Student Manual - Learning Library Inc.

Transcription

Student Manual
Europe &
International Real Estate
Copyright © 2010, NATIONAL ASSOCIATION OF REALTORS®
IMPORTANT NOTE: The National Association of REALTORS®, its faculty, agents, and employees
are not engaged in rendering legal, accounting, financial, tax, or other professional services
through these course materials. If legal advice or other expert assistance is required, the
student should seek competent professional advice.
NATIONAL ASSOCIATION OF REALTORS®
Global Business and Alliances
430 North Michigan Avenue
Chicago, Illinois 60611
USA
Telephone: 312-329-8376
Toll-free: 800-874-6500 (U.S.)
Fax: 312-329-8358
[email protected]
www.Realtor.org/global
Contents
Introduction .......................................................................................................................... 1
Course Learning Goal ................................................................................................................................ 2
Learning Objectives ................................................................................................................................... 2
Course Overview ....................................................................................................................................... 2
Earning the CIPS Designation .................................................................................................................... 4
Pre Quiz ..................................................................................................................................................... 5
1. Starting Point .................................................................................................................... 7
Map Quiz ................................................................................................................................................. 10
Countries Included in Study .................................................................................................................... 12
Review Key Concepts .............................................................................................................................. 13
Country Assessment Model .................................................................................................................... 14
2. Europe Today .................................................................................................................. 17
Two World Wars ..................................................................................................................................... 19
The Marshall Plan Sets the Stage ............................................................................................................ 20
North Atlantic Treaty Organization (NATO) ............................................................................................ 21
The Cold War........................................................................................................................................... 21
Revitalization of Central and Eastern Europe ......................................................................................... 23
European Union—“United in Diversity” ................................................................................................. 24
Eurozone and the European Central Bank .............................................................................................. 26
European Union Decision Making ........................................................................................................... 28
Council of Ministers and European Council ........................................................................................ 28
European Parliament .......................................................................................................................... 29
European Commission ........................................................................................................................ 30
Court of Justice.................................................................................................................................... 30
The EU Ombudsman ........................................................................................................................... 30
Treaty of Lisbon....................................................................................................................................... 31
Issues, Discussions, Trends for Real Estate Professionals ....................................................................... 33
Future Expansion .................................................................................................................................... 37
European Neighborhood Policy (ENP) ................................................................................................ 37
Turkey’s EU Membership? .................................................................................................................. 38
Russia–EU Common Spaces ................................................................................................................ 41
Council of Europe .................................................................................................................................... 41
3. Market Dynamics............................................................................................................. 43
Demographics ......................................................................................................................................... 44
Immigration a Solution?.......................................................................................................................... 45
Employment ............................................................................................................................................ 48
Europe 2020 ............................................................................................................................................ 50
Real Estate Trends—Residential ............................................................................................................. 52
8 Market Projections to Monitor ............................................................................................................ 54
Real Estate Trends—Commercial............................................................................................................ 55
12 Reasons Why You Need to Know ....................................................................................................... 57
Building Your European Real Estate Business Network .......................................................................... 58
European Real Estate Expositions and Events ........................................................................................ 59
4. Cultural Influences ........................................................................................................... 61
High Context and Low Context Cultures ................................................................................................. 62
Religious Heritage ................................................................................................................................... 63
Cultural Heritage ..................................................................................................................................... 67
Council of Europe Initiatives ................................................................................................................... 69
Cultural Heritage and Real Estate ........................................................................................................... 70
Eurobarometer—Public Opinion ............................................................................................................. 70
5. A Look at France .............................................................................................................. 75
Geography and Structure ........................................................................................................................ 76
Economy.................................................................................................................................................. 77
Real Estate Professionals in France......................................................................................................... 78
Transaction Steps .................................................................................................................................... 80
Mortgage Financing ................................................................................................................................ 83
Residential Real Estate ............................................................................................................................ 84
Commercial Real Estate .......................................................................................................................... 85
Real Estate Data Sources......................................................................................................................... 86
Rental Properties .................................................................................................................................... 86
The French Court System ........................................................................................................................ 88
What the Real Estate Professional Should Know About Government.................................................... 89
French Taxes—Income, Real Estate, Capital Gains, and More ............................................................... 91
Défiscalisation ......................................................................................................................................... 94
Doing Business in France—Beyond the Basics ........................................................................................ 95
Holidays ................................................................................................................................................... 97
Key Contact ............................................................................................................................................. 97
6. A Look at Germany .......................................................................................................... 99
Geography and Structure ...................................................................................................................... 100
The Modern State of Germany ............................................................................................................. 101
Germany—Logistics Center of Europe .................................................................................................. 104
Germany—Unified and Still Divided? ................................................................................................... 104
Economy................................................................................................................................................ 107
Real Estate Professionals in Germany................................................................................................... 108
Transaction Steps .................................................................................................................................. 109
Residential Real Estate .......................................................................................................................... 111
Commercial Real Estate ........................................................................................................................ 113
Real Estate Information Web Sites ....................................................................................................... 115
Court System in Germany ..................................................................................................................... 116
What the Real Estate Professional Should Know About Government.................................................. 117
German Taxes—Income, Real Estate, Capital Gains, and More ........................................................... 119
Beyond the Basics—Doing Business in Germany .................................................................................. 124
Holidays ................................................................................................................................................. 126
Key Contact ........................................................................................................................................... 126
7. A Look at Russia............................................................................................................. 127
Geography ............................................................................................................................................. 128
Dissolution of the Soviet Union ............................................................................................................ 131
Economy................................................................................................................................................ 133
Real Estate Professionals in Russia ....................................................................................................... 137
Buying Real Estate ................................................................................................................................. 138
Residential Real Estate .......................................................................................................................... 139
Commercial Real Estate ........................................................................................................................ 142
Judicial System ...................................................................................................................................... 144
What the Real Estate Professional Should Know About Government.................................................. 145
Russian Taxes—Income, Capital Gains, Real Estate, and More ............................................................ 148
Doing Business in Russia—Beyond the Basics ...................................................................................... 149
Holidays ................................................................................................................................................. 151
Key Contact ........................................................................................................................................... 151
8. Country Profiles ............................................................................................................. 153
Bulgaria ................................................................................................................................................. 154
Czech Republic ...................................................................................................................................... 158
Denmark ................................................................................................................................................ 163
Greece ................................................................................................................................................... 168
Hungary ................................................................................................................................................. 173
Latvia ..................................................................................................................................................... 178
Poland ................................................................................................................................................... 181
Spain ...................................................................................................................................................... 186
United Kingdom .................................................................................................................................... 190
Resources .......................................................................................................................... 196
Web Sites .............................................................................................................................................. 197
Major Newspapers Online .................................................................................................................... 199
Economic Rankings by GDP ................................................................................................................... 200
Post-WWII Economic Organizations ..................................................................................................... 201
Development of the European Union ................................................................................................... 201
Interpreting Country Assessment Model Data ..................................................................................... 202
Europe &
Introduction
1
Europe and International Real Estate
Course Learning Goal
The goals of the CIPS Europe and International Real Estate course are to
provide:
 Knowledge of the European real estate marketplace
 Methods for researching, analyzing, and applying market information
 Skills for facilitating real estate transactions in European markets
 Recommendations for building key contacts in real estate
organizations, commerce, and government
Learning Objectives
 Review key concepts for calculating relative values of currency and
property
 Identify the social, political, and geographical characteristics of
European countries
 Recognize how formation and development of the EU impacts
member countries economically and culturally
 Develop market intelligence by researching factors that shape
European real estate markets and assessing business opportunities
 Develop a network of key contacts in real estate, business, and
government in order to reach clients and customers and complete
property transactions
 Gain ideas on methods for promoting markets, properties, and
services
Course Overview
 Chapter 1: Starting Point
Test your European geography IQ and review key concepts from
Global Real Estate: Transaction Tools.
 Chapter 2: Europe Today
A configuration of commerce and trade alliances, treaties, and
agreements connect European countries to each other and neighbors.
2
Introduction
The overview chapter describes how these agreements and
institutions shape Europe’s business environment.
 Chapter 3: Market Dynamics
Develop market intelligence by looking at influential trends and
forces. The chapter also includes guidance for building a network of
key contacts.
 Chapter 4: Cultural Influences
Although united through the European Union and Eurozone, distinct
cultural characteristics distinguish European countries—south to
north and east to central to west. Plus, two of the countries in this
study—Turkey and Russia—span both Europe and Asia. This chapter
helps the real estate professional acquire cultural know-how for
doing business in Europe.
 Chapter 5: A Look at France
An in-depth look at business, government, and real estate in France.
 Chapter 6: A Look at Germany
An in-depth look at business, government, and real estate in
Germany.
 Chapter 7: A Look at Russia
An in-depth look at business, government, and real estate in the
Russia.
 Chapter 8: Country Profiles
The concluding chapter provides snapshot views of doing business in
the other European countries that are part of NAR’s Cooperating
Association network.
Exam
A 25-question open-book (unless closed-book is required for continuing
education credit) multiple-choice exam concludes the course. The exam
tests and reinforces achievement of the course’s learning objectives.
Successful completion is 80 percent, a total of 20 correct answers.
Activities and Class Procedures
This course contains a variety of activities designed to involve students,
such as work group assignments, exercises, and discussions. Students are
strongly encouraged to ask questions and engage in class discussions and
3
group exercises. The range of experience levels among students offers a
rich opportunity for learning from peers. Your active involvement
enriches the learning experience for yourself and others.
Earning the CIPS Designation
The NATIONAL ASSOCIATION OF
REALTORS® awards the Certified
International Property Specialist
(CIPS) designation to REALTORS®
who complete the required
coursework and demonstrate
international real estate experience.
The CIPS course curriculum is the
foundation for a worldwide network of real estate professionals in 59
countries.
Course Requirements
 Global Real Estate: Local Markets
 Global Real Estate: Transaction Tools
 Three of the following elective courses:


