NO CORRECTION, FOR THE MOMENT

Three years, investors were speaking openly about their concerns that yields were falling a bit faster than they thought made sense. This had shifted a year later to investors trying to draw a line in the sand, saying they'd never go below seven percent. And as recently as last year, no one believed yields would slip into the fives.
Perhaps the most notable feature of CED Invest, Roberts Publishing's first conference in Budapest that took place in mid-May, was that the word ‘correction’ kept coming up. It's a term that sends shivers down the spine not only for investors, but developers as well. Stagnation would no doubt suit both camps better, but several speakers stated that a correction would eventually have to come.

No one, however, seems to think this is imminent. In fact, the expectation for the short-term was that the price of buying buildings will continue to increase for now. As John Verpeleti of AXA Investment Managers put it: "There's no distinction being made between buildings." He complained that investors don't seem to notice that some buildings are in the CBD while others are in the suburbs; some are leased at €10 per sqm, while others are still at €20. "Half of them don't have a clue what they're buying," he suggested, adding it was hardly surprising, given that every dollar-worth of asset was being chased by $25.

Jacek Wachowicz of Heitman pointed out that yields are falling globally and with decisions having been made on the allocation of a huge chunk of cash, this can’t be changed overnight. Rental growth, he said, might be seen in Warsaw, but not even this is certain, or likely to be hugely significant.

Asked if rising interest rates are changing the playing field for investments, the first panel of the day decided ‘very possibly, but not quite yet’. Peter Koscis of HVB Bank gave his prediction: "We expect rates to increase, but they won’t go beyond 3.5 percent next year." The panel's only developer, Árendás Gergely of Wallis Real Estate, said he was concerned by projects being started by other developers, warning that if a market correction comes and yields soften, they could be in trouble given the high land prices some are now forced to pay.

A group of some of the biggest Hungarian real estate investment funds gathered for the second panel to discuss the situation faced by these local institutions. Their position on the market is complicated by local legislation, which forbids them buying SPVs. Since this leaves them with serious stamp duties to pay, it makes it far more difficult for them to pick up first class properties and makes international diversification nearly impossible. With the huge increase in money pouring into Hungarian funds, they're now able to compete for larger buildings, but foreign funds still tend to be more flexible, and hungrier to invest. Little hope was placed in changes to legislation in the near future.

The final panel considered risk. While Katalin Dévald of Linklaters made a strong case for the standard nature of the country's legal procedures, and Andrew Jackson of First Title praised the highly developed nature of the land registry, Petér Számely of Eurohypo said there were still concerns over the level of experience of judges. That said, on this panel, and throughout the morning, the primary risks that emerged were the threat that pricing has got out of control, and a lack of transparency on many levels of property transactions. It was a point raised during the opening speech from Hamish White (Colliers International), who called on agents to adopt more ethical standards of behavior.