Eastern europe 'excites' investors

Demand for new homes in Central and Eastern Europe (CEE) is rising, fuelled by rapidly rising incomes, growing city populations and strong growth in the mortgage markets, according to a report published today by Savills research which covers 11 countries...

Bulgaria, Poland and Romania are markets where there is a long term sustained demand for new homes, with the principal cities providing the main focus for opportunities due to the requirement for new housing stock.

Progress in bank reform in these economies have spurred lending. Between 2000 and 2005 credit to the private sector increased by 70% in the CEE, with private households being the biggest beneficiaries. Mortgage debt outstanding in the CEE accounts for 5.2% of GDP.

Western banks which have recently entered the CEE mortgage markets have predicted 30% growth per annum over the next three years, with Romania being the main growth driver.

Investors gaining confidence

The significant price rises that have been seen over the past five years have been driven by the excess demand for good quality stock, plus the emergence of new mortgage products and rising wages.

Investors are gaining in confidence about these markets and the higher risks associated with investing in immature markets has been offset by the high levels of returns and the future potential convergence of prices with Western Europe.

Typically bulk investors buying off-plan apartments put down 20-30% of the price paying the balance on completion. The capital rate of increase is more than 20% in Romania and Bulgaria’s capital cities, with the Czech market proving surprisingly hot again, at between 10% and 14%. Savills has recently acquired a 30million euro property portfolio off-plan for a private investment trust.

Developers profiting

Henry Wilkes, Savills Director Central and Eastern European Residential Investment comments, “With demand for new homes still far outstripping supply in many of the CEE cities, developers are making strong profits, typically between 25% and 40% profit on cost.

“Looking ahead we anticipate that on the whole, price growth will be more muted in prime city locations as new build supply increases and markets correct themselves. Provision of new homes aimed at the middle income bracket will be vital, meaning the prospects for development profits are strong for the foreseeable future”.