Sim Property Newsletter Sept 2010 - Valuations & Hassles

This month, as well as a quick round up of the current market situation in Central & Eastern Europe, we take a look at how to value properties and how to minimize the hassle associated with buying property abroad.

The art of valuation

As a property company one of our regular tasks is to evaluate the market value, for either sale or rent, of properties.

This is far from an exact science as at the end of the day something is only worth what someone else is prepared to pay for it, which is not always an known exact number as not everything is worth the same to different people.

Usually we perform "relative valuations" by which I mean we look, for example, at the current market prices of similar units, sales history, how the market is developing, how demand is changing in a given area and how quickly the owner needs to sell.

To come up with a ballpark figure is a relatively easy task, however, it takes real experience to understand the subtleties of the market and what is the correct market price. This difference in experience can often mean the difference of thousands of pounds/euros to investors, so it is important to know if you are getting the best possible advice from your agent.

A deeper question is just what is the "fundamental value" of a property. This is a very difficult, perhaps near impossible, question to answer and is where a view of history and the current world order is of vital importance.

To get a sense for fundamental value one could look at various local and international economic indicators, how supply and demand are changing in the market, demographic trends, currency trends, government regulation, yields vs interest rates, availability of finance and so on. It's very difficult to predict the future and especially major "events". Only history can reveal the right answer and such decisions always comes down to making the best judgment you can at the time.

When buying a property for investment purposes I typically use a fundamental value approach to decide "when" to buy or sell in a given market and a relative value approach to decide at what "price" I should buy or sell at.

As part of our service we offer free property valuations to all investors. Just get in touch if you require a free valuation for your property portfolio.

CEE round up

As discussed in detail in previous newsletters, over the last year the markets in Central & Eastern Europe remain sluggish and in my view will continue to be so in the near term. At least, for example, in the UK where sales are not exactly brisk rental yields and rental demand on the whole are quite healthy. Unfortunately in Central & Eastern Europe neither sales nor rentals are particularly hot at the moment.

The biggest problem still remains too much supply for the current demand. The second important factor is the continued restrictions in credit availability.

In the Czech Republic the market has just about found its bottom and will probably continue along the bottom well into 2011. Luckily interest rates are still very low and if this were to change to could severely hurt the market.

In Poland property prices, in the main, have continued to soften and supply remains a big issue. Whilst the medium term outlook has the potential to be rosy in Poland, short term things could be better.

Slovakia has a history of good growth quickly followed by overbuilding and stagnation. I don?t see much positive change in the market for the time being.

Whilst Hungary is a place to watch the market still just has too many difficulties and reforms are not coming quick enough. Best avoided for the moment.

As I've stated many times in the past Romania is a mess and it seems will continue to be so for a number of years to come. If you've invested in Romania it?s a case of salvaging what you can.

Similarly in Bulgaria there are many problems principally with oversupply and lack of finance. Prices are not going anywhere at the moment and the market is very disjointed. In Sofia, if you?ve bought in the right location with a reasonable build quality you're probably going to do alright, unfortunately many people have bought in more marginal locations with poor infrastructure and in such instances it's a case of making the best of a bad job. In these poor locations there will be problems for years if not decades, the rest of the market in Sofia should perform well in the medium term but nothing is going to move until wider spread finance returns. In Sunny Beach and Bansko owners need to employ a professional management company (such as ours!) to get a much rent as possible in the short season available, the other option is to try to sell but prices are down around 50-80% on a typical purchase price from 5 years.

Renovations

Renovating your property can be a great way to add significant value to your investment if done correctly.

In addition the normal maintenance we do for property owners we regularly carry out full renovations, for both our clients and ourselves, from panelaks to older buildings.

If anyone needs their property renovating in the Central & Eastern European region, or want to see examples of our work, then get in touch.

Hassle factor

When investing, and especially investing in property abroad, many people underestimate the sheer amount of hassle that can go with it. There are often a whole range of new rules, regulations and ways of doing things to learn, not to mention dealing with different languages, cultures, taxes and a plethora of paperwork that can turn in to a near full time job.

The buying part of property investment is usually easy, however, subsequently, it is critical you have a good management agent to look after all the details of property ownership in any given country. This is where our multi-country "hands-off" property management service comes in. As property owners ourselves we know what it means to have to go through the process of buying, getting a mortgage, dealing with local taxes & bureaucracy as well as ensuring properties are rented our quickly to good tenants.

Investing abroad can be both fun, interesting and profitable, though it can also turn into a nightmare if things are not taken care of. If you find yourself in such a situation or just want to find out more about our property management services then just get in touch.


Regards,
Simon Tweddle.
www.simpropertygroup.com