Asia/Pacific and International Real Estate

The Americas and International Real Estate

Africa/Middle East and International Real Estate

At Home with Diversity
International Real Estate Experience
For up-to-date information on experiential requirements and a
designation application form, go to www.Realtor.org/global.
4
Introduction
Pre Quiz
Circle true or false.
1.
All European countries use the euro.
2.
Although one of Europe’s most influential countries, Switzerland is not a member of
the European Union.
3.
All of Europe is in the same time zone.
4.
Russia is a major supplier of energy for other European countries.
5.
Finland experiences 24-hour daylight during the summer months.
6.
The Republic of Ireland is part of the United Kingdom.
7.
The Berlin Wall divided Germany from Poland.
8.
Russia and the United States were allies during World War II.
9.
A goal of the Marshall Plan was to revitalize European commerce following World
War II.
10. The symbol for the euro is £.
11.
The Ural Mountains are generally considered part of the dividing line between
Europe and Asia.
True
False
True
False
True
False
TrueFalse
True
False
True
False
True
False
True
False
True
False
True
False
True
False
5
12.
Benelux refers to the luxury real estate market in Bulgaria, Estonia, and the
Netherlands.
13. The European Central Bank controls monetary policy for the Eurozone.
14. In England, real estate professionals are referred to as estate agents.
15.
The European Union sets standards for real estate licensing among member
countries.
16. The most densely populated country in Europe is Monaco.
17. The largest city in Europe is Berlin.
18. The Iberian peninsula includes Iceland, Ireland, and Italy.
19. About one-quarter of the Netherlands lies below sea level.
20. The 12 stars on the EU flag represent the original 12 member states.
6
True
False
True
False
True
False
True
False
True
False
True
False
True
False
True
False
True
False
Europe &
1. Starting Point
7
Europe is both a source of and a prime destination for international real
estate investment. As we learned in Global Real Estate: Local Markets,
Germany, the U.K., and France are leaders in both inbound and outbound
international real estate investment—for investment, vacation and
retirement homes, and business operations. London and Paris rank high
in global cities for real estate investment and the U.K. ranks high for
providing the best opportunity for capital appreciation. Western Europe’s
orderly markets and property rights protection create the security and
stability that investors seek.
35%
Ranking of Global Cities for Real Estate Investments
30%
25%
20%
2007
15%
2008
10%
2009
5%
0%
London
Washington New York
DC
Paris
Tokyo
Shanghai
Source: Association of Foreign Investors in Real Estate, www.afire.org
In contrast, market institutions and real estate practices in former
communist and Europe’s neighboring countries are in stages of
development. Although risk levels are higher, “ground-floor”
opportunities offer large profit potential according to the Association of
Foreign Investors in Real Estate (AFIRE). Turkey and Russia, for example,
rank as emerging countries investors are considering for future real
estate acquisitions.
8
1. Starting Point
Emerging Countries Considered for
Real Estate Acquisitions
Russia
Turkey
2010
Mexico
2009
India
Brazil
China
Source: Association of Foreign Investors in Real Estate, www.afire.org
Successful participation in the global real estate market requires not only
market expertise, but also knowledge of the social, political, cultural, and
geographic aspects of countries and regions. In this course, we will use
elements from the Country Assessment Model, introduced in the Global
Real Estate: Transaction Tools course, to learn about the countries
included in this study. If needed, your instructor may review the
calculations involved in converting currencies and metric measurements.
Let’s begin by testing our knowledge of European geography and facts.
9
Map Quiz
27
11
6
37
2
3
14
16
9
5
21
20
18
23
38
7
1
34
25
30
22
19
13
33 28
35
12
15
24 8
29
17
26
10
40
10
36
4 31
32
39
1. Starting Point
Test your European geography IQ. Match these countries with the corresponding number on
the map. Write your answer in the space provided.
Albania
*Ireland
*Austria
*Italy
Belarus
*Latvia
*Belgium
Lithuania
Bosnia & Herzegovina
Malta
*Bulgaria
Moldova
Croatia
*Netherlands
Cyprus
*Norway
*Czech Republic
*Poland
*Denmark
*Portugal
*England
*Romania
Estonia
*Russia
*Finland
Serbia
*France
*Slovakia
FYROM
Slovenia
Georgia
*Spain
*Germany
*Sweden
*Greece
*Switzerland
*Hungary
*Turkey
Iceland
*Ukraine
* Country included in this study
11
Countries Included in Study
This study concentrates on the 26 European countries where NAR has
cooperating agreements with national real estate associations. The
cooperating agreement relationships form the foundation for the CIPS
Network and put you in touch with real estate professionals around the
world.
Austria
Belgium
Bulgaria
Czech Republic
Denmark
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Netherlands
Norway *
Poland
Portugal
Romania
Russia *
Slovak Republic
Spain
Sweden
Switzerland *
Turkey *
Ukraine *
United Kingdom
* Non-EU member country
Not Included
Albania
Andorra
Armenia
Azerbaijan
Belarus
Bosnia &
Herzegovina
Croatia
Cyprus †
† EU member country
12
Estonia
FYROM.
(Macedonia)
Georgia
Iceland
Kosovo
Liechtenstein
Lithuania
Luxembourg †
Malta †
Moldova
Monaco
Montenegro
San Marino
Serbia
Slovenia †
Vatican City
1. Starting Point
Review Key Concepts
Country Assessment Model
The Country Assessment Model leads you through the process of
compiling a dossier of market data. Information on interpreting the data
and identifying favorable characteristics follows.
As you use this model to research, organize, and evaluate market
information, keep in mind that:
 Data may not be readily available for each point of the checklist.
 You can decide how much detail to seek and how much time to spend
pursuing it.
 Ongoing research keeps data up to date.
Currency, Area, Time Conversion
The quick-reference worksheet on page 15 recaps calculations of
exchange rates and metric measures. CIPS designees can download an
exclusive customized app for performing these calculations. The app also
includes a language translator.
Exclusive for CIPS Designees
Download this custom widget to a Smartphone
or PC for one-stop 140-word translation,
currency, area, and time conversion combined in
one application. Upon completion and approval
of the CIPS designation application , designees
receive a link to this app. Or, e-mail NARglobe
@realtors.org
13
Country Assessment Model
Geography
Economy and Business
□
□
□
□
□
□
□
□
□
□
□
□
□
□
□
□
□
Major cities, states, provinces, colonies
Climate, terrain, borders, and coastlines
Unique features
Environmental issues and agreements
Natural resources
Real Estate
□
□
□
□
□
□
□
□
□
□
□
□
□
□
Market size
Private property rights
Foreign ownership
Acquisition costs, fees, and taxes
Transaction support: MLS, records access
Rental property: commercial, residential,
office
Land use regulation, zoning, permits
Financing
Brokerage practices and agent licensing
Forms of ownership
Role of the notary
Investment returns and value appreciation
Commercial trends
Home ownership rates and housing trends
Economic philosophy and monetary policy
Base industries
Currency and exchange trends
Inflation, recession, and GDP trends
Unemployment
Major trading partners and alliances
Exports and imports
Trade balance
Trade and capital flow restrictions
Wage and price controls
Business infrastructure
Market access—internal and external
Infrastructure
□
□
□
□
□
□
□
Electricity and water supplies, waste
management
Transportation and shipping: airports, ports,
waterways, railways, roads
Banking, ATMs, credit cards
Technology usage
Internet access
Communications and media
Institutions: medical, educational, religious
Demographics
□
□
□
□
□
Population: size, age, density, trends
Consumption and savings rates
Per capita income
Languages and literacy
Labor force composition (service, industry,
agriculture) and overall skill level
Beyond the Basics
Government
□
□
□
□
□
□
□
□
□
Networking and Key Contracts
□
□
□
□
□
14
Type, structure, tenure, and stability
Tax laws and rates (citizens, foreigners,
corporate, capital, inheritance, tax treaties)
Legal system and court structure
Constitution, legislature, regulatory
structure
Major political parties and elections
Voting rights
Administrative structure and bureaucracy
□
□
□
□
Ethnic composition
Business impact of religion and culture
Business and social behavior
Traditions
Holidays
Negotiation and decision-making styles
Mistakes to avoid
Potential clients and customers: corporate,
commercial, individual, local, and foreign
Business and professional connections
Real estate organizations
Real estate expositions and events
1. Starting Point
1. Convert home currency to foreign currency
X
1. Convert foreign currency to home currency

=
=
Home currency x exchange rate = foreign currency
Foreign currency  exchange rate = home currency
US dollars to Euros: US$1,500 X .8261 = €1239.15
Chinese Yuan to Euros: Y14,000 X .1174 = €1643.60
Euros to US dollars: €1239.15  .8261= US$1,500
Euros to Chinese Yuan: €1643.60 .1174 = Y14,000
2. Convert square feet to square meters and
price per unit of area
2. Convert square meters to square feet and
price per unit of area
SF
 10.7639 =
M2
square feet  10.7639 = square meters
12,916 square feet  10.7639 = 1,200 square meters
$SF
X 10.7639 = $M2
M2 X 10.7639 =
SF
square meters x 10.7639 = square feet
1,200 square meters X 10.7639 = 12,916 square feet
$M2  10.7639 =
$SF
Price per square foot x 10.7639 = price per square
meter
2
US$50 per square foot x 10.7639 = US$538.19 per M
Price per square meter  10.7639 = price per square
foot
2
$5,374.63 per M  10.7639 =$499.32 per square foot
3. Convert the time period—month to annual
3. Convert the time period—annual to month
Price per
month
X
12
Price per
= year
Price per month x 12 = price per year
2
2
US$538.20 per M x 12 = $6,458.40 per year per M
Price per
year

12
Price per
= month
Price per year  12 = price per month
$499.32  12 = $41.61 per month per square foot
Put it all together
The rental rate on an office space in Paris is
quoted at €500 per square meter per month.
Your U.S. client would like to know the
equivalent price in dollars per square foot per
year.
1. Currency
€500 .8261 = US$605.25 per M2/month
2. Area
US$605.25  10.7639 = US$56.22 per square
foot per month
3. Time
US$56.22 X 12 = US$674.64 per square foot per
year
An alternate method for calculating an equivalent currency
value is multiplying by the reciprocal. Divide 1 by the
exchange rate to calculate the reciprocal.
Reciprocal exchange rate
1

