Personal Bankruptcy Laws and House Prices

In general, I would say not really a problem. For the reasons why not, I recommend this paper:

http://www.emecon.eu/current-issue/kudrna/

See, for example, Figure 5 in the above link why Hungarian private bankruptcy law should not be much an issue for banks here. Latvia passed such a law (in consultation with the banks), and from Figure 5 you can see banks in Latvia are far more exposed to non-performing assets than in Hungary*. From Figure 5 you can also see why the IMF suggested a personal bankruptcy law for Hungary, but suggested Romania not pass such a law (even though they did, the last I read).

*However, with Hungary's own peculiar political system that tends to not consult with key players that are directly affected by legislation, this comes with an asterisk as one never really knows how it will go here until it happens.

klsallee wrote:

See, for example, Figure 5 in the above link why Hungarian private bankruptcy law should not be much an issue for banks here. Latvia passed such a law (in consultation with the banks), and from Figure 5 you can see banks in Latvia are far more exposed to non-performing assets than in Hungary*. From Figure 5 you can also see why the IMF suggested a personal bankruptcy law for Hungary, but suggested Romania not pass such a law (even though they did, the last I read)...

Thanks for the post.

You know, I read that paper several times and I am not sure of the logic. There's a question for me in Fig 5 about what a "non-performing asset" actually is. In the case that we're considering, perhaps it's a loan that is not being actively paid back or is it an asset that produces no GDP growth?

It would also seem that credit has all but dried up in Romania but surprisingly less so in Hungary. It would be more interesting to see what proportion of non-performing assets are denominated in foreign currency. From what I read previously, almost all of them.  There are quite a number of footnotes in the article which describe the exposure to foreign exchange issues in Hungary, which is largely unpredictable. This could be very different to say, Latvia or Romania.   

The Hungarians seem to be taking a different tack on banks by taxing their assets (not their profits). That's a very tough measure. I think that is not liked at all by the IMF and the EU so I think the pressure is very much on to pass the bankruptcy laws.

There was something I read which I found quite useful (my highlighting):

".....The Latvian parliament passed a new personal bankruptcy law at the same time as Hungary introduced the special bank tax. The law significantly strengthens the position of debtors relative to creditors and is thus bad news for Latvian banks that will have to absorb a higher proportion of losses stemming from the collapsed real estate bubble that they helped to fuel. The law allows borrowers declared bankrupt to write off their debt after one year if they repay 50 percent of what they owe, after two years if they repay 35 percent and after three year if they repay only 20 percent. In practical terms, debtors are only liable to pay back the market value of their collateral rather than the actual amount of the loan (Danske Bank 2010:1). The law also requires banks to cover the administrative costs of the personal bankruptcy procedure (Baltic Reports, July 27, 2010)....."

I have not looked at the property prices in Latvia but I would assume that if the bankruptcy law is already in force there, there should have been a dip in property prices for several years although I seem to remember that the Latvian economy has shown growth after the reforms were introduced and that could have kept  property prices more stable.

fluffy2560 wrote:

what a "non-performing asset" actually is

For a bank, it is a loan that is not meeting its principal and interest payments.

fluffy2560 wrote:

It would be more interesting to see what proportion of non-performing assets are denominated in foreign currency. From what I read previously, almost all of them.

Since the original question was about affects personal bankruptcy law would have on the housing market, what may be more important are the (1) amount of private loans guaranteed in foreign currencies, (2) how many of those are for real estate or guaranteed by same, and (3) what are the real possible loss to the bank in the event of a private bankruptcy.

For (1) see Figure 2, which shows Hungarian loans in foreign currencies just above 60% (old 2009 data -- so consider that) but private sector growth just over 10 percent, which is pretty small. Many people will setup a KFT to purchase property, and there is already company bankruptcy law in Hungary, so adding personal bankruptcy law will not, in my opinion, have much of an affect.

For (2) one must consider that a lot of loans in Hungary were probably for other tangibles such as new cars, or for using the equity in property, not per se for new home/land/apartment purchases. So the actual expose of total loans that may affect properties values needs to be considered.

And from (2) above, the issue for (3) becomes an issue of what exactly were the guarantees on the loans. For example, if someone took out a personal loan on their house (and many did) the bank often gave only a fraction of the house value for the loan but required the entire house to be listed as the collateral. So for a 4 Million HUF loan, the bank may get a 10 Million HUF house. It is hard to think the bank will loose there as property values would have to go very, very far under water indeed for that to happen.

