Transcript House prices

RESIDENTIAL PROPERTY MARKET IN CEE
Standing its ground in a challenging environment
Erich Hampel, Head of CEE Division
Debora Revoltella, CEE Chief Economist
EBRD Annual Meeting
Kiev, 18 May 2008
Executive summary
 Gap in supply: as a consequence of the transition process, home ownership is quite high in the CEE
region, still in the context of a gap in supply. Acceleration in supply of new dwellings in the last years
has been unable to fill the gap, which is even enhanced if quality standards are considered.
 Household plans: as income and living standards improve, demand for residential real estate is
strong. 2 out of 10 households plan to buy an house in the next 10 years, mostly as an house to live
in, but with some rising demand also for investment or second home purposes.
 House prices: the increases in house prices have been significant in the last years. It emerges
clearly that income, access to credit and limited supply are drivers for real estate prices. We still
believe that house prices in the region are compatible with an equilibrium level, although there might
be out-of-equilibrium trends in some sub-segments.
 Affordability: the affordability levels have been reducing and the demand for house purchase is still
mostly linked to the emerging middle class segment or to high net worth individuals. This means that
on top of the existing demand, there might be a "potential demand" at the moment constrained by
affordability issues.
 Some risks: there are however a few areas to monitor which might exhibit some oversupply – i.e.
the holiday home sector in Bulgaria, or some imbalances in capital cities such as Bucharest. The
bursting bubble in Kazakhstan should be the warning signal for the region.
 Looking ahead: despite a less supportive macroeconomic scenario, we keep a positive view.
We forecast some moderation in growth trends, but no backlash, as gap in supply coupled
with persistently lively demand represent a long term driver
2
Agenda
Residential Real Estate in CEE: supply and demand
House price dynamics
Challenges and opportunities ahead
UniCredit Group: an active player on the market
3
The transition process throughout the region resulted in very high
home ownership rates, still in the context of a gap in supply
Home ownership in CEE and Western Europe1,2,3
Dwelling stock per ‘000 inhabitants1,4
435
441
444
471
486
Czech Rep.
Croatia
Latvia
Estonia
Bulgaria
472
424
Hungary
EU
408
Ukraine
413
395
Lithuania
CEE
381
338
Poland
Romania
323
EU
Slovakia
96
Romania
77
92
Croatia
CEE
91
Bulgaria
64
91
74
Slovakia
Lithuania
71
Latvia
87
68
Estonia
Hungary
67
Russia
59
Poland
Czech Rep.
47
17
27
Cooperative
 The privatization in the early 1990s led to widespread private ownership, with around
77% of the housing stock being currently owner-occupied vs 64% in the older EU states
 Still the CEE region residential market is characterized by a housing gap
4
Notes: 1\ EU: AT, DK, FI, FR, IT, NL and ES; last available Census for EU countries; 2\ Data as of 2001 for BG, CZ, HR, LV, LT and SK; as of 2005 for HU
and RUS; as of 2006 for EST, PL and RO; 3\ Calculated as ratio between owner-occupied dwellings over total occupied dwellings measures in physical units,
except for Russia (sqm); 4\ As of 2001 for LT, 2006 for BG, HR, EST, LV, PL, RO and UKR and as of 2007 for CZ, HU and SK
Sources: UniCredit Group CEE Research Network, Department of the Environment Heritage and Local Government (Ireland), UNECE
Construction activity has been strong in the last years, especially in
the capital cities and urban areas, but well below western standards
Dwelling unit completion per ‘000 inhabitants1,2
IRELAN
20
Average 2000-2004
Istogramma 2
Average 2005-2007
15
SPA
10
E
3.9
5
0.9
4.7
2.7
1.6
4.0
3.4
3.2 3.7
1.2
2.8
0.5
Romania
Russia
Slovakia
Ukraine
1.4 1.8
Poland
2.4 2.8
Lithuania
1.3 1.8
3.9
Latvia
2.2
2.8
Hungary
Estonia
Czech Rep.
Croatia
Bulgaria
0
1.4
2.9 3.2
11.1
n.a.
7.1
12.9
11.5
n.a.
6.9
n.a.
