Eastern promise for investors

PUBLISHED : Wednesday, 28 September, 2011, 12:00am
UPDATED : Wednesday, 28 September, 2011, 12:00am


European property markets now offer better value to investors than they did earlier this year, according to real estate firm DTZ Research, with Eastern European countries identified among the so-called 'hot spots'.

The DTZ Fair Value Index for the second quarter of this year, measuring the attractiveness of commercial real estate markets around the world, stands at 41 for Europe - an increase from 32 in the first quarter. All sectors gained, with offices increasing to 28 from 17 in the first quarter, and retail and industrial increasing to 52 from 40 and 48 in the first quarter of this year, respectively.

The index score rose despite gloomier economic outlook caused by the euro zone debt crisis. The increase follows two straight quarters of declining scores and reflects the fall in bond yields in core markets over recent months, the DTZ report says. With government bond yields narrowing in many countries, significantly in Germany and France, prime property is 'relatively more attractive. It offers higher income yields and a broadly stable capital value outlook going forward'.

The number of 'hot' markets in Europe increased slightly, from 10 to 11 in the second quarter. These were mainly in Central and Eastern Europe, including Moscow office and retail, and Bucharest and Prague retail.

'These markets are expected to enjoy strong capital value growth in the medium term, stemming from yield compression and strong rental growth, which more than compensates for their higher risk,' DTZ says.

In terms of residential markets, housing prices generally weakened in the second quarter, particularly in Europe and the United States, according to the latest Global Property Guide. Drilling down to Eastern European markets, the report found a mixed bag. Russia, although down by minus 5.25 per cent, still improved from a year earlier when values dropped by minus 8.02 per cent.

Lithuania's five largest cities, down minus 15.7 per cent last year, improved to minus 4.29 per cent. In Bulgaria, there was little change: it was down minus 10.65 per cent so far this year compared with minus 11.16 per cent for the same period last year. Home prices in Estonia-Tallinn rose 4.9 per cent for the quarter and Turkey made headway, up from minus 3.53 per cent to minus 1.55 per cent year-on-year.

Promising markets this year appear to include Albania, where the central bank predicts lower inflation for the remainder of the year. On top of 1.6 per cent increase in house prices, it also forecast a second quarter economic growth to match the first quarter's 3.4 per cent.

Even during the economic downturn of 2008, the Balkan nation was one of only two countries in Europe to record economic growth of 0.4 per cent in the first quarter of 2009, and 6 per cent growth from 2009 to 2010 - one of the strongest performances in Europe.

Bank of Albania data showed an overall average increase in property values of 13.6 per cent for the entire year in 2009, which it says is a reflection of the undervaluation of Albania's currency, rising demand, improved credit access and an increase in construction permits.

Ravin Maharajah, a property expert and partner at Lalzit Bay Resort & Spa, a 5-star residential development located on Albania's Adriatic coastline, believes numerous upward forces are being applied to land and property prices in the country.

'We're seeing increasing infrastructure investment, [European Union] accession progress and vast differences in property prices between close neighbours such as Croatia,' he says.

Underscoring Albania's economic stability, Maharajah cites a survey conducted by investment consultancy Arrowtrak among regional businesses which found that around 37 per cent are considering investing in the Balkans.

'With more overseas investment, Albania will see an increase in expats moving to the area, which will in turn boost property prices,' he says. 'For example, Lalzit Bay Resort is attracting the attention of the growing middle class across the Balkans, with at least 70 per cent of units released having already been sold. We have even had to release additional units to meet high demand.'

Investment opportunities at Lalzit Bay Resort & Spa start at Euro29,000 (HK$305,000) for a studio apartment. On-site facilities include a beach club, tennis courts and a wide choice of restaurants serving international cuisine.

Russian Summit, a conference and exhibition scheduled to be held in Moscow in November, is also attracting foreign attention. The meeting aims to bring together international property companies and real estate agents from Russia and the Commonwealth of Independent States (CIS), comprising former Soviet states.

Kim Waddoup, co-organiser of the event and director of main sponsor aigroup, says Russia's recent economic success had sparked foreigner interest in property investment opportunities.

'Some shrewd international agents such as UK-based Barton Wyatt and Montenegro Living have identified the appeal of this buyer market, establishing networks and actively targeting Russian and CIS buyers.'