Sim Property Newsletter Dec 09 - Rentals, Property Management & Taxis

As the year comes to a close I imagine everyone is taking stock of their investments, lessons learned and planning the next steps ahead for 2010.

When I look at 2009 it has been a mixed year, my stock market investments have seen some phenomenal returns, cashflow in UK has remained strong while in Eastern Europe it has been squeezed not to mention the mortgage finance available to foreign investors. My property portfolio has weathered the storm well and I�ve made a couple of cautious additions. My outlook remains cautious and I�m keeping cash on the sidelines for the right opportunities.

For 2010 I�ll be looking to continue to buy very cautiously only when the price is right. I don�t see very much growth taking place in at least the first half of 2010 across Europe so I�m in no hurry to invest for investing sake. Without significant improvements in the mortgage market many of Europe�s property markets will remain quite stagnant, thus I�ll be concentrating more effort on renovation projects (more on this in newsletters next year) as well as looking further afield for higher growth markets with the right conditions for making successful property investments, specifically in East Asia and South America.


Rental supply

I can�t help but compare the rental markets for the properties I own in the UK compared to those in Central and Eastern Europe (especially as so many companies are pushing UK investment property at the moment).

In the UK my voids are very low and rental income healthy, there always seems to be a steady stream of tenants ready and willing to rent in the UK. Yet in Central and Eastern Europe finding a tenant is that bit more difficult (and in some locations tenants are just in the imagination).

The main reason for this is the supply-demand balance. In the UK there is an undersupply of properties (generally), a lack of building and a growing population. Further east in Europe many of the major cities suffer from at least some degree of oversupply, particularly due to the construction boom that has flooded the market.

This has been very noticeable in Prague where rental market supply has increased by a massive 50% in 2009, Brno too is affected but to a lesser extent. In many cities in Poland and Slovakia there remains more units than tenants so things there are slow going. In Romania the rental market is very fragmented and new developments in marginal locations have been hit hard. In Sofia there is a large supply of new apartments and this will take some time for them to be absorbed into the market (many of which will probably be sold to locals once the finance market improves again).

On the positive side if you can buy property in Central and Eastern Europe at a decent yield at the moment then there is likely to be little further downside in both sales and rental prices, and consequently you�d be well positioned for a revival in these markets. A revival in the Czech Republic, Poland and Slovakia is likely to be led by an economic revival and supply restrictions. In Romania and Bulgaria mortgage finance is a key factor, without this these markets will be sluggish for sometime to come.

Ultimately you have to take a view on your own personal situation and how each country will develop over the next few years. I�m not convinced by investing heavily in the UK at the moment (particularly if bringing money into the UK) despite the apparent opportunities. The UK remains a nation in debt and increasingly high tax, only time will tell what affects on the UK property market such problems will have medium term.


Property management

I could write a book on all the things we seem to deal with as a property management company � especially when it comes to excuses from tenants.

Property management is one of the most underestimated and yet crucial parts of property ownership. Has anyone got (or had) a property management company that doesn�t communicate, doesn�t answer questions, makes excuses about tenants, can�t explain what�s happening with the bills, charges large amounts for spurious maintenance items on a regular basis or lets bills go unpaid and debts stack up?

Owning property can be like having another full time job for many people which is often an uncessary chore in people�s already busy lives. That is why a capable property management company is critical and which is why we have designed our property management service to be completely hands-off. Our concept is very simple in that we look after everything to do with the running of your property (including all bill payments directly from our client account) and you just have to receive the money direct to your bank account and our status report to your inbox on a monthly basis.

This service has proved extremely popular in 2009 and as such we seem substantial growth in this part of our business, including having a large number of clients move over to us from other companies. In this day and age there is no reason to tolerate sloppy service.

We�re now providing hands-off property management services throughout the Czech Republic, Slovakia, Poland, Bulgaria and Romania. We�ll also have some new and very interesting online systems coming on stream early in 2010 which will allow for even better coordination between clients, ourselves and our regional offices.

Get in touch to see how we can help if you own a property in these countries.


Tale of two taxi drivers

I had the misfortune recently to take a taxi whose driver tried to charge me 10 times the going rate. Just out of principle I would not pay this despite it causing more stress and time wasted. The driver was clearly just a con-artist trying to make his living by ripping people off, its unfortunate to be reminded such people exist in this world. Not long after a friend of mine who I was travelling with in a different taxi left their camera in a taxi and thankfully the driver went out of his way to track us down and return the lost item.

This recent real life example illustrates that there are people in this world who will lie, cheat, steal and worse just to make their lives easier in the short term, but unfortunately for them life has a habit of making sure such people generally lose out over the long term.

One of the most important things I try to instill throughout our business dealings is to always act with honesty, integrity and to always do the right thing even if it may be painful in the short term and could cost us money.


The world has changed � but it really hasn�t

Around a year ago I wrote that the world had change due to the massive upheavel in world financial markets and the subsequent after effects.

One year later this statement, to some extent, remains true but at the end of the day its human nature that hasn�t changed. There will likely be further booms and busts, further scandals of people being mis-sold the next hot investment or being ripped off by unscrupulous people.

With this in mind, over the coming months of 2010, take time to think about what could be the next profitable boom and how to avoid being caught out by the inevitable wave of euphoria that is driven by human greed. Often it�s the cautious and low risk approach that turns out to be the most profitable.


Conditions for a profitable investment

Its relatively easy to see a market boom in fully swing (partly because lots of sales agents on commission will soon let you know about it). Often once it reaches this stage its starting to get a little late to enter the market and maximise your returns.

In order to find the market that is on the cupse of a boom requires some vision, hard work/research and faith in your rationale when the mainstream might be into something else.

Such conditions could include a distressed market where sentiment has temporarily turned yet where the market is fundamentally sound. Where there is significant conditions for change, eg new mortgage finance coming on stream or favourable tax changes to a market that would see increased volumes of investment into property and thus rising prices. Large demographics shifts which would see a city�s population (and thus demand for property) increase. The list could go on, but the basic principle is to keep your eyes open for such conditions of change and position yourself to take advantage of it.


2009 vs 2010

I spent much of 2009 looking for property investments that stacked up but with limited success. It was relatively easy to find good deals but to find those ones where all my strict criteria got a big tick in the box was extremely difficult. Sure there are properties around with a theoretical discount to market, and/or good yields, but can you get a combination of great location, great price, great yield, growing economy, strong demograhic trends, great mortgage finance, low risk, low tax and so on? If so let me know!

I forsee that the the world order has indeed changed to some extent and such shifts inevitably lead to either positive or negative affects on various markets. The trick is to determine which markets will benefit the most and which ones will suffer the most. The answer to this question, to me, is still not 100% clear hence my current more cautious investment recommendations.

I�ve a feeling that 2010 could be quite different from 2009 (no obvious statement intended!). The water has been relatively muddy in 2009 and I�ve only been picking up deals when I felt like my downside risk was protected and yet where there was potential for a good upside in a reasonable timescale. This is a good approach at the best of times but never more so in times of uncertainty and change.


Next month I�ll fill out some of the ideas I�ve been discussing about how, why and where to invest in these times and do a fuller review of world markets (with some surprising conclusions) and do this in a framework of how I believe the world will look over the coming years. I�ll also do a special section on Asia (where I am at this moment).


I�ll sign off this year with a quote I saw written on a wall in a remote mountain region just a few days ago which read �you only realise the value of water when the well runs dry�. I think this same philosophy could be applied to many things in life.

Regards,
Simon Tweddle.
www.simpropertygroup.com