11 marzo 2008

"REAS, the leading Central and Eastern European residential consultancy, in cooperation with Jones Lang LaSalle, the leading global real estate services provider, has released the second edition of the "Residential Markets in Central European Capitals" report, a comparative analysis of investment potential in the region's markets.
Based on an analysis of various factors influencing the residential markets, the report examines the investment potential in the 12 main capital cities of Central Europe in order to give investors a greater understanding of the region. The cities covered within the report are Tallinn, Estonia; Riga, Latvia; Vilnius, Lithuania; Warsaw, Poland; Prague, Czech Republic; Bratislava, Slovakia; Budapest, Hungary; Bucharest, Romania; Sofia, Bulgaria; Kyiv, Ukraine; Ljubjana, Slovenia and Zagreb, Croatia.

Though the 12 cities are often analysed jointly due to their shared past, the report outlines how diversified the region is, as well as analyzing how it is less affected by the current credit crisis in the US.

Key findings include:
The whole of the CE 12 region has seen a remarkable expansion of mortgage markets ranging in growth from 30% to 90% in 2006. Ukraine actually showed growth of of over 150% but this exceptional growth was based on the country starting from a very low base. Latvia is leading this group, followed by Bulgaria, Estonia, Romania and Poland. However, despite this substantial growth, the mortgage markets in the region are still far behind Western European levels. While the average residential mortgage debt to GDP ratio in the twelve surveyed countries accounts for 12%, its counterpart in the EU 15 countries exceeds 53%.
In all CE countries the share of financial services in the creation of GDP is below 10%, and in the least developed countries it is below 5%. Thus, volatility within the global financial sector has a much more limited impact on the local economies.
When compared to the EU 15 average number of dwellings per 1000 inhabitants, the most severe lack can be found in Kyiv, which is short of approximately 315,000 housing units constituting around one third of the city's current dwelling stock. In contrast, Tallinn is short just 3,200 units and Prague some 2,250 units. Budapest is the only Central European capital with the number of dwellings per 1000 inhabitants above the EU 15 average.
As a consequence of positive economic trends, house prices in the region have dramatically risen in the past decade. Prices were further driven by recent speculative investment, of which a good part was from foreign investment capital flowing into the region.
An ‘official' average salary can buy over 0.5 sq m of new apartment space in Zagreb, Budapest and Ljubljana, whilst in Bucharest and Sofia its under 0.25 sq m. It should be remembered however that the size of grey market in some countries can strongly influence these approximations.
The report states that the recent strong performance of the residential markets of the 12 capitals has been caused by an increased interest in global investment in real estate, as well as the attractive local market prospects which offer strong demand patterns for housing and a high return potential.

However, the recent flood of short-term speculative investors in search of quick money has led to an imbalance of supply and demand structures, resulting in tremendous price rises and less affordability, despite a clear need for housing in most of the cities. The report suggests that Investors' attitudes have to change towards long-term investment strategies in the regions and because of the variation in pricing and affordability levels, long-term investors should be looking to invest where the most sustainable demand is located.

The Baltic capitals of Riga, Tallinn and Vilnius are clear examples of currently overheated markets, according to the report, with prices either reaching a plateau or in some cases declining. Sofia, on the other hand, appears to have further room for price rises at a higher rate. The report states that not only have there between dramatic discrepancies in pricing between the twelve capitals, but in markets where almost all housing projects brought to the market are sold almost immediately, it finds that developers see no need to invest in quality.

The report concludes that given the growing prices of land, construction materials and labour costs along with a labour force shortage, developers' potential margins have narrowed in the region. However, with a growing awareness for quality and higher selectiveness of potential home buyers, REAS suggests that CEE will continue to become an arena for serious long-term developers and investors.

Kazimierz Kirejczyk, President and Head of Research and Knowledge Management, REAS, commented: "Real estate investment in the Central and Eastern European region has gained a permanent position in many investors' long-term global investment strategies, with a particularly large amount of that capital flowing into the region's residential markets in recent years.

"Whilst there has been a flurry of short-term investment into the region in recent years, we believe the attitudes of these investors will have to change to long-term strategies, given the different pricing and affordability levels in Central European capital cities. The question for these long-term investors is where the most sustainable demand is located." (CS della Società)