With the debt crisis in Greece seemingly resolved just before markets opened on Monday, perhaps we should all be looking at the European Union in a new light as investors.
The euro has been testing 12-year lows, and for buyers from a dollar-pegged currency like the UAE dirham, that makes assets cheaper, although you still need to be highly selective to find a real bargain.
Step forward Hungary whose real estate prices rose in the 2000s and then fell alongside Spain in the global financial crisis.
This is a member of the EU but not a euro-zone country. In fact, its currency has fared even worse than the euro and so offers an even bigger discount for investors.
Hungary may be the European country with the best potential for foreign direct investors today.
In brief, this is a pro-business, low-tax economy with a clear ambition to close the per capita GDP gap with Germany. It’s a serious gap – with per capita income less than a third – and therein lies the investment opportunity. Sixty per cent of the population is under 40 years of age, so the demographics are brilliant.
Will they ever equal Germany? Probably not. But they may well make up a good deal of that gap. For a start, those very low wages are a competitive advantage. It has already attracted major investment by Audi and Mercedes.
It’s the same story for agriculture. Investment in higher productivity farming is boosting the production of ducks, fine beverages and goose liver.
A beaten-up currency makes Budapest one of the cheapest places in the world to dine in Michelin-starred restaurants. It’s also a safe and pleasant place to be a tourist, student or young entrepreneur.
Real estate prices bottomed out in 2011 and 2012 and only began to tick up strongly last autumn with an impressive 15 per cent rise in the first quarter this year. But where else in Europe could you buy Budapest’s equivalent of London’s Mayfair for US$4,000 per square metre?
The smart money has woken up this year and Hungary is right at the top of international estate agents’ markets to watch for this year.
Hungary was the fastest-growing country in Europe last year after Ireland, with 3.6 per cent GDP growth. Economists think that 5 per cent growth is possible this year after 6 per cent in the first quarter, unless the global economy falters badly.
Early investors are laughing. Take the billionaire Khalaf Al Habtoor from Dubai. He bought the Meridien hotel for €65 million (Dh263.2m) in 2012. You can only imagine what it will be worth when he relaunches it as a Ritz-Carlton next spring.
For the local stock market it may be best to wait for a correction in all European bourses, now overvalued due to artificially low interest rates courtesy of the central banks. Still, the longer-term investor ought to be paying attention to Hungary and buy on the dips.
Income tax will be cut to 15 per cent from 16 per cent on January 1. There is no property tax, and very low capital gains tax. The government already has its debts under 80 per cent of GDP. This is no Greece. The aim is to join the euro after 2020. In the meantime, having its own currency allows Hungary to remain very competitive while offering UAE investors even more value for their dirhams.
The public sector is being held back to benefit the wealth-creating private sector. What do you make of a country that has just axed the number of MPs in its parliament from more than 600 to 199? This is a liberal market economy, not another euro-zone socialist basket case, although the recent nationalisations in the banking sector suggest that this is tempered by prudence and not a question of dogma.
Last month, alarm bells sounded in Brussels when Budapest declared an intention to keep asylum seekers from Africa and the Middle East out by building a fence along its 175-kilometre border with Serbia.
Hungary argues that this is mass migration, not political asylum and that it has no legal or moral obligation to take these people.
Instead, it proposes a system of camps near the borders to offer humanitarian assistance, not an instant path to citizenship and a life of state handouts.
Hard-headed common sense is surely what makes a country succeed economically and that’s all that foreign investors really want after all, because they can take their money anywhere, unlike some unfortunate citizens.
Hungary seems to be on the right path to offer the highest returns for the patient long-term investor in Europe, and its buoyant real estate market is the most obvious bargain.
Peter Cooper is the editor of Arabianmoney.net
