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Real estate: standing its ground in a challenging environment

  • Quantitative and qualitative housing shortage in CEE persists
  • 2 out of 10 households are planning to buy a house or flat in the coming years

Central and Eastern Europe (CEE) has seen significant changes in the residential real estate business. A recent study by UniCredit Group shows that there is still a qualitative and quantitative housing shortage in CEE. "Despite strong acceleration in the last years, the supply of new housing is still unable to satisfy demand", says Erich Hampel, Head of the CEE Division of UniCredit Group. Home ownership is high in the region, but with fast rising incomes, households are increasingly seeking to improve their living conditions. This is an additional factor driving demand for residential real estate. "2 out of 10 households are planning to buy a house in the coming years, mostly as a house to live in", says Erich Hampel. "In this context, we continue to see market potential for residential real estate in CEE."

Due to the international financial crisis, the macroeconomic environment today is less supportive. Economic growth in the region is still high, but the repricing of risk at the international level can lead to some deceleration in capital inflows and some credit tightening – with both factors having a potentially negative effect on the real estate sector. "We forecast some moderation in growth trends, but no backlash", so CEE Chief Economist Debora Revoltella.

High level of home ownership but quality of housing stock lags behind
As a result of the privatisation process, home ownership is generally high in the region, but the quality of housing stock still lags behind the Western European standard. A large proportion of the existing housing stock has been inherited from the former socialist housing system, with more than 70 % of dwellings built between 1945 and 1990. Even though the housing stock is relatively recent, the houses are often rundown homes. The average usable area of housing at the regional level is around 63 square metres, compared with an 87 square metre average in the more mature Western EU countries. In the "old" EU, homes have an average of 4.2 rooms, but only 2.8 in CEE.

"Our study shows that on average, 56 % of the population live in a house and only 44 % in flats", explains Revoltella. "However there are some significant differences within the region." Overall more than 70 % live in houses in Bosnia (75 %), Serbia (71 %) and Hungary (70 %), whereas flats are overrepresented in Russia (84 %), Ukraine (63 %), Poland (58%) and Czech Republic (53 %).

Gap in supply is a clear driver for sustainability
"The quality and quantity of real estate in CEE is comparatively low", says Revoltella. Some figures can give a hint of the situation. The number of dwellings per thousand inhabitants averages 413 in the CEE region, a level that is below the Western European average of 472, while new construction has averaged almost 3.0 units per thousand inhabitants in CEE over the last 3 years versus a benchmark of 7.4 in Western Europe. 

Such a qualitative and quantitative gap in supply suggests that there is still potential demand for new housing construction. After all, around 19 % of the population are planning to buy their own home and one-third even plans to do so in the next 3 years. Another third is planning to buy a home in the next 10 years. Above-average figures were recorded for Romanians (25 %), Croats (24 %) and Slovenes (23 %) expressing their intentions to invest in new real estate.

The majority of those intending to buy a new house/flat are planning to use the property as their main residence (88 %). The motivation to buy real estate for investment purposes was identified more often in Serbia (9 %), Croatia (8%) and Bulgaria (7%). On the other hand, more Croats (8%), Ukrainians (7%), Slovenes and Bulgarians (6%) are planning to invest in a second residence.

No risk of overvaluation but some areas to monitor
House prices have increased significantly over the last decade, raising concern about a possible risk of overvaluation. "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", says Debora Revoltella. Areas to monitor include the holiday home sector in Bulgaria, or some imbalances in capital cities such as Bucharest, while the bursting bubble in Kazakhstan should be a warning signal for the region.

"Overall, despite a less favourable international environment and some imbalances, the qualitative and quantitative gap in terms of supply, combined with structural demand, will drive the market in the long term", summarises Revoltella.

Consistent demand in the CEE real estate market supports long-term growth in this market segment. UniCredit Group with its comprehensive network  in the region is able to provide a complete range of products and services for the real estate market, whether for mortgage loans or commercial real estate. "In some CEE countries UniCredit Group already holds a leading position in the mortgage market, e.g. in Poland, Croatia or Bulgaria", says Erich Hampel. Market share in these countries is between 16 and 34 %. In countries like Russia or the Czech Republic our market share in the mortgage market is considerably lower, though the potential growth volume in these countries is significantly higher. The key markets for future growth are Russia, Ukraine, Poland and Turkey, especially for commercial real estate business, where double-digit growth rates are expected.

About UniCredit Group
With total assets of more than €1,000 billion, ranking among the top financial groups in Europe, UniCredit has a presence in 23 countries, with over 40 million clients, 9,000 branches and some 170,000 employees as of 31 December 2007.
In the CEE region, UniCredit operates the largest international banking network with over 3,400 branches and outlets, where more than 70,000 employees serve about 27 million customers. The Group operates in the following countries: Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Kazakhstan, Kyrgyzstan, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Tajikistan, Turkey and Ukraine.

Requests:  Communications CEE 
Silvana Lins  
Phone: +43 (0) 50505 56036
E-mail: Silvana.Lins@unicreditgroup.at