During the boom emerging markets were all the rage with investors, especially private investors who could only see the potential profit of a studio apartment for £7k (for example), and hear the talk of the 40% instant gain made on completion of an off plan property.
So many people lost their shirt on emerging market investments when the boom went bust, especially on off plan deals, not because off plan is an investment no-no, simply because they did not do the proper research - in fact, people were purchasing properties abroad with less due-diligence than they employed when buying a shirt. Digression over, the important thing is people lost big-time on emerging markets when the dreaded credit crunch swept over us.
During the boom investors strategies were concerned solely with maximising gains, with barely any thought to minimising risk and ensuring they had at least some reliable, safe returns - they put all their eggs in one basket, and all their eggs got broke.
Ever since the first investors stuck their head above the post-crash parapet, most have been concerned with safety. Many wealth investors were investing to solidify their assets away from liquid and rapidly devaluing cash. These investors triggered the gold rush. Meanwhile property investors have been buying primarily in safe, established markets; buying alpine property in Switzerland and France, and prime property in the likes of London. Paying more for the safety, with returns a secondary consideration.
But, just as wealth investors turned from gold to prime property (and other asset classes) when the price of gold looked too high, now many property investors are starting to look for opportunities outside the saturated safe zones, back to emerging markets, only with a much more cautious approach.
Turkey is now the fastest growing economy in the world, having been among the fastest growing economies in the world for nearly two years now. GDP growth in 2010 totalled 8.9%, and its growth rate this year is currently around 10%.
More than that the Turkish economy is incredibly stable. Turkey was for a long time known as the sick-man of Europe, with corruption and unmanageable inflation creating a vicious boom bust cycle. Until the people elected the anti-corruption AK Party led by Erdogan, whose claim to fame was paying off almost all of Istanbul's 2 billion in municipal debt as mayor of the city.
Since becoming Prime Minister, Erdogan has carried on his thriftiness, and by the time the global financial crisis hit in 2008/09, Turkey had repaid over two-thirds of its debt to the International Monetary Fund (IMF), bringing it down from $23.5 billion in 2002 to $7 billion in 2009, when the standby-aid agreement was allowed to lapse by Turkey. During the same period public debt as a percentage of the annual gross domestic product (GDP) declined from 74 percent in 2002 to 39 percent in 2009.
Turkey is expected to have paid all its debts to the IMF by 2013 and public debt is currently running at around 40% (45% in 2009, 41% in 2010) of GDP. The limit to meet the Maastricht Criteria is 60% and the EU average is about 80%. Currently Turkey's budget deficit is around 2% of GDP. This makes Turkey one of the most fiscally stable countries in Europe.
Also on the positive side is Turkey's strong and stable banking system, which has allowed the country to maintain a high liquidity environment, which has obviously played a part in its rapid economic recovery. This also means that mortgages, which were never the easiest to obtain in Turkey (banks will only lend on their valuation, and have a low appetite for risk, prefer completed properties), are no harder to get now than before the crisis. According to the Central Bank the Turkish mortgage market is currently growing at around 20% per year.
Finally Turkey has one of the fastest growing populations in the world, a population growing as rapidly in affluence as it is in number. Particularly in the major cities, and especially in Istanbul this is fuelling massive demand for properties to buy and rent - too much for developers to keep up with in Istanbul leaving demand well outstripping supply. Investors are currently earning average yields of 6% on Turkish buy to let property.
On the slightly negative side you have 9% unemployment, but this has fallen from 11% since 2009. The current account and trade deficits are also high, but being closed by record export growth.
Slovakia, Latvia and Romania have also enjoyed exceptional economic growth of late. Slovakia has grown strongly throughout the financial crisis, or at least since the second half of 2009. Romania and Latvia also emerged quickly from the crisis, but their growth wasn't as strong as Slovakia. The latest Eurozone data for Q3 shows: Slovakian GDP grew 3.2% year on year, following constant 3.4% year on year growth in the previous 3 quarters, Romanian GDP grew 4.5% following growth below 1% in the previous 3 quarters and Latvia grew 5.3% following growth of 3.1, 3.0 and 5.1% respectively in the previous 3 quarters.
All three offer low property prices, and (with the exception of Slovakia) still use their own currency, which is a plus because it makes property even cheaper in most cases, and also separates them from the Eurozone crisis somewhat. However, there is little reporting about property investment performance so it is really a case of researching on an opportunity by opportunity basis - when isn't it?
Poland has experienced similarly strong growth since the second half of 2009 as Slovakia (which is around 5% year on year), but unlike Slovakia plenty has been written about the performance of property investment in the country, most of it good. While this takes away from the virginity of the market, there are still opportunities to be found.
Croatia is attracting attention because it is finally set to achieve full accession to the EU, which has traditionally brought massive growth in the affected property market. However, Croatia was first scheduled to accede in 2008 when it was blocked by Slovenia because of their border row, and many investors were left disappointed having bet on its accession. Now that block is lifted and Croatia, pending a referendum is expected to accede in 2013. Nobody knows if the people will vote yes, or is sure of whether accession to the debt-ridden EU can still boost a property market.
- Thursday 08 December 2011