Essential experience
Having gained experience in markets such as Poland and the Czech Republic, investors are tantalized by the prospects for development in countries freshly incorporated into the EU, as well as other, less mature areas such as Ukraine and Russia. These fertile markets could prove extraordinarily rewarding, though daunting obstacles to foreign capital remain.
International investors have spent a number of years - and a lot of capital - investing in "old" CEE markets like Poland, the Czech Republic, Slovakia and Hungary, and the experience has helped all involved to mature. Last week's Central & Eastern European Real Estate Quality Awards (QA), held in Warsaw, gathered the CEE region's biggest investors and handed out accolades in several categories for the best projects of 2006.
Alongside the fun atmosphere and awards ceremony, which took place at Warsaw's Intercontinental Hotel, there was also time set aside for serious discussion as the event's organizers arranged presentations by experts and a round-table debate to exchange valuable experiences gained on CEE markets.
"With so many of the sector's key players in town for the QA gala, we invited some of the region's top investors, developers bankers and advisors to share their views on the topic at the inaugural 'QA Insight mini-conference' on Land Acquisition Trends in Central & Eastern Europe," said Richard Hallward, managing director of the QA.
The grizzled and the green
All the speakers were focused on issues connected to so-called "old" and "new" CEE countries, the latter of which recently appeared on the map for international real-estate firms. Moreover, the legal and economic issues that international investors face were also discussed.
One speaker was Cor van Zadelhoff, founder of global real-estate advisor DTZ Zadelhoff, one of the first firms to begin investing in the CEE region. "We started in Budapest in 1990 and we were one of the pioneers in terms of private investors in the region," said Cor van Zadelhoff, who was awarded with the QA's 2006 CEE Lifetime Achievement Award.
Katja Huitikka, director of European underwriting at Stewart International, discussed trends in financing the land purchase in existing as well as new markets. She explained that in developed CEE markets such as Poland and the Czech Republic, investors make wide use of bank loans to finance acquisitions of new plots. She also added that speculative land acquisitions were very popular, since demand for residential and retail development will continue over many years in the future.
Eastward interest
For all the discussion of older CEE markets, interest in newer markets was manifestly evident. These markets offer a high return on investment and are experiencing real-estate booms, but a number of obstacles stand in investors' way. Problems related to land availability are particularly visible in markets such as Russia and Romania, thus discouraging further investment.
Stewart International's Huitikka pointed out a lack of zoned land which creates a supply-demand gap, a problem not exclusive to emerging CEE markets but also present in Poland, where zoning procedures take many months. However, Huitikka believes that market players in Poland treat it as a mature, developed market and that time spent in Poland could help when pursuing opportunities in new markets.
"Transferring of experience is possible, because the parallels and similarities can be drawn from the old to the new markets," said Huitikka.
New (old) obstacles
Markus Leininger, head of corporate banking C&EE at Eurohypo, a real-estate bank, noted that title-issuing problems are particularly troubling in Russia, and especially in Moscow.
However, Leininger said that many local Russian investors who already own land are looking for help to increase and leverage their investment - help which could be provided by international investors.
"Russia and Ukraine won't be big players for the time being, until the legislation is improved as was done in Poland," said Leininger.
Zadelhoff warned that banks are becoming more and more aggressive regarding conditions they have towards projects, and investors should be prepared to take a bigger role in financing a land acquisition.
"Yes, we will [co-finance], but we won't do this for every price and project," said Leininger. "The lack of transparency is still an obstacle [explaining] why banks are not always so keen on supporting several projects, even on those most developed markets within CEE, which in my opinion are Poland and the Czech Republic."