Rather, the main concern is actually the degree of exposure the bank has to troubled markets outside Hungary, not within Hungary. I think this possible effect will be far stronger overall, with or without a Hungarian personal bankruptcy law.

And not everyone who could go bankrupt will do so, and the banks could anytime seize the land for non-payment of a loan if they really wanted. Bankruptcy law is, after all, also designed at a tool for consumers to add leverage to push banks to renegotiate a loan's terms. Which could actually help keep properties under a mortgage off the market.

fluffy2560 wrote:

The Hungarians seem to be taking a different tack on banks by taxing their assets (not their profits). That's a very tough measure. I think that is not liked at all by the IMF and the EU so I think the pressure is very much on to pass the bankruptcy laws.

Not so "different". For example, New York City (one of the world's financial centers) taxes some bank assets. And Austria and Sweden have introduced similar "solidarity" taxes (also mentioned in the article). The main issue the EU/IMF has with Hungarian solitary tax is actually the rate of the tax. They say it will "hurt" banking business in Hungary.

To be fair, Hungary in fact does have the highest such solidarity tax rate in the EU.

However, Hungary also now has the highest VAT in the EU. High VAT also hurts business. But strangely, the EU actually gave a tacit approval to Hungary for the VAT increase.

Something to think about.

fluffy2560 wrote:

what a "non-performing asset" actually is

klsallee wrote:

For a bank, it is a loan that is not meeting its principal and interest payments.

Yes, I thought that but I asked around in the office and a bunch the accountants/auditors (and amateur economists) came up with another definition. They suggested a non-performing asset is one that is under-performing the market, i.e. the return on capital is less than alternative investment.

Well, who knows really, it's a matter of semantics perhaps. 

klsallee wrote:

Since the original question was about affects personal bankruptcy law would have on the housing market, what may be more important are the (1) amount of private loans guaranteed in foreign currencies, (2) how many of those are for real estate or guaranteed by same, and (3) what are the real possible loss to the bank in the event of a private bankruptcy.

I don't think any of the loans are guaranteed (by whom?) as they are secured against collateral - e.g. the property itself or other property of the mortgage applicant. I checked out some other web sites and one of them said there was an opportunity in 2011 for mortgage holders to make a lump sum payment to their banks at a fixed CHF/EUR exchange rate. The expected take up rate was 30% but I could not see how successful it was. The main message was that banks (wherever) would take a 36% haircut on their debts.  I also had a look at the ECB (European Central Bank) which voiced a critical opinion over the lack of consultation on foreign mortgage debt. They said, the law (adopted) gives a 25% write off on mortgages up to 20M HUF. This jumped to 30M HUF in mid-2012 or so.

klsallee wrote:

Many people will setup a KFT to purchase property, and there is already company bankruptcy law in Hungary, so adding personal bankruptcy law will not, in my opinion, have much of an affect.

The Kft route would not, I think, be the preferred or majority route for Hungarian or EC citizens. I have no figures or evidence to back it up but I think nearly all property will be held in individual names. A lot of property is passed down as inheritance anyway. But new property I expect is just bought individually.

I think presently there is a government moratorium on foreclosures still in force. Hence there's no real way for any bank to foreclose on property. I think the moratorium might expire next year (was 36 months in total).

klsallee wrote:

For (2) one must consider that a lot of loans in Hungary were probably for other tangibles such as new cars, or for using the equity in property, not per se for new home/land/apartment purchases. So the actual expose of total loans that may affect properties values needs to be considered.

This could be part of a rise of consumer credit but this, surely, must be a much smaller proportion of loans than mortgages. Moreover, I would expect these to be domestically demoninated (in HUF), not CHF where the government has no control on interest rates. HUF of course can be controlled and therefore the availability of credit can be varied.

klsallee wrote:

Rather, the main concern is actually the degree of exposure the bank has to troubled markets outside Hungary, not within Hungary. I think this possible effect will be far stronger overall, with or without a Hungarian personal bankruptcy law.

All foreign debt has to be serviced in foreign currency (e.g earnings) with all the implications that would imply. Economics in Hungary are quite poor with negative growth forecast, so the exchange rate should be against foreign currency mortgage holders although maybe there would be balancing up via an offset in increased exports (if HUF falls). BTW,  I believe there's only one true Hungarian bank and that's OTP. All the others are foreign owned and therefore, it's more a reverse situation. All their foreign owners are heavily exposed all over Eastern Europe, not the other way, i.e. Eastern European banks could bring nobble (I doubt bring down) their parents.

klsallee wrote:

And not everyone who could go bankrupt will do so, and the banks could anytime seize the land for non-payment of a loan if they really wanted. Bankruptcy law is, after all, also designed at a tool for consumers to add leverage to push banks to renegotiate a loan's terms. Which could actually help keep properties under a mortgage off the market.