=
R
1  foreign currency exchange rate = reciprocal
Foreign currency x reciprocal = home currency
€1  .8261 = $1.21, €500 x 1.21 = US$605
15
The Next Chapter
Now that we have observed Europe’s geography, let’s take a look at how
the countries are allied through trade, treaties, and governing structures.
In particular, we will examine the composition and influence of the
European Union and Eurozone.
Notes:
16
Europe &
2. Europe Today
17
18
2. Europe Today
The boundaries that define Europe are a flexible concept. Geographers
generally accept that the Ural Mountains, Ural River, Caspian Sea, Black
Sea and Straits of Bosporus, bisecting the city of Istanbul, comprise the
Europe-Asia dividing line. Unlike other clearly defined continents, Europe
and Asia share a single Eurasian land mass. Russia and Turkey, for
example, span both continents. Countries such Armenia, Georgia, and
Azerbaijan have European-rooted cultures with little in common with
their Asian neighbors. Iceland, a candidate for EU membership, marks the
western-most edge.
The concept of Europe in the 21st century is perhaps shaped most
decisively by its integrating institution—the European Union (EU).
Through its commissions and committees, judicial, legislative and
regulatory powers, and outreach initiatives, the European Union creates
the economic and business environment within which real estate
transactions occur.
In order to understand 21st century Europe and the development of the
EU, we will start with a look at some of the formative events and
structures that created today’s Europe.
Two World Wars
World War I, the “War to end all Wars”, devastated large swaths of
Europe along the Western Front from the border of Switzerland to the
North Sea, redrew the map of Europe, and set the stage for WWII. When
the 1919 Treaty of Versailles brought WWI hostilities to a close, the
victorious allies, determined to recoup the costs of warfare as well as
punish their defeated foes, demanded harsh reparation payments. In
addition to reparation payments, Germany lost portions of its territory to
Poland and Czechoslovakia and was prohibited from uniting with Austria.
Post-War deprivations and unrest in Russia created fertile ground for the
revolution that gave rise to Lenin and the modern communist state of the
USSR. Remnants of the defeated Austria-Hungarian Empire—Croatia,
Serbia, Montenegro, FYROM (Macedonia), Bosnia and Herzegovina, and
Slovenia—were absorbed into the modern state of Yugoslavia only to
become a satellite state of the post-WWII Soviet Union.
Many historians believe the combination of treaty conditions and
punitive war reparations stoked nationalistic fervor that gave rise to
Hitler and the Nazi party. At the time of the Versailles Treaty talks, along
with many others, noted economist John Maynard Keynes, acting as
financial representative to the treaty talks for Great Britain’s Treasury,
19
warned against the consequences of such severe measures. Indeed,
following the 1938 annexation of Austria and the Sudetenland territory
ceded to Czechoslovakia, Hitler’s September 1939 invasion of Poland was
the tripwire that began WWII.
The Marshall Plan Sets the Stage
At the conclusion of WWII, the cities and countryside of Europe laid in
ruins. Most infrastructure and industrial capacity were destroyed, and a
large portion of the civilian population displaced. Across the Atlantic, the
United States emerged from the War with its industrial capacity stronger
than ever but lacking its primary European export market. The Marshall
Plan sought to remedy both challenges and set the stage for European
integration.
The architect and outspoken advocate
of the plan was George Marshall,
Secretary of State during the Truman
administration. His 1947 Harvard
University commencement speech
drew a stark picture of Europe, with
its cities reduced to rubble and its
people homeless and on the brink of
starvation. When a Soviet-backed
coup replaced Czechoslovakia’s
democratically elected government
with a communist regime, initial
Congressional resistance dissipated.
The subsequent introduction of the
Truman Doctrine committed
“economic and military support
to…any country threatened by
communism.”
Poster created by the U.S. Economic
Cooperation Administration to promote the
Marshall Plan. Flags of all participating
countries are included.
The stated goals of the Marshall Plan,
which lasted for four years (1948–
1951), were to promote European
production, bolster European
currencies, and facilitate international
trade. Unofficially, the plan aimed to check the spread of Soviet influence
and communism in Western Europe. The influx of financial aid enabled
participating countries to relax austerity measures, such as food
rationing, and rebuild employment, thus lessening the social discontent
20
2. Europe Today
that nascent communist movements could exploit. By 1952, the end
point of the Marshall Plan, every participating country had rebuilt
economic strength surpassing pre-War levels; on average industrial
output levels were 35 percent higher than in 1938.
The participating European countries formed a coordinating group to
administer the plan, the Organization for European Economic
Cooperation, the predecessor to today’s Organization for Economic
Cooperation and Development (OECD). The experiences of working
together to implement the Marshall Plan provided valuable practice for
forming the structures that would evolve into the European Union: the
European Coal and Steel Community and the Common Market.
The Marshall Plan was a prelude to not only to the integration of Europe
but also the Cold War. Aid was offered to all major European countries
except Spain, under the Franco dictatorship, and Germany; in 1949 West
Germany became a recipient of assistance. Russia rejected Marshall Plan
aid for itself and also pressured Eastern bloc countries to refuse it.
Consequently, these countries’ economies lagged significantly behind
those of Western European countries. Rejection of the offer by Russia
and Eastern bloc countries presaged Cold War alignments.
North Atlantic Treaty Organization (NATO)
The NATO mutual defense pact, formed in 1949 by WWII European allies
and the United States, links the security of North America and Europe.
The treaty states simply “agreed that an armed attack against one or
more of them in Europe or North America shall be considered an attack
against them all.” NATO remains the principal security instrument of the
transatlantic community and expression of its common democratic
values. In addition to its traditional defense role, NATO leads the UNmandated International Security Assistance Force (ISAF). Since the
disbanding of the Warsaw Pact alleviated the potential for armed conflict
in Europe, NATO’s role has evolved to emphasize strengthening
transatlantic relations and facilitating further integration among the
nations of Europe. It has added new members seven times since the 1949
formation and now comprises 26 members in Europe plus Canada and
the United States.
The Cold War
21
Following cessation of WWII hostilities, the Western allies—England,
France, and the United States—gradually withdrew from occupied
territories and reunited three-quarters of Germany into West Germany.
Russia, under the leadership of Stalin, feared future invasions and sought
to create a buffer zone of annexed and satellite states. Following the
doctrines of Lenin, Stalin viewed the Soviet Union as surrounded by
hostile countries whose capitalistic economies and democratic
governments would inevitably fail. He viewed diplomacy as a means to
drive a wedge between enemies and foment revolutionary upheavals
abroad. The allies, in particular the United States, sought to contain the
spread of Soviet communism and influence. These two diametrically
opposed aims instigated the era of the Cold War.
The Iron Curtain, a term coined by Winston Churchill, defined
unequivocally the line between Eastern and Western Europe. It enclosed
Estonia, Latvia, Lithuania, Poland, East Germany, Czechoslovakia,
Hungary, Romania, Yugoslavia, Bulgaria, and Albania. The countries of
Georgia, Ukraine, Moldova, and Belarus were absorbed into the Soviet
Union.
The United States and Russia—the primary
opposing countries—never participated
directly in armed hostilities. They played out
their mutual enmity through proxy wars—
Korea, Vietnam, and Afghanistan—threats,
espionage, propaganda, arms buildup, the
Space Race, and competition for loyalty of
nonaligned countries.
Although opinions differ on an exact starting
date of the Cold War, the series of events
November 9, 1989. Berliners gather at the
between July and December 1991 brought it
Brandenburg Gate to celebrate the fall of the Berlin
to a sudden end. In July 1991, the Warsaw
Wall. Photo courtesy of European Commission
Pact formally dissolved. That same month
Audio Visual Services archive.
the United States and Russia signed the
Strategic Arms Reduction Treaty (START), prompting President George
H.W. Bush to declare the end of the Cold War. In December 1991, the
Soviet Union officially dissolved and on Christmas Day the Russian
Federation’s flag flew over the Kremlin in place of the former Soviet flag.
During the Cold War era, Europe united militarily under NATO as well as
economically through the EU. When the Soviet Union dissolved and its
satellite states broke free of communist-party ideologies, Eastern Bloc
countries, including Russia, faced the daunting task of transferring state22
2. Europe Today
owned commercial and residential property into private hands as well as
developing orderly markets and commerce. A groundswell of pent-up
entrepreneurship swept through East and Central Europe.
Revitalization of Central and Eastern Europe
On November 9, 1989, the Berlin Wall fell and unleashed a
transformative cascade of events that would revitalize Central and
Eastern Europe. Between 1989 and 1991, a wave of nonviolent
revolutions swept through Eastern Bloc states, freeing hundreds of
millions of people from Soviet control. Some of the revolutions were won
at the ballot box as voters ousted communist regimes. Others were won
in the streets by protest demonstration, such as Czechoslovakia’s Velvet
Revolution or the Baltic States’ Singing Revolution and Baltic Way—when
protesters joined hands to form a 600 kilometer human chain stretching
from Tallinn to Vilnius. Within two years, 20 new or revitalized nations
emerged, including Russia, a reunified Germany, and 14 newly
independent nations created from the dismantled Soviet Union.
When Russian President Gorbachev launched the perestroika (reform)
and glasnost (transparency) policies, it is unlikely that he intended, or
expected, the dissolution of the Eastern Bloc, Warsaw Pact, and
ultimately the Soviet Union to follow. When Poland’s 1989 elections
ousted the communist party, President Gorbachev refused to use military
action to annul the results. This signal, that Russia would not deploy the
Red Army to quell opposition, launched popular uprisings in Eastern Bloc
countries. Communist regimes collapsed in rapid, acquiescent succession.
Only Romania experienced bloodshed on the way to freedom.
At the time, popular wisdom held that because no precedent existed for
transforming a nation from a communist to a capitalistic economy,
gradual reforms were better than scrapping the old system and starting
over from scratch. The argument for gradual reform was a legitimate
rationale for the growing pains of newly formed democratic nations and
market economies. But too often, corrupt bureaucrats-turned-oligarchs
used the gradual reform argument to exploit confusion and snatch up
state-owned businesses and properties at little or no cost. Two decades
later, countries such as the Baltic States and Central Europe that opted
for a “big bang” approach to economic transformation have surpassed
economically and socially those that chose a path of gradual or limited
reform, such as Russia, Albania, Romania, Georgia, and other former
23
USSR states.1Ultimately, many of the Eastern Bloc and former Soviet
states allied with NATO and sought membership in the European Union.
European Union—―United in Diversity‖
The European Union is a unique economic and political partnership
between 27 democratic European countries. Although not a federation,
like the states of the United States or Canada, it is far more than a loose
confederation. Its governing structures and decision-making processes
continue to evolve. True to its motto,
United in Diversity, the European Union
strives to provide “peace, prosperity and
freedom for its 498 million citizens—in a
fairer, safer world.”2
“Four Freedoms” form the fundamental
principle of the EU—free movement of
goods, capital, services, and people. These
freedoms enable the free flow of the
economic factors that create prosperity for
member countries and wealth for citizens.
Poster commemorating Europe
Day, May 9.
The EU fosters political and economic
stability, economic and social balance, and
the rule of law. It also facilitates communication channels outside of
diplomacy and politics.
EU admission requires unanimous approval of the existing member
states. Candidates must have:
 Stable institutions guaranteeing democracy, rule of law, human
rights, and respect for and protection of minorities
 A functioning market economy
 The ability to take on EU membership responsibilities including public
administrative institutions capable of implementing EU laws and
regulations
1
OlehHavrylyshyn, “Fifteen Years of Transformations in the Post-Communist World,
Rapid Reformers Outperformed Gradualists,” Development Policy Analysis, No.4, Center
for Global Liberty and Prosperity, Cato Institute, Washington, D.C., www.cato.org.
2
Europa, Web site of the European Union, www.europa.eu.
24
2. Europe Today
European Union Milestones
1951
European Coal and Steel Community (ECSC) established by Belgium,
France, Italy, Luxembourg, Netherlands, and West Germany.
1957
The 6 ECSC member nations sign the Treaty of Rome forming the
European Economic Community (EEC).
1973
Denmark, Ireland, and the United Kingdom join the EEC.
1979
Direct elections of delegates to the European Parliament replace
appointed representatives.
1981,
1986
Greece, Spain, Portugal join the EEC bringing the number of member
states to 12.
1993
Establishment of single market based on four freedoms—movement of
people, goods, services, and money.
1993
Treaty of Maastricht establishes the European Union.
1995
Austria, Finland, and Sweden join the EU.
2002
Euro currency introduced.
2004
Ten new members—Czech Republic, Cyprus, Estonia, Latvia, Lithuania,
Hungary, Malta, Poland, Slovenia and Slovakia—join the European
Union.
2007
Romania and Bulgaria join the EU bringing the total membership to 27
countries. Croatia, FYROM, and Turkey are candidates.
2009
Treaty of Lisbon streamlines decision making and increases citizen and
national parliament participation. Professional Services Directive,
replacing country of origin principle, mandates recognition of
professional qualifications.
2010
Europe 20/20/20 sets new targets for energy efficiency and
sustainability.
Schengen Agreement—Freedom of Movement
Most EU countries participate in the Schengen Agreement, which allows
unrestricted travel. Citizens of Schengen Agreement countries do not
have to show a passport when crossing borders between signatory
states, whether travelling for professional or private reasons. The United
Kingdom and Ireland, however, opted out of the Agreement and maintain
their own border controls; a Common Travel Area pact between the U.K.
and Ireland permits its citizens free movement between these two
25
countries. All of the Schengen countries are participants in the U.S. Visa
Waiver Program except Poland.
Eurozone and the European Central Bank
Within the European Union, the 16 countries that use the euro currency
comprise the Eurozone (see page 27). Estonia will join the Eurozone in
2011. Eurozone monetary policy is determined and implemented by the
European Central Bank (ECB) based in Frankfurt. By policy, the ECB seeks
to maintain price stability and keep inflation under 2 percent based on its
“Harmonised Index of Consumer Prices” (HICP).
The role of the ECB is to:
 Formulate and implement of Eurozone monetary policy
 Conduct foreign exchange operations
 Hold and manage foreign reserves of the euro area countries
 Promote smooth operation of systems and processes for prompt
settlement of bank transactions
In the spring of 2010, as Greece’s economy teetered on the edge of
default, economists around the world wondered about the future of the
euro. At that time, the ECB took the unprecedented action of buying up
some of Greece’s sovereign debt in an effort to shore up the euro.
Each Eurozone country has a representative on the ECB Governing
Council which meets twice a month at the Frankfurt headquarters.
26
2. Europe Today
Chart
Pop.
millions
EU
€ NATO
NATO
Council
of Europe
Schen
-gen
Albania *
3.6
P
Austria
8.2
EU
Belarus*
9.6
Belgium
10.4
EU
Bosnia Herz*
4.6
P
Bulgaria *
7.1
EU
NATO
CoE
Croatia *
4.4
C
NATO
Cyprus
1.1
EU
Czech Rep*
10.2
EU
NATO
CoE
SCH
VWP
Denmark
5.5
EU
NATO
CoE
SCH
VWP
Estonia *†
1.2
EU
€ NATO
CoE
SCH
VWP
Finland
5.2
EU
€
CoE
SCH
VWP
France
64
EU
€ NATO
CoE
SCH
VWP
FYROM *
2
C
Georgia
€
CoE
4.6
Council
of Europe
Schen
-gen
R®
VWP
3.5
EU
NATO
CoE
SCH
VWP
Luxembourg
.49
EU
€ NATO
CoE
SCH
VWP
Malta
.40
EU
€
CoE
SCH
VWP
Moldova *
4.3
CoE
Monaco
.30
CoE
SCH
VWP
CoE
Montenegro*
.66
P
CoE
Netherlands
16.7
EU
R®
Norway
4.6
R®
Poland *
38.4
Portugal
R®
R®
CoE
SCH
VWP
VWP
R®
R®
R®
CoE
CoE
€ NATO
CoE
SCH
VWP
R®
NATO
CoE
SCH
VWP
R®
EU
NATO
CoE
SCH
10.7
EU
€ NATO
CoE
SCH
Romania *
22.1
EU
NATO
CoE
R®
Russia *
139.3
CoE
R®
CoE
Serbia*
7.3
P
CoE
Slovakia *
5.4
EU
€ NATO
CoE
SCH
VWP
2
EU
€ NATO
CoE
SCH
VWP
40.5
EU
€ NATO
CoE
SCH
VWP
R®
9
EU
CoE
SCH
VWP
R®
CoE
SCH
VWP
EU
€ NATO
CoE
SCH
VWP
R®
Slovenia *
Greece
10.7
EU
€ NATO
CoE
SCH
VWP
R®
Spain
Hungary *
9.8
EU
NATO
CoE
SCH
VWP
R®
Sweden
Iceland
.3
P
NATO
CoE
SCH
VWP
Ireland
4.2
EU
€ NATO
CoE
Italy
58
EU
€ NATO
CoE
Latvia *
2.2
EU
NATO
CoE
€ = Eurozone
