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Dear Investor,
I am writing this at 33,000 ft above the Mediterranean on my way back to Cyprus after a 1 day visit to London. The very noticeable change in temperature on arriving in the UK had me running to Marks and Spencer for a pullover and thermals after the balmy 27 degrees of Cyprus!
The American electorate made history last week. I watched Barack Obama’s speech on television and found his words, sentiment and graceful tone to be inspiring. For investors as well as the world in general this election will have a profoundly positive effect although the stock markets haven’t yet realised it!
In another historic banking week, the Bank of England and the European Central Bank both reduced base rates by 150bps and 50bps respectively, which will provide a monetary boost to the wider European economy. LIBOR continues to fall and one feels that a semblance of stability is returning to UK banks, although some overseas banks have some way to go. UK politics saw a surprise victory for Labour in the Glenrothes by-election, a victory which some ascribe to “the Falklands effect” for Gordon Brown, as a result of his recent performance in the financial crisis.
The countries identified in the media recently for potential International Monetary Fund (IMF) rescue include: Serbia, Brazil, Argentina, Estonia, Latvia, Lithuania, Turkey, Bulgaria and Romania – whose debt rating has been cut to junk status, according to Moneyweek. If you have investments in any of these countries you should be looking at strategies to mitigate any potential losses arising from a collapse of their respective currencies as foreign investors run for the exit.
If you are a property investor in some of these countries, you should batten down the hatches, prepare a contingency fund to finance your negative cash flow properties for some years to come as property prices and rents fall sharply, unless you are prepared to cut and run now with a possible loss. Investors in many of these countries will have a few years to reflect on whether the hype and analysis provided by some property sales companies was worth the paper the research was written on. Those attracted by the potential high returns maybe did not consider the high risk associated with this. Even a cursory look at the imbalances in the Romanian economy for instance would have flagged up “high risk” investment and, to quote the famous American economist Milton Friedman, “there’s no such thing as a free lunch.”
In addition to the obvious macro-economic imbalances, another issue with property prices in some of the aforementioned countries was the relationship between average house prices and average earnings. The prices to earnings ratios were excessively high by any historic standards and now that investors are heading for the door, the fact that many locals cannot afford to buy or rent these (relatively) expensive properties will have a significant impact on this segment of the property market. With a current account deficit of 20% and large consumer debt, Bulgaria for instance, must continue to attract foreign investment for the economy to function. Growth has been slashed from 7% to just 3% next year and if the foreign capital dries up, which is a strong possibility, then the worst is yet to come and recession would follow. If this doomsday scenario materialises, I would not wish to be holding Bulgarian property in any part of the country.
One of the key problems in Bulgaria has been a credit fuelled consumer led boom which saw shopping centres built instead of factories and consumers buying BMWs and flat screen TVs without increasing their productivity in order to pay for them. Further, the development of strong export-led businesses has not been a driving factor in the economy.
Reports in the press this week state that 33% of Bansko’s 2,200 foreign-owned apartments are back on the market again, some at up to 50% below the original purchase price as British and Irish investors look to repatriate whatever cash they can. Property prices have also dived by up to 40% in the Baltic states. There were also reports this week that a London based property fund has cancelled a residential development in Sofia as estate agents report a glut of unsold new-build properties in the Bulgarian capital.
I will continue to follow events in Central and Eastern Europe over the next few months and hope that the situation does not deteriorate to the extent that many professional analysts predict.
On a personal level, I am in for another busy few days in Cyprus with contractor tenders for
The Grove Spa Resort
and meetings with various suppliers. The interior design of the Health Spa is looking great and certainly fits the high end image we are striving for. Further, we have also had significant interest from Cypriots in the remaining units and expect to have secured a further €4 million in sales by the end of the week.
You should receive Issue 6 of Jet-to-Let Magazine by post at the weekend, which features Italy, Turkey and Panama as well as the usual columns and reports. Jet-to-Let Magazine is delivered free to many thousands of investors in 74 countries and its rate of growth continues. We welcome your suggestions and comments for future issues.
Henry and Alun were in Marrakech over the weekend with a busy investor weekend showcasing Jet-to-Let Investments’ “
Riads of the Medina
” project which pays 7% leaseback rental for 9 years and is proving to be a very popular investment choice in these turbulent times, particularly for cash-rich investors, although mortgage finance is relatively easy to obtain for Marrakech properties in the Medina. If you wish to register for further details of this credit crunch beating investment then please fill in the form at:
www.jet-to-let-investments.com/morocco
Best wishes
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