Neocity sweeps into E. European real estate market

Israeli company set to construct thousands of residential units in Prague and Budapest.

By SHELLY PAZ
prague real estate 88 22 (photo credit: Neocity)
prague real estate 88 22
(photo credit: Neocity)
Almost two decades after breaking free from the shackles of Communism, Prague and Budapest, the respective capitals of the Czech Republic and Hungary, are celebrating their new democratic freedoms. Both countries are striving to close the gaps that exist between them and Western European countries, exploiting any advantages they have in order to attract investors from around the world. Over the last few years, the Gross Domestic Product (GDP) in both countries has grown an average of 6 percent annually and numerous international technology, automobile and manufacturing companies have moved operations to cities across both countries. Neocity, an Israeli real estate development company that focuses on residential and commercial projects, began investing in Prague and Budapest earlier this decade. It recently brought a group of Israeli journalists to visit its impressive projects in those cities Neocity was established in 2003 by the energy company Petrolgas Group, the Eumor International Company and the Nairda Group. The company then joined forces with Poalim Capital Markets to form the "Poalim Real Estate fund," a private fund in which Neocity is both the manager and the main shareholder. Poalim Real Estate has raised $92 million since its formation, all of which is now invested in several projects in Israel, Romania, Hungary, Poland and the Czech Republic. Together, the company's projects comprise more than 15,000 residential units and 140,000 square meters of commercial space. The company's estimates that it will earn over $2 billion in the next five years. Yoav Moran, Neocity's CEO, sees his company's activities in Prague and Hungary as the beginning of a long term relationship. "I am perfectly satisfied with a moderated growth through a long period of time rather than one lucky strike," Moran said. "I believe in this market and feel more secure to invest in it better than to invest in the Kazakhstan market, for example," he added. Moran also explained that in order to become profitable, a project should earn 18% revenue after paying off all its construction expenses, something he claims Neocity has achieved on each of their projects so far. In order to boost its profit margins, Neocity invests significant efforts in marketing itself as a stable and reliable company that offers high-end products and a different life style to those who buy in its projects. The company provides buyers with personal and attentive service as well as concentrates on providing residents of its projects with a neighborhood feel where tenants have easy access to services and stores. Neocity also regulates sales to foreign buyers in order to avoid greatly upsetting the demographic make-up of the local neighborhood. In addition, the company has opened offices and hired a professional staff in each one of the countries that they operate in, including several local salespeople and analysts that accompany the financial side of the projects. Neocity is sparing no expense when it comes to designing its projects, as they hired leading Israeli architects Shalom Davidovich to design the project in Budapest and Sami (Nissim) Tito as the lead architect on the Prague project. Together with local leading architects, they are endeavoring to reshape the local style in those cities into a more western and spacious one. The company's marketing plan has seemingly paid off, as a large percentage of residential units, 190 apartments out of the first 269 units, were sold long before the first stone was placed on the ground. Building permits for phase one of the Neo-Riviera project, a 2,500-3,000 residential unit and commercial center project, are expected to be completed by December 2007 "The customers here, as those in Israel for example, understand the benefits of buying at an early stage because of the lower prices and they are willing to take a risk," said Hanan Segal, director of engineering and marketing for Neocity. Despite the company's aggressive and shrewd marketing approach, the projects in Budapest and Prague owe their ultimate success to the mayors of both cities, each of whom possess a strong desire to develop their cities and to catch up with Western Europe. Their direct involvement in the projects has eased the company's entrance into the local markets and has helped Neocity every step along the way in attaining the proper permits and in gaining approval for the construction plans. According to the Israeli representatives of Neocity in Prague and Budapest these cities' bureaucratic systems is much more comprehensive than the Israeli system. "The Czech Republic and Hungary are highly bureaucratic countries, but also very organized. Each capital has over 20 local municipalities underneath a general one. That fact alone increases the number of authorities and committees one has to go through in order to get the building permits. Anyway, if you stick to the bureaucratic procedure you'll get the building permits eventually, and much faster than you'll get them in Israel," said Ehud Kanfi, Neocity's CEO in the Prague headquarters. Additionally, the fact that large areas of Prague have been declared UNESCO heritage sites complicates matters. "We are aware of the complications of building in Prague, but we also realize the profitability not just for the investors, but for the citizens as well," the Deputy Mayor of Prague said. "Prague is much more open than other cities in Europe. Investors coming to the Czech Republic and mainly to Prague to invest in the real estate market are improving the standard of living here." Recently, the research company Dun & Bradstreet ranked Prague and Budapest as "very low risk" cities to invest in, something, that when coupled with the constant increase in the value of real estate, will continue to attract investors to the cities despite the fact that both countries do not offer tax benefits to foreign investors. Though both countries have not yet replaced their currency with the euro, the real estate market is based on the euro system. One square meter starts at 300 Euro in an average neighborhood and can reach 1,500 and 2,000 euro per square meter in exclusive neighborhoods, such as the SevenARTS project the Neocity group is currently building in the upscale Buda neighborhood of Budapest. The consistent increase in the sale prices of the real estate in Prague and Budapest has brought about a reality in which someone can sell one apartment at the same price an entire building was sold five years ago, say both investors and real estate professionals. Though Neocity targeted Hungary and the Czech Republic as countries where they could earn the biggest paydays, the company remembers to also give back to the local citizens. In Prague, they have embraced the local blind organization, while in Budapest they donate warm clothing and blankets to the needy. "We believe that every place we enter we have to donate and help and not just enjoy the benefits of the country," said Moran. "This is our way to be an integral part of the society we work in, especially as foreigners," he added. The writer was a guest of Neocity in Prague and Budapest.