I see Hungary put interest rates up 300 basis points today after holding rates a few days ago. Still not the new Iceland?

Hi

I really don't want to score points and I sincerely hope Richard is right about Hungary - although I fear he's very wrong about the near future. The idea it has bottomed out or that the current situation is all a 'storm in a teacup' seems, to me, at least, a little unlikely.

http: / /www .bloomberg .com /apps /news?pid=newsarchive &sid=aLrRRiiGyro4

3 percentage points is a monumental effort designed to stave off currency collapse. As one economist says: 'This is a desperate, brutal decision.'

As the Bloomberg story (link above) points out - foreign currency loans made up 62% of all household debt at the end of the second quarter, up from 33 percent three years earlier.' Consumers are now threatened big time by the currency's slide.

No one can predict with certainty whether Hungary will pull through, BUT, it does look set to suffer a great deal and its property markets in parallel.

Great buying opportunities on the way then? Perhaps along with the Baltics?

Cheers

Robin, you mention the Baltics. What are your thoughts on the Baltic Property markets, in particular Estonia, going forward?

Prices have fallen from their peak in 2006 by around 15-20% while wage rises in Estonia have been increasing substantially. Estonia started to experience a fall in prices, long before the credit crunch started to bite (peak prices was around Oct 06 I think). Wage inflation is now slowly stabilising, current account deficit is falling, although they went into recession earlier this year.

Bank of Estonia expects GDP growth in Estonia as follows:

2008 GDP forecast -1.8%
2009 GDP forecast -2.1%
2010 GDP forecast +3.0%

Inflation:

2008 Inflation forecast 10.7%
2009 Inflation forecast 4.8%
2010 Inflation forecast 2.8%

They expect to meet the Maastricht Treaty level for the adoption of the euro by the end of 2010.

Recent stats released by the land board in Estonia seem to suggest that prices may be stabilising somewhat, although volume is still very low:

"13:26 10Oct08 BNS-ESTONIA-REAL ESTATE-TALLINN-APARTMENTS TEB - 14.10.10.08 15:24

Avg price of Tallinn apartments up 1 pct in September

TALLINN, Oct 10, BNS - The average price of transactions with apartments concluded in the Estonian capital in September rose by 1.1 percent compared with August, it appears from statistics of the Land Board.
In monthly comparison, the average cost per square meter of a Tallinn apartment grew by 232 kroons to 20,878 kroons (EUR 1,334).
According to preliminary data of the Land Board, transactions with Tallinn apartments numbered 536 last month. A month earlier 505 apartments changed hands in the capital city. The average size of an apartment was 53.4 square meters in September and nearly 52 square meters in August.
In September 136 transactions with apartments in central Tallinn were concluded at an average price of 26,189 kroons per square meter. In August the price of 90 deals averaged 27,435 kroons per square meter.
The combined value of the 536 transactions concluded with Tallinn apartments last month was 603.5 million kroons, preliminary data by the Land Board show. In August the price of 505 transactions was 555 million kroons.
The highest price paid for an apartment in Tallinn last month was 8.58 million kroons. In August an apartment fetched 9.94 million kroons.
(EUR 1 = EEK 15.65)"

Most residential mortgages in Estonia are Euro based. (Euribor 6 month + margin) With the ECB now dropping rates by 0.5%, hopefully this will eventually filter through to those home loans and mean borrowing is cheaper?

Your thoughts/comments on the Estonian/Baltic markets going forward?

Hi

I think those are great points. I also think the situation is becoming clearer in the Baltics. I wouldn't personally separate the states too much - they all face the same problem.

The IMF today announced it's already in talks with several countries in this region - I would be very confident Latvia and probably Estonia are on that list - Hungary too.

I think the Baltics and especially Latvia are looking very vulnerable indeed.

See the FT link below...and this extract

"The IMF chief said several countries, including in eastern Europe, had relied on inflows of portfolio capital and bank credit to finance large trade deficits and were now vulnerable to a reversal of these flows.

“Many countries seem to be experiencing problems because of the repatriation of private capital by foreign investors or the reduction of credit lines from foreign banks,” he said.

“We are ready to support these economies and we are in discussions with a number of them.”

“Conditionality is part of our business – since money without policies is a waste,” he said.

If you look at Neil Lewis' piece today http: / /www .propertysecrets .net /article /from _offplan _to _afterplan _property _investment _adapting _our _investment _strategy /2204 .html

you can see the PS view on all this and the opportunities that will be created - they will be huge!

Having seen close up the IMF go into Asia during the crisis there in 97 (which was like a smaller version of the current one), I know that they went in with enormous strings attached - effectively running the countries they helped. It makes them unpopular because the medicine is very painful BUT it very quickly stabilises the country involved and lifts confidence. It hurts but it helps - a lot. It's a bit like a drunk confronting his problem and getting help.

