This blog is all about identifying, monitoring and providing updates on property markets that are likely to enter the second phase of strong growth.

What's second phase growth?

It's the period all fast growing property markets enter after their initial price growth spurt.

Prices inflate fast until an affordability ceiling is reached and prices plateau, or even fall back. The plateau or price correction stage is effectively a catch up period - when rising salaries and improved borrowing conditions along with static price growth combine to once again create an affordable market.

A strong phase of so called second phase growth then takes place.

We have seen this pattern most noticeably in Prague.

We don't have a crystal ball and are not able to foresee the future (unfortunately!), but we strongly believe that sharing insights and market intelligence can help to make informed investment decisions ahead of other property investors.

By recognising and following economic, demographics and finance factors influencing the development of property markets, we believe we might be able to answer the question where and when to invest in markets that have already experienced an initial surge in property prices.

Czech inspirations

Let's talk first then about Prague, where we've seen the pattern of development that this blog is all about.

The market experienced rapid growth before 2004, plateaued due to the oversupply (2005-2006) and then experienced another phase of strong growth driven by the solid performance of the economy.

Generally the path looks like this:

Strong growth (1st phase of strong growth) - plateau phase - 2nd phase of strong growth

In phase 1 a property market is emerging. Prices increase fast (30-100% +), often in the short term. It is a sellers' market. The rental market is usually weak or weakening.

Once the local affordability reaches a ceiling or over supply occurs (or both), the market moves into a plateau phase. Now the property market consolidates and stabilises.

In this phase, prices stagnate or slightly fall. The rental market picks up. It's a buyers' market.

Over-supply creates a great situation to secure below market value (BMV) bargains, if there are signs the market is likely to experience strong growth in the foreseeable future.

For a property market to enter the 2nd phase of strong growth, a country's economy needs solid economic performance (good GDP growth, strong FDI inflow, increasing wages, and falling unemployment) along with drivers specific to housing demand (housing needs and the financial tools that allow the fulfilment of those needs).

If we can identify those factors present in a market, it is very likely the market will enter the 2nd phase of strong growth and appreciate 20-25% in the first year, slowing down gradually to 10-15% in the coming years. In other words, re-emerge.

Which markets will re-emerge?

Based on the above, we can extract three key criteria for property market to be considered as potential re-emerging market:

• experienced strong growth in the past
• currently be in plateau phase
• have solid economic fundamentals and housing demand in place or improving

Of course, we wouldn't start the blog if we didn't have any idea which market could follow Prague's pattern.

For a start we have found three markets that in our opinion are likely to experience 2nd phase of strong performance: Poland, Romania and Hungary. In the next blog posts we'll focus on them.