At home in the CEE

Despite the continuing boom on Poland's residential market, foreign investors often hear about the potential risks in the area. Although the emerging CEE economies are expected to grow faster than those of the old EU members, they still have to face problems such as high budget deficits caused by government spending on social programs or infrastructure.

Some of the major differences between the CEE residential market and that of Western European are relatively low property prices and high owner-occupation, especially in Bulgaria and Romania, where owner-occupation can be seen in about 95 percent of all housing stock. What is also characteristic of the CEE is that the housing markets are strongly segmented according to quality, location and the number of transactions.

There are two forces currently powering the market. Firstly, the deteriorating condition of the existing housing stock - 37 percent of Warsaw inhabitants still live in pre-fab concrete apartment blocks from the communist era, which also constitute half of all the housing stock in Estonia. Secondly, the increase of individuals' earnings accompanied by easy access to relatively cheap mortgages.

The demand, especially in bigger and richer cities such as Warsaw, is due to the fact that growing numbers of people want to change their cramped, 50-sqm apartments for something larger. But such flats are still scarce. According to Henry Wilkes for CEE Savills in the UK, in the next five years Sofia and Bratislava will receive only 80,000 and 45,000 new flats respectively.

What limits supply is land availability, and investors in Poland are especially about this problem. "The lack of sites with zoning approval raises land prices and limits the faster growth of supply, causing price growth," said the president or REAS Konsulting, Kazimierz Kirejczyk.

But Kirejczyk is moderately optimistic. He says that investing in the CEE region is sensible, as the long-term prospects for the real-estate market are good, however, "this market is cyclic, like elsewhere. The boom will not last forever," he warns.

What are the best investment opportunities for the time being? Wilkes mentions land speculation, entering joint ventures with developers, large-scale off-plan purchasing, purchasing fully let investment portfolios, and buying-to-let, especially in the city centers of Budapest or Prague and suburban houses or student accommodation in Warsaw.

AB