Hungary, Bulgaria and Romania - latest market insight
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?
ROBIN BOWMAN ON MON 8TH OCTOBER AT 18:27 GMT