The CEE real estate market - increasing demand for title insurance

"Fifteen years after its introduction, title insurance continues to play a growing role in the CEE real estate market," Jean-Bernard WURM, Co-Founder & Managing Director of Secure Legal Title, London said talking to Property Forum about the trends in the CEE region's real estate sector.

Invented in the US more than a hundred years ago, title insurance indemnifies against losses arising from both known--and unknown--legal risks related to real estate acquisitions and mortgage finance, thus helping property investors and mortgage lenders to better manage investment risks.

"American investors in Europe were the first to require title coverage. CEE demand then came from Western European or Israeli investors in cross-border transactions but now, in most cases, we tend to insure domestic banks and investors," WURM said adding that currently a strong demand for this kind of insurance products is coming from Western Europe, as "the complexity and volume of cross-border transactions have increased".

He explained that while in the past policies used to be restricted to pure title on properties, in the past five years Reps & Warranties coverage has become common in CEE for corporate acquisitions, instead of asset deals. This is the case in Poland, Czech Republic, Slovakia, but not yet in Romania or Hungary. Title insurance coverage is now also being extended to renewable energy risks, covering the risk that building and operating permits for wind and solar farms and power plants are challenged by authorities, potentially affecting revenues and trigger a default on the loan.

The strongest increase in demand is visible, according Jean-Bernard WURM in Poland where "investors are concerned that transactions that took place 25 years ago can simply be cancelled if the Jaki Commission determines that owners at the time were unfairly treated or were victims of collusion between unscrupulous lawyers and city officials." There is sustained activity in the Czech Republic and Slovakia and renewed investments in Hungary. In many cases, the current rise of populism and nationalism are increasingly perceived as a risk for foreign investors, which may feel less protected. In addition, as in case of Poland or Hungary, the changes adopted in the judicial system are raising concerns with regard to the independence of judges, which could also lead to decisions affecting revenues.

"Investors are now generally prepared to take on general ownership risks in CEE," said WURM. "In all EU countries, ownership rights are clearly established by land and mortgage registries. However, investors are increasingly averse to accepting specific risks that law firms uncover in the course of their due diligence. These can include existing or potential restitution claims, the uncertain validity of privatizations, issues with building permits, questionable access to property, encroachments. In Poland, and Warsaw, in particular, there are frequent issues around the validity of an RPU," he explained, emphasizing that in this context investors still need insurance although they are more willing to take risks."

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