Property funds eye Hungary and Slovenia in eastern European push

HUNGARY and Slovenia could be the next eastern European markets South African property funds try their hand at.

South African funds are already active in Poland, the Czech Republic, Slovakia, Austria, Serbia, Montenegro and Romania. More are expected to do business in these countries, especially in Poland, Europe’s fastest-growing economy.

Redefine Properties and Rockcastle Global Real Estate own assets in Poland. Growthpoint Properties and other South African funds are also looking at opportunities in the country.

Last week, Accelerate Property Fund said it was planning to invest in Austria and Slovakia. If these investments were successful, Accelerate would expand further into the continent.

This followed New Europe Property Investments (Nepi) announcing the week before, that it had bought a mall in the Czech Republic.

South African funds are spending time and money abroad, meeting with market analysts, advisers, and brokers from companies such as Jones Lang LaSalle and Savills, as they compete for assets offshore.

Grindrod Asset Management chief investment officer Ian Anderson said he thought most funds had ventured into eastern Europe for the right reasons.

“They are looking to establish long-term businesses and partnering with, building, or acquiring the best platforms in the region,” he said.

“However, in the short term, the obvious appeal is the positive spread between the cost of capital and the initial yields on the properties being acquired, which may lead to acquisitions of lower-quality assets or assets that are overvalued; Redefine’s acquisition in Poland probably falls into this category.”

Redefine announced recently it was investing nearly R20bn in Poland, gaining exposure to 10 malls and various offices.

Mr Anderson said better returns would come to funds such as Tower Property Fund, which invested in less-developed markets, such as Croatia.

“While some companies, such as Redefine and Rockcastle (which also invests in Poland), have opted to enter established real estate markets, where pricing is more keen, but where there are plenty of buyers and sellers, others like Nepi in the late 2000s and Tower Property Fund now, have opted to start small in markets where there are far fewer institutional or large investors, and where foreign investment is almost nonexistent,” he said.

Nepi was an early investor in Romanian shopping centres.

Mr Anderson said eastern Europe still relied heavily on financial assistance from the European Union and early entrants into markets would “do extremely well”.