In the Jet-to-Let Bible I examine the importance of political stability and the role of government and the economy in driving sustainable property markets. I have also cautioned investors to carefully consider any investment they make in emerging markets and take investment appraisals written by companies which want to sell you property for a fee with a pinch of salt.

Well, the political environment across Eastern Europe is less than stable.

A very good article in The Times 29 September 2006 written by Roger Boyes and titled “EU’s new members are realising that sacrifices have not brought them any closer to paradise.”

He highlights significant political problems in some of the new entrants, namely, Poland, Hungary, the Czech Republic and Slovakia. So what does this mean for a property investor?

A lot.

Politics and economics are inextricably linked – indeed economics is the abbreviated form of “Political Economy.” Strong and stable government is synonymous with a robust and balanced economy. Weak, corrupt and polarised politics is firmly aligned to sustained economic underachievement.

Last week I spent 3 days in London talking to over 150 property investors of all ages and the main point I emphasised was the “opportunity cost” of investing. In other words where is the best possible area to invest your hard-earned cash? Some had shorter investment timeframes than others due in part to age, but also the strategy the individual investor wished to adopt.

Investing in countries such as Poland for instance, would not be very sensible option for some of these investors.

Why?

Well the country has serious political issues as highlighted in The Times. We know that the cream of their labour force has left for better prospects in the UK, Germany, France and even far-flung outposts of the EU such as Cyprus and Malta. The “brain drain” and “brawn drain” effect in any economy has serious structural issues across the labour market. Polish entrepreneurs setting up businesses in the UK are depriving their own country of the employment opportunities, multiplier effects and government tax revenue that would otherwise follow. Although in some cases monies find their way back to Poland, the jobs, tax revenues and growth do not.

Poland Loses 5% of Workforce

Over 1 million Polish nationals, or 5% of the country's labour force, emigrated since 2004 for better-paid jobs elsewhere in the European Union, according to a study by the European Citizen Action Service.

Poland, with a population of 39 million, is the largest of the 10 countries that acceded to the EU in 2004 and accounts for more than 50% of the combined population of the new states. The country's unemployment rate, while still the highest in the EU, fell to a 5 year low of 15.5% in August, arguably more because of emigration than the growing economy.

50% of Poles aged 18 to 24 are planning to leave over the next 2 years

Poles, mainly between the ages of 25 and 34, are heading mostly to Germany and the U.K. The number of migrants is set to increase, with as many as 50% of Poles aged 18 to 24 planning to leave over the next two years, the daily Gazeta Wyborcza reported earlier this month, referring to a telephone survey of 500 people.

The U.K., Ireland and many other EU countires have opened their labour markets to Poles. Holland may do so later this year, while Germany and Austria plan to maintain restrictions until 2011 – then the gloves are off!

It takes political will to reform economies which have for so many years been operated under a communist style planned system. As long as salaries in Poland are only about 20% of the average in the West, then mass emigration will continue which will have a significant impact on the speed at which the economic system can reform and provide for the needs and aspirations of the people.

In my view, investing in Poland carries the risks I have outlined in this article. As long as Jet-to-Let investors are aware of these risks, have positive cashflow properties and have a significant degree of “time” on their hands for the Polish economy to reform, GDP per capita to increase and wages, salaries and RENTS to catch up to property prices then all will be well.

In the UK the property industry and magazines and newspapers make much play of the house prices to earning ratio – a measure of the overall price/value of a national property market – I wonder what that figure would be for Poland?

Best wishes

Dominic Farrell