Worldwide Property Forums | Re: is it worth investing in cee, still?

I've been asked to reply to a bunch of forum posts which are - in essence - asking this question.

I'm in the process of writing a piece for this website - which will go into more detail - and then, no doubt, there will be a discussion after that article (so I'm not going to get drawn into a debate here).

However, I do want to put down a few things / thoughts to give investors a base level of insurance about whether they are doing the right thing...

1. What is going to happen to prices in CEE in the next 6 months?

In the past and next few months some of our markets - Poland, Romania (Bucharest especially) have shown some wierd price movements.

The danger that investors are at risk of falling into is to come to the conclusion that if prices are not steadily and regularly moving upwards that suddenly this makes this region/ country or city / development not worth investing in.

This, I think is misguided - although perfectly natural.

There are some odd things going on at the moment. For instance, Orco's share price has dropped about 80% in the past 6 months largely due to fears that the company suffers from liquidity problems (ie not able to raise enough loans). Therefore, there is a risk./ chance that some building (mainly commercial, but now flats) may be sold off in a hurry and therefore a discounted prices. Now, Orco have been establishing a reputation for charging high prices for flats, so this is not necessarily going to affect the overall statistically measures for markets - but it could.

2. Bank caution

CEE banks are exceptionally well funded - and their holding companies are typically cautious Austrian banks who took no part in subprime and are essentially deposit taking banks (like Lloyds in the UK or Santander in Spain).

The level of mortgage debit in Poland / Romania etc is v. low - and - very importantly - the debt levels are covered by around 80 to 100% by deposits.

This compares to just 40% in Hungary - which is another reason why we mustn't treat all CEE countries the same.

3. So what is the potential?

The potential of any country / city / property market is a combination of growth in employment, growth in disposable income (ie wage growth, less inflation plus tax reductions) and improvement in credit conditions vs the supply of relevant property.

You can see that even if prices go nowhere (or even fall slightly as they have in Poland in the past 12 months) wage inflation,employment growth and disposable income are all growing strongly.

It may be that they will grow less strongly due to world wide recesssion - but give that elsewhere we are facing recession and deeply discounted asset values - a slower growth is a relatively good result.

4. The supply in some cities locations has jumped recently due to the sudden and rapid start to the building boom. However, this has stopped and whilst a modest number of apartments are being delivered to the market, this will fall as developers can no longer get credit and loans and companies such as Orco cancel many (if not all) new projects.

This will very strongly underpin values in 12 to 24 months time.

So, you have a region (if you choose your country well) where you have very strong intrinsic value growth.

At the same time, you are not going to see lots of price growth - so you won't be able to 'feel good' but have to rely on the actual logic of the deal and hold for medium / long term.

There is currently an interesting trade going on where those that don't believe this argument are selling (at discounted rates) to those who do!

Our advice - in most cases - but not all - is don't sell - but rent. However, each unit and client needs to be assessed individually - and this is now part of what we are offering with our PS Premier service.

Hope this helps - please don't ask me to debate this - as I'm actually attempting to turn this into a longer (and better argued) article.

Cheers
Neil