HAVE A LOOK AT EASTERN EUROPE . . . In association with Helvetia Wealth

Brent McLean, Director Alternative Investments, Helvetia Wealth

The beginning of the year looked promising for Irish investors, but the outlook for DOMESTIC property continued to decline, writes Brent McLean who predicts huge potential in eastern markets

The slowdown of the Irish property markets, began months ago and many investors have been diversifying away from the domestic Irish property sector. Recent trends indicate increased investments in foreign property and property development.

Although countries such as France, Spain, Portugal and Italy are the first locations people consider for overseas property investments, Irish buyers are increasingly looking farther east where the market is awash with investor interest.

Overseas property investors are perceptive and the Irish looking for property investments understand the excellent opportunities to be gained in Central and Eastern Europe. Foreign developments continue to expand and new construction projects increasingly are focusing on commercial properties.

ECONOMIC GROWTH

Over the last two years, Russia, Ukraine and Poland have seen incredible economic growth with Hungary, Croatia and the Czech Republic quickly catching up. The feeling is these locations will prosper even further under their membership in the European Union.

As these economies strengthen and grow, western European businesses are attracted by the abundance of a low cost, well skilled and well educated workforce creating a burgeoning middle class.

Foreign companies are taking advantage of these expanding markets and obtaining a competitive edge by locating some of their businesses in these countries. This benefits the Eastern Europe economy, as they have a growing wealthy middle class who are now able to buy their own homes as wages increase and the cost of borrowing remains low.

Large cities move factories to the outlying surrounding areas and build office buildings, garages and other commercial developments. The investment opportunities continue to rise as most countries have new EU requirements to fulfill for construction and building of new properties. This progressive approach has lead to an expansion of the hot property markets for commercial development.

FAVOURABLE ECONOMIC CONDITIONS

Russia has succeeded in continuing its strong growth path. In 2006, the GDP growth rate for Russia in real terms was a positive increase of 6.7%. Although by comparison Ireland’s GDP was 5.7% in 2006, the expectations for 2007 are not positive as economists anticipate a fall to 3.25%.

For commercial property the office take-up in Moscow has hovered around the one million square meters mark over the past year and consensus is that it will continue to improve over the next five years.

The economy continues to improve for the Ukraine as GDP growth increased by 7% in 2006. Rapid economic growth and a favorable business environment provide a stimulus for new companies and for those seeking to expand, resulting in higher demand for commercial properties. The Ukraine is also preparing for the 2012 European football Championships as they are co-hosting with Poland.

In 2004, Poland was one of the accession countries that joined the EU. Since then the Polish economy has improved and GDP growth rose 6.1% in 2006. The strong domestic demand of commercial property in Warsaw and increasing development in the regions around Poznan, Wroclaw and Lodz continues as Poland will be co-hosting the 2012 European football Championships.

The EU has allocated €66.5 billion of funds for Poland through 2013. This will further boost the local economy and expansion of commercial property. Hungary also joined the EU in 2004 and is reaping the rewards as economic growth reached 3.9% in 2006. Hungary’s financial progress has been based on its booming exports and gross capital investment.

POSITIVE OUTLOOK

The government’s commitment to long term fiscal development will generate a second development boom over the next few years. This outlook for Hungary’s medium to long term economic prospects is excellent as the expected annual growth rate of 14% likely to take place in the next two years Croatia is continuing its dynamic investment growth as GDP grew by 4.8% in 2006. Croatia already has a very successful transitional economy which has attracted as it aligns itself for membership of the European Union. Its economy is strengthening as strong levels of vertical foreign direct investment has led to increases in private consumption and higher demand for Croatian exports.

Croatia’s coastline has developed a strong tourist market and a successful real estate sector. Property prices are currently lower then previously expected fostering renewed demand for Croatian property. This is an attractive opportunity for real estate investment and commercial development.

For the Czech Republic, 2006 was a good year as GDP growth rose 6.1%. Their property market is progressing very positively and demand is increasing for new commercial development.

Author: Brent McLean, Director Alternative Investments, Helvetia Wealth
T: +41 4456 72230
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E: b.mclean@helvetia-wealth.ch
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