Senior Economic and Social Research Institute (ESRI) economist John FitzGerald has warned that property investments in Poland and Hungary could be subject to exchange rate risks as these countries prepare for entry into the euro.
Speaking at the launch of the ESRI's latest Euroframe forecast - a regular forecast on the euro-zone economy made by 10 independent institutes across the EU - Mr Fitz-Gerald said the Polish zloty and Hungarian forint were most likely overvalued against the euro and may have to come down in value in advance of those countries adopting the euro. Neither state is expected to adopt the single currency before 2010.
"Many foreign-owned mortgages are denominated in Swiss francs or euro to avail of lower interest rates - interest rates in zloty are about 6 or 7 per cent. But if the zloty falls in value against the value of the euro, these investors face the prospect of losses," Mr FitzGerald said.
Mr FitzGerald did not quantify a margin by which the zloty was overvalued, but said that the risk of any correction would increase as the prospect of entry into European monetary union drew nearer.
The Polish Central Bank's main interest rate stands at 4 per cent, compared to the European Central Bank's benchmark main refinancing rate of 2.5 per cent.
