Take care investing in eastern Europe, warns survey

Property investors seeking to buy in the new EU countries of central and Eastern Europe were today warned to proceed with caution.

The Royal Institution of Chartered Surveyors European Housing Review 2005 said while these countries were more affordable, they also had more precarious housing markets, and foreign investors should exercise care.

A big issue facing the new accession countries is quality of housing as they are faced with the task of overhauling the legacy of poor quality homes from the post-war Soviet years, the report said.

Some countries still lack an adequate legal property infrastructure to effect necessary improvements, it said.

On the whole, housing markets across Europe had strengthened over the past year, with all the major market indicators – prices, transactions, mortgages and building – showing strong growth, the report stated.

Ireland, France and Spain all maintained double-digit house price inflation rates.

The UK alone saw its housing market decline significantly in the latter part of the year after a series of interest rate rises. Nevertheless, year-end prices were still markedly higher than in 2003 as a result of the strong increase in early 2004.

Even Germany’s long-term stagnant market appears to be picking up as owner-occupiers increase their mortgage demands, the report found.

Out of the 17 European markets analysed in the report, only Austria and Hungary had a relatively poor housing market year in 2004.

Many European countries saw price rises between 5% and 8%, including Belgium, Italy, Sweden, Denmark, Finland and Portugal.

Now in its sixth year, the RICS report provides unique data and in-depth analysis covering a combined market of 460 million people.

The report predicts that 2005 is likely to see continued price growth although market conditions will probably worsen significantly towards the end of the year.

RICS chief economist, Milan Khatri, said: “The prospect of a housing market slowdown in Europe has risen given the sluggish nature of real economic activity.

“However, buoyant mortgage markets paint a very different picture for the market outlook. Very low interest rates and increased competitive pressures in the mortgage industry are delivering solid growth in lending, which is likely to continue through much of 2005."