€ NATO
Lithuania *
SCH
82
Germany
*(east)
EU
.35
CoE
€
millions
Liechtenstein
CoE
€ NATO
Pop.
R®
C = EU Candidate
VWP = U.S. Visa Waiver Program Participant
Switzerland
7.6
VWP
R®
Turkey
77.8
SCH
VWP
R®
Ukraine *
45.5
SCH
VWP
R®
U.K.
66.2
C
EU
R®
VWP
R®
CoE
NATO
NATO
P = Potential EU Candidate
*Former Eastern Bloc or USSR
R® = NAR Cooperating Association
R®
CoE
R®
CoE
R®
CoE
VWP
R®
† Eurozone, Jan. 2011
27
European Union Decision Making
EU-27
Population
(millions)
Council of
Ministers
Parliament
The European Union decision-making process involves three institutions:
Council of Ministers, European Parliament, and the European
Commission.
Germany
U.K.
France
Italy
Spain
Poland
Romania
Netherlands
Greece
Belgium
Czech Rep.
Portugal
Hungary
Sweden
Austria
Bulgaria
Denmark
Slovakia
Finland
Ireland
Lithuania
Latvia
Slovenia
Estonia
Cyprus
82
66.2
64
58
40.5
38.4
22.1
16.7
10.7
10.4
10.2
10.7
9.8
9
8.2
7.1
5.5
5.4
5.2
4.2
3.5
2.2
2
1.2
1.1
29
29
29
29
27
27
14
13
12
12
12
12
12
10
10
10
7
7
7
7
7
4
4
4
99
78
78
78
54
54
35
27
24
24
24
24
24
19
18
18
14
14
14
13
13
9
7
6
4
6
Luxembourg
Malta
.49
.4
4
3
6
5
495.19
345
785
Totals
28
Council of Ministers and European Council
The Council of the European Union, commonly called the
Council of Ministers or the Consilium, is the primary
decision-making body. It consists of one minister from
each member county; which minister attends depends on
the agenda topic, such as agriculture, foreign affairs,
housing, or environmental issues. Most decisions require
a simple or qualified majority (255 votes out of 345), but
decisions on new EU members require unanimity. The
number of votes per member country is proportional to
population. For example, Germany, France, Italy, and the
U.K. each have 29 votes while smaller countries, such as
Belgium, Hungary, Czech Republic, Greece, and Portugal
each have 12 votes. Any member state may ask for
confirmation that a favorable vote on a decision
represents at least 60 percent of the EU’s total
population; for example, the combined populations of
Germany, France, Italy, the U.K., and Spain exceed the 60
percent mark. The 2007 Treaty of Lisbon will gradually
reapportion and reduce the Parliament to 751 members.
When the Council meets at the Head-of-State level, it
becomes the European Council. Although the European
Council does not have any formal voting power or the
ability to propose legislation, it provides impetus for
decisions, shapes policies, and settles difficult issues on
which the Council of Ministers cannot agree.
2. Europe Today
European Parliament
Citizens of member states select their European Parliament
representatives by direct election, with the number of representatives in
proportion to the country’s population. Representatives serve a five-year
term. The EU Parliament employs three decision-making procedures:
 Cooperation: provides its opinion on draft directives proposed by the
Commission.
 Assent: gives its assent to international agreements negotiated by the
Commission and any EU enlargement.
 Co-Decision: can veto, by majority vote, Council-proposed legislation
on specific issues such as education, movement of workers, consumer
protection, environment, and similar issues.
European Parliament delegates sit in political groups, not national
delegations. A delegate can belong to only one political group. Although
political groups discuss legislation and form a consensus before a
Parliamentary vote, individual members cannot be forced to vote in a
particular way.
Logo
Political Grouping of the European Parliament
Members
European People’s Party/Christian Democrats
265
Progressive Alliance of Socialists and Democrats in
European Parliament
184
Alliance of Liberals and Democrats for Europe
85
Greens/Europe Free Alliance
55
European Conservative and Reformists Group
54
Confederal Group of the European Union United
Left—Nordic Green Left
36
Europe of Freedom and Democracy Group
30
Non aligned
28
29
European Commission
The European Commission, the third component of the EU’s decisionmaking triangle, functions as the executive arm of the EU. The
Commission oversees implementation by member states of the
regulations and directives
approved by the Council
and Parliament and also
manages program and
policy budgets. A civilservice workforce
employed by 46
directorates-general (DG)
and services supports the
27-member Commission
(one Commissioner from
The European Parliament in session. Photo courtesy
each member country).
of European Commission Audio Visual Services.
Most of the EU’s civilservice workforce is based in Brussels or Luxembourg. If needed, the
Commission is empowered to take a noncomplying member state to the
EU Court of Justice to force implementation.
Court of Justice
The European Union’s Court of Justice, based in Luxembourg, carries the
responsibility for assuring consistent interpretation and implementation
of EU legislation by member states. The Court also settles disputes
between EU members. Within the Court structure, a Court of First
Instance hears complaints brought by individuals and companies and a
Civil Service Tribunal adjudicates disputes between the EU and its civilservice workforce.
The EU Ombudsman
The Maastricht Treaty establishing the European Union also mandated
creation of an EU Ombudsman, which is based in Strasbourg. The
Ombudsman investigates “complaints of maladministration” on the part
of EU bodies, offices, and organizations, in order to assure respect for the
rule of law, principles of good administration, and fundamental rights. A
complaint can be brought by an individual, business, or company. Most
often cases are resolved by working out a friendly, mutually satisfactory
solution.
30
2. Europe Today
Treaty of Lisbon
The Treaty of Lisbon, effective December 2009, is perhaps the most
transformative legislation adopted by the EU. The original organizing
treaties were developed for a much smaller EU—15 countries instead of
27—than exists today or will in the future. The Treaty of Lisbon
anticipates future challenges and EU citizens’ demands and expectations
by streamlining decision-making processes, increasing the role of both
the European and national parliaments, and giving EU citizens the right of
direct petition to the Parliament. The Treaty’s provisions include:
 Increasing co-decision on policy matters, putting the European
Parliament and Council on equal footing and giving Parliament codecision authority on the entire EU budget
 Expanding the role for national parliaments in monitoring EU
legislation and the opportunity to weigh in on proposed legislation
before Parliament action
 Clarifying “who does what”—roles of member states and the EU
 Capping the number of EU Parliament delegates at 751 to ensure
proportional representation and prevent future unbalance (maximum
of 96 and minimum of 6 delegates per country)
 Introducing a procedure for a member state’s withdrawal from the
Union
 Creating the office of President of the European Union, High
Representative for Foreign Affairs and Security, and the European
External Action Service in order to enhance the EU’s ability to
participate with a unified and cohesive voice and promote European
interests in global affairs
 Creating a Citizens Initiative petition process
 Setting forth the Charter of Fundamental Rights in a single legally
binding document to protect the civil, political, economic, and social
rights of dignity, freedom, equality, solidarity, citizens’ rights, and
justice
 Addressing the challenges of climate change, energy efficiency, and
sustainability
31
European Union Locations
EU Council of Ministers
Brussels, Belgium
European Commission
Brussels, Belgium
European Central Bank
Eurotower
Frankfurt, Germany
European Parliament
Brussels, Belgium
European Parliament &
Office of Ombudsman
Strasbourg, France
Luxembourg
European Parliament
EU Court of Justice
European Investment Bank
Photos courtesy of European
Commission Audio Visual Services.
32
2. Europe Today
Issues, Discussions, Trends for Real Estate Professionals
If your real estate practice involves doing business in Europe, you should
keep up to date on issue developments and the discussions of key formal
and informal groups. Influential groups, even meeting informally, under
the expansive EU umbrella, identify and define issues, propose options
for action, evaluate initiatives, anticipate future trends, and provide an
opportunity for vetting reactions to proposed policies.
European Housing Ministers
The Housing Ministers of EU countries meet informally but their annual
communiqué shapes Commission and Parliamentary thinking about
housing policy. At the 2010 meeting, the group of Housing Ministers
agreed to give political impetus to the renewal and rehabilitation of the
existing housing stock as a means to aid economic recovery, generate
employment, and improve residential energy efficiency.
Professional Services Directive
The EU’s four freedoms call for the free movement of goods, capital,
people, and services. But free movement of the first three categories has
been more easily accomplished than the last—services. Services account
for about 70 percent of Europe’s GDP. Entrepreneurial small- to mediumsized enterprises (SMEs) comprise 98 percent of companies and provide
98 percent of EU employment.3 There is recognition that eliminating
burdensome administrative procedures can free up the movement of
services and establishment of businesses across member states’ borders,
revitalize economies, and create employment. The EU’s Professional
Services Directive, effective December 2009, takes aim at obstacles to
cross-border delivery of services and movement of service providers. In
brief, the Directive requires EU countries to lift legal and administrative
barriers to:
 Establishment of a service-based company or branch, by an individual
or business, in another EU country
 Cross-border provision of services by a company already established
in another EU country without setting up a permanent business
location in the other country
3
Services Directive, Doing Business Made Easier, Publications Office, European Union,
www.europa.eu
33
The Directive encourages free movement of professionals and skilled
labor among EU countries while acknowledging that qualification
standards differ. The Directive requires a general system for recognition
of professional qualifications so that a
worker qualified to purse an occupation in a
home country can obtain recognition of
qualifications in a host country if the
professional is regulated there. If the
profession is not regulated in the host
country, application for recognition of
qualifications is not necessary. The
entrepreneur may pursue a professional in
the host country under the same conditions
and with the same rights and duties as its
nationals. If the professional is regulated in
Treaty of Lisbon with seals of approval of
the host country and substantial differences
EU Member States. Photo courtesy of
exist between qualifications, the host
European Commission Audio Visual Service.
country may require a period of training,
familiarization, or a proficiency exam.
The Directive also requires a member country to establish an online point
of single contact (PSC) so that an individual can easily learn about
professional requirements in the host country and complete application
procedures online.
Because each member country can define a specific profession,
professional title alone may not be a sufficient basis for a match.
Furthermore, a country can maintain a restrictive qualification procedure
only if it can be proved necessary for consumer protection and is
proportionate. The former country of origin principle, which would allow
service providers to sell their services in other countries based on rules
applying in their home country, is replaced by the host country principle.
The Directive moves from recognition of academic diplomas, which is
based on educational institutions’ curricula, to recognition of professional
qualifications, which entails assessing the knowledge and skills of a
specific individual.
The Directive also mandates new consumer protections. For example, the
consumer must be given details on the location of the businesses, pricing
of services, codes of conduct to which professionals are bound, contact
information for complaints, dispute resolution systems, and other facts.
The real estate profession falls within purview of the Directive, unlike
other specifically exempt professions, such as medical personnel. Almost
34
2. Europe Today
all of the countries included in this study have real estate license laws but
vary widely in terms of experience and education requirements. As
implementation of the Directive proceeds, issues to monitor include
determination of equivalent qualifications and definitions of professions,
timely response to applications for recognition of qualifications, and
definition of proportionate intervention by member countries. Existing
businesses that have benefitted from de facto barriers to movement of
services are likely to face competitive challenges from lower-priced
service providers based in other EU countries.
Four Key Policy Challenges
A 2007 Consultation Paper presented by the European Commission
identified four key areas of challenge which could have far-reaching
impact on the EU’s future policy and budget priorities.
 Globalization: fostering knowledge, mobility, competitiveness, and
innovation has the potential to open new markets and opportunities
but also challenges Europe’s economy to transition to knowledgeand service-based instead of industrial and agricultural.
 Demographics: most EU member states’ populations are rapidly
aging, which raises issues of workforce structure, economic efficiency,
and intergenerational equity. Proximity to some of the world’s
youngest and poorest regions, also likely to be most affected by
climate change, will have a particularly strong effect on the social and
cultural makeup of EU countries.
 Climate change: efforts to manage climate change and limit increase
in greenhouse gas emissions has become a major priority and
policymakers will be challenged to initiate mitigating measures within
the current EU regulatory and administrative structure.
 Energy: closely related to climate change, limited global supply and
increasing demand make movement toward a low-carbon economy
imperative.
The Consultation Paper also recognizes the regional income and
economic disparities between member countries. The Paper states that
Europe’s wealthiest regions are eight times richer than the poorest. It
identifies the “primary dimension of regional income disparities in the EU
remains East-West with a weaker North-South dynamic and core-
35
periphery pattern at both EU and national levels.”4 The challenge is
whether future economic transformation will lessen, exacerbate, or
create new regional disparities.
Subsidiarity and Proportionality
An issue to monitor is subsidiarity and proportionality. The subsidiarity
principle states that because decisions should be made as close as
possible to the citizen, the EU will not act unless it is more effective than
action taken at a local, regional, or national level. When the EU does take
action, the principle of proportionality dictates that the action should not
go beyond what is necessary to achieve the objectives of the Lisbon
Treaty. As national parliaments take on a watch dog role over proposed
EU legislation, the determination of the most effective level for tackling
challenges and the extent of EU action will likely produce intense
dialogue.
Citizens Initiative
The Lisbon Treaty created a petition process for citizens to bring
proposals directly to the EU Council and Parliament, bypassing their EU
representatives and national parliament. The requirements are high, to
prevent nuisance petitions, but achievable when a groundswell of public
opinion pushes an idea forward. If one million citizens from a minimum of
one-third (9) of EU countries back a petition, and the initiative falls within
the scope of the EU mandate, the Commission must move the legislation
forward, initiate a study, or decline action; whatever course of action
selected, the Commission must explain its decision publicly. Under
current procedures, the first citizens’ initiatives could be presented as
early as 2011. Although the one-million-citizen requirement is less than 1
percent of the EU’s population, any petition that can garner that level
and breadth of popular support has the potential to create lively public
discourse and shape opinion.
4
Regions 2020: An Assessment of Future Challenges for EU Regions,” Commission Staff
Working Document, Commission of the European Communities, Brussels, 2008.
36
2. Europe Today
Future Expansion
As of 2010, three countries were candidates for future membership:
Croatia, FYROM, and Turkey. Countries recognized as potential
candidates number five: Albania, Bosnia and Herzegovina, Iceland,
Montenegro, and Serbia. Relationships with candidates, potential
candidates, and non-candidates are shaped by one of two policies.
 Stabilization and Association Agreements
The collection of agreements leads to candidacy for EU membership.
During the period of candidacy, the EU provides aid to candidate
countries to enable them to catch up economically.
 European Neighborhood Policy
This policy enables trade and cooperation agreements with nonmember countries in the southern Mediterranean and southern
Caucasus as well as former Eastern Bloc countries whose future
relationships with the EU remain unclear.
European Neighborhood Policy (ENP)
The EU has a vital interest in the economic development, stability, and
governance of its neighbors. Through its European Neighborhood Policy
(ENP) and Euro-Mediterranean Partnership, the EU deepens relationships
and expands areas of cooperation across a wide policy spectrum. The
approach is country-specific based on the partner’s political situation, EU
membership ambitions, and its level of socio-economic development. The
ENP is in varied stages of development with 16 countries:
Algeria
Armenia
Azerbaijan
Belarus
Egypt
