So what makes an emerging property market? The question struck me last week on a tour of Zagreb, the capital of Croatia, which wants to be the latest country to carry the adjective ‘emerging’.Croatia is pursuing a classic route, following five golden rules for emergence.
Firstly, it is looking outwards for its property market with British, German and Spanish developers already working on office, retail and residential schemes in Zagreb and the main tourist locations of Istria, Split and Dubrovnic. Many more foreign-led schemes are expected to be started in the next two years.
Secondly, Croatia is looking outwards for small and large scale investors, too.“This entire block of apartments is being marketed solely to British buyers. We’re also considering selling later to Irish and Middle Eastern developers.
There will be new Grade A offices built, too, and we anticipate these are interesting to property funds from around the world,” explains Tatjana Tosic of Avenia Savills, the first Western estate agency to set up in the city, as she shows me around a new scheme.
Thirdly, it recognises that infrastructure is all. The airport is being enlarged, new trams are being introduced to the 15 daytime and four overnight lines, and underground car parks are planned for the centre. Motorways opened in 2004 have made Zagreb a convenient hub for business and tourism in central Europe.
Fourthly, like so many nations, demographics and geography are making Croatia stronger. It now has 25,000 new students seeking rental accommodation annually thanks to its growing universities.
Major multinationals like Siemens, Ericsson, T-Mobile and Coca-Cola have set up bases in Zagreb with more corporate relocations soon, providing demand for modern offices and executive housing.
Meanwhile there is a shortage of affordable residential accommodation for first-time buyers, producing a strong domestic rental market as young people save to purchase.
Fifthly, Croatia is setting all these specific ‘on the ground’ characteristics against a backdrop of working hard to be an international player, after years of being regarded by the Middle East and the West as a volatile, war-torn ‘separatist’ nation.
Earlier this month Nato invited Croatia to begin membership talks with US President George W Bush visiting Zagreb and praising the country for reforms. Croatia was declared a ‘candidate country’ for European Union membership in 2004 and is widely expected to become a full member within the next three years.
It’s hard not to be impressed.I was expecting Croatia to be a country that – because it had lagged behind the likes of Bulgaria, Hungary and Latvia in joining the EU – was less confident and less competitive. What I found was a self-aware country knowing exactly what to do to draw in international capital and global interest.
Newmark Knight Frank, the real estate company based in New York and London which produces a unique quarterly residential world-price index, is already flagging Croatia as one of Europe’s best performing markets throughout 2008.
“The annual rate of 11.6 per cent growth appears to resemble something of a return to form for Croatia, after rates of house price inflation dipped below six per cent towards the end of 2005. The highest values per square metre for residential property are found in apartments in the capital,” says Liam Bailey, NKF’s head of residential research.
This is yet another warning to the established property capitals of the world not to become complacent.For Croatia you could easily substitute other countries moving to the centre stage of the global property market – Poland and Russia in central Europe, Abu Dhabi and Qatar joining Dubai in the Middle East, the likes of China, India, Pakistan and Singapore in Asia, and Argentina and Brazil in South America.
All are making major charges to win international approval for commercial schemes, and each of them has representatives trying to woo the former powerhouses of western Europe and North America for investment.
I regard that time in Zagreb as another example of those tectonic plates moving, with the world and its powers changing before my eyes.
In 20 years time things may be very different: the players we now regard as emerging are expected to be dominant forces, if not acting singly then certainly by acting together.
Arguably China and India have already moved ahead of the United Kingdom for modern office space attracting commercial investors. So it would be foolish not to see the same trend gathering pace in other property sectors too.
It’s a changing world of real estate out there. Very soon, the emerging markets will have emerged – and then the property map will really change.
- Graham Norwood is property correspondent for The Observer.
The five golden rules for an emerging market