Portfolio.hu: You have said that the "market has changed quite significantly" in central and eastern Europe (CEE) following the US subprime crisis. What did you exactly mean by that?
John Verpeleti: Just after the subprime crisis there were signs that people were starting to rethink risk issues and I think hesitancy started to develop on the market. The subprime crisis has significantly changed the market, finance is now substantially more difficult to get. The other thing is the repricing that is taking place on the market. The third thing is probably the number of properties, which are bouncing back, properties that were thought to be sold or to be under discussion but the sales did not occur and the assets are now being re-offered to the market. So there are a number of signs that the market has changed
Portfolio.hu: So the enormous liquidity experienced during the last couple of years is gone?
John Verpeleti: I think circumstances have changed dramatically. There is still an awful lot of money on the market which wants to find a home. But I think the most significant issue that will be addressed in the forthcoming month will be the question of pricing risk, which I don't think the market did correctly before the subprime crisis. Investors were not pricing correctly and now they are sort of thinking how to do it in the future.
Portfolio.hu: I gather that in your opinion there is no further space for yield compression in Central and Eastern Europe.
John Verpeleti: I answer this question by asking two questions. I think there is a difference between what is somebody prepared to pay and what somebody should pay. The answers were not the same in the crazy days, 12 months ago somebody would always go under asking price. Now investors are probably going to go above asking price. You may get the two answers actually becoming the same now. Investors will price more correctly and there will be more common thinking about what the value of property is.
We've had a situation previously where pricing was demand-led, so there was just so much money that had to go out the door and because so much money was competing for one thing the price kept going higher, higher and higher. Common sense would tell me that yield compression cannot go further but I have said that for many years and it has gone further.
Portfolio.hu: Will these changes have any effect on forward sale transactions? So do you think that the number of forward transactions is going to decrease?
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For the rest of this article, including why John Verpeleti see prospects in Ukraine’s real estate market, please see Portfolio.hu