Georgia
Israel
Jordan
Lebanon
Libya
Moldova
Morocco
Palestinian Territory
Syria
Tunisia
Ukraine
Cooperation with countries of the former Eastern Bloc, USSR, and Russia
focus on: transport, energy, sustainable management of natural
resources, border and migration control, social and cultural relations, and
dealing with abandoned munitions and landmines.
Cooperation with neighboring Mediterranean countries concentrates on
spheres of justice, security, migration, sustainable economic
development, and cultural exchanges.
37
Turkey’s EU Membership?
Turkey spans Europe and Asia not only geographically but also culturally.
The Straits of Bosporus separate European and Asian Turkey and bisect
the city of Istanbul. Although its European toehold is quite small—5
percent of its land area—modern urban Turks feel a closer affinity to
European culture and outlook than they do to their Asian, Arabic, and
Middle Eastern neighbors. Turkey was a founding member of the Council
of Europe and participates in the European Customs Union Agreement.
Turkey’s constitution, adopted in 1923, established it as a modern,
secular, democratic state with fundamental human rights guaranteed to
all citizens. Although modern Turkey claims to meet all of the criteria for
admission to the European Union, its membership has been stalled for
years. Some Turkish politicians contend that membership is blocked
because the European Union is a “Christian” club. The practical issues,
however, have to do with size, geography, economic performance,
human rights, and immigration. Many EU member states feel that not
only is the cultural gap between Turkey and Western Europe too wide,
but that politically Turkey is moving toward an anti-Western and Islamicfundamentalist state.
At a population of close to 78 million,
Turkey is second in size only to
Germany. Population growth is at 1.2
percent and median age is 28 years. In
contrast, European countries have very
low or negative population growth and
median age levels hovering around 40
years or higher. Given the rate of
population growth in Turkey and decline
in most EU countries, its population
could soon surpass other member
states. On the other hand, with rising
Istikal Avenue, Istanbul. Photo Wikimedia
education levels the youth of Turkey’s
workers could revitalize Europe’s aging
workforce. Smaller European countries that already feel overshadowed
by Europe’s largest countries see Turkey’s membership as further eroding
their influence.
38
2. Europe Today
EU Membership for Turkey
Pro—Crossroads of East and West
Con—Too big, too poor, too different
Turkey occupies a geographic and cultural
position between Europe and Asia. It has the
potential to serve as mediator with the Middle
East.
More than two-thirds of EU countries do not
want Turkey to become a member. Germany and
France, Europe’s largest countries, strongly
oppose its membership. The opinion of the
majority must be respected.
Many key oil and gas pipelines from Asia cross
Turkey.
EU membership would allow a wave of
immigrants into Europe. Turkey is a main transit
point for illegal immigrants for whom entry to
Europe also would be eased.
The Turkish economy is expanding rapidly, an
important market opportunity for European
products and services.
Despite changes, Turkey still does not measure
up to European standards of human rights,
women’s rights, treatment of minorities, and
religious tolerance.
Turkey’s large armed forces could be a military
asset for Europe. Turkish military personnel are
fighting in Afghanistan alongside NATO allies; this
loyalty should be recognized.
Turkey’s continued occupation of northern
Cyprus, an EU member, is unresolved and a
continuing point of conflict.
The youth of Turkey’s population could revitalize
Europe’s aging workforces. Turkey’s education
standards are rising.
Turkey is a large country and would exert too
much power. The EU balance would be
compromised.
Many Turkish guest workers already live and
work in European countries, particularly
Germany.
Gross income per person is far below European
standards. The level of economic subsidy
required is too high and will overburden EU
budgets, which are taxpayer supported.
Turkey has responded to some EU calls for
changes in human rights and treatment of
minorities and women.
Many EU countries have strict laws against
Holocaust denial. To admit Turkey, which refuses
to recognize the Armenian genocide of 1915,
would be hypocritical.
39
More Interrelationships
Benelux
Belgium,
Netherlands, and
Luxembourg
partner to act as one political
entity within the EU and
counterbalance the larger
member states. The Benelux
Parliament focuses in particular
on intellectual property and
trademark protection.
European Customs Union
Includes all EU members plus
Turkey, and the micro states of
Monaco, Andorra, and San
Marino. No customs are levied on
goods travelling within the
customs union and a common
external tariff is levied on all
goods entering from outside of
the union.
Black Sea Forum
The Forum offers a platform for cooperation and
commitment to development of a regional strategy and a
common vision among countries in the Black Sea region:
Armenia, Republic of Moldova, Azerbaijan, Turkey, Bulgaria, Ukraine, Georgia,
Romania, Greece, and Russia.
European Free Trade Association
European Economic Area
The agreement enables Iceland, Liechtenstein, and
Norway to participate in the EU's single market
without conventional EU membership. In exchange, the countries
adopt all EU legislation related to the single market, except as related
to agriculture and fisheries.
Transport Corridor Europe-CaucasusAsia
This EU-supported program supports
political and economic development in
the Black Sea Region, Caucasus, and Central Asia reaching to the
borders of China and Afghanistan. The focus is on strengthening and
modernizing the transportation infrastructure in order to develop an
integrated, reliable, multimodal freight transportation network.
Countries include Bulgaria, Romania, Ukraine, Turkey, Georgia,
Azerbaijan, Turkmenistan, Kazakhstan, Uzbekistan, Kyrgyzstan, and
Tajikistan.
EU Eastern Partnership and Civil Society Forum
The Forum promotes contacts among nongovernmental organizations (NGOs)
and facilitates their dialogue with public authorities in Armenia, Azerbaijan,
Belarus, Georgia, Republic of Moldova, and Ukraine.
40
Eurasian Economic Community
An alliance between Belarus,
Kazakhstan, Kyrgyzstan, Russia,
and Tajikistan creates a customs
union and single market.
Collective Security Treaty
Organization (CSTO)
This regional mutual defense
alliance includes Armenia,
Belarus, Kazakhstan, Kyrgyzstan,
Russia, and Tajikistan.
2. Europe Today
Russia–EU Common Spaces
Because of its size and resources, Russian membership would significantly
unbalance the EU. At the 2003 St. Petersburg Summit, the EU and Russia,
which is not part of the ENP, agreed to reinforce their cooperation by
creating four “common spaces” on the basis of shared values and
interests:
 Economic space including the environment
 Freedom, security, and justice
 External security, including crisis management and non-proliferation
 Research, education, and cultural aspects
Council of Europe
The Council of Europe (CoE), not to be confused with the European
Council, is much larger in membership and older than the European
Union. The CoE was founded in 1949 out of an early attempt to create a
pan-European federation and Parliament. Although the original concept
of a federation was not realized, the outgrowth was the Council of
Europe.
Today, 47 counties, representing 800 million
people, belong to the Council of Europe, a much
broader organization than the European Union. It
provides a neutral ground for dialogue and
cooperation among member states outside the
official diplomatic and governmental channels.
Council of Europe members include countries that
have close affinity with the EU but do not want to
or cannot achieve full EU membership. For
example, member countries include Turkey,
Switzerland, Iceland, most former Eastern Bloc
and former USSR countries, former Yugoslavia
states, plus Europe’s microstates—Monaco, San
Marino, Liechtenstein, and Andorra. The only
European states that are not members are
Belarus, Kazakhstan, Kosovo, and the Vatican.
The logo of the Council of
Europe as shown on this German
postage stamp commemorating
th
the Council’s 50 Anniversary in
1999. The Council of Europe is
headquartered in Strasbourg,
France.
Similar in structure to the European Union, the Council has a Committee
of Ministers and Parliamentary Assembly. A key difference is in the
authority of legislation. The EU’s legislation and directives have the full
41
weight of mandates for member states and compliance can be forced
through the Court of Justice. In contrast, Council member countries do
not cede any sovereignty. Instead, the Council accomplishes its work by
adopting Conventions, which set common standards for law and policy.
Member states voluntarily sign the Conventions and non-member
countries also receive invitations to sign some Conventions; for example,
signatories to the Convention on Cybercrime include Canada, Japan,
South Africa, and the United States.
The Council of Europe works collaboratively with the European
Commission and UNESCO on many areas, especially cultural heritage,
education, and human rights. In particular, the Council of Europe takes a
lead role in promulgating human rights. Perhaps its greatest
accomplishment is the European Court of Human Rights created under
the 1950 Convention on Human Rights. The court hears cases brought by
member states or individuals alleging violations of human rights.
In close cooperation with the European Commission and UNESCO, the
Council advocates for Europe’s cultural heritage. As we will see in the
next chapter, Conventions adopted by the Council affirm Europe’s
cultural heritage—traditions, architecture, landscape, language, and
other dimensions—as a dynamic resource for economic development,
social cohesion, and inclusiveness.
The Next Chapter
In the next chapter, the focus is on developing market intelligence by
looking at influential trends and forces. The chapter also includes
guidance for building a network of key contacts.
42
Europe &
3. Market Dynamics
43
Demographics
As a result of longer lives and low birth rates, the countries of the
European Union rank among the oldest populations in the world. Two of
the largest EU countries—Germany and Italy—have median ages of 45
years and only four countries (Romania, Slovakia, Ireland, and Cyprus)
have median ages of less than 40 years. By comparison, median age in
the United States is 38 years, 28 years in Turkey, and 29 years for the
world population. (See page 47.) Population growth rates are actually
negative in more than a third of
EU countries. Looking ahead to
EU-27 Population Projections 2050 2050, EU demographers
foresee 48 million fewer
The Social Situation in the European Union,
February 2010, Eurostat, www.europa.eu
workers and a rapidly
expanding population of
retirees, with a ratio of only
15-64 years,
two workers to one retiree.
57.1%
0-14 years,
14.1%
What does Europe’s gradual
demographic decline mean for
65-79 years,
the future? A reduced
17.8%
workforce implies reductions in
80+ years,
productivity and economic
11.0%
growth, while a growing retiree
population means increasing
costs for pension payouts and health care. For real estate, an aging
population usually indicates reduced demand for real properties of all
types—residential and commercial.
In response to these challenges, the European Commission formulated
five key directions for demographic renewal5:
 Family-friendly workplaces that improve the balance between
professional, private, and working life, such as parental leave,
childcare, and easier job entry for young adults.
 Flexicurity systems that promote longer working lives, lifelong
learning, and transitions to better jobs. Reduced legal, cultural, and
administrative barriers to worker mobility such as portable pensions
and full recognition of professional skills and academic degrees.
 Fostering a more innovative and dynamic business environment.
5
“The Demographic Future of Europe—from Challenge to Opportunity,” Commission
Communication, October 2006, www.europe.eu/legislation_summaries.
44
3. Market Dynamics
 Integration of immigrants into society and the workforce.
 Reforms to achieve sustainable public finances and guarantee social
protection as well as generational equity, including promotion of
contributions to privately funded pension savings and systems.
Immigration a Solution?
“For the EU, the impact of immigrants on population aging will depend
on how well they integrate into the formal economy, bearing in mind that
the employment rate for immigrants is still lower than that of nonimmigrants in many member states. Immigrants may temporarily help to
reduce the financial impact of an aging population when legally employed
immigrants pay contributions into public pension schemes. However,
economically active immigrants will also, over time, accumulate their
own pension rights.”6
The above policy statement summarizes the European Commission’s
outlook for immigration as a solution to
demographic decline. In short, although
immigration offers some hope for moderating
projected labor shortages, it is not a total solution.
But, the issue of immigration encompasses more
than economics and demographics. Integration into
the society as well as the workforce presents the
first and perhaps greatest challenge for immigrants
to European countries. Obviously, language ability
eases successful integration.
Photo Courtesy of European Audio Visual Services.
Acceptance of immigrants into European societies
has sometimes been the focal point of vehement
demonstrations. Although EU studies show that they are no more
dependent on social welfare systems than the general public, immigrants
are an easy scapegoat for the insecurities in societies. Immigrants who
fail to find a foothold in European societies are often stuck in low-paying
jobs and live in substandard housing in isolated neighborhoods.
Alienation and disaffection can continue to the second and third
generations.
6
“The Demographics of Europe—from Challenge to Opportunity,” Commission
Communication, Commission of the European Communities, COM(2006), Brussels,
October 2006, www.europa.eu.
45
Overall, about 30 million foreigners live
in EU countries, about 6 percent of the
total population. Although the popular
“face” of immigration in Europe is
often a person from Asia, Africa, or
Middle East, citizens of other European
countries account for more than half
(56%) of immigrants in EU-27 countries.
Within that group, almost 20 percent
are citizens of another EU-27 country.
Three-quarters (75%) of all immigrants
reside in five EU countries—Germany,
Spain, U.K., France, and Italy. These
countries’ citizens are among the most
numerous immigrants living in another
EU country.
Non-nationals in EU-27 by Continent of Origin
Oceania,
7.0%
Unknown,
5.5%
America,
10.2%
EU, 36.7%
Non EU
Europe,
19.6%
Asia, 12.0%
Afica, 15.2%
Source: “Population and Social Conditions,” Eurostat, Statistics in
Focus, 94/2009, www.europa.eu.
Europeans living in the EU-27 by Country of Origin
Austria,
2.7%
Other,
14.4%
Germany,
22.6%
Greece,
2.9%
Belgium,
3.2%
Italy, 11.2%
Spain, 17.1%
U.K., 13.1%
France,
11.9%
46
3. Market Dynamics
EU
†
Symbol
Population
(millions)*
Median
Age *
Growth
Rate % *
% Foreign
†
Residents
AT
BE
BG
CY
CZ
DK
EE
FI
FR
DE
EL
HU
IE
IT
LV
LT
LU
MT
NL
PL
PT
RO
SK
SI
ES
SE
UK
8.2
10.4
7.1
1.1
10.2
5.5
1.2
5.2
64
82
10.7
9.8
4.2
58
2.2
3.5
.49
.4
16.7
38.4
10.7
22.1
5.4
2
40.5
9
66.2
43
43
42
36
42
41
43
44
41
45
43
42
36
45
43
42
40
41
41
40
41
39
38
43
42
42
.04
.08
-.79
1.6
-.1
.26
-.63
.08
.52
-.06
.01
-.26
1.10
.-.07
-.6
-.27
1.15
.39
.39
-.05
.24
-.16
.12
-.14
.04
.16
41
.28
10.
9.1
.3
15.9
3.3
5.5
17.1
2.5
5.8
8.8
8.1
1.8
12.6
5.8
18.3
1.3
42.6
3.8
4.2
.2
4.2
.1
.8
3.4
11.6
5.7
6.6
Turkey
Russia
U.S.
----
Comparisons *
77.8
139
310
28
41
1.22
-.46
38
.97
China
--
1,330
35
.49
India
--
1,173
26
1.37
Japan
--
126
44
-.24
World
--
6,830
29
1.13
EU-27
Austria
Belgium
Bulgaria
Cyprus
Czech Rep.
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
U.K.
Most Numerous
†
Foreign Residents
Serbia, Germany
Italy, France
Russia, Ukraine
Sri Lanka, U.K.
Ukraine, Slovakia
Turkey, Iraq
Russia, Ukraine§
Russia, Estonia
Portugal, Algeria
Turkey, Italy
Albania, Ukraine
Romania, Ukraine
U.K., Poland‡
Romania, Albania
FYROM, Russia
Russia, Belarus
Portugal, France
U.K., India
Turkey, Morocco
Germany, Ukraine
Brazil, Cape Verde
Moldova, Turkey
Czech Rep., Poland
Bosnia/Herz., Serbia
Romania, Morocco
Finland, Iraq
Poland, Ireland
Sources:
* CIA World Factbook
† Eurostat
‡ Irish Central Statistic Office
§ Statistics Estonia
47
Employment
The Lisbon Strategy, launched in 2000 and renewed in 2005, sets forth
the EU’s strategic direction for reform and employment expansion. The
strategy aims for the EU to “become a more dynamic and competitive
knowledge-based economy in the world with increased employment
opportunities.”7 It presupposes that the EU must increase productivity
and competitiveness in the face of intense global competition,
technological advancement, and an aging population. The strategy strives
not only to put more people to work in good-paying jobs, but also to
integrate young people into the workforce quicker and keep older
workers employed longer as life expectancy increases.
The Lisbon Strategy introduced the concept of “flexicurity” to the
European employment scene. “Rather than protecting a job, which will
ultimately disappear, flexicurity starts from the assumption that is it the
worker who needs protection and assistance to either transition
successfully in an existing job or move to a new job.”8 The concept also
encompasses portable pension and social safety nets to enable greater
mobility of labor.
The strategy lays out four priority areas:
 Research and innovation
 Investing in people and modernizing labor markets
 Unlocking business potential, particularly of small- and medium-sized
