Sim Property Newsletter Nov 2008 - investment opportunity 5/95 terms + 5% discount & CEE finance

As the global financial crisis continues and recessions look set to become a certainty this month I take some time to take a look at mortgage finance in Central & Eastern Europe and how it will develop in the future.

This month�s newsletter also co-insides with the launch of a new investment � our first off-plan deal in 3 months - in Krakow with only 5/95 payment terms and prices from only �72,000.

I also take a snapshot of some of the worlds property markets � a feature that will become now have a regular place in this newsletter.

New Investment in Krakow

We have sourced our first off-plan investment for the last couple of months, this time in Krakow, Poland � a market that is set to rebound after over a year of softening prices.

We have managed to obtain great 5/95 payment terms and a 5% discount (but we can only hold this discount until 12th November).

The units are efficiently designed and good for rentals and there are only 58 apartments in the whole development - which will limit supply. The area is located just to the south of the city centre and is a fast growing district in which many new companies & education establishments have chosen to expand their operations.

Overall it�s a great buy in my opinion.

Please get in touch for more details or follow this link.

Mortgage Finance in CEE

The credit crisis that emanated from the US and quickly spread to the UK and much of western Europe is now starting to filter through to the countries in eastern Europe to a great or lesser extent.

First to be affected were the developers, borrowing became much more difficult and banks required developers to have higher equity stakes and more pre-sales. Developers have been further hit by falling demand as consumers cut back on spending.

Residential mortgages for the end property buyer have not been affected that much in some countries whilst in others the mortgage market has changed completely:

Czech Republic � so far very little has changed, only Raiffeisen have reduced their LTV to 75% (yesterday�s 0.75% base rate cut has yet to feed through)

Poland � mortgages are now more difficult than they were 1 year ago with higher criteria to meet in the short term, medium term should be better

Slovakia � similar to Czech Republic only very small changes, such as small interest rate margin increases

Bulgaria � LTV�s have fallen and valuations have gotten tougher, some products withdrawn, interest rate margins up a little

Romaina � foreigners can no longer get mortgages in Romania for the foreseeable future

Baltic�s � after years of lax lending mortgages are very difficult to obtain. Banks are very worried about their finances and falling property prices

Balkans � not traditionally a place where foreigners can get mortgages in the first place

Hungary � never a great place to get good mortgages, now it�s even harder


Resales

As well as our other property management services we have been particularly busy with reselling investors� property.

This increased resale activity is primarily being driven by economic concerns in western Europe and increased difficulty in obtaining mortgage finance as well as huge exchange rate changes allowing investors to cash out at the same price and still make a profit.

Our own local real estate agency brand facilitates all the resales, drop us a line to find out more.


Our Monthly Market Snapshot

This month we focus on European markets. We will try to maintain comments on our core list of countries and include some countries on a more spasmodic basis � please contact me if you feel any other country should be included below.

Czech Republic	The Czech Republic will clearly be affected by the world�s credit crisis. Developers are hardest hit in the property market, slowing demand and restricted finance have put a stop on many projects (which medium term will restrict supply in the property investor�s favour). Thus developers are offering buyers incentives to increase their sale. As in such economic environments quality assets tend to do better � thus I am already seeing panelak prices weaken slightly. Overall resale prices are still holding up. I am still investing in the Czech Republic. Yesterday base rate cut may well help hold the market up.
Poland	Price have been soft/falling all year and this will continue until the end of the year. Fundamentals remain healthy, taxes are being reduced and growth will come back strongly after the bottom is reached. Now could be a good buying opportunity to pick up a property at a good price. Mortgage finance has got tougher but this will not last forever.
Slovakia	Prices are at a peak, expect little short term growth. I expect Slovakia to be hit harder, economically, than neighbouring Czech Republic.
Bulgaria	Short term prospects are not looking good for foreign investors. LTV�s have fallen and oversupply is going to remain an issue for some time to come.
Romania	Foreign investors can no longer get mortgages in Romania. Prices are fragmented and there exists a lot of poor quality developments. Avoid this market if possible.
Hungary	A market I�ve never been a fan of. Poor mortgages, oversupplied and highly priced. There has been a clear economic and financial danger for years, this is played out in the last couple of weeks with EU support for the country�s financial system. Still further slides in the Florin are going to hurt both the government and ordinary borrowers due to huge amounts of borrowing in foreign currencies. Avoid.
Baltic's	Like Hungary the Baltic�s are in a financial mess. Property prices are falling heavily and rental yields remain low. Avoid for a while until things become more stable.
Albania	Albania is unlikely to be affected to the same extent as western European countries. The market has potential � only buy in areas with restricted supply, quality services and in a quality project.
Turkey	Along with Albania, Turkey (and I�m only talking about cities such as Istanbul) may be one of the few places to show property prices growth. Istanbul has excellent demographics and a burgeoning business environment. Mortgages are now theoretically available for foreigners.
Germany	Not my favourite market at the best of times. The economy is going into recession meaning it could be another 10 years before the property market shows any sign of growth � even if it did the very high taxes/costs and poor mortgages would stop me buying.
Spain	The market is a complete mess, oversupplied and with falling prices. No end in sight to the current pain.
UK	Prices will continue to fall this year and into next year. The will undoubtedly be some great opportunities in the future, but my suggestion is to have patience for the market to fall further first be investing.

The next 6 or so months are clearly going to be tougher times for the worlds property markets.

The markets will then go one of two ways:

1. the markets will either continue to fall or stagnate as the credit crisis feeds more heavily through into the real economy or
   
   
2. the credit crisis will sort itself out relatively quickly; subsequently demand and affordability for property will rebound (and it will rebound more quickly than supply which is currently being restricted as developers slow or stop their building projects).
   

My view tends to the latter option. I see the next year as a clear buying opportunity as the medium term fundamentals of markets such as the Czech Republic and Poland remain healthy. That said I will also keep a close eye on possibility number 1 and monitor just how mortgage credit and economic health develops, always keeping a portion of my assets in cash/bonds. With worldwide falling interests rates and money being printed like no tomorrow I believe we are setting ourselves up for another asset boom (and a healthy dose of inflation) once the bottom of the market is reached.

Please contact us for more market views or visit our Countries pages for more information.

Any comments on this newsletter would be warmly and gratefully received.

Regards,
Simon Tweddle.
www.simpropertygroup.com