(AG Real Estate) Investment research - SEE Residential Market Overview 2006.

flats. Crucial factors to the success of residential developments in Belgrade are site selection and the developer's ability to maintain land costs low enough to meet the market standards and selling prices for that area.

Under the present market conditions, developers focus on the middle to high quality residential market, either in New Belgrade, or in the luxurious outer districts. Residential developments in Belgrade of medium to high building standard and with good amenities experience high demand.

Typical returns over invested capital are in the region of 40-50 percent. A developer, who is able to secure an adequate development mortgage from the bank, and at the same time benefit from the high return on the invested capital, could operate under conditions

that would be in many respects either similar or better than the ones offered by other markets in the region. Buyers pay the entire sales price upon completion and delivery of the flats, or in advance with a reduction of about 30 percent.

Situation in Budapest

In general, the overall market in Budapest is experiencing a reduction in construction volumes, with a current focus on property investments fuelled by consistent demand, due to seasonality effects, and an enhanced need for quality versus quality i.e. mass development projects.

In terms of willingness to buy homes from existing owners, such purchases are increasingly overshadowed – even if, naturally, their share is still far larger than the share of the newly-built ones. While during this last year, 29% of those who bought a home in Budapest bought a newly-built property, among those who intend to buy one within the next

year, this category represents 37%. Supposing that in an actual purchase, many of them will finally decide to go for second-hand homes, the trend is obvious.

At least in the capital city, the overweight of supply is becoming moderate. Partly because of this, and partly because of a permanent increase in developer costs, in respect of newly built homes, a price increase shall be expected. And that will create a realistic possibility for a price increase in respect of second-hand homes as well.

For rented homes and apartments, demand for studios remains high and dwellings with two or three separate rooms, which are more cost efficient for use by several persons. Such homes of 40–50 sqm are typically offered at the price of 60–65,000 forint in the favoured parts of Budapest, while in large cities of the countryside, these are 10% cheaper. The typical renting period is one year.

Situation in Zagreb

As in the neighbouring transitional countries, the change in the political system effected an economic recession and a collapse in the housing market. Under the new political set up, the sale of public housing (25% of housing stock) was affected which had a significant impact on the housing market, making Croatia a nation of homeowners.

Since 1990, the government has introduced several financial packages for certain social sectors such as those employed in the army, police, and certain ministries. These schemes created an artificial demand in the market, especially in Zagreb.

Zagreb is in demand of 50.000 apartments and annually only 8500 are built. According to a research carried out by GFK in Zagreb, over 170.000 residents in the Republic of Croatia or cca 5 % of the adult population are interested in solving their residential status this year. This is confirmed by data from a comprehensive survey on household consumption in 2004 which was carried out by the State Institute for Statistics on a sample of 2847 households with an average of 2.7 members per household.

Residential construction of apartments is continuing to increase each year along with the average flat area which is being constructed. A total of 4566 flats were built in 2005 by construction companies, which is 8.6% decrease compared to 2004. This includes residential construction carried out by building companies as well as private construction by individual owners.

Although demand is higher than supply, there will be no large housing projects in Zagreb in 2006 due to lack of large quality parcels for construction. The investors are pointing fingers to the local administration, blaming them for inadequate activities in planning and passing detailed physical development plans which determine their future moves. Analysts estimate that if construction carries on at the current rate, equilibrium between demand and supply will be seen in approximately six to eight years.

contact :

Srđan Vujičić, Managing Director

King Sturge Belgrade

bradmorekingsturge@ikomline.net