Despite the fact that central banks around the world have invested heavily in quantitative easing programmes the European Union, and many other areas of the world, is still struggling to pull away from the 2008 recession. You only need to look at interest rates to see how both quantitative easing and relatively cheap finance have been used to support economies. When you bear in mind that the likes of Spain, Portugal and other parts of the European Union have seen their property markets decimated, perhaps it is surprising to see renewed interest in smaller EU property markets.
Smaller EU property markets
Figures from a recent RICS report show that demand for rental property is pushing rental growth in countries such as Hungary, Ireland and the Czech Republic. There are also signs of improvement in the Spanish property market but it is interesting to see an apparent detachment from the historic risk/reward ratio as investors look towards some of the smaller “more risky” markets.
Indeed even if we look at individual cities, while the likes of Munich, Frankfurt, Berlin, Madrid and Barcelona are grabbing the headlines, there is also interest in Budapest and Prague. So, on a countrywide level there is growing interest in some of the “smaller property markets” and in particular their leading cities.
Why not focus on established property markets?
In a perfect world you would expect investors to be looking towards the likes of Spain and Portugal as recovery plays for the European property market. These are markets which are well-established and despite their recent challenges they are starting to recover. There are still many repossessed properties under the control of financial institutions in these two countries which will at some point be sold at competitive rates to investors. However, the prolonged recovery in markets such as Spain and Portugal seems to have pushed some investors towards smaller markets such as Hungary, Ireland and the Czech Republic.
One reason for this change in trend may well revolve around the quantitative easing programme supported by the European Central Bank (ECB). The ECB has effectively promised “cheap finance” until at least the end of 2017 and possibly beyond. You could argue that the affordability factor in countries such as Hungary and the Czech Republic was not as out of kilter with their underlying economies as the likes of Spain, Portugal and to a certain extent the UK. Therefore, as we see demand for rental properties increasing there is every chance that property prices will be squeezed higher in these smaller markets.
European political infighting
Whether we like it or not Brexit has opened a can of worms with regards to European political infighting which is just about under control at the moment. We know there are serious disagreements behind-the-scenes even if the European Union has managed to stop details of these disagreements leaking into the press. Some member states believe the UK should “pay the price” for threatening to leave the European Union while others believe a more amicable sensible trading agreement should be the target.
It may be that political infighting within the European Union has prompted some real estate investors to look towards the likes of Hungary and the Czech Republic for their short to medium term investment targets. Things could turn round pretty quickly with Spain and Portugal, as two examples, but at this moment in time it seems that investors are happy to spurn the more established real estate sectors in favour of what some would deem to be “the more risky”.