by the argument of only selling if you need to. I find it hard to agree, that the future capital growth is enough to compensate the risk and negative cashflow situation!

Mark

Hi Alex,

Prague (in my opinion) is still the safest bet (visible in its prices). What we are seeing is that developer finance is being aggressively adjusted and some projects are being put on hold. The banks are now looking for (depending) 30-45% equity in a development. With developers under funding pressure they are not being as difficult to talk to with prices and discounts. The supply level is good there and mortgages are still being given out at last years levels. The economy is still strong. Good news is that the reduction in supply of new developments will mean greater price growth in the following years. Orca’s share price dropped 90% and they are the first developers to break ranks and publically offer 10% discounts from one of their projects in Prague 4 (which - in my opinion - is overpriced anyway). However, they are a strong outfit with a much diversified portfolio of property across Europe including hotels and skyscrapers. You should be very secure with them. For better or worse I was even considering picking up some of their shares!!

Below is an article I saved a few weeks ago-



Czech bankers have not experienced the sleepless nights suffered by
- their peers in bankrupt US banks and, later on, by the managers of
- troubled financial institutions in Europe where Belgium's Fortis and
- the UK's Bradford & Bingley are the latest examples. The financial
- crisis, spreading from the United States to western Europe, does not
- pose a direct threat to domestic banks, Czech bankers say.
-
- "From the viewpoint of fundamentals, Czech banks are all right,
- said
- Jiøí Kunert, the president of the Czech Banking Association and
- director of the fourth largest Czech bank, UniCredit.
-
- Czech National Bank vice-governor Miroslav Singer told Hospodáøské
- noviny Monday that Czech banks were still doing well even in the light
- of the latest events.
-
- "According to the findings that we have at our disposal, the impact on
- Czech banks should be minimal. Moreover, the solution to most crises
- faced by European banks, for example by the Fortis group, preserves
- the size of the payables of these large troubled European financial
- groups. Their shares are therefore the only assets whose value is
- falling. That reduces significantly the potential risks for Czech
- banks. The groups that control large Czech banks do not hold any major
- volumes of the so-called toxic assets derived from US properties,"
- said Singer.
-
- Analysts are not concerned about Czech banks either. "It is still true
- that Czech banks will experience the financial crisis only indirectly
- and that the worst-case scenario is a slowdown in the growth of their
- profits,"
- said
- Marek Hatlapatka from Cyrrus.
-
- Every western European bank hit by difficulties so far had a specific
- problem that does not concern Czech banks at all. As Hatlapatka says,
- Fortis paid for the bad timing of its purchase of ABN Amro shares,
- while Germany's HypoRealEstate is suffering for its one-sided focus on
- the mortgage market and for the bet on securitised mortgage assets.
-
- Domestic banks now benefit from the fact that loans on the domestic
- market are their key business. "Thanks to this focus, they have not
- been hit directly by the current crisis," says Milan Lávièka from Atlantik FT.
-
- Czech banks are relatively safe also because their foreign owners are
- not among the troubled institutions either. The foreign shareholders
- channelled their key investments in their expansion to eastern Europe,
- and their profits are not based on securities trading, unlike the
- incomes of US financial institutions and some European banks.
-
- Obviously, no foreign owner of a Czech bank is facing problems with
- capital
- - a factor that has already caused many bankruptcies on the US and
- European banking markets. Belgium's KBC, the owner of Czech bank ÈSOB,
- and Austria's Erste Bank, which controls Èeská spoøitelna, held almost
- no securities linked to US mortgage loans that provoked the whole
- financial and credit crisis.
-
- The losses incurred by French group Société Générale, the owner of
- Komerèní banka, were caused to a great extent by illegal transactions
- carried out by its broker Jerome Kerviel that were revealed at the
- beginning of this year.
- However, the French group was then able to increase its capital by EUR
- 5.5 billion without any problems, and its managers confirmed last week
- they counted on a further growth of the entire group and were seeking
- more acquisitions.
-
- Likewise, another Austrian group, Raiffeisen International, made a EUR
- 566 million profit in the first half of this year.
-
- Another indicator of the good condition of Czech banks is their own
- record-high first-half earnings.
-
- For the time being, the financial crisis has affected domestic banks
- through higher borrowing costs. "So if there is no massive run on
- banks, for which there is no reason, Czech banks should not face
- problems even in the light of the deteriorating situation in the
- neighbouring western European countries," Hatlapatka said.
-
-

Hi Mark,

Everyone is in a very individual and specific position. And property (not being homogenous) is in its own specific circumstance so its very difficult for me to make comments in anything but a general way. If you can achive what you would consider a good price for your asset, then by all means sell. I guess what im saying is achiving a reasonable figure for the asset is the trick. I do still see long term growth. Sorry Mark, difficult for me to answer that in total! Hey, give me a call next week, I'll be happy to chat if you'd like,

Best regards

Steve

Hi Steve

This is interesting - dropped in my mailbox this afternoon from King Sturge...



Developers selling projects to fix cash shortage
The residential property market in the Czech Republic is feeling the impact of the financial crisis and the resulting decrease in demand. Some developers are trying to sell entire residential projects while others are looking for strategic business partners. For example Skanska Reality now gets offers from smaller developers that want to sell their residential projects. It is not only smaller companies that are trying to get rid of their projects. Sekyra Group, one of the biggest developers in the country, is trying to sell some projects too.

It's already happening out there!



cheers

Thanks Steve,

I'll give you a shout next week.

Mark