ROI declining in Eastern Europe

The lack of effectiveness of a simple capital growth strategy in property has now reached out from the western world and is starting to affect places in Eastern Europe.

Different strategies are needed in lieu of simpler times and many investors and companies are looking to change gears. An example of a company doing so is Xpansis, which is looking to launch an OEIC.

With commercial and residential real estate prices soaring across the board in eastern Europe, property markets that delivered substantial profits off of a high margin, are now levelling off, equalling similar investment prospects found anywhere in western Europe. This equilibrium that is being reached between the two halves of Europe is causing investors who once heavily pursued deals in eastern European nations, to change their focus and tactics, or exit the region altogether in search of newer markets.

The city of Kyiv in the Ukraine is a prime example of property prices increasing to the point where investors are able to compare prices to those in western European cities. According to Dmytro Selivanov, the SHM Smith Hodgkinson Ukraine director, with a very low availability rate that hovers around 0.4 square meters of office space per capita, and office rents being relatively high, the market for office space in Kyiv appears distorted to foreign investors and renters. They know they are paying twice as much in Kyiv as they would to comparable office space in other cities such as Prague, Bucharest, Budapest, and Warsaw. The market climate has changed dramatically and investors are having to adjust.

Chief executive of Rockspring Property Investment Managers, Robert Gilchrist expressed a commonly held perspective of the region, "Talking very generally, central European countries now have the same sort of yields as those in western Europe which means, if you factor in leverage, there is a lot of risk and little upside."

Gilchrist went on to describe how a few years ago, finding high yields from property investments often reached double digits however, "Now, rents have fallen a lot as supply has increased, while we have watched an immense decline in yields, which are now not reflecting real values."

Echoing the same sentiments and doubt about the region, Rob Randall of Matrix, a property fund manager states, "Why bother? I have no doubt that developers can and will make a killing in those markets in the coming years but, at the moment, passive investors are bearing all the risks without the rewards."

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