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Friday, March 31, 2006 

Eastern property bubble at risk

A flotation bubble that saw £1bn of east European property firms come to the stock market last year is in danger of bursting.

Last year 19 property companies joined London's junior Aim market - the largest number for seven years. Of these 17 raised a record £1.16bn of new money to buy up both built and unfinished schemes in east European countries from Poland and Hungary to Bulgaria and Romania.

But seasoned City property investors and advisers now fear Britain's large institutional investors have put the brakes on funding new eastern Europe property ventures.

There is concern the market has fallen victim to 'irrational exuberance' - the phrase former Federal Reserve chairman Alan Greenspan used to describe over-inflated share prices during the dotcom bubble.

Investors were enticed into the property shares hoping that high-growth economies would see house-price inflation. The prospect of countries joining the EU was also enticing. But while many London listings have been a success, others have proved less lucrative. This week Deutsche Bank and Evolution Securities postponed plans to list Bluehouse Accession Property.

Deal sources blamed a lack of investor demand for the intended £100m fundraiser to expand Bluehouse's portfolio in Bulgaria and Romania. After years of dramatic rises in the price of Bulgarian property, the market seems to be stuttering. Bulgarian agency Industry Watch expects residential prices to 'stabilise' this year.

Seven of last year's property floats were Bulgarian specialists, and some experts say investors may not have fully appreciated the risks.

'Fundamentals have gone out of the window in eastern Europe,' according to Michael Marx, head of Development Securities and one of the country's most respected British developers. 'To quote Alan Greenspan, 'the cycle has not been disinvented'.'

Investment bankers working on new flotations insist institutional investors are still keen on the idea, but worry about liquidity, or lack of trading, which can lock investors into falling stock.

Ernst & Young partner Mike McNamara says raising finance for new companies wanting to invest in the next round of eastern Europe accession countries may prove difficult.

Source: ThisisMoney.co.uk
Article by James Rossiter, Evening Standard

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