% of dwellings built after 19903
7.2
5
8.8
8.3
5.3
Notes: 1\ EU proxy including AT, DK, FI, FR, IE, IT, NL and ES; 2\ BG, HR and RUS (no. of apartments): 2000-2006; 3\Census data (last available year)
Sources: UniCredit Group CEE Research Network, Department of the Environment Heritage and Local Government (Ireland)
The housing gap is enhanced when quality standards are considered
Average usable area per dwelling1,2
Average number of rooms per dwelling1,2
4.2
87
3.2
 The communist regime left the CEE region with a unique housing stock of relatively
recent, but often rundown homes
 Quality and maintenance issues are particularly relevant in some CIS countries
 In Central European countries, like Hungary and the Czech Republic, quality
standards are much more similar to western ones
6
Notes:1\ EU proxy including AT, DK, FI, FR, IT, NL and ES; 2\ EU: Census data (last available year). As of 2001 for BG, CZ, HR, LV, LT and SK;
as of 2005 for RUS and UKR, as of 2006 for EST, HU, PL and RO
Sources: UniCredit Group CEE Research Network, Department of the Heritage and Local Government (Ireland)
EU
CEE
Poland
Estonia
2.8
Slovakia
Croatia
Bulgaria
Czech Rep.
Romania
Hungary
Lithuania
Latvia
EU
CEE
Ukraine
2.7 2.8 2.8
2.5 2.6 2.6
2.4
2.3
63
Czech Rep.
Hungary
70
Bulgaria
Poland
Croatia
Lithuania
Romania
Latvia
Slovakia
Estonia
Russia
Ukraine
50
64
59 61 62
55 55 56
3.6 3.7
74 76 77
Income convergence and improving living standards as drivers for
demand for new residential real estate properties
GDP per capita (EU27=100 in PPS)
2000
81
72
69
58
46
45
68
60
57
39
37
48
55
41
50
40 43
Turkey
Slovakia
Romania
Poland
Lithuania
Latvia
Hungary
Estonia
Czech
Rep.
Croatia
Net financial and real wealth in CE1,2
(Index 2004=100)
Net financial and real wealth in SEE1,2
(Index 2004=100)
Net financial and real wealth in BE1,2
(Index 2004=100)
110
110
110
105
105
105
100
100
100
95
95
95
90
90
2004
2005
2006
2007
Net financial wealth
Net financial and real wealth
7
64
26
Bulgaria
28
38
56
2007
90
2004
2005
2006
2007
Net financial wealth
Net financial and real wealth
2004
2005
2006
2007
Net financial wealth
Net financial and real wealth
Notes: 1\ CE: CZ, HU, PL and SK; SEE: BG, HR and RO; BE: RUS andTK; 2\ Net financial wealth is defined as the difference between households’
financial assets and liabilities; proxy for the overall accumulation of both financial and real wealth using the difference between households’ financial
assets and the non-mortgage component of debt
Source: UniCredit Group CEE Research Network, Eurostat
Survey data show strong potential demand, mostly as primary house
General likelihood to buy new house/flat (%)1,2
Yes in next 3 yrs
6
7
9
9
6
6
5
8
6
5
5
Avg
SI
CZ
8
Yes in next 10 yrs
7
4
HU
6
7
7
SK
7
HR
 2 out of 10
households intend to
buy real estate
property
5
7
10
Maybe after 10 yrs
8
9
11
5
PL
RUS
7
8
7
4
5
RO
6
4
4
SRB
BG
4
5
5
3
2
7
BIH UKR
General likelihood to buy new house/flat, by purposes1,2,3
2
4
5
4
6
4
2
1
5
1
5
4
2
0
4
88
86
91
90
94
Avg
SI
CZ
HU
SK
Main place to live
8
3
8
8
2
1
0
5
4
96
91
81
HR
PL
Investment (to rent)
RUS
7
4
6
0
3
9
1
6
7
3
6
3
1
7
4
82
87
86
88
88
SRB BG
BIH
RO
Secondary house
 9 out of 10 potential
buyers are seeking
for a house to live in
 Some rising demand
associated to
investment or
vacation purposes,
particularly in
Croatia, Bulgaria
and Romania
UKR
Other
Notes:1\ Survey involving 1,000 individuals (more than 2,000 in RUS) aged >15 and living in the largest cities of the country; all interviews
were conducted as personal face-to-face interviews by Bank Austria’s long term partner agencies (GfK, RmPlus, TNS); 2\Countries are
ranked by level of per capita GDP; 3\ Sample represented only by those willing to buy new house/flat
Sources: UniCredit Group CEE Research Network, Bank Austria Market Research
Demand mostly associated to higher income classes …
General likelihood to buy house/flat, by income1
Propension top 30%
Propension 30-51%
Propension 51% and less
34
27
17
13
9
13
9 10
27
15
17
19
17
15
14
1213
11
10
Notes:1\Countries are ranked by level of per capita GDP
Sources: UniCredit Group CEE Research Network, Bank Austria Market Research
Ukraine
Bosnia
7
Serbia
Hungary
Czech Rep.