It's true but the moratorium I believe is still in place which prevents any real action. The bankruptcy act would in fact bring it all to a swift conclusion. If it would be anything like Latvia, banks could be looking at an 80% haircut. Hence my thought originally of a flood of property. From what I read about Latvia, this has not happened. Why? I am not entirely sure.

klsallee wrote:

Not so "different". For example, New York City (one of the world's financial centers) taxes some bank assets. And Austria and Sweden have introduced similar "solidarity" taxes (also mentioned in the article). The main issue the EU/IMF has with Hungarian solitary tax is actually the rate of the tax. They say it will "hurt" banking business in Hungary.

To be fair, Hungary in fact does have the highest such solidarity tax rate in the EU.

It sure does. The IMF report from 2010 says this amounts to an expropriation of capital and after the fact punishment. I quote:

"...Distortive policies such as Hungary's outsized financial sector levy are harmful to the economy. The levy is large at 0.7 percent of GDP (more than three times the largest such tax elsewhere), serves exclusively fiscal purposes, and for less profitable banks amounts to a de-facto expropriation of capital. Its design places a disproportionate payment burden on foreign banks...."

klsallee wrote:

However, Hungary also now has the highest VAT in the EU. High VAT also hurts business. But strangely, the EU actually gave a tacit approval to Hungary for the VAT increase.

The EU couldn't do anything about it even if it wanted to. VAT and tax rates are beyond their legal competence. All they can do is to comment on it which the government can ignore. The VAT rise would be inevitable given the reduction in tax elsewhere. The only thing left given no massive oil fields or diamond mines in Hungary and the low exchange rate is to try and tax consumption (e.g. will reduce imports). I expect there's an increase in folks buying stuff in Austria.

klsallee wrote:

Something to think about.

Sure is. I can imagine Orban having some pretty sleepless nights these days. I am not sure I am really sure what will happen to the real estate market now. The more I look at it, the more intractable a problem it seems.

fluffy2560 wrote:

They suggested a non-performing asset is one that is under-performing the market

Underperforming assets are different.

Underperforming assets have a return, one that may even be generating income, but it is simply less than expected.

An underperforming loan, as one example, could be one that is not paid regularly, but it is still being paid.

While think of a nonperforming loan as one that is not paying at all.

I deal frequently with experts in finance and finance has its own unique "language" which I slipped into a bit is seems, and which I clarify somewhat below.

fluffy2560 wrote:

I don't think any of the loans are guaranteed (by whom?) as they are secured against collateral

In this case it means the loan is guaranteed in Swiss francs, which means that the loan must be paid back based on the loan valued in francs. That is the person taking the loan "guarantees" to pay back a total sum (plus interest) fixed in francs (often with a variable exchange rate). It is not about collateral. Different type of "guarantee".

Many people call them a "Swiss Franc loan", which is not technically correct.

fluffy2560 wrote:

- e.g. the property itself or other property of the mortgage applicant. I checked out some other web sites and one of them said there was an opportunity in 2011 for mortgage holders to make a lump sum payment to their banks at a fixed CHF/EUR exchange rate.

The bank's offer was in some extent to deal with a required recapitalization requirement. In 2010 and 2011 the banks needed to raise capital as they were getting required to have more cash on hand. Banks walked too close the edge for years to rake in high expected profits. And suddenly needed cash. In fairness, governments weakened the regulations allowing banks to have less cash on hand (which as we see now was a mistake).

fluffy2560 wrote:

The main message was that banks (wherever) would take a 36% haircut on their debts.

One can imply a lot with one year's balance sheet. The real business reality is usually different.

Banking is a risk. Such risks are taken daily. One trade and a bank can loose billions of Euro/Dollars (has has indeed happened recently). Potential Loses in Hungary's private mortgage sector, in comparison, are barely an ink stain on the balance sheet.

Banks spread their risks. And banks can handle and absorb their looses when they know what to expect (such as the law in Lativa). They got caught off guard in 2008 and expect everyone else to fix it for them. Which leads then into:

fluffy2560 wrote:

I also had a look at the ECB (European Central Bank) which voiced a critical opinion over the lack of consultation on foreign mortgage debt.

