Overvalued assets keep investors away from local property market

Romania, alongside Hungary, are the property markets in Eastern Europe that are not attractive to investors because of the amount of overvalued property, a study done by DTZ shows. The lack of transactions shows the need for property prices to go down.

The study puts together an index of the value of property assets at world level based on annual profits that investors estimate will gather in a five-year horizon, adjusted to the specific country risks.

Romania has been included in the “cold” category of markets where expected profits are bellow expectations and should be avoided by investors.

“Looking at the small number of transactions throughout 2009 and in the first half of 2010 Romania is classified as a “cold” market by the DTZ Fair Value Index. Romania and Hungary are the only countries in Eastern Europe whose attractiveness to investors is limited. This situation is the result of maintaining a significant difference between the expectations of sellers and that of buyers,” said Bogdan Sergentu, head of Valuations and Consulting with DTZ Echinox.

Retail properties were the most hit during the financial crisis, loosing the most in value. “This thing can be seen in the extensive presence of the retail sector among property transactions in Romania. On the other hand, the lack of transactions on the office market points to a need for the prices to go down for the sector to be attractive,” he added.

In Europe, the least attractive markets for investors are the UK and the Nordic countries, while Germany offers the best perspectives for future profits. Prague is one of the markets that are attractive to property investors, the report shows, while Moscow is expected to bring higher profits in the next period due to an increase in rents.

The study looked at 180 individual markets, defined by city and real estate segment.