businesses
 Energy and climate change
Youth unemployment continues to be a troublesome dilemma
throughout the EU Member States. Compared to their U.S. peers, young
people throughout Europe have a harder time achieving the first rung on
the career ladder. On average, only 37.6 percent of EU workers aged 15–
24 are employed; an employment rate about half that of workers aged
25–54, peak employment years. By comparison, 39 percent of U.S.
workers aged 16–20 are employed and 62 percent of workers aged 20–
24. Compounding the problem, about 15 percent of European secondary
school students drop out of school (early leavers) before gaining any job
skills. The Lisbon Strategy calls for providing job training for a new start
7
“Lisbon Strategy Evaluation Document,” Commission Staff Working Document,
European Commission, SEC(2010) 114 Final, Brussels, February 2010, www.europa.eu.
8
Ibid.
48
3. Market Dynamics
so that an early leaver can acquire job skills. By comparison, the overall
U.S. high school dropout rate stands at about 8 percent.9
At the other end of the age-employment spectrum, EU-27 workforce
participation drops sharply after age 55 with only 30 percent of workers
aged 60–64 still employed. By comparison, 51 percent of U.S. workers
aged 60–64 are still in the workforce. European economies struggle to
afford promised pension payouts with some trouble
economies countries, such as Greece, cutting current
pension payments and raising retirement ages.
The European Commission’s workforce initiatives
include job fairs, the EURES job posting Web site,
funds for retraining displaced workers, and youth
programs.
SALTO-YOUTH (Support for Advanced
What is the significance of Europe’s employment
Training and Learning Opportunities
situation for real estate? Productive and well-paid
within the YOUTH programme)
employment at all age levels means more income
www.SALTO-Youth.net.
available for property purchase. Good paying jobs
encourage young workers to form independent
households and transition from renters to homeowners. When
companies succeed in the global, knowledge economy, they increase
both productivity and profitability and attract investment from other EU
countries (branches) and abroad. A vibrant economy with highly skilled
workers draws in foreign investment.
European Job Day in Brussels, October 2008, matches workers with employers across the
EU. Photo courtesy of European Commission Audio Visual Services.
9
The Condition of Education 2010, U.S. Department of Education, National Center for
Education Statistics.
49
Europe 2020
For the European Union, the financial crisis that started to unfold in 2008
reversed much of the decade’s economic expansion and triggered high
unemployment, sluggish growth, and excessive levels of debt. The Europe
2020 strategy, authored by the European Commission, creates a vision of
Europe for the 21st century. It provides a roadmap for the EU to recover
from the crisis and prepare for the next decade. The strategy redirects
priorities toward development of a “smart, sustainable and inclusive
economy delivering high levels of employment, productivity and social
cohesion.”10
Five quantifiable headline targets support the strategy:
 75% of population aged 20–64 employed
 3% of the EU’s GDP devoted to research and development (R & D)
 20/20/20 climate and energy target—reduce greenhouse gas by 20%,
increase use of renewable energy by 20%, increase energy efficiency
by 20%
 Reduce school dropout rates to less than 10%, increase college
enrollment so that 40% of youth achieve a college degree
 20 million fewer people at risk for poverty
10
“Europe 2020: A Strategy for Smart, Sustainable and Inclusive Growth,”
Communication from the Commission, COM(2010) 2020, Brussels, March 2010,
www.europa.eu.
50
3. Market Dynamics
Europe 2020: A Strategy for Smart, Sustainable, and Inclusive Growth
Smart: Developing an economy based on knowledge and innovation
Aim: Focus R&D and innovation policy on climate change, energy and resource
efficiency, health, and demographic change.
Innovation
Union Impact on real estate: R&D activities need suitable facilities such as industrial and
research parks. Innovative business enterprises boost productivity and attract highincome, educated workers who need housing as well as retail and services.
Aim: Improve the performance and international attractiveness of Europe’s higher
education institutions and raise the overall quality of all levels of education and
training. Promote mobility of student and trainees and improve the employment
Youth on the situation of young people.
Move
Impact on real estate: Enhanced workforce mobility is associated with increased
need for housing. Youth employment fosters social cohesion and involvement,
formation of independent households, and transition from renters to homeowners.
Digital Agenda
Aim: Deliver sustainable economic and social benefits from a Digital Single Market
based on fast and ultrafast Internet access with broadband access for all by 2013.
Impact on real estate: Enhanced Internet access eases communications, speeds up
data transfer, and facilitates delivery of services and transactions.
Sustainable: Promoting a more resource efficient, greener, and competitive economy
Aim: Support the shift to a resource-efficient and low-carbon economy.
ResourceEfficient Europe Impact on real estate: New building standards and regulations could increase costs
for construction and rehab but provide long-term savings.
Aim: Support entrepreneurship, help industry meet new challenges, promote the
Industrial Policy competitiveness of Europe’s primary, manufacturing, and service industries.
for the Impact on real estate: An improved business environment, especially for small and
Globalization Era medium-sized enterprises, fosters entrepreneurship through reduced transaction
costs and more accessible and affordable financing.
Inclusive: Fostering a high-employment economy of economic, social, and territorial cohesion
Aim: Modernize labor markets to raise employment levels thus ensuring
Agenda for new sustainability of Europe’s social model.
skills and jobs Impact on real estate: Promotion of labor mobility encourages recognition of
professional qualifications and licenses as well as academic degrees.
Aim: Ensure economic, social, and territorial cohesion enabling all people to live in
Platform Against dignity and take an active part in society.
poverty
Impact on real estate: More buyers for real estate of all types.
51
Real Estate Trends—Residential
The 2007 subprime mortgage crisis that originated in the United States
was also felt in European property markets. Parallel to the U.S. market,
real estate bubbles developed in some European markets and
consequently experienced the greatest price drops. The opening years of
the 21st century saw rapid price appreciation in EU countries such as
Estonia, Slovakia, Latvia, Ireland, and Spain.
Analysis by RICS researchers plot Europe’s real estate “bubble” markets in
a horseshoe-shaped area around more stable markets.
In particular, Spain and Ireland experienced huge housing construction
booms fueled by low interest rates and availability of financing. In 2006,
more housing units were under construction in Spain than in Germany,
France, Italy, and the U.K. combined.11 When the recession hit, new
construction came to a sudden halt. A huge oversupply now weighs on
the markets in Ireland and Spain, particularly in the category of vacation
homes, along with an army of unemployed construction workers.
11
Trends in European Residential Property Market, 2009, European Council of Real Estate
Professionals (CEPI), Brussels, Belgium, www.cepi.eu.
52
3. Market Dynamics
In some EU countries an increase in mortgage borrowing paralleled the
construction boom, with borrowers in non-Eurozone countries, such as
Latvia, Hungary, Bulgaria, and Romania among others, loading up on
Swiss franc- and euro-denominated household debt. These borrowers are
now doubly impacted by exchange rate fluctuation and loss of value on
their properties. Europe, however, unlike the United States, has not
experienced a wave of foreclosures. Certainly, some properties have
been lost to foreclosure, but several factors in Europe make foreclosure
less likely. Specifically12:
 Social support systems for unemployed workers
 Job security—labor laws in some countries protect workers from
unannounced layoffs and firings
 With the exception of Spain and Ireland, there is less excess inventory
on the market
 Less impetus and fewer program initiatives to make homeownership
possible for low-income groups
 Penalties for foreclosure are generally more stringent than in the
United States
By contrast, countries that experienced moderate increases, or even
decreases, in home prices avoided the bubble effect of both quick price
run-ups followed by precipitous drops. Notably, real estate prices in
Germany, France, Austria, Portugal, and Switzerland remained rather
stable throughout the “bubble” years.
Overall, Europe’s rate of home ownership is high, about 70 percent, and
homes account for the largest share of personal wealth. By comparison,
the U.S. Census Bureau reports that about 62 percent of U.S. residents
own their own homes. But, within Europe’s high home ownership level,
individual EU countries vary widely. For example, rates are quite high in
Central and Eastern European countries due to the transition to private
from state-owned property; at the time of transition residents were able
to acquire ownership of their dwellings. Consequently, home ownership
rates in Hungary, Slovakia, and Lithuania are in the range of 90 percent.
At the other end of the spectrum, Germany is a country of renters; less
than half own their own homes. Less than 20 percent of residents in
Hamburg and 11 percent of Berliners own their own homes.
12
European Housing Review 2009, Royal Institute of Chartered Surveyors (RICS), London,
U.K., www.rics.org/ehr.
53
EU-27 Percent of Home Ownership
Austria
52 *
Germany
43 *
Netherlands
54 †
Belgium
68 †
Greece
74 †
Poland
58 *
Bulgaria
No data
Hungary
87 *
Portugal
75 †
Cyprus
68 *
Ireland
77 †
Romania
96 *
Czech Rep.
72 *
Italy
80 †
Slovakia
89 *
Denmark
56 †
Latvia
84 *
Slovenia
80 *
Estonia
83 *
Lithuania
88 *
Spain
83 †
Finland
58 †
Luxembourg
67 †
Sweden
62 *
France
57 †
Malta
77 *
U.K.
71 †
Sources:
* Eurostat, Social Inclusion and Living Conditions, EU-SILC
† European Mortgage Federation, Brussels, Belgium, www.hypo.org
8 Market Projections to Monitor
1. After relatively modest price falls in most countries there are signs of
fragile recoveries across much of Europe, especially in sales levels and
prices.
2. Overall, the European housing crash seems to have been relatively
short-lived, though several countries’ housing markets are still in
deep trouble.
3. Low interest rates and reviving economies have helped to avoid a
U.S.-style housing market meltdown across much of Europe.
4. Since hitting bottom, some residential markets are recovering quickly,
especially in Norway, Sweden, and the U.K., while Austria and
Switzerland never experienced price downturns.
5. House sales are unlikely to reach boom levels when “normal” returns.
6. House building continues at low ebb because difficulties in
development finance and land markets.
7. Supply gluts are localized and country-specific but where they exist
they are continuing to drive prices down.
8. The worst performing markets lie in a horseshoe shape around the
edge of Europe—Ireland, Spain, the Mediterranean, Greece, and
much of Central and Eastern Europe (see page 52).13
13
Adapted from European Housing Review 2009, RICS.
54
3. Market Dynamics
Real Estate Trends—Commercial
Commercial and investment real estate trends have, for the most part,
paralleled the residential market. Market researcher Jones Lang LaSalle
reports that investors are taking few risks and are focusing on prime,
secure markets in Western Europe.14The Central and Eastern Markets
offer the potential for higher returns on investment, but the attendant
risks are also higher. Europe capital cities still draw in foreign investment,
from cash-rich sovereign funds, institutional investors, and high net
worth individuals.
Across Europe—EU, non-EU countries, Central and Eastern Europe—the
post-crisis trend is toward stabilizing prices for office rents, a main
commercial indicator. Not surprisingly, Ireland and Spain which overbuilt
in the residential market, also continue to experience falling office space
rents, although leveling off somewhat.
Prime Rent, Office € per M2, Q2010
Country, City
Belgium, Brussels
€ per
M2
250
%
Yield
6.25
Country, City
Netherlands, Amsterdam
€ per
M2
300
%
Yield
6.5
Bulgaria, Sofia
264
8.5
Poland, Warsaw
288
6.75
Czech Rep, Prague
252
7.00
Romania, Bucharest
240
9.50
Denmark, Copenhagen
215
5.00
Russia, Moscow
465
15.00
Finland, Helsinki
296
6.25
Slovakia, Bratislava
168
8.00
France, Paris
650
5.5
Spain, Madrid
300
5.75
Germany, Frankfurt
390
5.5
Sweden, Stockholm
365
5.75
Hungary, Budapest
216
8.25
Switzerland, Zurich*
850CHF
4.00
Ireland, Dublin
400
7.00
U.K. (City), London
781
5.75
Italy, Milan
510
6.05
Sources:
European Property Indicators, King Sturge Research, London, U.K., www.kingsturge.com
* Kuoni Mueller & Partner and Schofield, Swiss Commercial Property Market, 2009,
www.s-schofield.com
14
“Global Market Perspective,” Jones, Lang, LaSalle, www.joneslanglasalle.com.
55
BRIC FDI From and To the EU-27
Eurostat, Economy and Finance,
Data in Focus, 2010
10.7%
8.7%
6.9%
3.2%
2.3%
3.7%
1.9%
Brazil
Russia
FDI from EU
FDI to EU
India
China
Europe is both a source of and target for BRIC (Brazil, Russia, India, China)
country investment. Although investment inward and outward fell
substantially from the market highs of 2007, European investors continue
to invest in BRIC countries. Brazil, Russia, and India are larger investors in
European commercial markets than EU-27 countries.
FDI Investment Outward
S.
America,
1%
FDI Investment Inward
Asia,
10%
Asia,
20%
N.
America,
19%
EU-27,
50%
S.America,
3%
N.
America,
16%
Africa,
3%
Africa,
1%
Non-EU,
11%
Non-EU,
15%
56
EU-27,
48%
3. Market Dynamics
12 Reasons Why You Need to Know
Why should a real estate professional monitor developments in the
European Union and member states? Following are 12 good reasons (not
in order of importance) for keeping up to date.
1. If you own property in an EU country, you are subject to the
regulatory and economic market environment. Country-specific law
determines property transaction requirements and procedures.
2. Despite the push for more mobility of workers and recognition of
academic degrees and professional qualifications, each country
regulates the real estate profession. The EU’s Professional Services
Directive, effective December 2009, is a mandate, but member states’
compliance will vary. The Commission may take action in the Court of
Justice against noncomplying countries.
3. As the EU presses toward full implementation of the four freedoms—
goods, services, people, and capital—unimpeded movement of
services and capital, in particular, will reshape the business
environment, but some countries will try to maintain protective
measures for their own citizens.
4. The Professional Services Directive sets new standards of transaction
transparency for consumers and real estate professionals, particularly
concerning disclosure of the identity of enterprise ownership and
control.
5. EU will push to integrate mortgage credit markets and establish
uniform valuation, foreclosure, and property registration procedures,
all of which are currently regulated by each member country.
6. Based on the principles of equality of treatment and the right to
establish a business, countries cannot favor their own citizens in
establishment or operation of businesses. The same rules must apply
to all.
7. The Common Frame of Reference is a long-term European
Commission project that aims for greater coherence in European
contract law. The issue of contract uniformity will continue to evolve.
8. Value added tax (VAT) on real estate transactions is determined by
each country. As governments seek new sources of tax revenue, they
may impose or increase tax rates on real estate services.
9. The 1994 Directive on Time shares set precedents for consumer
protection legislation regarding sale, resale, and exchange of
timeshares. The Commission will adapt consumer protection
legislation as new products appear.
57
10. Based on the principles of subsidiarity and proportionality, the
European Commission is not opposed to all regulation of professions.
But restrictive regulations are in order only when they provide
beneficial and proportionate means of consumer protection.
Determination of proportionality will continue to evolve.
11. Sustainability initiatives will impact both residential and commercial
property through policies on energy, land usage, waste management,
water supply, natural habitat, and biodiversity. The 20/20/20 energy
targets will raise awareness of energy efficiency.
12. The European Housing Ministers have already focused on the benefits
of remodeling and retrofitting of the existing housing stock and
buildings as a way to achieve the targets. Therefore, real estate
professionals must be knowledgeable of energy-efficient and
sustainable construction and retrofitting methods and products.
Building Your European Real Estate Business Network
NAR’s Cooperating Associations in Europe provide a good starting point
for building your European real estate network. A REALTOR® with
firsthand knowledge of the country and market serves as the NAR
President’s Liaison to the partner association. The liaisons can offer
assistance with making contacts and understanding the market dynamics.
The list of Cooperating Associations and liaisons along with contact
information is available at www.realtor.org/global.
An effective networking system also includes an up-to-date information
file with market-specific dossiers. As referenced in the Global Real Estate:
Local Markets Course, a networking information system should include:
Networking Information System

