Front Line or no Front Line - is that the question?

Well its the front line question that we hear a lot about and on the face of it the answer is simple, front line. or is it? Before examining the issues my I recommend to check whether it really is front line. Without putting too fine a point on it, I have inspected sites which are called front line and they are not really. They have a road in front of them and then the beach.

Google Earth can help on this, but nothing beats a site visit to be sure.

This may be ok if you are sure there will not be anything built the other side .. but usually there is, or will be a building, so its not front line. The clue can often be spotted in the price… if it seems good value compared to the other front line developments then maybe there is something not right. It could be beach front line but there could be an electricity station next to it.. or a factory.

But is it all about a beach? Well frankly not in some resorts being close to the amenities of shops and restaurants may be highly desireable and then you have to apply town centre versus outskirts argument. All of a sudden its getting more complicated. Then of course you have to look at price. Jet2Let have Tranquilla Town a nine story refurbishment buy to let building in Hurghada town centre. With an expected rental of £400 per week on six or 12 month contracts you are looking at after management costs a pretty certain yield of 8%. This is th sort of deal that suits the non lifestyle buyers who views overseas property as a long term investment proposition and has little intention to visit -or is their second purchase in the country.

I will leave it to another time to talk about investment strategies, but those who invest in shares will be familiar with taking contrarion view. I like this view as it can often work well. Historically those with patience almost always are glad they were brave by buying whilst all around said that price will go continue to go lower and lower.

For example of a typical contrarion view right now would be buying several banking shares at these low prices because the credit squeeze will reduce competition and Banks will be set to restore their balance sheets after their rights issues. Enough of stock markets but the contrarion view is worth thinking about now that overseas property sales have slowed the current deal could well turn out to be very shrewd buys indeed.

Spo turning again to property, in most markets we have see price inflation on building materials (cement, steel) and in some of the emerging countries labour costs increasing significantly. I am also interested as to what local buyers are doing and why. The great thing at the moment is that the squeeze on mortgages means that the speculative element is much reduced - so look for where people are moving to - where are they needing to rent? Possibilities here are Istanbul with a huge population increase under way and even Hurghada in Egypt where a new population is moving to the coast for more than just tourist related activities.

Egypt’s growth in tourism is such that local workers accommodation which include expats in real estate and tourism and Egyptian professionals covering legal, construction and media sectors. This is why we have secured a great deal on an existing building which already has tennants. Prices of £410 and £570 per m2 is really good value with minimal risk as the building is already built as of ten years ago and an after fees and costs yield of 8% means this is the sort of deal to be had there right now.

Please post your views on front line and taking a contrarion view.

£700 per m2 front line in Hurghada

Today I have been speaking to the MD of the UK developer of Hania Beach. Delighted that I have had confirmation that some important finish details such as branded bathrooms with decent showers and quality tiles that I submitted to the developer have actually been incorporated. Final plans due soon and images in a few weeks. Due diligence completed here and satisfied developer owns land etc. As always our clients always use a lawyer to verify ownership and for due diligence.

The investor and buyers response to Hania Beach, front line has been superb. Priced right now at 30% less than competing developments. 125 apartments on reservation (refundable reservation fee) out of 171 apartments and t specification is going to be top notch here. This would be a good buy at £1,000 per m2 but at £700 it a steal. Price goes up to £800 soon and £850 in a around a month. Final sell price will be £1,150 - if there are any left of course.

The policy of pricing to sell gives comfort to both the buyer and the developer alike and is just what is required to make and a successful development.

However this is only part of the story an excellent development requires a strong rental demand giving investors a growing rental return. Again this is where so far matters are looking good for Hania Beach with a company already appointed to manage tour operator rentals and most importantly to actively promote the development to the travel companies.

Overall the image of the Egyptian Riviera is changing fast from a destination of specialist and marginal appeal only a few years ago to one that is being advertised as a mainstream high quality and value destination. Easyjet now flying there is yet another part of the jigsaw which will I think will stimulate further interest from both travelers and property investors alike. I expect to see more flights added over the next 12 months as existing flights are very full.

The cost comparisons with Spain are that property here, like for like, is less than a third of Spanish prices. One investor said to me that even in todays market he could not find front line Spain at less than £350,000. This value is further enhance if you consider that the peak rental periods of Christmas, New Year, February school half term, Easter, May school half term, October school half term are all peak rental seasons but mainly low rental season in Spain so opportunity for high rentals in these peak periods exceeds the typical Spanish Costa destination.