I’ve had a busy few days with property investment seminars and a few media interviews including “A Place in the Sun” and the “Sunday Business Post” in Ireland.

For subscribers who live in Ireland, Jet-to-Let Magazine will be at the Sunday Business Post property exhibition in Dublin from Friday 16th February to Sunday 18th February on Stand H14. I will be presenting a seminar on property investment and will also be accompanied by a few senior staff members who can answer any questions you may have on investing in property.

We will also have an informal seminar on property investing, particularly looking at the Cyprus property market, on the evening of Saturday 17th February. If you wish to attend, then please call the office on 00 44 151 482 5526 if you are in Ireland or 0151 482 5526 if in the UK.

Welcome to our new look newsletter which we will send out each week with news items and a few comments from yours truly. We are well underway with the next edition of the magazine which we hope to have with you by the end of next month. We now have a large number of subscribers resident outside of the UK and Ireland in 25 other countries including Australia, Denmark, India, Kazakhstan, Kenya, Libya, Nepal, New Zealand, Oman, South Africa, Spain, Switzerland, UAE and the US to name a few. That would be an interesting seminar circuit!

I am often asked whether I consider Eastern Europe a good investment area for novice and experienced investors alike.

Well, the former possibly and the latter yes, why not?

So, why the difference?

Experienced investors should understand the concept of “negative cashflow” investing, which basically means that the rental income does not cover expenses or operating costs.

The concept is that you trade income (in this case you “subsidise” the operating losses from other income sources) for potential capital growth.

This strategy clearly carries a significant risk – why?

What if property prices actually fall, rather than rise?

What if the paper capital growth is not materialised?

What if there is no re-sale market?

What if locals cannot afford to rent these new build apartments?

What if already high interest rates rise? (big risk, particularly in non-euro currency areas such as Romania)

I think Romania is a case in point where some of the forecasts really do beggar belief. It is difficult to understand some of the hype. Here are some facts:

New build property aimed at non-Romanian investors (i.e. you and me) starting at £60,000

Average local salaries of about £150 per month or £1800 per annum

House Prices to Earnings (HPE) ratios on these Romanian properties - a staggering 33.33

UK HPE today at 5.7 is considered to be high!

Real GDP growth in Romania is forecast to decline by almost 50% over the next 5 years. (The Economist)

And a volatile currency

Often companies marketing developments in some of these countries publish Return on Investment figures of 200% to 300%. I am very sceptical and would ask for examples where in the re-sale market investors are achieving such returns.

Or is it a marketing ploy based solely on developers raising prices for subsequent phases and sold in the main, to other “investors?”

I think markets such as these should be avoided by novice investors who should cut their teeth in more traditional markets where the risk adjusted return can be as strong as any potential return in some parts of Eastern Europe.

Food for thought.

P.S. Happy Birthday Mum

Sterling Remains Strong
After peaking at a fourteen year high and almost touching the $2 mark, the pound remains high, and is currently at $1.96 on currency exchanges.

The US Dollar has lost strength due to continued concerns about the huge US trade deficit as well as ongoing worries concerning the economy, especially the downturn seen in the housing market.

The continuing strength of the pound against the euro is likely to continue due to optimism its interest rate advantage would widen after Market News International reported the European Central Bank will pause for ‘some time' after further rates rise of a quarter point in March or April. Currently, the pound is worth €1.51 on currency exchanges.

A strong pound is usually good news for UK shoppers. However, it is bad news for UK exporters, as it means their goods are more expensive than products made in those countries.

The high interest rates currently seen in the UK has attracted investors keen to take advantage of the better returns on capital, especially if other nations have not raised their borrowing costs in line with the changes.

Further Rates Rise ‘Likely’.
Research carried out by BDO Stoy Hayward suggests that a further rate rise this week is ‘likely’.

The rise in interest rates in January, from 5% to 5.25%, came as a surprise as many analysts predicated that the Bank of England’s Monetary Policy Committee (MPC) would leave the rates unchanged so the market could absorb the December rates rise.

Despite the previous two successive rates rise, a rise in February “while the economy is able to absorb it, is the likely option”, claimed BDO.

A further increase this Thursday would mean a further stretch for people already struggling with large mortgages or other debts, and could have a negative effect on confidence in the UK economy. BDO states that “worries over further interest rate rises are starting to dent business confidence”.

The report concluded that "while inflationary pressures remain, more rate hikes are likely this quarter".

Consumer Price Inflation (CPI) in the UK is currently running at 3%, which is higher than the Bank of England’s target of 2%. The next meeting for inflation is on the 13th February.

Both the European Central Bank and the Bank of England will next meet Thursday to decide whether to adjust their key interest rates.

The ECB is expected to keep its interest rate unchanged at 3.5 percent but, aim for a further increase in March.

Property Investors Still Favour Traditional Hotspots

UK property investors are still choosing invest in the traditional markets of France and Spain. A recent survey carried out by A Place In The Sun magazine, put Spain at the top of the list in terms of popularity, closely followed by France.

Both Spain and France offer great potential for jet-to-let investments, and the rental markets for both companies remain buoyant, meaning investors have a large lucrative market to tap into. Typically, the French property market offers a strong rate of capital growth.

Other established markets of Cyprus, Portugal, and Italy also dominated the top ten.

This survey backs up previous studies, and further illustrates that fact that UK investors show a tendency to invest in markets that are similar to favourite holiday destinations, as well as places that already have an established community of British investors in the market.