As I already mentioned, a main issue in Hungary is the lack of consultation. The ECB has a point here in my humble opinion.

fluffy2560 wrote:

The Kft route would not, I think, be the preferred or majority route for Hungarian or EC citizens.

I know many non-Hungarians who purchased land using a KFT. You must remember there was a period when only Hungarians could by property (especially land) (in fact, non-EU citizens (such as myself) still can not privately buy large tracts of agricultural land). To "get around that" foreign nationals (mostly from other EU countries) would set up a KFT to buy the land. Such bending of the law by non-Hungarians is not uncommon.

But that is beside the point, as I made that comment to show that business bankruptcy law has been around for years (and many businesses deal with real estate) and it has not caused much of an effect either.

fluffy2560 wrote:

Moreover, I would expect these to be domestically demoninated (in HUF)

I know Hungarians who have bought cars using a CHF guaranteed loan. It is not uncommon as the interest rates were lower.

fluffy2560 wrote:

I believe there's only one true Hungarian bank and that's OTP.

There are some locally run client owned "credit unions" (closest translation). In Hungarian they are called: Magyar Takarékszövetkezetek. I recommend everyone use a credit union rather than a bank, when one can.

fluffy2560 wrote:

All their foreign owners are heavily exposed all over Eastern Europe

Yes, one does tend to hear/read this everywhere. I rather say foreign banks are over extended in Central Europe. That is, there are too many different players here for the rather small market to sustain at high returns. Some will have to go or they will have to learn to live with lower returns. The boom days are over. What we are seeing playing out are the banks poorly handling what should be an eventual, normal, and expected market reset and possible attrition.

fluffy2560 wrote:

It's true but the moratorium I believe is still in place which prevents any real action.

The "moratorium" is a little more complicated, and mostly political smoke and mirrors, in my humble opinion. But I prefer to not discuss politics.

fluffy2560 wrote:

The bankruptcy act would in fact bring it all to a swift conclusion.

There are still many issues at play. Human nature one of them. One should not assume simply because someone can go bankrupt, that they will. Many people want to keep their property, if given the chance.

Aside from that, a swift conclusion in any form would be healthy. Long periods of uncertainty scare away investors. Even if markets crash (and I for one do not expect them to drop to the point of calling it a crash from the bankruptcy law) markets will recover faster if the dust settles quickly so people can be sure of their footing, than if someone keeps issues in play and no one can see through the haze.

fluffy2560 wrote:

From what I read about Latvia, this has not happened. Why? I am not entirely sure.

The banks were consulted in the bill passed in Latvia. That matters. It shows political and business stability which people can see. So, mainly, in my opinion as I said above, human nature play a role. People mostly do want to keep their property. They just want a manageable way to do it.

fluffy2560 wrote:

The EU couldn't do anything about it even if it wanted to.

The EU sets by law a minimum VAT rate. If the EU "wanted" to set a max rate they could. Lacking political will is not the same really as saying "they couldn't". An excessively high VAT is also economically (and politically) unstable.

After all, using the same logic one may argue also that the EU couldn't do anything about the bank laws either. The EU is not a federalist governmental entity. In fact the EU only could "pressure" Hungary politically, threaten withholding funding etc. The current government did give in, to some extent, to such pressure. But what if it hadn't? What if Hungary (or some other EU country) completely ignores the EU? What could the EU do? Expel the country from the EU (and what would that really accomplish?)?

When you think about it, the EU has a lot of political (and fiscal) holes in its construction that are patched together with little more than political chewing gum. That only holds together when everyone (i.e. politicians) agrees to not poke at the weak points; but it is clear by now, this is no longer a long term solution.

fluffy2560 wrote:

The only thing left given no massive oil fields or diamond mines in Hungary and the low exchange rate is to try and tax consumption (e.g. will reduce imports).

Switzerland has no massive oil fields or diamond mines either.

So, the real issue is not about what resources that are here, or not, but about the investment quality of a nation, which depends greatly on the stability of the political climate. Hungary was recently voted at the bottom of an international survey for investments. The number one reason was because businesses could not navigate the legal and political uncertainty. Businesses can operate in the most oppressive and rigid regimes, as long as they know the rules of engagement. But businesses will go elsewhere if the sand keeps shifting under their feet.

