The Slovak Tiger Economy – Property Investment Heaven in Bratislava

Slovakia has long been identified by corporations and economic commentators as one of the most progressive new economies in Central Europe and most promising for foreign investment.

A combination of solid macroeconomic policies, comprehensive tax and social welfare reform, a strategic location to European markets and a tradition of manufacturing excellence and highly qualified labour are among the factors that have attracted high levels of foreign direct investment.

While the Slovak economy continues apace, there are key milestones as investors we need to keep in mind. One of these is entry into the Euro, which Slovakia is scheduled to join in Jan 2009.

In preparation for this, on Friday 25 November Slovakia made the Unexpected announcement that it has joined the ERM-2 exchange rate mechanism, a waiting room where the currency proves its stability for a minimum of two years before full euro adoption.

This is significant news, allowing Slovakia to manage the currency’s fluctuation and attract investment. It also points to an appreciation of the crown in anticipation of joining the Euro. Juraj Kotian, an economist at Slovenska Sporitelna, the largest bank in Slovakia commented that “The currency has a potential to rise by between 5 and 10 percent in the next two years”.

With investors eyeing the emerging European markets closely, Slovakia is keen to set itself apart and make most of its strong fiscal record and reforms. As Global Insights reports: “Bratislava ‘s unexpected move toward early membership in the ERM-II was an indication that Slovakia wants to differentiate itself from its larger neighbours, all of which are struggling to control fiscal deficits.”

Other recent news was the huge 6.2% year on year growth in Q3 2005, which underpins the finance minister’s yearly growth forecast of 5.1% for 2005. The end of 2006 inflation forecast of 2.5% was left unchanged with the possibility of further rates cuts – held at 3% recently – should inflation contain itself.

For the property investor the paving of the way for an appreciating currency is excellent news, but another factor to keep in mind is the current trade deficit. The current account is set to improve massively in 2007 as Slovakia begins to export cars, not just importing products as it is at present, and this will in turn not only further drive the appreciation of the currency but also drive wages and employment upward.

With Bratislava already suffering a shortage of residential accommodation and ageing Communist housing stock, it is no surprise that developers are in a race to provide the kind of new build accommodation as the accumulating economic factors outlined above lead to wealthier local labour and a growing foreign workforce over the latter end of the year onwards.

By the end of this year Andrej Durkovsky, the mayor of Bratislava, will announce the latest masterplan of Bratislava. The last masterplan of the city was published in 1976, and it has been recognised over the last few years that another was needed to represent the vision and ambitions of Bratislava in the 21st century.

In consultation with a variety of stakeholders, including major real estate developers, ecologists, civil engineers and social planners Durkovsky has said that what we can expect from the masterplan is a detailed outline for the development of Bratislava as a “white city” – a centre for commerce, services and businesses.

In particular Durkovsky has pointed to the industrial eye-sore to the east of Bratislava, expressing an intention to create the kind of water-side living and business parks similar to London’s Docklands. It has long been recognised that Bratislava is currently unconnected from the majestic Danube that runs through it, and the focus of strategic investments on the banks of the river promise to provide some of the most valuable opportunities for the property investor in the upcoming years.

“The rather compact centre of Bratislava will enlarge towards the Danube River within the next few years. We want Bratislava to become a city on the Danube River, and this extraordinary river will become a city-forming element,” said Andrej Durkovsky. The Mayor has plans to create kilometres of riverfront boardwalks, shops, coffee shops and parks over the next few years, and there are plans to include residential apartments within these mixed use schemes.

The Irish developer Ballymore Properties is a driving force behind this regeneration with plans for a massive mixed use project over a number of phases on the riverfront in front of the old town. The scheme will include hotels, restaurants, apartments and a business centre with offices all beside parks and a river promenade. Ballymore is expected to commence marketing and construction early in 2006.

On the other side of the old town, on the Danube west of the Ballymore project, will be the site of the eagerly awaited River Park mixed-use development. This project commonly known as the “City within a City”project is being brought to the market by the largest investor/developer in Slovakia and designed by the Dutch architect Erick van Egeraat. River Park will also include the first and only 5 star hotel in Bratislava.

