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Hungary, Bulgaria and Romania - latest market insight
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Reporting live from Munich's ExpoReal
Robin – what struck me about the Hungary forum was two things – one how few people were there compared to Bulgaria and Romania and how downbeat the forum panel sounded.
Their message to me seemed to be ‘Look, Hungary’s got problems – taxes are up and retail spending is down. It’s not going to compete with Romania next door or with other bigger markets, like Poland.
One panellist, James Kinnell, of King Sturge of Hungary, pointed out that retail spending was down between 7 and 10%. And he put this down to higher taxes and the rise in public utility costs.
The picture I got of Hungary, at least for the next two years or so, was pretty sombre. Although, all the speakers were keen to point out it had great fundamental potential long term.
Neil – thanks Robin, that doesn’t surprise me. We’ve seen Hungary’s GDP slashed to 1.8% as part of the debt reduction process and this has resulted in a reduction in government jobs. Hence, this news doesn’t reallly surprise me.
The most interesting remark I heard you make Robin was to paraphrase the participants as saying “Yeah, well, for real action you just have to go next door to Romania”.
It is worth pointing out that the main highway from Budapest (Hungary) to Bucharest (Romania) runs through Ordea and Cluj-Napoca. And that these two cities have large Hungarian populations. In fact, in Cluj-Napoca, the city centre is largely owned by the Hungarian church and many people’s first language at home is Hungarian!
Hence, it is not a surprise to me that entrepreneurial Hungarians would see the opportunity just over the border in Romania – especially in the Hungarian speak regions.
Robin – That was very much the sense I got. Again, as James Kennell said there are excellent opportunities in Romania AND Bulgaria and they are going to eclipse Hungary, at least in the short term – especially Romania with much higher GDP and double the population.
The session on Bulgaria was quite a revelation to me. I very much got a sense that here was a market starting form a very low base, but one that is coming up very fast.
OK, I know the panel were talking about office and retail, but, as we’ve said many times before – the money going into these sectors is always followed by residential.
Doris Schumacher, head of Invesco real estate, Munich, said it took Bulgaria’s accession to the EU for her company to really spot the potential of this market and they only really moved in some nine months ago. It’s still very early days.
The legal environment and the flat rate taxes seemed to be strongly stressed as a big allures for commercial property investors – and these certainly apply to residential buyers.
Dimitar Savov, exec director of Bulgarian Land Development, talked about the huge increase in mortgage lending since EU accession and price growth in Sofia of +15% in 2007 so far, compared to 30% in 2006. ‘Everyone expected the market to collapse – but it just didn’t happen and it is still very strong. ‘
Interestingly, it was pointed out that the tourist investment areas are as strong as ever – where the UK buyers have started to pull out of buying on the coast, new investors are coming in – Spanish, Irish, and Russian. Interesting too that Romanians are coming down the coast and buying as well.
We’ve made our views known on this sector of the market in Bulgaria and I heard nothing to change my mind – basically, almost all investors are foreigners. Frankly, who cares where they come from – they’re not domestic buyers.
But what really struck me was the figure for Sofia – 90% of buyers are domestic. To me, that’s very telling – a very low level of investors. It speaks volumes about this market’s potential.
Neil – thanks Robin, I pretty much agree with that. Although I had a follow up conversation about land after the forum which revealed that it is much easier to find land on the coast (low competition) and much harder in Sofia (too much competition).
This split reflects the recent history of Bulgaria’s real estate market – land and property developers making easy money made on the beach, but it is harder work in the city.
And that is why I like cities so much! And equally, I wouldn’t touch the beach with a barge pole – the commissions and easy money is just too good to be true and it means that any holiday home purchase can never be considered an investment.
What struck me today was that this was the first time I’d seen a full house at a Bulgarian property investment seminar. Up and until today, it had only been for the die-hards, but as you say, even the funds have recognised that Bulgaria is ripe.
On a bigger scale, there was talk of a regional economic development linking up Greece with Bulgaria, Romania and Serbia.
This is interesting for two reasons. Firstly, it mentions Serbia and (implicitly Macedonia which sits between Greece and Bulgaria and is an EU candidate country). And secondly, it recognises the growing interdependence of these different countries and therefore we can expect more of the transformational growth from Romania to spread across the region.
As this growth spreads my bet is that Sofia will be the first stop.
Lastly, I can’t help but feel sorry for the Russians and Danes buying on the beach in Bulgaria. The Brits have definitely gone home, the Irish and Spanish have had their fill, so now we are onto the next group of buyers. I just hope they don’t really believe they are buying an investment.