It creates a bottom. And I would say creates a great place to invest. So, longer term, and fairly soon when we've seen things deteriorate further in the Baltics - especially Latvia - I think they'll offer great opportunities for investors.


http: / /www .ft .com /cms /s /0 /904f6838 -9bb4 -11dd -ae76 -000077b07658 .html

You might also like to take a look at this blog, which looks in part at the Baltics and our impressions of these markets from the Munich Expo

http: / /www .propertysecrets .net /blogs /max _growth /credit _crisis _is _there _an _upside _for _cee _property _investors /post -228 .html

Cheers

Thanks Robin and for the link the Neil's article which makes an interesting read.

I'm actually confident that the long term outlook in Tallinn, Estonia and the Baltics in general is positive. Prices are still a fraction of what they are in Helsinki (only 80km away or 20 mins by helicopter), Stockholm etc, and as their economy develops, then so prices will start to converge somewhat.

Hopefully over time, Estonia will also start to attract some bigger name organisations looking to take advantage of their 0% corporation tax advantage.

My view is that the next 6-12 months will be difficult but will represent a 2nd chance for those that missed out first time round!

Tallinn will be European Capital of Culture in 2011 - hopefully when that comes round, this will really put them on the map.

Hi George

Glad you thought Neil's piece was interesting.

I think you're right on the Baltics - longer term they will see steadier and less head-turning growth, but only after, I think, quite a lot more pain.

The next few months to a year or so will be a great time to go shopping in these and other markets. I'd see Hungary in this category too - if anything Hungary is further down the line in terms of reaching a crisis point. As investors deleverage the pressure on the Forint is becoming massive - whether 300 basis points in a day can really help dam the outflow is to be seen. But, again, long term Hungary has great potential.

The key, I believe, is to apply the right strategy to these markets - distressed and recovery markets - and to have different expectations. Those who have the means to take advantage of the opportunities in many CEE markets over the next year, maybe 18 months (I wouldn't really offer a specific timescale), are going to look back at this time as a golden one of opportunity. And you're right, I think - a second chance for those who missed out the first time - but also a second chance in markets that will be steadier and grow at far less dizzying speeds that are also more sustainable. That's my view.

Cheers

I agree, Neil's article is very interesting if a little unspecific. I await his next article as promised with interest.

I am unsure of the fundamentals of Latvia and Lithuania. I didn't invest there as I instinctively avoid existing booms with the risk of buying near the top - so I invested in the main CEE states instead. So I haven't done the research on the Baltics and remain to be convinced. Either way, I think there will be a very severe downtuen (there already is) in the Baltics so the fundamentals as to the reasons why they should bounce willbe interesting to explore. Any comments guys?

I agree there will be some huge opportunities to come and I guess the key will be to guess when the blood really is on the streets and not to wait too long. My guess is that the bloods oozing out of the gutters but not yet flowing on the streets to use a horrible analogy.

Huw

Hi Huw - I think you are right - the blood is oozing - shortly it will be flooding (now is in Hungary) - and also there will be a long bottom!

Which is a horrible way of saying - get ready - but don't jump too soon.

Cheers
Neil

Prepare to eat your words.

Only time will tell who is right.

Lets get this into perspective though.

In relation to CHF mortgages in Hungary, the media has overstated the case so far. Most locals took their FX loans at a level of around 1 CHF - 165/170 HUF at an average of 44% LTV. The current exchange rate is 10% above this average, despite recent fluctuation. The major risk is if the HUF continues to depreciate at a faster pace. The government will not allow that to happen - hence the 3% interest rate rise (not the first time such a rise has taken place historically - back then that rise was short lived and very effective - not to say that this occasion will be the same of course).

This is a country where 95% of people are home owners.

As to the currency worries ....... I have every confidence that the Central bank of Hungary are taking all precautions. I refer you to this recent interview with the Governor of the bank.

http: / /www .cnbc .com /id /15840232?video=899271823 &play=1

I am investing for the long term 5 yrs + and thus not concerned about this storm in a tea cup.

As per the interview ...... Hungary will meet the Maastricht treaty requirements by the end of 2009. The media always portrays Hungary in a bad light economically ..... in truth Hungary no longer deserves this as time will tell.

The level of growth in Hungary is such a hot topic now, that when the government changes in 2010 there WILL be big changes designed to stimulate growth since that will be the primary platform that it will be elected on. They will be in a good position to make these changes sustainable because they will have met the Maastricht treaty by then.

This so call crisis is all hype speculatively driven and thus any resultant problems will be a result of this hype and thus will be short lived.

The recent precautions put in place by Central bank of Hungary will make it far more difficult and far less profitable to speculate on a further fall in value of the HUF.

As a result of these precautions the speculators will most likely turn their attentions elsewhere.