CEE property market overview 2015

As the new year of 2015 unfolds the general investment environment is largely more positive than it has been since the financial crisis of 2007/08. Many investors are looking for good places to put their money that will provide them with low risk but healthy returns for minimal hassle … with this in mind below we take an overview look at the main property markets in Central & Eastern Europe. Please contact us for more detailed comments and information.

The Czech property market is now finally moving upwards. After a sharp fall in prices in 2008 to 2010 then several years of stagnation, over the last year there has been a small but noticeable improvement in prices and we expect this to continue thorough 2015. The largest change in prices has been at the lower end of the market, principally small studios and 1 bed units under 3m CZK. This in part has been driven by some economic improvements, rising salaries and mortgages remains extremely cheap (rates are around 3% as a foreigner and 2% as Czech citizen!). Furthermore, local investors are tired of receiving less than 1% in their bank accounts and are increasingly moving money into property (where yields are currently around 4-5%). Foreign investors are also starting to come back to the market (further helped by the weak Czech Crown) and we now have more investors on our books looking for reasonably priced properties than we have properties to sell them. After years of weak prices there is now a good buzz around the Czech property market and the outlook is positive.

The Polish property market is a bit of a mixed bag. We’ve seen around 7 years of steadily falling prices after the boom years of 2003 to 2007. Currently prices are quite stable and are beginning to look attractive again for investors with rental yields over 6% possible. From the current price levels there is a very good prospect that in the medium term prices will increase substantially, however in the short term there are a number of factors that could see further pressure put on prices, such as:

1. It’s estimated that there are 600,000 mortgages in Poland dominated in Swiss Francs, many of these were taken out 5-10 years ago and since then the CHF-PLN has swung massively against the PLN. The result for many people is both a doubling of the amount owed on their mortgage (leading to negative equity) and a doubling in monthly repayments (leading to defaults), this naturally causes a huge amount of financial pain and is leading to forced sales and bank repossessions. With the recent unpegging of the CHF to the EUR this is likely to cause further problems. Its estimated around 50,000 CHF denominated mortgages are in default in Poland currently.
2. Mortgages for foreigners remain very difficult to obtain and for Poles the conditions are getting more restrictive every year (and there are further plans to reduce the max LTV available over the coming couple of years). Until this situation improves we are unlikely to see a large scale turn around in prices.
3. There remains a slight oversupply over units in the market (primarily due to developers continuing to build too many units compared to demand), this is unlikely to change in the short term and especially with the difficulties in obtaining mortgage finance (a government scheme to help first time buyers buy has been a major driver that has helped keep a certain level of new construction going).

For those already holding property in Poland the main decision is whether to sell quickly in case the market gets worse or hold out a little longer until the market picks up again (like it has started to do recently in the Czech Republic). Due to the mortgage difficulties we’ve also been helping a number of clients reduce their day-to-day running costs of their property portfolios as well as working with the banks to find suitable solutions to each clients individual circumstances.

The Slovak property market is generally quite stable, and at the moment we don’t forsee any significant changes to this situation. Mortgage finance still remains very difficult to obtain for foreigners. Investors who have bought in ski resorts in Slovakia are generally hurting as rental demand is not usually up to the levels promised (though Sim Property does not operate in such resort type markets). We continue to monitor the market but do not see any factors that will lead significant changes (except of course a wider European/world economic/currency crisis).

The Bulgarian property market still remains difficult. Rental and sale prices are very low and there is a large oversupply of units, this is likely to take many years to recitfy. Demand in central areas of Sofia is generally quite good, otherwise in more outlying districts there is a huge oversupply of units, often poor build quality and poor infrastructure. That said our office in Sofia has managed to increase the rents on several apartments we manage there over the last year, but the overall market is not so healthy. Mortgage finance is difficult to obtain and very expensive (over 12% interest rates). The beach and ski resorts have unfortunately been to some extent ruined by overbuilding and any investor who has not already got out of these markets is advised to do so. Unfortunately we seem to have been saying the same things about Bulgaria for many years now and will probably continue to do so over the coming years.

In the boom years Romania was billed as a promised land for investors and many people piled in the hope of easy and quick returns. In many respects Romania did/does have good potential but it also has fundamental problems [see some of our past newsletters for more detailed analysis] that will take many years to resolve. Many investors bought at high prices and now struggle to sell unless heavily discounted. We believe this market will continue to underperform over the coming years and be a difficult place in which to operate for the foreign property investor.

In Berlin the bust that followed a rapid but short-lived boom after reunification led to over a decade of stagnating low prices. There would always come a time when conditions would change to help lift the market. Over the last 5 years or so there has been considerable investment poured into Berlin and more and more companies choosing to relocate there, the influx of money and employment prospects has had a very positive impact on property prices which have risen steadily over the last few years. This trend is continues a pace (further helped by foreign investors) and there is likely to be more room for growth over the next couple of years. That said any property investor must take into account huge buying costs (10-15% !!!), regulated rents, high taxes and pro-tenant laws- and thus we have always taken the view that overall you can get better returns elsewhere for less hassle & risk.

For many years Budapest has sufferred low prices and poor demand, and unfortunately we can only see this trend continuing and for good reasons. Hungary has huge problems with a high propotion of loans having been taken out in CHF, taxes and regulations are not particularly favourable compared to other countries in the region, mortgages are poor and investment is weak. There may come a time, like in Berlin, where conditions change sufficiently that the lid will be lifted and prices will take off, but for the time being we don’t see this in the short term.

Sim Property provides a complete & integrated range of property services from sales, rentals, management & mortgages across more than 20 cities in the Czech Republic, Poland, Slovakia & Bulgaria. Please get in touch to see how we can help you with your property investments in Central & Eastern Europe.