Market information

Spheres of influence

Prospects and clients

News

Reminders


Maps
Magazines, journals, books, and
newspapers

Trends
58
3. Market Dynamics
European Real Estate Expositions and Events
 Barcelona Meeting Point
Barcelona, www.bmpsa.com
 Central European Real Estate Associations (CEREAN) Conference
www.cereanconference.com
 Expo Real
Germany, www.exporeal.net
 FIABCI World Congress
www.fiabci.com
 MIPIM Europe
Cannes, www.mipim.com
 OPP Live
London, www.propertyinvestor.co.uk
 RECon Global Retail Real Estate Convention
Germany, www.icsc.org
 SIMA
Madrid,www.simaexpo.com
Notes:
59
The Next Chapter
Although united through the European Union and Eurozone, distinct
cultural characteristics distinguish European countries—south to north
and east to central to west. Plus, two of the countries in this study—
Turkey and Russia—span both Europe and Asia. The next chapter focuses
on how culture impacts doing business in Europe.
60
Europe &
4. Cultural Influences
61
In this chapter we will look at cultural aspects of Europe in several ways:
 General characteristics that shape outlook and behavior
 Religious heritage
 Cultural heritage as a means of social cohesion and its intersection
with sustainable development of the built and natural environment
 Citizens’ attitudes about the EU’s influence and world standing
Let’s begin by looking at cultural characteristics based on the concept of
high and low context cultures.
High Context and Low Context Cultures
The concept of high and low context cultures allows us to generalize about a group’s
outlook, attitudes, relationships, mores, and ideas.
High Context
Values formality, face-saving
communication, relationships, and the
slower pace needed to develop them.
Low Context
Values informality, results, fast pace,
punctuality, and direct communication.
 Business conducted through development  Relationships are not needed for conduct
of relationships.
of business.
 Nonverbal and indirect communication is
important.
 Content of communication, precise verbal
agreements, and facts are important
 Relationships are the basis of contracts.
 Contracts are binding and exist apart from
personal relationships.

Time is fluid and schedules are flexible.

Hierarchy and elderly are respected.

Exchange of favors creates reciprocal
obligations.
 Egalitarian. Rank is respected but
subservient to facts and agreements.
 Time is a commodity and schedules are
carefully observed.
Based on the concept of high and low cultures, European cultures tend to
divide along north/south and east/west lines. Southern and eastern
countries tend toward high context, while northern and western
European countries tend toward low context characteristics and some in
62
the middle with a blend of high and low. Distinct regional differences are
also present between north and south within countries, such as Italy and
France.
Geographic Location
North and West
Central
South and East
Hungary
Bulgaria
Greece
Italy
Romania
Russia
Turkey
Ukraine
High
CONTEXT
Portugal
Spain
Low
Belgium
France
U.K.
Denmark
Finland
Germany
Ireland
Netherlands
Norway
Sweden
Switzerland
Austria
Czech Republic
Latvia
Poland
Slovakia
Religious Heritage
Although Europe is decidedly secular, religious traditions shape customs,
mores, value systems, and observances. Within Europe, Christian
tradition divides along an east-west axis with Roman Catholicism and
Protestantism in Western Europe and Orthodox Christianity in Eastern
Europe.
63
Countries that are predominately…
Roman Catholic
Protestant
Orthodox
AustriaT
Belgium (south)
Czech Republic
Croatia
France
Hungary
Irish Republic
Italy
Poland
Portugal
Slovakia
Spain
Switzerland
Denmark (Lutheran) T
England (Anglican)
Finland (Lutheran) T
Germany (Lutheran) T
Ireland, N. (Anglican)
Latvia (Lutheran)
Netherlands (Reformed)
Norway (Lutheran) T
Sweden (Lutheran)
Switzerland (Reformed) T
Bulgaria
Cyprus
Finland T
GreeceS
Romania
Russia
Ukraine
Serbia
Islamic
TurkeyS
T = Church tax, optional tax collected by governments on behalf of churches
S = State supported
Christian Heritage
All of the EU countries observe Easter Monday as a public holiday. Many
also celebrate a pre-Lenten carnival season of merriment. Other
important days of the Christian calendar that are observed in many EU
countries include: Epiphany on January 6, Ascension Day and Pentecost
or Whit Monday in May or June, Dormition of the Virgin Mary on August
15, and All Saints Day on November 1. Refer to the Country Profiles in
Chapter 8 (page 153) for lists of public holidays.
Jewish Heritage
“Before the Nazis seized power in 1933, Europe had a richly diverse set of
Jewish cultures…that drew from hundreds and, in some areas, a
thousand or more years of Jewish life on the continent. The diverse
nature of individual Jewish communities in occupations, religious
practices, involvement and integration in regional and national life, and
other areas made for fruitful and multifarious Jewish life across
Europe.”15 According to the Spertus Institute of Jewish Studies, about 1.5
million Jews now live in EU countries, mostly in Western European
15
United States Holocaust Memorial Museum, Washington D.C., www.ushmm.org.
64
countries—France, Switzerland, Germany, Belgium, and the Netherlands.
Jewish communities across Europe have unique histories, languages, and
traditions. The years since the fall of the Soviet Union have seen a
growing revival in Jewish practice, particularly among young people who
never experienced the religious repression of communist governments.
Scholars tend to agree that what seems to be happening is a process of
“identity reconstruction” and redefinition within a new, open
environment expressed in growing interest in Jewish history, culture,
rituals, Hebrew language studies, music, and traditions.16
Islamic Heritage
Islamic religious practice and culture are not new arrivals to Europe. In
Europe, Islam hark back to the 8th century, when the Moors gained
possession of the Iberian Peninsula, now Spain and Portugal, and
remained until the completion of the Reconquista in 1492 by Spain’s King
Ferdinand and Queen Isabella. The most visible influence of the Moorish
period lives on in distinctive architecture, such as Alhambra of Granada.
Much of the Balkans was once incorporated into the Islamic Ottoman
Empire. A decisive battle in 1455 between Christian Serbians and Islamic
Ottomans at Kosovo Polje brought the Balkans under Ottoman rule.
Although a pyrrhic victory for the Ottoman forces, for the Serbs the battle
became a potent symbol of patriotism—a Balkan Alamo.
The Ottoman Empire broke up in increments, beginning with an 1821
declaration of independence by Greece, and tottered into the early 20th
century before complete dissolution. But, as result of 600 years of rule,
today’s Balkan states of Albania, Kosovo, and Bosnia/Herzegovina have
majority Islamic populations.
Overall, about 5 percent of Europe’s population is Muslim.17 Reflective of
Europe’s general distribution of population, the largest concentrations
live in France (5 million), Germany (3 million), U.K. (1.6 million), and Spain (1
million).
16
st
David Graham, “European Jewish Identity at the Dawn of the 21 Century,” Institute
for Jewish Policy Research, London, U.K., www.jpr.org.uk
17
“Mapping the Global Muslim Population: A Report on the Size and Distribution of the
World’s Muslim Population,” Pew Research Center, October 2009, www.pewforum.org
65
Heritage Routes
Three routes, sponsored by the Council of Europe, trace the history of Christian, Jewish, and Muslim
culture in Europe.
Santiago de Compostela Pilgrim Route
Belgium, France, Germany, Italy,
Luxembourg, Portugal,
Spain, and Switzerland
Following ancient Roman roads, the
Pilgrimage route traces the path of
medieval pilgrims to the Shrine of the
Apostle St. James. Every year thousands of
pilgrims from across Europe walk the
ancient route.
Jewish Heritage Route
Belgium, Croatia, Czech Republic, France,
Hungary, Italy, Lithuania, Luxembourg,
Netherlands, Serbia, Slovakia, Spain, Ukraine,
and United Kingdom
The route comprises a collection of significant
locations, archeological and historical sites,
Jewish quarters, monuments, memorials,
archives, libraries, and museums.
Legacy of Al-Andalus Heritage Route
Spain
The route, along Spain’s southern coastline,
highlights the cities, landscapes, and historic
and cultural sites that tell the story of
Andalusia, the kingdom of the Muslim
Moors in Iberia.
66
Cultural Heritage
The Council of Europe (see page 41) fulfills the role of a cultural
conservator and advocate, a role specifically eschewed by the European
Union’s organizations and administrative departments. The Council and
the European Commission, however, work very closely together, along
with UNESCO, to assure harmonious goals and implementation.
The Council regards Europe’s cultural heritage as a force for fostering
social cohesion and inclusion. Instead of a static asset, it is seen as a
collection of dynamic resources, tangible and intangible, that
encompasses the built environment, natural environment, values,
traditions, historic sites, arts, archeology, and languages. The Council has
adopted five major Conventions dedicated to identifying, preserving, and
fostering cultural heritage.
Council of Europe Heritage Conventions
 European Charter of Architectural Heritage, adopted in Amsterdam,
Netherlands, 1975
 Convention for Protection of Architectural Heritage of Europe, adopted
in Granada, Spain, 1965
 Convention for the Protection of Archeological Heritage, adopted in
Valletta, Malta, 1992
 European Landscape Convention, adopted in Florence, Italy, 2000
 Framework Convention on the Value of Cultural Heritage for Society,
adopted in Faro, Portugal, 2005
The Faro Framework Convention
The Council’s Framework Convention on the Value of Cultural Heritage
for Society defines cultural heritage as a “grouping of resources inherited
from the past which people regard, irrespective of who owns them, as a
reflections and expression of their own constantly evolving values,
beliefs, knowledge, and traditions. It includes all aspects of the
environment resulting from the interaction between people and place
67
through time.” The Faro Convention is groundbreaking because it “shifts
the focus from objects to people, to their right to participate in cultural
life as defined by the Universal Declaration of Human Rights, to the ethics
of use rather than to the methods of protection already covered by other
laws a various levels. Faro’s aim…is to foster human development and
quality of life for all.”18
Key Concepts
Key concepts that recur throughout the Conventions and the Council’s
discussion of cultural heritage include:
 Integrated conservation: bringing together of all sectors, professions,
partners, public authorities, and stakeholders to integrate and
balance environmental and societal needs.
 Heritage communities: transnational and multidimensional
affiliations based shared interest in a subject (such as archeology,
cartography, or languages) that is without reference to ethnic groups
or communities. Emphasis is placed not on objects but the people
who benefit, individually or collectively.
 Democratic sustainability: the role of cultural heritage in the
construction of a democratic society.
 Interculturalism: in place of ignoring or denying diversity as with
assimilation, or emphasizing it, which reinforces differences,
interculturalism recognizes the value of diversity, seeks to increase
interaction between cultural communities, and openly addresses
conflicts and tensions through public dialogue.
 Transversal themes: cross-cutting issues of priority to the Council of
Europe, other international organizations, member countries, and
researchers.
18
Graham Fairclough, “The Faro Convention on the Value of Cultural Heritage for
Society,” Landscape Character News, Cheltenham, Gloucestershire, U.K., Spring 2010,
www.landscapecharacter.org.uk
68
Council of Europe Initiatives
 European Heritage Days: an annual continent-wide event, held in
September, encourages visits to historic sites including many not
customarily open to the public.
 Cultural Corridors: identification of cross-border heritage routes and
locations throughout Europe that preserve distinct cultural heritages,
such as the Santiago de Compostela Pilgrimage route.
 Culture Watch Europe: a Council of Europe monitoring group that
gathers information on best practices in cultural policy making and
links up partner groups from academia, civil society, international
organizations, and researchers for exchange of information and policy
dialogue.
 Compendium: an online resource of best practice information.
 Youth programs: initiatives to encourage youth participation in
democracy and public life.
 Teacher training: programs help teachers incorporate intercultural
principles into the classroom to encourage social cohesion and
prevent chauvinism.
 Network of Intercultural Cities: An eleven-city pilot program to
identify successful models for governance, policies, and stakeholder
partnerships that foster intercultural integration. Pilot program cities
are home to large immigrant populations.




