CEE's booming real estate market leaving many behind

Analysis

According to the European Union's statistics department, Eurostat, both house prices and rents have increased by varying degrees everywhere in Europe despite the COVID-19 pandemic, and Central and Eastern Europe (CEE) is no exception, Emerging-europe.com reports.

Croatia, Slovakia, Poland and Estonia have recorded the highest increases of what is known as deflated housing prices in recent months (the housing price index deflated by the rate of inflation), with the lowest increases in Hungary and Romania.

The bottom line is that houses and apartments – both to rent and buy – are more expensive everywhere in the region, a trend that has been sustained for the past five years.

"The 2010s have seen a real estate boom all over the region. Despite a moderate fall in (especially rent) prices due to the 2020 lockdowns, real estate remained one of the main investment channels throughout the year, both for middle and upper-middle class locals, and for real estate investors coming from other regions, like Russia or China," Agnes Gagyi, a researcher at the Department of Society at the University of Gothenburg.

The trouble for buyers in the region who are looking for a home rather than a speculative asset, is that real estate prices have outstripped purchasing power, leading to a situation where prices are rising much faster than wages. A recent study by the consulting company Deloitte illustrates this point well. The firm looked at how many average yearly salaries it takes to purchase a 70 sqm property.

Serbia topped the list with 15.2, while the Czech Republic was the second least affordable market at 12.2 average yearly salaries. For comparison, just six yearly average salaries are needed to purchase a property in Germany, and just 5.1 in Norway.

"The situation for first-time young home buyers varies according to income and social standing but is mainly based on inheritance," Gagyi tells Emerging Europe.

As for how the region got here, Gagyi points to the unique heritage of the post-socialist era. The privatization of state housing, a housing system characterized by small ownership, a lack of social housing, and a weakly regulated rental market, all led to the current, low degree of affordability in the region.

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