Domestic capital playing a bigger role in CEE

55% of all transactions are done by Hungarian funds giving stability to the market and giving international investors a guarantee of liquidity, but it can also become a barrier to entry for others

Domestic investors are playing an increasingly significant role in Central and Eastern European countries and Hungary is leading the way, delegates heard at Real Asset Media’s CEE Outlook Investment Briefing, which took place in Budapest last week.

‘Domestic capital, including domestic cross-border, now accounts for 30% of total flows and that is really significant,’ said Mark Robinson, CEE Research Specialist, Colliers International. ‘It is a positive development, as domestic money is more stable and less volatile’.

There is a strong differentiation across countries, he said, with Czech and Slovak money being very active at home but also across borders in the region, a trend which Hungary, which so far has been focused on the domestic market, could soon follow.

Outlook 2019 CEE panel, Bucharest, February 2019

‘In Hungary local funds kickstarted investment activity back in late 2013 and built up large portfolios, pulling in cash from small retail investors,’ said Bence Vecsey, Director, Head of Investment, Hungary, Colliers International. ‘In 2015 they already had a 30% market share, which has now grown to 55%. It has been quite an extraordinary phenomenon, and for international capital it has been very important to have an exit opportunity’.

There are two sides to the coin, said Árpád Török MRICS, Chief Executive Officer, TriGranit Corporation: ‘The fact that 55% of all transactions are done by Hungarian funds gives stability to the market and gives international investors a guarantee of liquidity, but it can also become a barrier to entry for others’.

The situation is evolving and might change this year, said Vecsey: ‘The major local funds are reaching their property allocations and don’t have the same purchasing power, so I think there will be a higher share of international capital buying property in Hungary this year’.

If there are real investment opportunities that tick all the boxes, ‘I think there is a very good chance that foreign investors will replace domestic funds,’ said Vecsey. ‘We are already seeing changes in capital flows, with Asia becoming the dominant source of capital actively pursuing investments in Hungary and the region. I see people flying in all the time’.

There are more sources of capital entering the market, but the biggest barrier to entry is lack of opportunities, he said, particularly in the office market as there hasn’t been much development in Budapest in the last couple of years. 

‘Local funds are long-term holders and they are unlikely to sell, so if we see lower volumes this year it will be because of lack of product rather than lack of demand’, Vecsey said.

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