Slovenia
Average
10
27
23
Romania
14
15
Poland
19
26
23
21
Croatia
18
27
26
Bulgaria
24 25
Slovakia
26
30
28
Russia
28
34
8
… and younger generations
General likelihood to buy house/flat, by age (%)1
30-39
40-49
>50
20
26
15
7
20
12
9
4
42
31
28
Romania
26
24
16
4
Russia
29
25
18
8
Poland
7
Croatia
34
27
17
6
10
4
29
27
4
Slovenia Czech R. Hungary Slovakia
31
23
42
22
14
4
40
23
13
4
32
30
11
5
15
5
31
50
55
<29
Serbia
Bulgaria
Bosnia
Ukraine
Evolution of CEE population aged 15-39Y in 1981-2025F2
(% yoy growth)
2.0
Tot pop
15-39Y
1.0
0.0
-1.0
-2.0
-3.0
1981
10
1986
1991
1996
2001
2006
Notes:1\ Countries are ranked by level of per capita GDP; 2\ CEE: BG, CZ, EST, HU, LV, LT, RO and SK
Sources: UniCredit Group CEE Research Network, Bank Austria Market Research, Eurostat
2011
2016
2021
Agenda
Residential Real Estate in CEE: supply and demand
House price dynamics
Challenges and opportunities ahead
UniCredit Group: an active player on the market
11
Growth in house prices has been persistently high …
Residential property prices in the enlarged Europe
(yearly average increases 2002-2007)1,2
12
Notes:1\ Growth rates calculated in local currency (nominal terms). All data used are from NCBs and local Statistical Offices and refer to non-harmonised national
sources, thus any comparison on the dynamic of house prices across countries should be taken with care; 2\ B, DE, IT: 2002-2005; NL, PT, LV, LT: 2002-2006.
House prices for Latvia and Ukraine refer to capital cities
Sources: UniCredit Group CEE Research Network based on National Statistical Offices, NCBs, Department of the Environment Heritage and local Government
(Ireland)
… but mostly compatible with the convergence story …
 Improving household financial
conditions and limited supply remain
key drivers of strong demand (1%
increase in income and supply result in
1.1% and -2.8% change in prices,
respectively)
Actual vs equilibrium prices in 2000
and growth rates of actual prices3
100.0
Actual prices vs equilibrium (2000)
1
Croatia
 The large inflows of immigrant workers
toward EU contributed to higher demand
for housing through substantial inflows
of remittances (1% increase in the ratio
of remittances over GDP results in 0.6%
increase in prices)
80.0
60.0
Poland
Russia
Slovakia
40.0
Estonia
Hungary
Czech R.
Bulgaria
Romania
Lithuania
Latvia
20.0
0.0
0.0
10.0
20.0
30.0
Growth rates 2001-2007 (real terms, local currency)
13
40.0
2
 Fast development in the mortgage
market and greater availability of
credit at better conditions might have
spurred the growth of house prices (1%
increase in the ratio of mortgages over
GDP and interest rates results in 0.2%
and -0.01% change in prices,
respectively)
Notes: 1\ CZ: 2001; EST, LT, PL, RO, SK: 2002; RUS: 2003; 2\ EST, PL, RO, SK: 2003-2007; LV: 2001-2006; LT: 2003-2006; RUS: 2004-2006; prices for Latvia
refer to Riga suburbs, while for Romania to Bucharest; 3\ Equilibrium house prices are calculated based on out-of-sample estimation by regressing house prices
(expressed in real terms) on GDP per capita in PPS and mortgage rates using Eurozone countries as a benchmark
Source: UniCredit Group CEE Economic Research
… and with no major deviations from equilibrium trends
Real estate prices, country average
(EUR per sqm)1,3
1,104
Slovakia
Slovakia
418
1,605
Russia
2,177
Romania
407
1,968
Poland
Poland
766
952
Lithuania
Lithuania
366
1,372
Latvia
Latvia
461
1,009
527
Hungary
Hungary
1,404
Estonia
Estonia
433
787
393
Czech Rep.
Czech R.
