The current rate of global inflation, together with the outlook for the European economy in the context of the war in Ukraine, encourages the decision to invest outside the territory of the traditional European continent. The Middle East offers a solution.
BRNO / RAS AL KHAIMAH - After careful consideration, PRESTON Capital chose to locate its real estate investments in a safe part of the Middle East within the wider Asian continent, in the United Arab Emirates (UAE). The specific decision seems to be direct investments on the island of Al Marjan, which is a tourist paradise for the world's elites. On the island there are luxury hotels, residential apartments and separate representative villa houses. The destination is considered a real oasis of calm in the currently turbulent world facing the threat of nuclear war.
This investment is also fully evidenced by its timely return, local security and monetary policy. For several decades now, the United Arab Emirates has been one of the most stable states politically and economically with a precisely developed legal system, including the protection of foreign investment.
Price stability in comparison with the Czech Republic and the countries of the European Union enables the continuous creation of a realistic investment plan. European investment is threatened by price volatility related to the current conflict in Ukraine, the European Union's attitude towards Russia, and the European economy's dependence on supplies of Russian raw materials, especially gas and oil. In comparison, the United Arab Emirates is many times more energy efficient than Europe. Therefore, truly attractive investment returns can be expected there.
Target Destination: Dollar zone
Based on the conclusions recommended by its investment experts, PRESTON Capital directs its implementation to destinations in which the purchasing power of the population is determined in US dollars (USD). Its exchange rate is significantly affected through interest rates by the current monetary policy of the Central Bank of the United States (FED - Federal Reserve System). Following a recent increase in interest rates ranging from 0.25 to 0.50% p.a. the rate can be expected to increase by up to half a percent. This should take place at the FOMC Fed meeting in May 2022.
The European Central Bank has not changed rates so far and the euro has fallen below the mutual exchange rate of 1.10 USD per euro. Since the beginning of the year alone, the single European currency has erased its euro investors' real returns by more than 6% due to a fall in its exchange rate against the dollar.
It is the US dollar (USD) that is firmly linked to the domestic dirham currency (AED), whose current exchange rate is stable around the exchange rate of AED 3.67 per USD. Furthermore, the price of building materials and services, including labor costs, makes a very significant contribution to investment in the United Arab Emirates. The United Arab Emirates is significantly cheaper in terms of wage claims than the Czech Republic.
Decline in the single European currency, decline in revenues.
Regarding the exchange rate risk of the investments provided, the PRESTON Capital Group's analytical team evaluates a sharper decline in the real purchasing power of the single European currency (EUR) and, consequently, the Czech koruna (CZK). The decline in the fair value of EUR or CZK, together with the inflationary effect, inevitably wipes out a lot of the value of income.
The choice of European destinations is further disadvantaged by the fact that almost all areas of attractive investment opportunities in Europe are under the direct or indirect influence of the German banking sector. This is again closely linked to the single European currency.
The aggravated geopolitical situation caused by the war in Eastern Europe between the Russian Federation and Ukraine does not help the situation either. Combined with sanctions by the European Union, the United States and the United Kingdom, it creates a strong presumption of a continuing economic downturn affecting EU countries. Especially the economically weaker members, which include the Czech Republic.
Based on the predictions after this development, the PRESTON Capital investment group plans to carry out its investment activities mainly outside the Czech Republic, and therefore also outside Europe and outside the EU.
Why is it not possible in the Czech Republic? The answer is harsh bureaucracy.
Direct real estate investment in residential housing in the Czech Republic carries several difficulties. PRESTON Capital experts point out the disproportionately long preparation time before the start of construction, together with the bureaucratic approach of the responsible authorities. Last but not the least, the return on investment takes significantly longer than it used to during previous periods, given the longer timeline for placing the final product on the market. This is due to the declining purchasing power of the population together with the decline in living standards. The current economic situation in the Czech Republic has seen a significant decline in gross domestic product (GDP) due to the Covid-19 pandemic. Along with the decrease in the purchasing power of the domestic population, the purchasing power of foreign residents residing in the Czech Republic is also decreasing.