There are a number of phrases that are now part of our daily vocab - 'flight to quality', 'deleverage', 're-pricing of risk', to name a few. We're hearing all of these and more at this year's Munich Expo.

But we're also starting more often to hear other euphemisms, certainly at Expo - 'opportunity driven investing,' meaning desperate sellers. 'Better risk-return correlation', meaning hugely cheaper than it was a year ago; 'new regulatory environment', meaning banks won't be able to lend in an insane fashion in the future.

These oblique terms seem especially ironic when you realise they're being used at a time when stock markets around the world suffer some of their biggest falls in history.

Some more of my favourites: 'challenging investment environment' (I've no idea what is going to happen next); 'sub-optimal finance conditions going forward' (no one is lending anyone a red cent and I can't see how it'll change!) 'Market realignment' (prices are in freefall), and, my personal favourite, overheard in a snatch of conversation, 'Flat is the new up,' which I suppose roughly translates as 'forget about profits - we'll be doing well not to lose a bundle.'

There are lots of brave faces at Munich Expo, but not a huge amount of reassurance among the smart suits and gleamingly polished shoes.
Except from some of the older attendees.

As one seminar speaker pointed out, 'These are very frightening times for many in the property business, especially those who have never seen a recession or a big market correction before - and I'm talking about anyone who has been in the real estate business for less than 15 years. '

In truth, we really need to go back further to find anything remotely equivalent.

But those that have been around longer are increasingly seeing opportunities for excellent buys - but buys only at deep, deep discounts.

The consensus among professionals speaking at Expo seems to be that the best buys will come along in most currently distressed markets in the next six months to a year, which to me means that what they're really saying is that they don't know when we'll reach bottom, but the probability is that things will get worse before they get better. And that seems like common sense.

The fact is there are some very tempting markets out there.

Not least is the Baltics - specifically Latvia and Estonia.

We've seen at least a 30% price correction in Latvian property prices says Meelis Mandel, Editor-in-Chief, AS Äripäev, Tallinn/Estonia.

Land prices are down 30 to 50%.

These are frightening figures, and there may well be more to come. There is no doubt that funding from Scandanvian banks fuelled a credit binge in Estonia and Latvia, in particular.

But, as other speakers on the Baltics pointed out, with inescapable logic, fundamentally, these markets have great growth potential - not least because of housing demand and low debt penetration levels (some five times lower than W. European levels).

And yet right now, Estonia and Latvia are 'definitely in recession' and in the middle of a big housing price correction short term, everyone agreed. The upside is that there will be excellent buying opportunities in these markets as they bottom.

In the case of Latvia and Estonia the general view was that distressed projects near completion will still attract finance and that there could be some great buys in the next six months or so.

Perhaps the most interesting market right now, though, is Romania.
The panellists on Romania unanimously painted a picture of a market that has been in the grip of a spiral of unrealistic expectations - but that this phase had ended. What has been left behind are compelling fundamentals.

By the end of 2007 the market had lost sight of its own limitations and everyone thought they could get rich by selling at big prices to 'silly foreigners.'

Everyone became a developer, everyone was a speculator.
As Ilias Papageorgiadis, CEO of More International Invest, Bucharest/Romania colourfully put it: " Thousands became millionaires. Basically, out of ignorance people sold, felt rich and made a noise about it - we have a lot of money!

'And others copied. By the end of 2007 we were seeing ridiculous prices, and in 2008 asking prices were going up sometimes in one day.

'It was as though everyone had a gun pointing at the sky waiting for the rich investors to fly by like a flock of birds. But they stopped coming."

Now the banks are coming after lots of Romanians who over-extended themselves with loans. "And the banks are very tough in Romania," added Mr Papageorgiadis.

"We've had 12 months of no sales because the market is blocked."
He revealed that a recent study showed that €170-€200K is the maximum affordable loan for 95% of Romanians.

But, we need to put this in perspective, firstly by another piece of research that showed that 11% of Romanians intend to buy new property in the next two years, but that only a tiny proportion would take out a bank loan to do so.

And as Georgiana Sandu, Manager of Residential Department, Neocasa, Bukarest/Rumänien, pointed out, it is important to understand that in Romania the family will support a member to buy a home, instantly increasing purchasing power.

Plus, there is a huge cultural imperative to own a home among Romanians - "We will only rent if we cannot afford to buy."

The bottom line is that the residential property market has fundamentally changed in Romania and the financial crisis has delivered a huge dose of reality to the country.

"We are back to fundamentals - such things as supply and demand," said
Dan Grigore, Int. Sales Manager, SC Impact Developer & Contractor SA, Bukarest/Romania.

"And the big plus for this market is we have huge demand."
This is really key to understanding the market in Romania - price growth may have gone into overdrive and those days do now seem to be over, at least for the foreseeable future - but the demand/housing needs will continue to drive growth in the long term.

Cristi Moga, Editor of Ziarul Financiar, Bucharest/Romania, pointed out that a mere 50,000 new homes have been built since the end of communism and that the average psm price for residential property is now some €1900 psm.
But government estimates of demand or need for housing amount to a staggering 1.2m units.

"The time is now for the long term investor. If you're a speculator it's time to go from this market," said Mr Papageorgiadis.

90% of people still living in communist-era panelaks that are generally in a desperate state of repair, "and people are paying €2,000 psm for these!" said Mr Papageorgiadis.

The demand for new build is huge he said.

"One third of society can now be classed as middle class - and people want to change their lives.

"But the market is going back to reality and I would say not to buy unless you can get real prices."

Much of paying 'real prices' will depend on buying in the correct location, pointed out Dan Grigore, Int. Sales Manager, SC Impact Developer & Contractor SA, Bukarest/Romania.

"There are a lot of developments in the wrong place, especially in old industrial zones with prices of €2,200 psm plus - but not in places where the end user wants to live. Buyers have become much more discerning."

Georgiana Sandu added that the days of 30% price growth in seven months, that we have seen in the past were now over and that we would see growth of around 15% p/a in the future.

More sustainable growth, in other words.

The key to the market, though, is that Romanians are only now starting to see developments in the middle class sector completed and this was having an important psychological effect, creating a new desire to aspire to owning these homes in these developments.

So, the financial crisis and more aggressive banks may yet create terrific new opportunities for investors with an eye on long term, intrinsic value investing.
But where does the banking crisis leave off plan and, more broadly, how to take advantage of these opportunities?

There seem to be two fundamental approaches.

Off plan, perhaps paradoxically, will actually become appealing.

Why?

Because, quite simply, a process of natural selection is already taking place with banks turning down the vast majority of development projects - one estimate from a banker here was nine out of ten deals are getting the thumbs down.

That means only excellence will actually reach the market - that is the best financed and the best structured.

Key here, though, is that an investor should expect to be presented with a mortgage option through the developer's financial backer - if there isn't one, does that development really look so good in today's squeeze on credit?

The second approach is to go for the distressed sellers mentioned by many delegates at this Expo. There will undoubtedly be some excellent buys near or at completion stage.

But, and this is the big proviso, it is going to be essential in the next year to avoid at all costs being in a position of having to sell yourself at or near completion because there will be others having to do the same.

And that is a sure fire way to become trapped in a vortex of downward moving prices in a development driven by distressed sellers.

An important plus factor then will be an almost inevitable growth in rental markets in many CEE countries, as property price growth slows and finance tightens, preventing many from buying.

So, it has become ever more important to hold for longer and to increase cashflow to do so, and those stronger rental markets - as well as lower LTVs - will be the two crucial factors to achieve this.