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Judging by the various reactions to the fi rst edition, there seems to be not only a huge interest in the residential markets of Central Europe but also an enormous need for comparative analysis of investment opportunities of each market.
The approach to investigate capital cities as the fi rst place of foreign investors to enter a market proved to be a worthy starting point for research on the Central European region. However, with global capital not being bound to certain locations but always in search of the best opportunities, this report will also evolve and include further emerging markets. The fi rst expansion in this edition is to include the capital cities of Zagreb and Ljubljana to the analysis. Besides incorporating these two capitals, the second edition of this report will furthermore enable the reader to familiarize with market changes over time.
The Central European Twelve
The countries of Central and Eastern Europe share a recent past of centrally-controlled economies. However, the countries in the region differ in many extents. Most of them were former Sovietsatellite countries, with the exception of the former Yugoslavian republics. Most of them, due to the pre-war existence of a market economy and democratic institutions, retained an “institutional memory” and were able to restitute democratic capitalism faster than the former Soviet Union republics with little or no such history, such as the Ukraine. Since the onset of the transition these countries have all undergone economic reforms, though at different paces and which today form distinct groups.
The first group is made up of the rather small Baltic States of Estonia, Latvia and Lithuania, which range in size from Estonia with below 1 million people to Lithuania with 3.7 million. Estonia and Latvia experience very high GDP growth and an overwhelming dominance of the capital city, Tallinn and Riga respectively, while Lithuania has developed in a two-city country of Vilnius and Kaunas.
The second group contains the Visegrád countries (named after the town in Hungary where this group started political and economic cooperation): Poland (capital, Warsaw), Czech Republic (capital, Prague), Slovakia (capital, Bratislava) and Hungary (capital, Budapest) which were the fi rst to regain their independence from Moscow. These countries are often leaders in many economic performance indicators. They are of similar size with 5-10 million people, except Poland which is much larger at almost 40 million. Consequently, all exhibit strong population concentration in their capital cities, except for Poland which features a group of 10 metropolitan cities with Warsaw being by far the largest.
The third group is made up of the two EU member countries in the Balkans: Romania (capital, Bucharest) and Bulgaria (capital, Sofi a), with Romania having a much larger population of 23 million than Bulgaria’s at 7.7 million. These two countries have come into the spotlight of international investors since they entered the European Union on January 1, 2007.
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In addition to these nine recently-ascended EU countries the fourth CEE region – the European part of the Commonwealth of Independent States (CIS) – is represented in this report by Ukraine (capital, Kyiv). The country’s non-EU status as well as its large size both in area and population (46 million), sets Ukraine apart from the others.
Ukraine was one of the core parts of the Soviet Union and thus is struggling with burdensome economic and political encumbrances during its transition process. The residential market of its capital Kyiv has recently become a target of many foreign high-risk/high-profi t investors and has experienced extremely fast price growth.
The fifth group is represented by Slovenia (capital, Ljubljana) and Croatia (capital, Zagreb) located in the western part of the Balkan Peninsula. These two countries are the fi rst entities of the former Yugoslavia which established closer ties with the European Union, culminating in the accession of Slovenia in 2004 and its adoption of the euro in 2007. Croatia holds a candidate country status and began entry negotiations with the EU in October 2005. Slovenia and Croatia have recovered best from Yugoslavia’s breakup and both established stable market economies. While the GDP per capita of Slovenia almost levels the average of the EU 15, Croatia is less advanced though already ahead of the EU member states of Romania and Bulgaria in this indicator. Further editions may potentially include the capitals of the remaining former Yugoslavian territories – Serbia, Bosnia and Herzegovina, Montenegro, Macedonia and the newly established Kosovo.
Compared to their EU 15 counterparts, the CE 12 capitals’ clearly lag behind in several indicators touching their housing markets. Both the average living space per person and the dwelling stock per thousand inhabitants indicate quantitative and qualitative gaps between Western European cities. Financial factors, such as the GDP per capita, salaries and the development of the mortgage market also show substantial areas for growth. A high demand for new, modern housing is foreseeable considering the trend towards smaller household sizes in cities and urbanization rates in countries. Likewise, current demand has already begun to infl uence the housing markets of the CE 12 capitals, with their average dwelling construction output even topping those of the EU 15 capitals.
Residential Markets in Central European Capitals.pdf
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