1,693
1,129
Croatia
Croatia
558
167
0
Bulgaria
500
1,000
2002
14
Russia
430
Romania
Bulgaria
Ratio of real estate prices over
equilibrium prices in 20072,3,4
1,500
2,000
2,500
3,000
0
20
40
60
80
2007
Notes: 1\ LV, LT: 2006; 2\ LV, LT, RUS: 2006; 3\ Prices for Latvia refer to Riga suburbs, while for Romania to Bucharest; 4\ Equilibrium house
prices are calculated based on out-of-sample estimation by regressing house prices (expressed in real terms) on GDP per capita in PPS and
mortgage rates using Eurozone countries as a benchmark
Source: UniCredit Group CEE Economic Research
100
120
Housing investment affordability has significantly decreased over
the last years
2.5
Italy
4.8
Ukraine
France 1.9
4.1
Russia
Finland 0.6
3.2
Latvia
Austria 0.5
2.8
Poland
7.0
2.6
Bulgaria
Romania
2.5
Kazakhstan
Lithuania 2.1
Estonia 1.9
Slovakia 1.9
1.8
Croatia
Hungary 1.4
Czech R. 1.0
Affordability Index (2007)1,2
Affordability of housing investment3
(percentage of households over total)
48.0
15
10.0
3.3
 Low affordability implies that
in many countries demand
for house purchases
remains mostly related to
the emerging middle class
segment or to high net worth
individuals
Bulgaria
13.0
Romania
14.5
Czech R.
Hungary
Croatia
Slovakia
16.3
Poland
50.6
 Over the last years, growth
in real estate property prices
was much higher than in
wages. This results in a
sharp deterioration in
housing affordability
Notes: 1\ The affordability index is calculated as house prices (€ per sqm)/ average gross monthly wages; 2\ As of 2006 for Latvia and Lithuania; 2005 for Italy,
Finland and Austria and as of 2003 for France. Prices for old EU Countries (except Finland), Latvia and Romania refer to the capital cities; 3\ Share estimated using
an affordability index benchmark of 2 (measured as house prices per sqm over gross monthly wages) and official statistics on households’ income distribution
Sources: UniCredit Group CEE Research Network, Department of the Environment Heritage and Local Government (Ireland)
Agenda
Residential Real Estate in CEE: supply and demand
House price dynamics
Challenges and opportunities ahead
UniCredit Group: an active player on the market
16
The current macroeconomic scenario might be less supportive for
the residential real estate market …
Some deceleration in growth, as the economic cycle
peaked in 2006-2007, but still very high rates…
Real GDP and gross monthly wages
% growth p.a. 2008-2010
… with international repricing of risk to lead to some credit
tightening and possible lowering of capital inflows
∆ CDS spread vs USD (June ’07- April ’08)
bps
190
13.6
12.5
157
9.3
111
126
139
96
95
5.8
5.0
4.6
65
28
CE
SEE&B (1)
Wages
17
Broader
Europe
Real GDP
Note:1\ Including Estonia and Lithuania
Source: UniCredit Group CEE Research Network, Bloomberg
60
39
19
PL HU CZ SK
HR BG RO LV
UKR RUS TK KZ
Central
Europe
SEE &
Baltics
Broader
Europe
… but the mortgage market will continue to expand
Housing loans volume1 (EUR bn)
Housing loans (% of GDP, 2007)
Netherlands
Portugal
Spain
France
Germany
Austria
Italy
Latvia
Croatia
Lithuania
Czech R.
Hungary
Bulgaria
Poland
Slovenia
Slovakia
Ukraine
Turkey
Romania
Russia
18
70
CE
17%
62
56
35
33
23
17
113.3
39%
70.5
26.2
2004
2007
2010F
SEE&B
34
21%
18
17
14
12
10
10
8
8
6
4
4
2
Note:1\ CE: PL, CZ, SK, HU, SI; SEE&B: BG, HR, RM, LV, LT
Sources: UniCredit Group CEE Research Network, ECB
54%
45.5
25.4
6.9
2004
2007
TK+RUS+UKR
2010F
56%
164.7
84%
12.9
2005
43.7
2007
2010F
x
% growth p.a.
Gap in supply matched to continuously lively demand will remain a
clear driver for long term sustainability
 Bulgaria: more selection to come on the holiday
home segment
Years to saturation1
 Croatia: monetary tightening is expected to slow
otherwise solid growth
32
 Czech Republic: no housing bubble on the
horizon (yet)
26
 Hungary: some oversupply, but no evidence of
price bubble
21
19
17
14
13
 Kazakhstan: bubbles do burst
14
 Poland: first signs of stabilization, but housing gap
remains
11
19
Ukraine
Slovakia
Russia
Romania
Poland
Hungary
Czech R.
