Smart money moves out of Eastern bloc

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The Independent Online

An ill wind blowing south from the Baltic states has sent a sharp chill through most of the property markets of the old Communist bloc.

The days when budget airlines disgorged dozens of British property hunters into picturesque cities such as Riga, Krakow or Budapest, and flew them home after a long weekend with deeds to a cut-price apartment stuffed into their hand luggage, appear to be well and truly over.

The Baltic states are suffering a severe slowdown in property prices and in the number of deals being done by foreigners, after a boom that saw flats in parts of the Latvian capital Riga and its Estonian counterpart Tallinn more than double in value between 2000 and last year.

The Baltic bubble has been burst by government attempts to rein in rampant inflation by increasing interest rates and making it harder for would-be buyers to get mortgages – factors that also tamed Poland's property market in the second half of last year.

Polish prices grew by more than a quarter early in 2007, but are now crawling along as thousands of new apartments built in a recent construction surge flood the market. Hungarian property, meanwhile, is no longer particularly cheap. Many foreign buyers who made quick profits in Budapest before and just after the European Union expanded into eastern Europe in 2004 have now moved their money on to neighbouring Romania. Land and property prices there are still growing relatively quickly as the credit market expands, low average wages start to rise and more people move to major cities for work.

Bulgaria is still seen as a decent long-term bet – but enthusiasm for holiday homes on the Black Sea and in ski resorts such as Bansko is waning as disappointed foreigners complain of shoddy workmanship and trouble finding buyers and tenants for their properties.

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