Low expectations for real estate development

Deals

Property development in Hungary has seen some difficult times lately. According to an article on hvg.hu in 2012, the collective investment performance of the largest real estate developers was as low as €118 million, a decrease of 90% from the “golden age” of real estate development before the economic crisis. The Budapest Business Journal spoke to three development companies about the difficult present and a possibly brighter future.

“This year was up to our expectations. Leases are about what our customers and ourselves anticipated from this year, and we are on schedule with our ongoing office project, Eiffel Palace, the new headquarters of PricewaterhouseCoopers,” István Kerekes, leasing director of Horizon Development said.

Rudolf Riedl, CEO of RE Project Development, is also quite content with 2013, but only given a starting point of low expectations: “Generally speaking the year was not bad. While there was no chance of any kind of serious development, we still had a quite good year. We have been able to sign quite large number of new lease contracts as well. But from the point of new developments, 2013 was an absolute zero,” Riedl confirmed.

Gábor Győző, head of sales at Shikun & Binui stressed that, for his firm, 2013 was a year of stagnation. “We tried – and still try – to maintain our present projects to a decent level.” Since Shikun & Binui is an international firm with many subsidiaries in other Eastern European countries, Győző has some perspective about how Hungary fares compared to the region, and it’s clear that in those countries business is a lot stronger. “That’s the Hungarian market’s peculiarity, that business isn’t prospering here,” he added.

Brave new future?
“As long as the overall philosophy of the Hungarian government does not change, I do not expect a positive change in the investment sentiment,” Riedl told the BBJ when asked what he expects from 2014 and beyond. Kerekes doesn’t expect a boom in the coming 12 months either, a view with which Győző agrees: “Next year? We’d like to be ever the optimist, but it’s getting harder and harder,” he said. “Still, a definitive positive change must happen in the future, since our company has already witnessed it in other countries. In Hungary we still aren’t there, but we hope that next year will bring the wanted change. In 2014 we will have elections and political change will affect the real estate development business a lot as well,” he added.

The real challenge: financing
Many CEOs share the opinion of Kerekes concerning the real problem for developers in Hungary, namely the lack of financing. “There are no new entrants into the market. The internal macroeconomic data are not favorable to new tenants,” he added.

Riedl agrees, explaining that “With the Swiss franc and HUF loans, the banks have huge problems on the neck and nobody knows yet what will come out in November [the deadline set by the government for the banks to come up with and acceptable action plan]. Thus Hungary is still considered a risk investment. No international institution is ready to invest in Hungary because government policy is unpredictable. So there are simply no buyers and investors, and hence no new projects, because of the lack of financing.”

Stagnation
“For the next year I foresee only stagnation,” stated Kerekes of Horizon Development. “What I do see now is a big fight for new tenants or just to keep the existing ones, and honestly I don’t see a positive change for the next one-to-two years,” he added.

Győző goes along with that: “In other European countries we already see a positive trend of stronger investment and a clear optimism from the companies. In Hungary we are clearly getting ever more behind.”

-- written by Gergely Herpai

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