Same with the private bankruptcy law. It in of itself is not really the issue, in my opinion, but rather the legal and political climate in which it is created and implemented. In an unstable legal and political system, even a law passed to regulate turnips can be disastrous (being again facetious just to make a point).

And by the way, Hungary does have gold of sorts: its soils. It had an extensive but underutilized and poorly marketed agricultural sector.

fluffy2560 wrote:

I am really sure what will happen to the real estate market now. The more I look at it, the more intractable a problem it seems.

No one has a crystal ball. Investments are based on balancing risk (including uncertainty) versus an expected return. If the risk or uncertainty is too great, then the profit must be very large to make the investment one to consider.

klsallee wrote:

While think of a nonperforming loan as one that is not paying at all.

Yes, I think that's the definition.

klsallee wrote:

I deal frequently with experts in finance and finance has its own unique "language" which I slipped into a bit is seems, and which I clarify somewhat below.

I actually work in finance myself but I classify myself as being more "support" (in a specific area of management) rather than the professions of accountant, auditor or economist. When I asked my co-workers, I got different answers each of which was related to the individual's profession.

klsallee wrote:

....It is not about collateral. Different type of "guarantee".

Point taken. This is something like a commitment.

klsallee wrote:

The bank's offer was in some extent to deal with a required recapitalization requirement....And suddenly needed cash. In fairness, governments weakened the regulations allowing banks to have less cash on hand (which as we see now was a mistake).

This makes sense now. I can only think they were very optimistic to believe there was sufficient financial depth available from "consumers" in a dodgy and uncertain market for recapitalisation to be financed from individuals.

klsallee wrote:

Potential Loses in Hungary's private mortgage sector, in comparison, are barely an ink stain on the balance sheet. .....As I already mentioned, a main issue in Hungary is the lack of consultation. The ECB has a point here in my humble opinion...

Hungary is obliged under EC directives to consult the ECB but they did not do it. The ECB press release at the time complains about Hungary's actions and points out they (legally) should have consulted, but it has no legal authority to intervene as far as I know. 

klsallee wrote:

....To "get around that" foreign nationals (mostly from other EU countries) would set up a KFT to buy the land. Such bending of the law by non-Hungarians is not uncommon....

Yes, I know about that. However, I do not know anyone who actually set up a company to purchase land but I move in different circles perhaps. Post-2004 (EU accession), for many, it became irrelevant. I think agricultural land is still subject to special permission both even for HU and EU citizens but generally this is an administrative procedure and permission is in practice never withheld.

klsallee wrote:

But that is beside the point, as I made that comment to show that business bankruptcy law has been around for years (and many businesses deal with real estate) and it has not caused much of an effect either.

Yes, point taken. But I think - as I said before - the Kft route for foreigners must represent a small amount of the overall land holdings. For other businesses not involving individually owned houses, property would be on commercial HUF mortgages or leased and therefore not a CHF problem.   

klsallee wrote:

I know Hungarians who have bought cars using a CHF guaranteed loan. It is not uncommon as the interest rates were lower.

Really? I am very surprised. On the other hand, cars are far more liquid assets than property, for smaller amounts and the loan periods are much shorter (<5 years) compared to property loans (>20+ years).

klsallee wrote:

There are some locally run client owned "credit unions" (closest translation). In Hungarian they are called: Magyar Takarékszövetkezetek. I recommend everyone use a credit union rather than a bank, when one can.

Yes, I know this institution. I am not sure what their involvement in the CHF mortgage debacle is.

klsallee wrote:

Yes, one does tend to hear/read this everywhere. I rather say foreign banks are over extended in Central Europe. That is, there are too many different players here for the rather small market to sustain at high returns. Some will have to go or they will have to learn to live with lower returns. The boom days are over. What we are seeing playing out are the banks poorly handling what should be an eventual, normal, and expected market reset and possible attrition.

Ah, well, this is where a property market crash could occur if a bankruptcy law is enacted. The banks will want to divest themselves of bad loans and they are doing it but they are restricted from wholesale dumping of property. The government is taking on some debt effectively.

The bad loans of banks can be incrementally (over years) moved to the National Asset Management Agency (MNV) http://www.mnvzrt.hu/ - I think it's 3% of their loan books in 2013. I just read that 8000 houses were acquired in 2012 so far, where the occupier (let's say owner) can pay rent to the government.  This is where MNV might be called a bank for bad property loans.

Not exactly what I could call a "moratorium" but something like a controlled crash landing. "Moratorium lite".  In a way, it's quite clever.