The planned investment costs of River Park are in the region of EUR 120 million and will include designer shops and coffee shops, the hotel, luxury offices and retail outlets and over 40 000m2 of residential space. There is strong demand for apartments in River Park by investors and local Slovaks alike, however marketing will only start in summer 2006.

Investing in Istanbul Property

Istanbul stands out from the crowd as giving the best investment property opportunities in Europe offering low risk and high growth. Previous investors in Istanbul property have seen a growth of 42 percent since February last year and those fortunate enough to have bought in Istanbul three years ago reaped rewards of up to 85 percent on both residential and commercial property, with both markets offering fantastic returns.

Price Waterhouse Coopers and the Urban Land Institute (ULI) named Istanbul property as Europe’s top performing market for overall growth and for capital returns last year. The reasons behind the growth of the investment market in Istanbul are based on solid facts of supply and demand, population growth and availability of finance, i.e. real social factors as opposed to the speculative factors that are so often given for many other property markets.

Istanbul is an ancient and historic city and today, 15 million people are trying to live in a space built to hold a fraction of that number. The government has instituted enormous plans to revolutionise the way people live in and move around the city. The key to this is the creation of two major new overflow suburbs, one built to the West around Bahcesehir, the second to the South around the Kurtkoy/Pendik area.

Major new transport routes are joining these outlying suburbs to the rest of the city and it is these areas that the government foresees as becoming the future residential heartlands of the city and where investing in Istanbul property will pay the biggest premiums. Plans also include increasing the number of water taxis up the Bosphorus to the city. Whole sectors of society are now moving out of the crowded city centre to these well planned satellite districts that offer a far more comfortable lifestyle with their well-organised streets, parks and leisure facilities. These are aspirational areas highly desired by the wealthy middle class masses.

Istanbul won the European City of Culture 2010 – for Liverpool this represented £2 billion of investment in cultural and tourism infrastructure, 14,000 new jobs and an extra £220 million spent by tourists up to and beyond 2008 and it is predicted that a similar outcome will be seen in Istanbul.

Turkey has experienced uninterrupted growth for 22 consecutive quarters due to direct foreign investment. This resilient and growing economy has led to the development of large shopping malls and a booming increase in western franchises such as Starbucks. It is estimated that overall growth in the market for property in Istanbul during 2008 would not be less than 20 percent.

Foreign direct investment topped $20 billion in 2006 and has nearly doubled in 2007, with large investment in the Banking, Telecoms and Construction sectors.

Housing on the Istanbul property market in existing suburbs tends to come from an era that paid little attention to quality and overall infrastructure. Istanbul has the lowest ratio of m2 green space per head of population of any European city by far and is a concrete urban jungle with very little parking space.

To relieve these problems, there are now many suburbs springing up on the outskirts of the city, where the main investment potential of Istanbul lies. These suburbs will house ‘satellite towns’ which will include all the facilities you could possibly require for modern day living — shopping centres, sports, cinemas, hospitals, schools – yet most are only 20 minutes from the centre of the city. Some of these new developments, such as ‘Larasu’ in Buyukcekmece, are so sure of the investment potential of property in Istanbul, they are offering guaranteed price increases of 35 percent or more, making investing in these new towns an extremely attractive prospect.

Bahcesehir, the “Garden City” stands in stark contrast to the city centre with its well planned street design, open spaces and up market facilities. It is an area that affluent middle class Turks might aspire to live in, looking for a greener and mobile less stressful environment in which to raise their families without forsaking the leisure, shopping and recreation facilities normally only found in central districts. Therefore, developments offering parks, leisure facilities and luxury housing are going to be very attractive to local buyers and it is hard to overstate the value of such prestigious developments in the context of property in Istanbul.

Bahcesehir was awarded “Best New Urban Settlement Concept” in 1997 by the Habitat organisation, the American Institute of Architects awarded it the “Best Urban Design Award” in 2000 and the European Union gave it a “European Council Award” for its environmental policies in 2001.

The Akmerkez shopping centre in Etiler, Istanbul, has for many years been recognised as Turkey’s premier shopping centre. Shortly after opening it was awarded the “best shopping centre in Europe award” in 1995, followed the next year by the “best shopping centre in the world” award. This successful formula attracts an amazing, 15 million visitors per month.