Posted by Neil Lewis and Robin Bowman. Tomorrow: credit crunch in CEE – what does it mean?
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POSTED BY
ROBIN BOWMAN
ON
MON 8TH OCTOBER
AT
18:27 GMT
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TAGS:
Sofia Property, Serbia Property, Romania Property, Macedonia Property, Hungary Property, Bulgaria Property
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HUNGARY, BULGARIA AND ROMANIA - LATEST MARKET INSIGHT
Okay - not exactly Hungary, Bulgaria nor Romania.... but I did stop by the Ras Al Khaimah stand (part of the UAE and between Dubai and Qatar) to view their offerings.
Here, essentially, is the deal...
1. You can't buy land in this state (only lease it) unless you buy land on one of the man made islands
2. The man made islands are built in fantastical shapes off the coast of the Arabaian Gulf
3. The land itself is selling (in large development plots) for a minimum of 750 euros per m2
4. I'd predict this would mean that flats (in blocks in excess of 5 floors) would sell for 3,000 Euros / m2
5. In houses (say with 2 floors) this might reach 7,500 Euros m2
Therefore this is very expensive and luxury holiday location property.
Will it sell? Will anyone buy it?
To be honest - I really have not got a clue....
...anyone?
Cheers
Neil
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POSTED BY
NEIL LEWIS
ON
MON 8TH OCTOBER
AT
22:24
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RAK
Neil - I've stayed in RAK this year and I am not really sure either. It is pretty hard to be sure in the UAE in general, especially with supply projected to come onto the market at a breakneck pace. Agents like discussing yields now on propertys which could have been bought 3-4 years ago but that is not really indicative of what yields would be for all the properties currently under construction. At the moment RAK is pretty boring but it could appeal in time as a quieter alternative to Dubai, but I would expect the wealthy to prefer Oman to Dubai or RAK.
The one thing I am sure about for myself is that there isn't really a need to look outsude Europe at the moment so why bother with extra risk.
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POSTED BY
BRETT S
ON
MON 8TH OCTOBER
AT
23:34
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OUTSIDE EUROPE
Hi Brett
Thanks for this. I've never been to the middle east myself - so I'm trying to approach this with an open mind.
But I agree with you - there appears to be a 'flight to quality' - only the definition of quality has changed to include markets with low level of debt and low exposure from local banks to the credit crunch - but with stable politics and promising economic growth...
... which brings you back to CEE and SE Europe?
Cheers
Neil
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POSTED BY
NEIL LEWIS
ON
TUE 9TH OCTOBER
AT
07:19
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HUNGARY
You are correct, the retail spending has slowed significantly - more than predicted by the government. It is entirely a result of the austerity measures.
Everyone new 2007 and 2008 would be tough, however I am in Hungary for the long term and buying at the bottom will allow me to refinance and buy a second and then a third whilst prices are still low.
I might add that price inflation for new build is still 12 -15%. And rental returns stack up nicely in a country where MINIMUM rental term contracts are 12 months and the law is utterly pro landlord.
Retail spending might have slowed, however wage inflation has not - currently about 7% a year. This might not be as big a rise as some in the new EU, however you know the saying ...... slow and steady wins the race (with a few bumps in Hungary's case).
Tax cuts are on the way, although interest rates will remain high for somewhat longer, - partly due to the high wage inflation and also due to the cost of food and fuel.
Realistically the boom in prices will not occur until late 2008 / 2009 at the earliest - although it does seem the local population know the boom is coming. More and more local people are snapping up the new build property in anticipation of the EMU entry (so my sources in the real estate business tell me).
Some would say it is the PERFECT time to buy.
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POSTED BY
RICHARD
ON
TUE 9TH OCTOBER
AT
08:11
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1 YEAR FOR HUNGARY
Hi Richard
Thanks - I think we all agree Hungary has a great long term potential - but that not much is going to happen in the next 12 months.
Hence, that is why we suggest it is a Wait and See country.
Tax cuts will be key - when are they due to be applied?
Cheers
Neil
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POSTED BY
NEIL LEWIS
ON
THU 11TH OCTOBER
AT
08:31
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Belgrade, Serbia - past prospertity to drive future?
