Eastern Europe

[immernoch]

So have any of you fellow investors hit some jackpots in eastern europe? I'm laughing now as they joined the EU and the market is about to boom.

I purchased a lovely piece in Montenegro recently but I'm also looking into Eastern European chateaus for great tourist potential.

I thought I'd share this with you in hopes you would give me some other honest tidbits and feedback in return.

 

[propertastic]

Congratulations on getting in on Montenegro at the right time - that definitely seems like a winner.

I would imagine that, with chateaux, you would need to buy in an area that has some other type of atrraction such as skiing, hunting, or hill-walking.

Have you considered a chateau in Montenegro? At the moment all of the action seems to be on the coast, but I can imagine that the ripple effect will start affecting properties inland as well over time.

If you have a spare $135 million, you could buy Dracula's castle in Transylvania. Apparently it's on the market.

Personally my ex-girlfriend and I did well buying in Latvia's 3rd city of Liepaja. We managed to double our money in 18 months. Unfortunately though, I ignored my gut instinct to get out while the going was good at the end of last year and the prices have come down a fair bit in the past couple of months.

 

[najnaj]

A perfect opportunity for tourism development and beautiful places to buy are in Bulgaria, and they are still not expensive

 

[geordie]

Propertastic,

Sorry for stating the obvious but your claim to have "doubled your money in 18 months" doesn't seem totally true does it because you never actually sold your property. If you had sold it and got your deposit plus 100% profits back then fair enough, but just because you believed what you could have got in the past irrelevant. This is why people shouldn't judge the price of their property by comparing asking prices that are currently on the market for adjacent or similar properties because asking prices are irrelevant too and can often be very different for the prices the unit/s actually sell for. Only by comparing actual prices that properties have sold for can get property owners/potential purchasers get a clearer idea. Even then comparisons should be based on a selection of properties and not just a single property.

There is a lesson here - you will never go broke taking a profit

Geordie

 

[propertastic]

Good point, Geordie. I can't deny that there's no point in crying about 'the one that got away'.

In my defence, I would say that my girlfriend was actually offered double the price we paid for both apartments but turned them down. It was a guy from a Property Fund that had obviously been given the brief of buying as much property as they could quickly as possible because they were slapping offers on the table after just a cursory glance at the property.

Another factor that relates purely to the ex-USSR is that the Communists took Le Corbusier's famous quote that 'buildings are machines for living in' to its ultimate conclusion.

In order to throw up as much housing as quickly and cheaply as possible, there were usually only 2 or 3 designs being built at any one time. Both ours were in a 'Kruschev', a 5-story brick building with no lift built in the 60's.

There were 180 identical apartments all in the same street. The only difference in price between these apartments came from the floor (the higher up you go, the better the price) and to what extent they had been refurbished.

In such a climate, it's a lot easier to give a firm valuation on a property than would be the case in the UK, for example.

 

[geordie]

It sounds delightful....

I think the Soviets basically took Corbusier and copied it with poor imitations, hence the reason why they have demolished some many of them like in the UK.

But, in all seriousness with a guy from a property fund taking cursory glances at the property and throwing about figures is hardly symptomatic of the typical profits on offer for other potential buyers on this forum. Although it is a very interesting insight. What is more astounding is that with someone from a corporate buyer paying so little attention to due diligence and offering a 100% profit is why you both didn't bite his hand off.

G

 

[The Soup Dragon]

I'm guessing 100% profit wasn' a generous offering at that time (mad as that may sound.) As an example, a developer I've invested with has returned 400% profit on one large project in a 2 year period in Riga. Those days are numbered though with mortgage interest rates recently doubling*. I've posted about the developer on other threads on here. They will have a further fund foccussed on the Batlics coming up in the next few momths.

*Their projected returns assume 0% house price inflation, but should there be house price inflation (as was the case for the 400% return quoted above) the retun should be a lot better.

 

[propertastic]

It sounds delightful....

I think the Soviets basically took Corbusier and copied it with poor imitations, hence the reason why they have demolished some many of them like in the UK.

But, in all seriousness with a guy from a property fund taking cursory glances at the property and throwing about figures is hardly symptomatic of the typical profits on offer for other potential buyers on this forum. Although it is a very interesting insight. What is more astounding is that with someone from a corporate buyer paying so little attention to due diligence and offering a 100% profit is why you both didn't bite his hand off.

G

The brick built Communist houses aren't too bad, but you really need to take care with the 9-storey high-rises - I know that they are called 'panelaks' in Czech - don't think that there is one word to describe them in othe languages (although perhaps 'eyesores' or 'monstrosities' comes close!). They are built from concrete panels rather than brick.

Some of these buildings are in such bad condition that I feel nervous walking anywhere close to them as a lot of the balconies look as if they could fall off at any moment.

They were designed to have a useful lifespan of only around 30 years - and that time is already up in a lot of cases.

If this isn't scary enough, I also heard that a lot of them were built by convicts - so you can imagine that they don't exactly comply with modern-day EU building standards!

Another surprising thing here is how little 'due diligence' anyone does over here.