With the large number of international corporations establishing offices in Istanbul, the rental potential is excellent within the business sector as well as the tourist market, which attracted 3 million tourists in June this year with Istanbul accounting for 20 percent of this figure.

The new mortgage options in Turkey are set to transform the market over the coming decade, with housing loans currently constituting only 5 percent of consumer debt in Turkey as opposed to 50 percent in established European states. With mortgages now available for off plan property, demand for property in Istanbul is increasing rapidly from both foreign and national buyers.

The investment potential of Istanbul property is immense, and anyone with the foresight to buy property now is bound to reap rewards both from price increases and the rental market.

How the History of Wine Investing Affects US Buyers

Investing in wine is by no means a new phenomenon, although most US consumers are unaware of modern wine investing opportunities. This brief history should provide context and confidence to potential US investors to look to wine investing as a viable, lucrative and mainstream investment option.

Individuals and companies in Europe have been investing in wine on a grand scale for decades. And more ancient forms of wine investing go back thousands of years, long before Romans brought grape vines to France. Investing, or speculating about a wine’s future value, has allowed growers to finance their crops, merchants to identify price points, and collectors to make a profit.

No doubt, however, it is the fine wine from Bordeaux that has captured investor attention for centuries. Superior terroir, advancements in bottling and the rise in global trade made the Bordeaux wines prime for fine wine demand. In fact ships were once measured by the tons of wine they could carry. Given the capital and space required to bring wines to maturity, however, wine investment was limited to European aristocracy.

In 1855 Napoleon III aided the wine investment market tremendously when he classified Bordeaux wines based on historical quality and prices and instituted a series of laws to ensure long-term value. Aside from Chateau Mouton-Rothschild’s upgrade in classification, the original classifications and laws remain unchanged today. Novices and bourgeoisie, who typically could not afford to sample fine wine personally, suddenly had the tools to feel comfortable selecting wines for investment. Prices also became steadier as wines were now identified in tiers.

The largest exporter, and consequently the largest speculator, of Bordeaux wine for the past 900 years has been the UK. So it is not surprising that the UK has the most advanced systems for wine investing. A “Fine Wine Index” was started in 1982 by Liv-Ex, which can be traded on Bloomberg systems, by banks and is commonly used for hedge funds and private investment data and trading. In fact, wine investing is so popular that private collectors in the UK hold more than $2B worth of fine wine in bonded warehouses.

For several reasons the US never followed the UK’s lead in wine investing. Unlike European history, the US’s relationship with alcohol has been severely tainted, thus stalling the adoption of wine investment practices. Prohibition, and its historical legacy, still permeates US laws. Intrastate and interstate shipping, the three-tier selling model, holding and selling of alcohol is all regulated, which adds hurdles (and cost) to buying and selling wine that European investors do not have. But thanks to internet retailers and online auctions buying and selling fine wines is now easy, convenient and affordable.

Increasing global demand has made wine investing more lucrative than ever. In the 1990s demand for the best wines from Bordeaux boomed as Asia joined Europe and North America in pursuit of consuming this liquid luxury. Greater price transparency via the internet and the influence of wine critics has demystified and democratized fine wine, bringing it to the attention of a much larger audience. With only a few clicks of the internet investors can now view the market price range and a series of expert opinions on taste, quality and longevity. As a result, wine prices have risen by approximately 13-15% per year over the past 25 years with quiet periods (e.g. 1998-2002) being more than balanced out by the busy ones (e.g. 2005-2007).

Offsetting the demand growth is a long-term limit on supply. Napoleon effectively fixed supply when he tied the wine classifications to the corresponding parcels of land. New World wines, like those of the US and Australia, have had difficulty with acceptance in the global wine investment arena. They are competing with several centuries, if not millennia, of practice and reputation in Bordeaux. With such a young track record, about 100 years, it is difficult for investors to have as much confidence in their return as they would have with a Bordeaux wine.

Fine wine has long been a part of a European, rich man’s portfolio. With the advancements in transparency and availability of online merchants, US investors are primed for investing in wine. And with the fixed supply and the growing demand from emerging economies like China and Russia, wine values can only go up, up, up. If US investors can learn the lessons from more established European markets they will find a lucrative way to diversify their investment portfolio.