The same kind of “bad loan” bank system was brought in when Ireland experienced their crash.  However, the luck of the Irish is holding, they just discovered a giant oil field off the coast and in any case, the UK made bilateral loans to them to prop it all up. But Ireland is a small place and easier to support.

klsallee wrote:

....The "moratorium" is a little more complicated, and mostly political smoke and mirrors, in my humble opinion. But I prefer to not discuss politics.

It's probably not possible to separate the politics from the practice in Hungary.

klsallee wrote:

There are still many issues at play. Human nature one of them. One should not assume simply because someone can go bankrupt, that they will. Many people want to keep their property, if given the chance.

Some will not have the choice. I agree people want stability and of course, the government does not want "property" or "social" riots destabilising the country. I am sure everyone is looking at Greece right now where even democracy is becoming difficult to sustain - a more  general threat to stability than just property crashes.

klsallee wrote:

I for one do not expect them to drop to the point of calling it a crash from the bankruptcy law) markets will recover faster if the dust settles quickly so people can be sure of their footing, than if someone keeps issues in play and no one can see through the haze.

There has to be a reset in the market but what will cause it? Greek exit from the Euro? Collapse of one bank? 

I think I am seeing property prices fall now.  Properties are coming on to the market and seem to be 25% less than one or two years ago.

klsallee wrote:

... People mostly do want to keep their property. They just want a manageable way to do it.

I cannot see how that would be sustainable. The economy is retracting and it seems unlikely there would be sufficient capacity to keep on servicing  all the foreign debts. One way perhaps is for the government to keep on effectively nationalising all the foreign mortgage debt and then there can be a renegotiation (the big stick being either a haircut or a default). 

klsallee wrote:

The EU sets by law a minimum VAT rate. If the EU "wanted" to set a max rate they could. Lacking political will is not the same really as saying "they couldn't". An excessively high VAT is also economically (and politically) unstable.

There is indeed a minimum rate of 15% but this is only a temporary measure until 2015. Tax affairs have never been within the competence of the EU as it's a sovereign decision.  But indeed, high VAT is unsustainable. Tax competition is fundamental tool for encouraging growth and vital to the world economy. The premise in most of the OECD papers on “unfair tax competition” are laughable.

klsallee wrote:

After all, using the same logic one may argue also that the EU couldn't do anything about the bank laws either. The EU is not a federalist governmental entity. In fact the EU only could "pressure" Hungary politically, threaten withholding funding etc. The current government did give in, to some extent, to such pressure. But what if it hadn't? What if Hungary (or some other EU country) completely ignores the EU? What could the EU do? Expel the country from the EU (and what would that really accomplish?)?

Perhaps a false comparison – apples and pears. There are regulations on the bank laws in for example, consumer protection,  but it's not the same as tax as there's no linking authority there (no “federal” tax office/IRS equivalent). The ECB is clearly the trans-national authority on the Eurozone.  The UK for example has opted out of the Eurozone bail out as have the other EC countries which do not use the Euro. Ok, they cannot ignore it but they do not have to participate as would be required (presumably) in a federal state.

I think Hungary was threatened previously by the EC which refused to provide cohesion funds unless there was reform in democracy and elsewhere – e.g. Media law, judges and so on.

klsallee wrote:

When you think about it, the EU has a lot of political (and fiscal) holes in its construction that are patched together with little more than political chewing gum. That only holds together when everyone (i.e. politicians) agrees to not poke at the weak points; but it is clear by now, this is no longer a long term solution.

It's probably unsustainable in the long term.  It's amazing it keeps getting more complicated and its reach keep extending.  I, for one, do not like the creeping control over people's lives. The EC for example is non-elected (EC – European Commission, that's different from the European Union which are the countries). The constant idea they can interfere is against many people's fundamental beliefs in free speech etc.  It has done some good – free movement of labour and capital, consistency in standards etc.

But going back to the roots is appropriate. 

The EU was originally about trade. It was never intended to be a political or fiscal union.

Definitely needs a reboot.

fluffy2560 wrote:

When I asked my co-workers

In Hungary or abroad (working remote)? I ask as you probably know the Hungarian saying: If there are only two Hungarians alone in a room, there will still be three opinions.

fluffy2560 wrote:

I do not know anyone who actually set up a company to purchase land but I move in different circles

Yes, the circles may be indeed different. I know quite a few. 

fluffy2560 wrote:

klsallee wrote:

I know Hungarians who have bought cars using a CHF guaranteed loan.

