EUROPE - Real estate markets in Central and Eastern European (CEE) countries will not escape the effects of the financial crisis over the next couple of years and are potentially risky choices for investors who are considering re-entering the markets, according to Nadja Savic, associate for CB Richard Ellis Investors in London.

Depreciating currencies, the current volatile state of finances and the effect that Germany's economic crisis has on its manufacturing revenue mean emerging markets like Hungary and Ukraine may be less attractive propositions for real estate investors.

Speaking at the Barcelona Meeting Point this week, Savic said: "Industrial production and distribution is the main driver of core or central European economies…more than 25% to 30% of all exports from Czech Republic and Hungary go to Germany. This means that they are highly exposed to the health of the economy in the eurozone and Germany."

The slowdown of economic growth in core markets such as Poland, Hungary and Czech Republic and their falling currencies has led to repricing in their respective property markets, an increase in debt and has caused bond default spreads to shoot up.

"Many have high external financing requirements. Most countries in the region have higher deficits than they used to have," added Savic.

Both Hungary and Ukraine have received financial help from international institutions, as Hungary has received a $25bn loan from the EU, the International Monetary Fund (IMF) and World Bank, and Ukraine was granted a $16.5bn loan from the IMF.

Commenting on the future economic growth performance of emerging CEE real estate markets, Savic said: "I don't think we will be seeing double digit figures [growth] in this market in 2010. We will possibly see some recovery in 2011."

Bulgarian sovereignty risk has significantly increased according to Savic. Yet some investors still see emerging markets like Bulgaria and Romania as holding good long-term investment opportunities.

Luigi Maianti, chief executive officer for Iris Plus International in Barcelona, said: "We are confident about the Eastern markets. Bulgaria's market was always one for the English [investor], and we have seen the English investor is coming back to Bulgaria. There is one clear reason why; the level of pricing. Real estate continues to be an interesting proposition if there is interesting pricing."

A lack of credit has, however, slowed down real estate activity among investors in CEE countries.

Alejandro Solano, managing director of Hercesa Inmobiliaria in Spain, said: "In these countries there is a huge potential demand. On the other hand, there is a problem; we have a lack of credit."

According to Maianti, greater transparency in the CEE markets has led to increased interest from "non-domestic", equity-rich investors who do not need to borrow from banks and are looking for long-term property investments.

"The profile of investors has changed. They are investors no longer interesting in speculating but are looking for mid to long-term investments," said Maianti.