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 Belgrade, the capital of Serbia (and previously the capital of former Yugoslavia) is a surprisingly prosperous place. I don't know about you, but my impression of Serbia had been based on TV news images of war and stubborn looking nationalist who drove the wars and ethnic cleaning in the 90's. But, Serbia appeared well healed and very middle class! The number of smart sun glasses and coffee shops in the central (pedestrianised) districts of Belgrade far out numbered those of Sofia (see my previous blog). And, the coffee was cheap! Even in the most expensive and exclusive Russian Tea Room (I think it was called the Tsar's Palace?) only cost 140 RSD - about 1.65 Euros. Which means - 1). Belgrade is naturally a middle class place - with nice (can't yet call them smart) shopping districts, great architecture and a strong sense of a 'city centre' 2). Belgrade's residents like to consume 3). Coffee and cafe society is important and a key part of life in this city 4). Everything is still really cheap! (Okay, food and basic staples are cheap - electronics are not) Which reminds me of something I was told in Sofia - in answer to 'what changed since Bulgaria joined the EU in Jan 07' I was told 'the cost of food has increased 50%'... ... which may explain why coffee is so cheap in Belgrade... ... which also explains why Belgrade and Serbia is drawing FDI (Foreign Direct Investment) - because wages are low and will be kept low due to high unemployment in many areas of the country (and perhaps this is an advantage) the labour force can't easily migrate to the EU! I know these are slightly conflictory views - but then Belgrade and Serbia is a pretty contradictory place. Or may be it just didn't conform to my prejudices... I think this city is interesting for Property Investors - but the lack of a strong rental market would be a problem for Buy to Let investors in the short term. Equally, whilst I was told it was possible to take money in and out of Serbia (ie no currency restrictions etc...) the border controls between Serbia and Bulgaria and Serbia and Croatia were a little slow and there was no obvious opportunity to convert my Serbian Dinars once I'd crossed the border? I guess the answer is that Serbia and Belgrade have a history of prosperity and middle class values. It felt much more middle class and 'european' than Bulgaria, for instance. (By this I mean that people wore shorts and T shirts with comfort and ease in Belgrade - plus the designer sun-glasses, but this more 'liberal european' way of dress was still rare in central Sofia)... ... and that after the hyper-inflation of the early 90's and the subsequent break up of Yugoslavia, Serbia and Belgrade are beginning to assert their economic credentials. I didn't live through the 50s in Germany - the period of massive economic boom - but I wonder if Serbia isn't going to enjoy a similar boom?  Based on the level of A class office and 5 start hotel developments this would seem to be the view of the speculative investors? Still, for individual property investors, Serbia is a tough place to invest. But that doesn't mean it isn't worth the effort. Cheers Neil PS. Next stop, Zagreb - the capital of Croatia (another former country to emerge from the former Yugoslavia) PPS. Broad estimates of property prices in Belgrade are between 1,000 and 2,000 Euros per m2 - so this is not so cheap! (ie Sofia's prices for new build tend to start from 1,000 Euros per m2 - but Sofia is already in the EU) |
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POSTED BY
NEIL LEWIS
ON
SAT 11TH AUGUST
AT
07:55 GMT
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TAGS:
Serbia Property, Belgrade Property
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How to get rich for 4 Euros – in Belgrade, Serbia
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-758252.JPG)
Look! Today I became a multi-multi-billionaire! It was very simple – I took a walk up the pedestrian street of Belgrade, Serbia’s capital city and bought a 500 Billion Dinar bank note for just four Euros! The note – amazingly – was real – and it was printed in 1993. I became an instant multi-multi-billionaire in 1 minute! In fact, I was so impressed, that I handed over another Euro and bought a whole pack of 50, 10 and 1 billion Dinar notes. There you go – how to get instant riches! Of course, there is a serious note to this…(sorry) … the hyper-inflation that affected Sofia and Bulgaria also had a very serious impact on Serbia and Belgrade too. Not only did the hyper-inflation accompany (or cause – anyone know better?) the break-up of the former Yugoslavia, but is also seriously affected the economy. As I was told earlier today, Serbia and Belgrade has a huge need for new housing – why? – because nothing has been built for 15 years! And that means there is now substantial building and investment taking place in Belgrade, even though the country is not yet part of the EU and is still some way off entering (due to politics and Kosovo mainly).
In a way the hyper-inflation and the break up of Yugoslavia has economically trapped this region in the past - and the question is - are they about to break free from the economic straight jacket?
The biggest clue - I believe - is desire. And the desire for economic growth (ie people who are hungary and want to work really hard and take entreprenurial risks etc...) are usually the same people who have tasted the good life before - and so want it back.
What does this mean?
Well, simply, the population of central Belgrade appears posh and well healed.... and that means that we are not so much talking about the creation of a middle class but more a re-appearance. This means that Serbia and Belgrade's property market may take off sooner than I'd expected.
Cheers Neil
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POSTED BY
NEIL LEWIS
ON
FRI 10TH AUGUST
AT
05:53 GMT
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TAGS:
Serbia Property, Property Investment, Buy To Let, Buy To Let, Belgrade Property
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