Development of Real Estate Markets in Central Europe: The Case of Prague,Warsaw,and Budapest

Abstract

The countries of Central Europe have been undergoing major structural transformations since the collapse of Soviet and communist domination towards the end of 1989. However, there has been a relative scarcity of published research on the impact of these transformations on the development of real estate markets in these countries. The authors aim to rectify in part this lack by examining the process of development of real estate markets in the three Central European cities of Prague, Warsaw, and Budapest. Their analysis is focused on the development of markets in the larger commercial activities in urban areas, particularly the office and retail sectors. To this end the authors utilise the structure-and-agency model as their basic methodological approach to identify and examine the overall socioeconomic and political structure which governs the activities of real estate markets and the main agents or actors involved in these activities. They first examine the impact of the continuing societal transformations in terms of the legal framework, restitution of private property, and privatisation on the reemergence and development of real estate markets in the studied cities. The authors then go on to consider the development of real estate markets in more detail by using the results of field surveys carried out in the above cities during 1993 and 1994 to examine the organisation, behaviour, and stage of development of the real estate markets through an analysis of the development of the real estate professionals, the role and behaviour of local and international firms, and factors inhibiting the activities of these firms and limiting the growth of the real estate markets. The authors conclude by arguing that, in addition to the structural reforms, the role of international investment and foreign firms has been crucial in the rapid development and growth of the real estate markets in the studied cases. Nevertheless, lack of further investment finance, particularly local finance, is a major obstacle to the further growth and development of the real estate market and industry in these cities. Moreover, although these markets have developed remarkably rapidly since the end of 1989, they are still in an immature state of development in comparison with Western European markets. This, however, does not negate the fact that they still offer good opportunities for international investment at acceptable rates of return.