The investment market for rental housing in the region of Central and Eastern Europe (CEE) is gaining momentum and interest from investors. Currently, most of the activity is concentrated in the Czech Republic and Poland, according to a report by the consulting company Colliers.
The volume of investment transactions with housing in the CEE region is limited and in the last 5 years amounts to an average of just over 200 million euros per year.
The balance between own housing and rented accommodation in CEE tends in favor of the former, the report shows. From the existing supply, owned by entrepreneurs / investors with multiple units, the Czech Republic is in the lead, followed by Poland, and the other countries are behind it.
Factors driving the rental market
“In many countries, there is an increase in the fragmented rental market as individuals invest in residential real estate for personal investment. This is largely due to the fact that savings in personal accounts do not provide a significant return and the cost of mortgages is at historically low levels in most markets, explains Kevin Turpin, Regional Director of Research, CEE, Colliers.
According to him, many of these homes are rented out, and in the meantime their value is rising as sales prices per square meter continue to rise every year. Combined with the lack of new supply in many markets and the impact of this activity, it fuels this dynamic and makes the dream of owning a home for many seem impossible at first glance. And partly for these reasons, the investment market for rental housing and investor interest are also growing, Tarpin said.
In 2019, the highest levels of overcrowding (based on the number of rooms per person and the average household size) are observed in Romania (45.8%), Latvia (42.2%) and Bulgaria (41.1%). and the lowest in Cyprus (2.2%). The data show that most households in Central Europe are more overcrowded than the EU average.
The long-term European trend shows a gradual decrease in overcrowding, so if we assume that this trend continues and that the markets in CEE continue to converge, this to some extent proves a shortage of supply and the need for more housing. We assume that part of this offer will be rental properties, provided that the strategy of more entrepreneurs and investors changes, as is already happening in Poland and the Czech Republic.
The last 5 years in CEE have seen a rapid rise in sales prices, partly due to supply shortages, relatively easy procedures and low interest rates on loans, as well as the willingness of people to invest to make more money from their savings. than they would get in a bank. Other factors also play a role, such as shortages and rising costs for suitable plots, lengthy and uncertain permitting procedures, and shortages and subsequent increases in labor and construction material costs.
According to Eurostat, the cost of building new housing in the EU has increased by 15% for the period 2010-2019. Among the Member States of Central and Eastern Europe, the largest increase is observed in Hungary (+47%) and Romania (+ 46%). Taking into account all these factors, many developers in the region are not tempted to deviate from the model of building individual housing units.
Of the existing projects in the investment market for rental housing with several units owned by entrepreneurs / investors, the Czech Republic leads by about 57,000 units, followed by Poland with about 4,500 units.
As demographics change and construction prices in crowded areas continue to rise and opportunities become less and less, and many people are pushed out of the housing market, we expect this class of assets to be needed in CEE, says Victor Constantinescu. Managing Partner, Co-Head of Real Estate, Bucharest, Kinstellar.
We also see a large number of announced construction projects in the investment market of rental housing, which are planned to be built in the next few years. When tracking the activity in the field of multifamily residential properties, it becomes clear that all markets in CEE are at a relatively early stage of development and are moving at different speeds. We can certainly see a faster trend in Poland and the Czech Republic, he added.
Terms of employment
In most markets, leases are usually defined as long-term and short-term, and short-term contracts are usually defined as less than 3 months, but can be up to 6 months.
Long-term contracts usually last 1 year or more, which is obviously significantly less than the standard over 5-year leases that are observed in other commercial sectors.
In the sector of the investment market of rental housing, lease agreements are most often concluded for 1 year, after which the tenants either give notice and are exported, or are extended for another year.
Agata Jurek-Zbroyska, real estate partner in Greenberg Traurig, Poland, adds: “In the CEE countries covered by this report, there are no provisions restricting leases between private entities, and no plans are in place to implement them at the time of writing.
Therefore, at the end of each year or for each term of the lease, landlords have the right to review the lease, as no indexation is applied in a standard lease for 1 year. This, of course, can sometimes lead to significant rebounds in rents, depending on current market conditions. “
The volume of housing investment transactions in the CEE region is quite limited and averages annually a little over EUR 200 million in the last 5 years (unlike the total volume of transactions of over EUR 60 billion in 2019 and 2020). in EMEA).
Dorota Visokinska – Kuzdra, Senior Partner, Corporate Finance, CEE, Colliers adds: “This is again due to the lack of a stable product on the market, not the lack of investor appetite. In several of the cases we have observed and consulted in CEE, investors have entered the market by acquiring a housing developer or setting up a partnership to secure a supply. This can be a great scenario that benefits everyone, as it can help the rapid development of both products for sale and for rent by sharing the financial burden. “