Czech Republic & Hungary: Two Golden Real Estate Opportunities or Two Economic Quagmires?

Article excerpt

Given that historical events are often repeated if not properly studied and avoided, this certainly needs consideration when examining Eastern Europe and its historical postures during this century.

Recently during a visit to the Czech Republic (previously Czechoslovakia) and Hungary, I was fortunate to travel with two companions1 who were native to these countries and whose input and background on the current economies proved valuable. They provided information on the development and destruction that occurred in Czechoslovakia and Hungary preceding and during World War II and how this formed the backdrop for today's economic status in these countries, including the recent proposal for these countries to be admitted to NATO.

Real estate opportunities clearly exist within Hungary and the Czech Republic. However, historical events support concern for the potential risks which would accompany any real estate investment. Given that historical events are often repeated if not properly studied and avoided, this certainly needs consideration when examining Eastern Europe and its historical postures during this century. Germany's occupancy and its sociological and economic impact, including the utter destruction of populations (Jewish and others), continues to influence the development of these areas, as does the subsequent control by the former Soviet Union after World War II. Only recently did Hungary and the Czech Republic remove themselves from communistic control,2 and, subsequently, become two separate countries.3

This article examines the resulting paradigms from communism, which, for the most part, ended in 1989, and the development of capitalism and a more democratic role of government which followed. Any background for successful implementation of real estate and related investment opportunities in these countries remains uncertain when their history is considered.

OVERVIEW OF HUNGARY

The land area in Hungary is about the size of Indiana (approximately 93,000 square kilometers or 36,000 square miles). The Hungarian population consists of 10 million people, including an estimated 92 percent of Hungarians (Magyars). Other ethnic groups include (approximately) Romany (3 percent), Germans (1 percent), Slovaks (1 percent), Jews (1 percent), and others (estimated at 2 percent).4

Budapest, the capital city of Hungary, has a population of about 2 million people, according to the most recent census. Having visited Budapest and many of its historical buildings, I saw first-hand the potential for residential and business opportunities within Hungary.

Religious denomination in Hungary is around 70 percent Roman Catholic, 20 percent Calvinists, and 10 percent divided among Lutherans, Jews, Baptists, and others. The dominant language is Hungarian (Magyar). However, Hungarian history, geographic location, (see Figure 1) and control by the Germans and communists have resulted in other languages being spoken, especially German and Russian.

Government & Economy

Hungary's governmental structure, important to consider when evaluating real estate opportunities, is framed as a parliamentary democracy. The Hungarian constitution was substantially revised in 1991, following the 1989 Communist withdrawal.

The Hungarian economy is growing; its current Gross Domestic Product is at approximately $40 billion. Currency is the forints, which, on our visit, had an exchange rate of approximately 151 forints to the U.S. dollar. Inflation and economic concerns continue to be major issues, especially with the ongoing political changes. The Hungarian Communist Party was in power until about November 1945. From 1948 to 1953, the economy was controlled by the Soviet Union. In one form or another, this control continued until March 11, 1989, when an agreement between Hungary and the Soviet Union resulted in the final withdrawal of the Soviet Union and its troops in 1991. …