Sure fire success

Investing in the residential markets of the ten capital cities of Central and Eastern Europe is certain to bear fruit, according to Reas Konsulting and Jones Lang LaSalle. Warsaw and Sofia are the most promising – as is the unpredictable capital of the Ukraine, with its huge potential

Such are the optimistic conclusions reached by the “Residential Markets in Central European Capitals” joint report from both companies, who started cooperating in February over residential market projects. Real estate tycoons from around the world were able to study the report at this year’s MIPIM fair in Cannes. The report reviews ten European capitals. The first group comprises the smaller Baltic countries: Tallinn (Estonia), Riga (Latvia) and Vilnius (Lithuania). The second includes the Visegrad Group of countries: Warsaw (Poland), Prague (Czech Republic), Bratislava (Slovakia) and Budapest (Hungary). The third group is formed by the Balkan countries which became European Union members on January 1st this year: Bucharest (Romania) and Sofia (Bulgaria). Kiev (Ukraine) has been included as an additional market due to the country’s size, its population (50 mln), the growth of its real estate market and the huge interest expressed by investors. But why were the capitals of those countries chosen? The reply given by Kazimierz Kirejczyk, the head of Reas Konsulting  was simple: because the investment track of any investor starts from the state capital.

 No surprises

 The research into the housing markets in those ten capital cities was performed from the viewpoint of the economic environment, demand (in terms of population growth), the quality of housing reserves and increases in home prices. The consultants warmed the hearts of developers and bankers when they revealed the housing indebtedness of residents of those capitals as a percentage of the GNP. The mean value for the European ‘15’ amounts to 48.9 pct, whereas for the ten cities under the microscope the figure is only 9.3 pct. The greatest debt is carried by Tallinn residents (25 pct), Vilnius (20 pct) and the lowest by Kiev (0.4 pct) and Bucharest (2 pct). Reas Konsulting’s director stresses that the debt in Warsaw is still low (6 pct),  though the rate at which it has been growing in recent years may be a cause for concern.

It came as no surprise to learn that the 10 cities lag behind the older Union members, both in terms of the per capita average residential space and the number of homes for every 1,000 people out the whole population. The greatest lack of homes is in Kiev (around 250,000), Bucharest (130,000), Sofia (around 61,000) and Warsaw (around 46,000). Only Budapest can boast an average above the ‘15’s’ average of 474 homes.

The authors of the report stress that despite the dominant position of the capitals   in relation to other cities in their countries as regards the economy, politics and culture, they cannot claim to have a large population. The capital cities of the ‘old 15’ are inhabited by around 15–25 pct of the national population, while the figure is a paltry few percent in the largest countries of the remaining ‘10’. Warsaw (4.4 pct, conurbation 6.8 pct) is one of the smallest capitals in Europe, following Berlin (4.1 pct), Kiev (5.5 pct, conurKbation 6.8 pct), Bratislava (7.9 pct, conurbation 11.2), Bucharest (8.9 pct, conurbation 9.9 pct), Prague (11.5 pct, conurbation – 19 pct) and Sofia (16.0, conurbation 17.8 pct). Migration data looks equally promising for those interested in developing homes, except for Budapest and Riga.

Small and of poor quality

 The existing housing resources in the 10 capital cities leave much to be desired. Most homes in post-communist cities were built between 1945 and 1990. The negative reaction to the slogan “large prefabricated panel” was aroused – not without some justification, as the quality of flats in constructions of that type are often deplorable. Most flats built between 1945 and 1990 are in Tallinn, Riga, Sofia, Bratislava and Warsaw. Knowledge of space per capita is also significant when assessing the market. The average living space for the ‘old Union’ is around 36 sqm, while it amounts to 21.5 sqm in Warsaw, 22 sqm in Tallinn, 23 sqm in Riga and 24 sqm in Vilnius, never above 25 sqm, while it drops even below 20 sqm in Kiev. In the case of Sofia it is worth highlighting the fact the average figure is positively influenced by the well-developed existing system of single-family homes.

Data for the annual number of flats coming on to the market must also be taken into account. Warsaw headed the list in this category in 2005, closely followed by Bratislava and Budapest, while the two youngest EU members’ capital cities – Bucharest and Sofia – prop up the list.

The money point of view

 The 4 Visegrad Group capital cities lead in terms of prosperity. The average monthly wage in Warsaw, Prague, Budapest and Bratislava amounts to between EUR 700 and EUR 800. The poorest are the citizens of Kiev, Bucharest and Sofia (though in the latter case the wage in the capital is 265 pct of the national average). Unemployment in the capitals does not exceed 9 pct, is the highest in Tallinn and the lowest in Kiev and Bucharest (below 3 pct). The reason for such good results probably lies in the absence of serious economic reforms, whereas Warsaw, Prague and Budapest have the benefit of having already gone through this process.

Half a metre for one wage

 If we were investors with wallets stuffed with money and wanting to make a quick killing (there are many of these in Warsaw. Kiev and several other capitals), then the conclusion on reading the report and only looking at the price of homes, would be to purchase a flat in Sofia where the prices are the lowest – below EUR