In the first study of its kind, freshly gathered data was reviewed on 12 economies in the region: the Baltics, Bulgaria, Czech Republic, Hungary, Kazakhstan, Poland, Romania, Russia, Turkey and Ukraine. The study also examines the equivalent data on eight economies across the Middle East and Africa.

The analysis underlines the large potential for development of the housing finance market across Central and Eastern Europe, Middle East and Africa, especially among the growing low to middle income market.

"With increasing macro economic stability through lower interest rates and lower inflation, mortgages are more affordable to the wider population," said Alexander Batchvarov, head of international structured finance research at Merrill Lynch. "The challenge for banks will be to satisfy demand for financing while developing efficient secondary market structures."

High ownership rates are a feature of Central and Eastern European markets - the home ownership level of 81% in Ukraine is higher than in the US (69%). Mortgage products have developed well since the early 1990s, including the popular but sometimes risky foreign-currency mortgages. The main challenge for many states among both EU-accession and non-EU accession economies is addressing the shortage of cheaper housing. Mortgage penetration rates are low - under 10% of GDP in many of the region's economies. Merrill Lynch considers the penetration rate in Estonia and Latvia (about 25% and 20% of GDP respectively) as the region's benchmark.

The biggest challenge facing the eight MENA economies studied is developing financial products to meet demand. High birth rates and immigration to meet demand for low-skilled jobs are fuelling demand for housing. Housing capacity exists, but affordability for the low-to middle income market is a challenge, in Gulf Co-operation Council (GCC) states and in other markets.