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Home arrow News arrow East Europeans' Dreams Destroyed because of Real estate Boom

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East Europeans' Dreams Destroyed because of Real estate Boom
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Friday, 11 August 2006

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Buying in the city center, where the average unit sells for $100,000, is out of reach. THis is echoing laments from potential homebuyers throughout the European Union's new eastern members. The prices for real estate have risen more than 100 percent in the eight former communist states that joined the EU in 2004. Buyers drove this from Western Europe. In Poland, the free-market Citizens' Platform lost elections last September to a coalition of parties critical of EU membership. The real estate boom is stoking opposition. The price surge also has triggered investor concerns that the bubble will burst as interest rates rise, saddling banks with bad loans. The boom was also fueled by floating-rate mortgages as low as 4.4 percent. However, central banks are now lifting rates across the region. While EU membership has fueled economic growth by attracting investment from Western companies, wages in the region still are a fraction of those in Western Europe. Latvian wages increased 17.9 percent last year. According to Colliers International, the largest real-estate consulting company in Central and Eastern Europe, this is trailing the 50 percent surge in the country's residential property prices. In central Riga, where sleek new shopping centers are crowding out 19th-century buildings, prices in some quarters have doubled. And the transformation of the region's economy may fuel continued gains in property prices. Banks in Eastern Europe now hold almost $50 billion worth of mortgages, about 6 percent of the region's gross domestic product. In the 15 older EU member countries, they are 40 percent of the GDP. Eastern markets are cheap for many West Europeans. The story is similar in Denmark, where prices are rising at an annual rate of 16.1 percent, and Ireland, with average increases of 10.7 percent. In Budapest, an average two-bedroom apartment is selling for 21.7 million forint, or $103,710, almost triple the cost seven years ago, according to the market researcher GKI Gazdasagkutato. In the city center, prices are expected to jump 15 percent this year, GKI said. For example, Charles North, 59, from North Yorkshire, bought a two-bedroom apartment near Prague's city center in May 2005 and now rents it out on a short-term basis. In Budapest, 5,000 foreigners bought properties last year, about the rate as the year before, said Daniel Valko, an analyst at the Budapest-based real-estate brokerage Otthon Centrum. Last year, the number of Warsaw apartments bought by foreigners grew 11 percent, to 1,367. A British company seeking properties for investors, said Maciej Dymkowski, bought development director for RedNet, which is based in Warsaw most of the apartments. "The prices are astronomical for many Poles, but are still far below EU levels. That is little comfort to Apse, the Riga advertising saleswoman. The prices for real estate have risen as much as 100 percent in the eight former communist states that joined the EU in 2004, driven by buyers from Western Europe. While EU membership has spurred economic growth by attracting investment from Western companies, wages in the region still are a fraction of those in Western Europe. Latvian wages rose 17.9 percent last year, trailing the 50 percent surge in the country's residential property prices, according to Colliers International, the largest real-estate consulting company in Central and Eastern Europe. They are 40 percent of the GDP in the 15 older EU member countries. Eastern markets are cheaper for many West Europeans. In the city center, prices are expected to jump 15 percent this year, GKI said. Last year, the number of Warsaw apartments bought by foreigners grew 11 percent, to 1,367. A British company seeking properties for investors, said Maciej Dymkowski, bought development director for RedNet, which is based in Warsaw most of the apartments. By M. Sese http://realestatepress.org
 
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