Really? I am very surprised. On the other hand, cars are far more liquid assets than property, for smaller amounts and the loan periods are much shorter (<5 years) compared to property loans (>20+ years).

When I was in the market 4 years ago, a car loan in Hungary could be for more than 5 years. Someone I know personally has a 7 year CHF car loan on a 5 million HUF car. One could buy property for less.

And mortgages can be less than 20 years. When I looked myself on taking a loan here last year (house as collateral) I was, for example, given the option for a 10 year mortgage. There are many variables as to the length of any loan. 

What percent of nonperforming loans do such represent? Don't know. Have not seen the local stats. But I "gut feel" it is more than many people think.

fluffy2560 wrote:

democracy is becoming difficult to sustain

I guess that depends on how you define "democracy". There are many ways to "vote", and some ways can be messy.

'I hold it that a little rebellion now and then is a good thing, and as necessary in the political world as storms in the physical.' - Thomas Jefferson

fluffy2560 wrote:

Properties are coming on to the market and seem to be 25% less than one or two years ago.

In my opinion this is normal and expected under current fiscal strains. And I think this has little, at this time, to do with the personal bankruptcy law. It is easy to assume correlation, but harder to prove cause and effect.

fluffy2560 wrote:

klsallee wrote:

... People mostly do want to keep their property. They just want a manageable way to do it.

I cannot see how that would be sustainable. The economy is retracting and it seems unlikely there would be sufficient capacity to keep on servicing  all the foreign debts.

In my opinion the issue is not about the source of the funds under loan, it is about the exchange rate of these loans being pegged to a foreign currency. The effect may be similar (local value of the debt goes up relative to income and becomes unsustainable unless refinanced) but with an important difference: it is reversible simply if the Forint strengthens. I won't hold my breath on the exchange rate changing soon, but the distinction is important as it may change how one looks at the long term management of the debt. There is far more to finance than surface issues.

And I think the banks are in a much better position now than 2 years ago, so they may be willing to carry the debt for a while and or refinance the loans. Thus I think it has more to do with the decisions of the bankers, less to do with any new personal bankruptcy law in Hungary. (But does not preclude the former blaming the latter at some future date.)

fluffy2560 wrote:

There is indeed a minimum rate of 15% but this is only a temporary

I know. But that does not change my point that a max (i.e. a VAT range) also could have been set (be it temporary or not).

fluffy2560 wrote:

There are regulations on the bank laws in for example, consumer protection

Which failed. The regulators were sitting on their hands for years.

fluffy2560 wrote:

Media law

Yet Hungary, while dropped in the rankings, is still ranked, by some, above other EU countries, and even above my country, the US, which prides itself for press freedom:

http://en.rsf.org/press-freedom-index-2 … ,1043.html

And the proceedings against Hungary's media law were dropped by the EC this year. Go figure. And different topic.

Hi,

I think the prices will go down all right, but not as much due to the increased supply, but due to the further drop in demand: Banks will restrict lending even more, and it takes a lifetime to save up that much money, especially while paying rent.

The business opportunity is cheap housing with individual, pre-paid meters and weekly rent. Or homeless shelters.

klsallee wrote:

In Hungary or abroad (working remote)?

Fellow expats and experts in their fields.

klsallee wrote:

....In my opinion the issue is not about the source of the funds under loan, it is about the exchange rate of these loans being pegged to a foreign currency. The effect may be similar (local value of the debt goes up relative to income and becomes unsustainable unless refinanced) but with an important difference: it is reversible simply if the Forint strengthens....

What I meant in my original post is that those earning HUF will have to have increasing income with a devaluing HUF in order to pay for foreign currency to service foreign debt. With the economy contracting, the average person with a CHF will not experience increasing wealth and resources to be able to buy (or continue to buy) high value CHF.

klsallee wrote:

And I think the banks are in a much better position now than 2 years ago, so they may be willing to carry the debt for a while and or refinance the loans. Thus I think it has more to do with the decisions of the bankers, less to do with any new personal bankruptcy law in Hungary. (But does not preclude the former blaming the latter at some future date.)

I agree that they are in a better position. Some banks which were effectively nationalised are now returning to profitability. I expect these banks will be returned to the private sector.

I think overall conclusion right now is that there is unlikely to be a real estate property crash (regardless of bankruptcy laws), but a bottoming out of prices, with banks taking a longer term view of their assets (loan book).

