Sim Property Newsletter July 2010 - UK & BG changes

If you're wondering who Sim Property Group is, and did not read last month's newsletter, then we would like to inform you that we have rebranded from propertyinvestmentinternational.com to Sim Property Group. This move brings our Property Investment and Real Estate arms under one banner. This month we take a closer look at the prospects for the UK market, the whispers around mortgages in Bulgaria and the dilemma of what to do with your investment money in the current economic climate.

UK outlook compared with other markets

Despite the fall in UK house prices over the last couple of years and subsequent bounce back, I have remained relatively cautious about the UK market as a whole.

As mentioned in previous newsletters, my research tells me resource rich countries such as Australia, Canada and Norway have the best long term potential, followed by many of the credit rich nations of South East Asia. For those looking for higher risk and high return markets try Brazil, or even Russia or Mongolia at the higher risk end of the scale.

Markets in Eastern Europe still have a lot of potential at the right price and location.

Most of Western Europe will lag and southern Europe should be avoided completely unless you want a holiday home in the sun.

But what about the ongoing outlook for the UK property market?

On a macro level despite the upturn in prices earlier this year it seems that prices are starting to slip back again and increasing numbers of people are worried about losing their jobs.

London is still attracting huge amounts of foreign money in part due to the relatively weaker pound sterling.

There is less uncertainty about how the coalition government will perform. So far, it seems, it could have been much worse, capital markets are content for now and the government is at least trying to tackle the difficult issues at hand, despite the pain that this will cause in the short term.

If the government can really tackle the UK's economic problems, reduce debt, promote growth, control inflation then the UK would still be a great place to hold a good portion of your money. Despite the problems, it shouldn't be forgotten, the UK is still one of the largest and most dynamic countries in the world and the basics of supply and demand are still positive for the UK property investor, ie a lack of building and a growing population. If the economy can show sustained improvement and banks start lending more widely significant confidence is likely to return to the market.

One thing is for sure that there will always be good deals in the UK on a localized level if you know the market well enough. So don't stop buying if you find amazing deals. Otherwise, I would still not recommend a blanket buy on the UK property market for the time being, however, its one to watch closely.


Bulgarian mortgages

There have been the first signs recently that mortgages are starting to become available. A Bulgarian bank has recently released a mortgage product, but it is only available for selected projects and the terms are highly disadvantageous (even by Bulgarian standards).

Unfortunately, we believe, this mortgage product is not quite what it seems. It is simply a way for the bank that has financed the construction of these certain developments to be funded (so they get completed and the developer does not go bust) and spread the risk between the developer and the clients taking out these mortgages.

Our view is that it will still take some time for real mortgage products to appear on the Bulgarian market, unfortunately.

For those who need a mortgage in Bulgaria get in touch so we can let you know as soon as suitable products appear, as we are actively searching for a finance solution in Bulgaria.

What to do if you own property in Bulgaria?

The property market in Bulgaria continues to be experiencing a hangover from the heady days of booming prices and rapid building. Unfortunately, since 2008, when the financial crisis struck, both financing and buyers dried up leaving developers with property they couldn?t finish or sell.

The current market is oversupplied with property and sales prices continue to fall. In today's frozen market, many investors would struggle to sell at prices they paid.

Until both the economy of Bulgaria picks up and wider availability of mortgage finance appears the property market will be in a sorry state for some time to come.

Unfortunately, this oversupply of property has not just knocked sales prices but affected rental prices which have dropped substantially. In central and western areas of Sofia rental dynamics remain stable. In the southern part of Sofia, however, the huge oversupply means that it is more challenging to rent out properties at reasonable prices. In Bansko and Sunny Beach only well looked after properties in reasonable locations get rented - tenants have so much choice that they would never look at a poor quality development in an undesirable location.

Rentals on the Bulgarian coast have been particularly bad this year, in part due to the slow Europe-wide economic situation and partly because of pooer than normal weather conditions.

On the one hand these challenging conditions are bad for current owners of property in Bulgaria, yet could be viewed as a unique buying opportunity for those looking for heavily discounted properties.

With property resales very difficult, unless at heavily discounted prices, our current advice to property owners in Bulgaria is to ensure their properties professionally managed so they do not fall into disrepair and try to regain some income via rentals.

Because of such conditions, and the practical issues associated with property in Bulgaria, we are finding our hands-off property management service extremely popular. We manage property in Sofia, Bansko and Sunny Beach. We also have our own Bulgarian real estate agency. Get in touch to see how we can help.


Time for a change

In the few years following the year 2000 to 2007/08 one could have bought property in most western property markets and, unless you made serious errors of judgment, would have enjoyed substantial capital appreciation and good profits.

Those were the boom times. Nowadays property prices are considerably more suppressed and finance is significantly more difficult to obtain. In most markets this low growth environment is likely to continue for some time to come (at least the next couple of years).

With this in mind its always worth questioning your investment strategy. If I invest today, in which markets and using which strategies will get me the best return on my money for the lowest risk?

Earlier in this newsletter (and in previous newsletters) I alluded to some markets that I think will perform above the average. Luckily with property investing you don?t usually need to reinvent the wheel to make good returns. The old adages of buying in a good location, in a market with good fundamentals, with a good price relative to the market, a good yield and/or the ability to add value to the property, will likely see you through.

Naturally the hard part is deciding which markets have the right fundamentals, what is a good price, why should things change in the market to make prices increase and what yield would I accept to cover my financing risk and so on. This is what we advise you on.

Unfortunately we don?t have all the answers to these questions, though our extensive research and on the ground experience takes us some way to see through the haze. I hope these newsletters give at least some guidance to your investment decisions. Get in touch for further information.


Regards,
Simon Tweddle.
www.simpropertygroup.com