Croatia
Bulgaria
 Romania: some cooling but still with high potential
in the mid term
 Slovakia: still healthy growth potential on the
horizon
 Turkey: still a market for few people
 Ukraine: untapped potential in the medium-high
segment, with some cooling on the luxury one
Note: 1\The number of years before saturation in the residential property market is calculated as the ratio between the estimated market potential (total
number of households willing to buy a new house/flat) and the current level of construction activity (based on last available data) under the extreme
assumption that all potential buyers will look for new housing
Sources: UniCredit Group CEE Economic Research, Eurostat
Agenda
Residential Real Estate in CEE: supply and demand
House price dynamics
Challenges and opportunities ahead
UniCredit Group: an active player on the market
20
Number 1 Network for Mortgage and Real Estate Financing
 Mortgage and Real Estate Market in
CEE shows great potential for future
growth.
 With a presence in 20 CEE countries
UCG can boast the most extensive
network in the region.
 Each bank is able to provide a
complete range of real estate products
and services for mortgage loans as well
as commercial real estate projects.
 The financing solutions are tailor made,
combining local market knowledge with
international financing expertise.
21
Mortgage Market: Position of the Group‘s banks in CEE
UniCredit Group Mortgage Market Share in CEE
40
35
Market Share by End 2007
30
25
20
15
10
5
1
1
POLAND
CROATIA
1
4
4
5
1
8
3
5
5
0
BiH
= market position
22
TURKEY
CZ
SK
BULGARIA
RUSSIA
ROMANIA
HUNGARY
SLOVENiA
Mortgage Market: UniCredit Group is a leading regional player
Positioning
Market share
in Q4 2007
=
New volumes 2008-2010
(EUR bn)
40.0
Croatia
35.0
30.0
25.0
Bulgaria
Poland
20.0
Ukraine
15.0
10.0
5.0
Slovenia
Romania
Czech R.
Slovakia
Latvia
Hungary
Lithuania
Turkey
Russia
0.0
0%
10%
20%
30%
40%
50%
60%
70%
80%
Market potential
LC CAGR ’08-’10
 All UCG countries of presence in CEE are of strategic importance for the mortgage business
 Russia, Ukraine, Poland and Turkey key markets for future growth
23
Source: UniCredit Group CEE Research Network
Real Estate: a fast moving business segment
Financing Volumes of UniCredit Group
by Segment in CEE
Industrial
11%
 Commercial Real Estate in Central
Eastern Europe is one of the most
active business segments, with double
digit growth rates in countries such as
Russia, Romania and Bulgaria
Office
34%
Residential
18%
Retail
37%
24
 UniCredit Group is supporting such
important growth, with total financings
in the region expected to be in excess
of € 10 bln at the end of 2008 (ca +60%
yoy)
 A substantial growth is foreseen for all
the segments (residential, office, retail
and industrial/logistic) in the
development markets, while for the
mature ones the driving forces will be
mostly the residential (ca +70%) and
industrial (more than doubling yoy)
segments.
Real Estate: some examples of what we do
Odessa Logistic Park
Built in a joint venture programme with
Akron Group and GLD Invest Group.
Phase 1: 54.900 m² area for offices and
warehouses
Project Size: 3 phases, finished in 2010
with a total area of 170.000 m²
25
Conclusions
 Supply gap: the CEE residential real estate market is still characterized by a
quantitative and qualitative supply gap, despite the strong growth in new buildings
recorded in the last years
 Dwelling demand: the demand for residential real estate is strong and on top of the
existing demand, there might be a "potential demand" at the moment constrained by
affordability issues
 House prices: Increases in house prices have been significant in the last years. We still
believe that house prices in the region are compatible with an equilibrium level.
 Outlook: Looking ahead, despite a less supportive macroeconomic scenario, we keep a
positive view. We forecast some moderation in growth trends, but no backlash, as gap in
supply coupled with persistently lively demand represent a long term driver
 There are however a few areas to monitor which might exhibit some oversupply
 Supportive: As UniCredit Group we recognize the residential real estate market
potential in CEE. We are actively supporting the development of the market, both at the
retail level, being a major player in the mortgage market, and at the developers level,
with a dedicated structure
26