Fluctuating currencies have negative impact on Central and Eastern Europe property markets
Falling currencies in Central and Eastern Europe are having a negative effect on property investors, developers and occupiers across the region, with some countries more affected than others, according to a new report.
Because most countries in the CEE region are not members of the european union recent devaluations of currencies are having a material impact, says the CEE Currency Fluctuations report from CB Richard Ellis.
Not only have local currencies fallen in value over the last nine months but many CEE businesses and consumers took out loans or issued bonds in foreign currencies in recent years, when their currencies were much stronger.
Property owners face the prospects of falling house prices and rising mortgage costs on mortgages taken in local currency terms which has the potential to sharply reduce their disposable income, the report points out.
In the commercial property markets it is property occupiers who are most affected in the short term. Whilst their earnings will generally be in local currency, rents will typically be denominated in euros. A fall in the local currency therefore represents an equivalent increase in rent.
However the impact of currency fluctuations are not uniform across the region with different countries being affected more than others.
'For businesses that operate internationally currency risk is a fact of life and a well-understood cost of doing business. To a large extent, real estate is no different in this respect. Nevertheless, the globalisation of the financial markets and the ability of citizens of the emerging CEE economies to take out euro or Swiss Franc denominated mortgages does pose some particular challenges to these economies and their property markets,' said Tromp, Head of CEE Research, CBRE.
'The fact that rents are denominated in euros offers investors some protection against income devaluation, but this is only temporary and in some cases will prove illusory. In essence, investors have two options: mitigate the currency risk, or accept the consequences and deal with them as best they can,' he added.
In the current climate it is evident that the principal risk to investors lies in the medium-term threat posed to their income, the report says.