You go in, have a look around. Agree on a price. Then you bring in a valuator from one of the major real estate companies who spends a maximum of 5 minutes taking a few pictures to get an idea of the state of interior refurbishment. You get that back a day later, take it to the bank, they give you 80% of the value. Then it's a pre-contract at the notary and then registering with the Land Book and you're finished. The whole process can take a couple of weeks.

As for not biting his hand off, hindsight is a wonderful thing. Prices did continue to rise rapidly for the next couple of months, but then they plateaued and then fell quite rapidly.

Oh well, can't win them all!

 

[propertastic]

I'm guessing 100% profit wasn' a generous offering at that time (mad as that may sound.) As an example, a developer I've invested with has returned 400% profit on one large project in a 2 year period in Riga. Those days are numbered though with mortgage interest rates recently doubling*. I've posted about the developer on other threads on here. They will have a further fund foccussed on the Batlics coming up in the next few momths.

*Their projected returns assume 0% house price inflation, but should there be house price inflation (as was the case for the 400% return quoted above) the retun should be a lot better.

400% does sound optimistic, but it's not impossible if the development was in an up-and-coming area of Riga and you got in and out at exactly at the right time (I'm guessing Feb 2005 - Feb 2007).

Sadly those days are now over. The bubble was formed in the main because the banks were falling over themselves to give away credit. They didn't really care about proof of income.

My girlfriend and I bought the properties together. The bank wanted to see statements from both of us. It just so happened that, during the period that they monitored, she had moved $30,000 from her account to mine and then back again. They never spotted this at all (or if they did, they really didn't care). The result was, they said that we could have a credit line of $1 million if we needed it!

This all changed in March. As you might have read, the economies of the Baltics, particularly Latvia are close to melting point because of too much credit. New laws came in and now it is much harder to get.

The result was that the number of transactions fell drastically. There are now a lot of luxury developments in the centre of Riga that are completely empty even though they were finished months ago because they can't afford to reduce the prices to a level that people can afford to buy.

I certainly wouldn't invest in the Baltics at the moment. Although I could have easily afforded to buy an apartment in Riga, I chose to rent instead as I guessed that prices are going to come down here over the next couple of years.

 

[The Soup Dragon]

400% return has been realised, but that's just one development. Don't have time scales for it to hand, but your estimates won't be too far out. When I started looking over 2 years ago this development was for sale off plan.

There are many differeneces between investing as an end buyer and as a developer. One of the advatages as a developer is that you don't need a rising market to see a healthy return. I wouldn't say this here if I didn't think you were still sitting on a healthy proft.

I must get to bed!

 

[propertastic]

400% return has been realised, but that's just one development. Don't have time scales for it to hand, but your estimates won't be too far out. When I started looking over 2 years ago this development was for sale off plan.

There are many differeneces between investing as an end buyer and as a developer. One of the advatages as a developer is that you don't need a rising market to see a healthy return. I wouldn't say this here if I didn't think you were still sitting on a healthy proft.

I must get to bed!

Oh I agree that the developers who were selling offplan at any time up until March of this year will have made a tidy profit, even on projects that aren't due for completion for several years.

Although I have heard reports coming in from Estonia that investors are giving up their deposits rather than completing a deal that would realize an even bigger loss if they needed to sell any time soon on the secondary market.

Things are different now though. Even the most ill-informed investor has come to the jolting realization that property speculation isn't always a licence to print money. Selling offplan in Latvia or Estonia isn't going to be easy any more, and I think Lithuanians are starting to get a little nervous too that they're next.

 

[geordie]

400% does sound like a bit of a fluke and sounds like it was more to do with the right timing, the developer riding the wave, which is very hard to get right when you consider the time it takes to bring a project to the market. I think the performance of the next fund will be a real tester to see whether it was due to the developers skill at property development or not.

The local banks in the Baltics have been heavily invested in by Scandinavian financial institutions and the lending practices have been criticised by the World Bank as being too lax. They have raised fears that the Scandinavian banks could be hit hard by investing so heavily in such as risky market as the Baltic states and have compared to the problems that arose during the Asian crisis although on smaller scale.

I just feel sorry for the people who dived into Tallin and Riga on the back of 40% annual capital appreciation because there have to be issues in a market with such high rises and who would want pay for 40% more for a property than they would have done a year ago. For more experience investors this would put them off as the market would be bound to be overpriced and they would be looking for the next place. These are the types of investors who lead the market, go into a cheap locations and then promote them, not go in after profits have been made and pay over the odds. You need to be close to the market judge affordability correctly in these emerging markets, anyone who went to Riga should have seen property was overpriced there even in the Old Town.

Geordie

 

[The Soup Dragon]

Geordie. The developers of the project that produced the 400% return have a track record of delivering very healthy returns, though that particular development will have owed such a remarkable return to timing*.

The funds that they release generally consist of 4 to 6 projects. For each project they will aim to secure a brown / green field site in striking distance of one of the main cities, then change the land use, getting planning permission and building residential or commercial property. In the case of residential property it is property that is aimed at the local work force.

They expect to release their third fund in the next week or two. When I have read and digested the information I will post on the other thread.

*Generally they deliver 100%+ returns over 3 years, but returns can be very high if timing is as good as it was for the development discussed earlier.