This could be changed radically if the some other factor, like collapse of the EUR occurs, or a Greek exit from the EUR or EU.

klsallee wrote:

I guess that depends on how you define "democracy". There are many ways to "vote", and some ways can be messy.

Following on from above, there could be an extreme scenario of a coup in Greece with the military taking control. It's not as if that has not been a theme in Greece previously (until 1974 in fact). I've been reading on the BBC and other media that basic services are starting to break down with hospitals unable to function and the police unable (or unwilling) to respond to some hate crimes (e.g. attacking immigrants blamed for much). I could imagine a situation where the military has to step in to restore "law and order" and ensure "democracy". I put these in quotes as this would be the kind of rhetoric used to justify the intervention. The EU would probably have to suspend membership of the EU and launch a mission for joint supervision pending a new constitution and elections.  Could even inflame the rest of the Balkans.

Not my original ideas but much discussed around web sites.  This article: The Sun newspaper (UK) discusses unrest in Greece while the output of a sensationalist tabloid does give an indication of where we might be going with it.

fluffy2560 wrote:

experts in their fields.

This may be semantics again, and how I classify an expert in finance (so I mean no offense by my personal definition), but if I understood your previous post (which maybe I didn't), in my opinion an expert in a financial field should not confuse nonperforming and underperforming assets.

However I do deal with accounts who may not know these definitions either, and this is not a problem as they are not relevant to their daily work (but if they do not know the definitions, they are very easy to look up).

But, again to me (and maybe it is just me alone), an expert should know the difference.

fluffy2560 wrote:

extreme scenario

One must consider all scenarios, but I am of the opinion this won't happen.

That does not mean it will be easy, because it won't be for many countries. And these complex social political issues are off this topic.

fluffy2560 wrote:

I put these in quotes

Yes, wise.

For example, many basic services are also falling apart here in Hungary. Even our local hospital is breaking apart, in a similar fashion as described in Greece. But that only makes the local press, not so much the international ones.

I prefer more in depth reports you get with the NY Times or with a subscription with the Economist (not the free online sound bites also available at these sites). Agree with him or not, one must also take time to ponder Paul Krugman's commentaries.

fluffy2560 wrote:

sensationalist tabloid

These mainly want to make money selling their spin, which is not necessarily news. Some people in the US call Murdoch's "Fox News" station "Faux News" for a reason.

klsallee wrote:

This may be semantics again, and how I classify an expert in finance (so I mean no offense by my personal definition), but if I understood your previous post (which maybe I didn't), in my opinion an expert in a financial field should not confuse nonperforming and underperforming assets.

Well, indeed semantics and no offence taken. As I work primarily in management, I often have to average out expert opinions and their interests and professional bias when coming up with some decision, vis-a-vis:

Accountants - slightly vague on the difference (but similar to auditors)

Auditors - very sure of the difference (but want to be technical about the definition)

Economists - want to qualify the difference (they ask: what do you mean by under-performing? relative to what? ok, good question! I usually say, relative to alternative investments)

Management - bit similar to economists but also want to seek consensus on the difference and ultimately have to take responsibility

Having averaged out non-performing vs under-performing, I would probably throw in another alternate phrase to avoid annoying any of those groups and their definitions and also simplifying for communication purposes.

I thought about "inefficient asset", i.e. not performing the greatest return possible for the business or conversely "negative asset", i.e. liability.

Might cover it.

klsallee wrote:

For example, many basic services are also falling apart here in Hungary. Even our local hospital is breaking apart, in a similar fashion as described in Greece. But that only makes the local press, not so much the international ones.

It's the same all over. In particular relevant to me are the schools which seem to be desperate. It'll get worse.

klsallee wrote:

... Economist (not the free online sound bites also available at these sites).

Been an Economist subscriber for almost 17 years. One of the best magazines around. Online full edition is even better than the print edition. Works pretty good on a tablet while drinking coffee. Replacement for the actual paper.

klsallee wrote:

...US call Murdoch's "Fox News" station "Faux News" for a reason.

Oh, tell me about it. I've been watching the Leveson enquiry on phone hacking in the UK. I am surprised Murdoch is not going to do time himself as the captain of that ship.

Hi, Bankruptcy is a condition, where a person cannot pays his/her debts to creditors. But today the condition is different in Bankruptcy fraud.

christopher.costello50 wrote:

Hi, Bankruptcy is a condition, where a person cannot pays his/her debts to creditors. But today the condition is different in Bankruptcy fraud.

Errr.....and?