Berlin, Germany
Izhevsk, Russia
Lublin, Poland
Lyon, France




Melitopol, Ukraine
Neuchâtel, Switzerland
Oslo, Norway
Patras, Greece



Reggio Emilia, Italy
Subotica, Serbia
Tilburg, Netherlands
69
Cultural Heritage and Real Estate
What is the relevance to the business and real estate of cultural heritage
initiatives and Council of Europe Conventions?
 Social cohesion is vital to the economic health of a diverse society,
particularly in the face of rapid aging.
 Economic development in successful intercultural cities and along
cultural corridors, such as from tourism, enhances property value and
creates wealth.
 Preservation initiatives impact town planning, building standards, and
future development.
 Heritage initiatives encourage continuation of the specialized building
skills essential to preservation of historic structures.
 Preservation of historic sites, towns, and landscapes enhances
property values.
Eurobarometer—Public Opinion
How do EU citizens feel about their place in the world in the face of
globalization and new communications technologies? The European
Commission’s Eurobarometer,19 an ongoing attitude survey, profiles
public opinion. Following are some key findings that shed light on how
Europeans feel about the EU’s influence, relationships with other
countries, impact of globalization on culture, Euro participation, and the
future. The following results, rankings, and response rates represent EU27 trends; results in specific countries may be higher or lower.
Influence of the EU
 The most important determinants of overall power and influence in
the world are economic power (81%) and political influence (63%).
 The elements that best characterize the European Union are its
economic power (73%) and political influence (68%).
19
“Public Opinion in the European Union,” Standard Eurobarometer 72, Report (Volume
2), February 2010, http://ec.europa.eu/public_opinion.
70
 The top three values that best represent the European Union are
democracy, human rights, and peace.
 Most (61%) feel that the state intervenes too much in their lives.
Comparison with Other Countries
 Opinion is divided (44% agree, 37% disagree) on the question of
whether the EU and the United States have the same interests when
dealing with globalization.
 Europeans perceive the EU as behind the United States in the areas of
scientific research, innovative technology, and entrepreneurship, but
ahead in protecting the environment, healthcare, education, and in
fighting social disparity, unemployment, and discrimination.
 Europeans feel that the EU economy is performing worse than the
United States, Japan, China, but better than India, Russia, and Brazil.
Globalization and the Economy
 Most (61%) agree that globalization presents opportunity for
economic growth and encourages foreign investment (59%), but is
only profitable for large companies (64%).
 Close to three out of four (74%) Europeans feel that globalization
requires some form of worldwide governance.
Euro Participation
 In the Eurozone, opinion is rather evenly divided (45% agree, 47%
disagree) on whether keeping a former national currency would have
offered protection in the economic crisis.
 Countries outside of the Eurozone, however, feel that adopting the
euro would not have offered better protection (51% agree, 34%
disagree).
71
Globalization and Culture
 Most Europeans (60%) feel that globalization increases social
inequities.
 Opinion is divided on whether globalization is a threat to national
culture (47% agree, 41% disagree). But the majority (66%) feel that
globalization encourages openness to other cultures.
Preparing for the Future
 EU citizens are somewhat pessimistic about the impact of the
economic crisis of 2009–2010 on the job market; they believe (54%)
that the worst is yet to come.
 EU citizens believe that the best way to face the future challenges of
globalization is to emphasize social equality and solidarity and protect
the environment.
 About one third (35%) feel that the economic situation prevents them
from planning ahead, but slightly more feel confident that they know
what they will be doing in the next six months (39%). Within the
financially troubled countries—Bulgaria, Cyprus, Greece, Lithuania,
Latvia, Estonia, Hungary, Romania—much higher percentages (50–
65%) of people feel unable to plan ahead. The most confident
countries are Germany, Netherlands, Austria, and Sweden.
 When asked what should be done to improve the EU’s economic
performance, the top three actions are:
1. Improve education and training
2. Invest in research and innovation
3. Facilitate the creation of companies
 When it comes to reforming the financial systems, most (62%) feel
that additional financial reforms are needed; the highest priority
needs are increasing transparency and accountability along with a
stronger EU regulatory role.
 Most Europeans (71%) are willing to make sacrifices today to benefit
future generations.
72
?
Discussion Question
How do the Eurobarometer results compare to the European
Union’s Europe 2020 goals (see page 51)? How do these survey
results influence business planning?
73
The Next Chapter
In the next chapter we will take an in-depth look at business,
government, and real estate in France.
Notes:
74
Europe &
5. A Look at France
75
Geography and Structure
France is the largest in land
areas of the European
countries; it is slightly smaller
than the U.S. state of Texas.
Major cities are Paris, the
capital city, and Marseille,
Lyon, Toulouse, Nice, Nantes,
Strasbourg, and Bordeaux.
When the French refer to
“Metropolitan France,” they
mean the European land area
bordered by Germany,
Belgium, Italy, Switzerland, and
the microstates of Andorra,
Luxembourg, and Monaco.
As a large country, Metropolitan France incorporates a range of terrains
with plains and rolling hills in the north and west, Pyrenees Mountains
and Alps in the south and east, and scenic coastlines along the Bay of
Biscay and Mediterranean. Climates mirror terrain with cold and damp
winters and temperate summers in the north. The Mediterranean coast
experiences mild winters and hot summers with occasional cold, dry
winds—le Mistral—from the northwest.
Metropolitan France is made up of 22 Regions, which are subdivided into
96 Départments and 36,000 municipal Communes. The cities of Paris,
Lyon, and Marseille rank as both Départments and Communes and are
subdivided into arrondissements each with aConseild’Arrondissment and
mayor.
Alsace
Aquitaine
Auvergne
Basse (lower) Normandie
Bourgogne (Burgundy)
Bretagne (Brittany)
Centre
Champagne-Ardenne
Metropolitan France
22 Regions
Corsica *
Franche-Comté
Haute (upper) Normandie
Île-de-France (Paris)
Languedoc-Roussillon
Limousin
Lorraine
* Territorial Collectivity
governed as a region
76
Midi-Pyrénées
Nord Pas de Calais
Pays de la Loire
Picardie
Poitou-Charentes
Provence Alpes-Côte d’Azur
Rhône-Alpes
5. A Look at France
Overseas Departments, Collectivités, and Territories
4 Overseas Départments
(DOM ROM) Regional status,
French and EU laws apply
6 Overseas Collectivities—Collectivités d’outreMer
(COM) Territorial laws apply
Guadeloupe (Caribbean)
Martinique (Caribbean)
Guiana (South America)
Réunion (Pacific)
French Polynesia (Pacific)
Wallis and Futuna Islands (Pacific)
Saint Pierre et Miquelon (North Atlantic)
Saint Martin (Caribbean)
Saint Barthélmy (Caribbean)
Mayotte (Indian Ocean, DOM as of 2011)
Special Status Territory
New Caledonia (Pacific, 2014
independence referendum)
Terre Australes et Antarctiques Française (TAAF)
Terre Adélie (Antarctic), Clipperton Atoll (Pacific), and
9 other uninhabited islands in the Indian Ocean
Economy
France’s economy ranks second, after Germany, in Europe and fifth in the
world.20 It has a blend of agriculture, industrial, and services; the service
sector accounts for most of the job growth in recent years. Principal
industrial exports include aircraft and engines, beverages, electrical
equipment, chemicals,
cosmetics, and luxury
products.
French Economy
Source: U.S. State Department, Bureau of European and
Eurasian Affairs, www.state.gov
Although the smallest sector
of the French economy, the
Agriculture,
3.8%
agricultural sector is the most
productive in Europe and
Industry,
24.3%
second only to the United
States as an exporter of
agricultural products. Leading
Services,
exports, 70 percent of which
71.6%
go to other EU countries,
include wine, wheat, meat,
and dairy products. Grain
fields cover the north of
France. Dairy, poultry, pork,
and apple production are centered in the west and beef production in the
central area. Fruit, vegetable, and wine production spreads throughout
the south and central areas.
20
The World Bank, http://data.worldbank.org.
77
Despite its economic strength, many economists feel that France’s
competitiveness is compromised by the power of its labor unions and
lack of workplace flexibility. In a move to encourage work and increase
time on the job, in
October 2007
national legislation
made overtime work
beyond the standard
35-hour work week
exempt from income
and payroll taxes.
Legislation allowing
more businesses to
stay open on Sunday,
although approved
Vineyards in Provence
by the Parliament,
French wine producers developed
stirred extreme
the system of Appellation d’Origine
controversy.
Controlee (AOC), a designation
granted to certain products based
on the source; for example, only
wines produced in the historic
region of Champagne may be
rightly called champagne.
Private sector wages
tend to grow
consistently faster
than the GDP. For
example, from 2001–
Wines of Alsace
2007 private sector
wages grew at a rate
of 3.1 percent while
21
the GDP grew at an average of 1.8 percent. On the other hand, France’s
generous unemployment and social benefits softened the impact of the
2008–09 global financial crisis.
Real Estate Professionals in France
The Federation Nationale de l'Immobilier (FNAIM), France’s national
association for real estate professionals, maintains an online database of
listed properties. FNAIM also upholds a code of ethics for association
members. The organization membership covers about 62 percent of real
estate agents and brokers in France. Government statistical sources
21
Background Notes: France, U.S. Department of State, Bureau of European and
Eurasian Affairs, www.state.gov.
78
5. A Look at France
report that about 45 percent of real estate transactions involve a real
estate professional—agent or notary—as an intermediary.22
France requires professional licensing for real estate agents (agence
immobilière) and brokers. Agents and brokers must obtain a Business
Card (carte professionelle), known as the T Card, which is recorded in the
Trade and Companies’ Register. The Business Card entitles the agent to
conduct “housing and business premises transactions.” In order to obtain
a Business Card, the real estate professional must show proof of
vocational aptitude through training or work experience. The agent must
also obtain a bond to protect clients’ funds and carry liability insurance.
The real estate professional must display the Business Card number, the
amount of financial guarantee provided, the name and address of the
underwriting organization, and the rates or terms for calculating fees.
Commission rates are negotiable and subject to VAT. National law
mandates payment of the real estate agent upon completion of the
transaction, which means that the agent or brokerage may not receive
compensation for any services prior to closing. FNAIM has been working
to amend the current law, the Hoguet Law, so that agents can offer a
broad range of services and customize remuneration arrangements.
Property managers’ fees are fixed according to the terms of the
management agreement—usually a percentage of the monthly rent.
The real estate agent must hold a written agency agreement in order to
represent a client—seller or buyer.
Real estate purchase transactions require the services of a notary
(notaire). The notary administers most of the aspects of the transaction
including preparation of documents, execution of the final deed, and
registration of title. Duties are to:
 Prepare the purchase agreement
 Hold deposits
 Conduct required searches for title clearance, liens and
encumbrances, zoning compliance, and waiver of municipal
preemption rights
 Prepare and execute the deed of sale
 Schedule and supervise the transaction closing
22
Institut de la Statistique et des Étude Économique (INSEE), www.insee.fr
79
 Collect registration fees
 Complete the registration of the property deed
The buyer pays the notary fees, usually about one percent of property
value plus VAT, at time of closing.
Transaction Steps
 The transaction begins with a purchase agreement (compromis de
vente) and 5–10 percent deposit, which is held by a notary. The
purchase agreement allows a 7-day cooling-off period during which
the buyer can withdraw. The purchase contract can be in the form of
an option (promesse unilatérale de vente), which gives the buyer a
choice whether or not to proceed with the transaction. Exercising the
option commits the buyer to completing the transaction and the
seller has the right to retain the deposit, usually 10 percent, if the
buyer backs out.
 Several types of required certifications and searches, many
completed online, follow execution of the purchase agreement. The
notary performs most of these:

Land Registry certificate of non-encumbrance and 30-year title
search

Cadastral registry certificate (plan catastral)

Municipal land use certificate (document d’urbanisme)

Waiver of preemption rights from the Municipality, which has
right of first refusal exercisable for up to 60 days; the local
government agricultural organization (SAFER) may also hold preemptive rights in order to assure proper use of agricultural land
 Seller furnishes environmental reports, termite and asbestos
certifications, and optional energy performance certificate
 Notary prepares the deed of sale and notifies parties of closing date
 Buyer and seller meet with the notary to complete the deed of sale
(acte de vente authentique)
 Notary collects registration fees (frais) and applies for registration of
the deed at the relevant Land Registry (Conservation des
80
5. A Look at France
Hypothèques); the original deed of sale, called the minutes, remain
with the notary
 Upon completion of all transaction paperwork, the notary provides an
attestation d’acquisition
Closing Costs
 Transaction fees and taxes average 7.5 percent of the purchase price
and represent a major source of revenue for départments
 VAT of 19.6% is assessed on real estate agent commissions
 19.6% VAT on the first sale of a new property within five years of
completion but registration fees are reduced
?
Discussion Question
How do these steps compare to transactions in your market area?
81
Where do foreigners buy real estate in France?
There are no restrictions on foreign ownership of real estate in France. According to
the FNAIM, foreign buyers flock to picturesque resorts on the Mediterranean coast,
historic villages in the southwest, and mountain resorts in the eastern French Alps.
More than half of the transactions involve British buyers.
Les Gets–55%
Chamonix—58%
Valle d’Isere–33%
Dordogne–20%
Charente–10%
82
Cap Ferrrat–20%
Villefranche–55%
Ramatuelle–46%
5. A Look at France
Mortgage Financing
Mortgage financing is a very competitive business in France but also a
remarkably stable one. Fixed-rate long-term mortgages with terms of 20–
30 years comprise the majority of loans. Other types of mortgage
products—variable rate, flexible payment, and interest only—are
available but a small
segment of the market.
Mortgage Terms
Source: Crédit Logement, CSA Observatoire
Customarily, maximum
de Financement des Marchés Résidentiels
30+ years, 1%
loan-to-value is 80
Under 10 years,
4%
percent with a 33 percent
maximum debt-to10-15 years,
13%
income ratio. Because
20-25 years,
French mortgage
30%
underwriting standards
25-30 years,
focus on the borrower’s
27%
ability to pay over the life
of the mortgage, the
incidence of default is
quite low—less than 1
percent. Lenders may
require mortgage life insurance, the cost is about .5% of mortgage value,
to repay the loan in the event of the borrower’s demise. Early payoff of a
mortgage usually involves an early redemption fee, which cannot exceed
3 percent.
French Mortgage and Banking Terminology


Tableau d'amortissement:
amortization schedule,
monthly repayment
schedule
Prêt in fine: interest only
mortgage

Taux: interest rate

Taux fixe: fixed interest rate

Prêt immobilier: mortgage


Prêt modulable: flexible
mortgage
Taux revisable: variable
interest rate

TEG—Taux efféctif global:
annual percentage rate
(APR)

Frais: fees

Bordereau d’inscription:
notary’s description of a
mortgage
IRA—Indemnités de
remboursement anticipé:
early payoff fee


Capacité d’endettement:
maximum DTI ratio

Délai Scrivener: 11-day
cooling-off period before
accepting a mortgage offer


ADII—Assurance décès
invalidité incapacité: life and
disability insurance
Expertise: valuation

RIB—Relevé d’identité
bancaire: bank account
information
83
Residential Real Estate
Demand outstripping supply characterizes the French residential real
estate market. Long lead time for construction and fast growth in
household formation keep the housing supply chronically short of
demand.
Like the rest of Europe, French house prices increased up to 2008 and
then declined. Between 2003 and 2007, house prices increased by about
10 percent annually and then fell about 9 percent in 2009.23 But neither
the increases nor decreases were of the magnitude experienced by other
countries such as the Baltic states, Spain, or the United States.
Housing—A Fundamental Right
Among European countries, France has one of the largest sectors of
subsidized and public (social) housing—about 20 percent. Netherlands
and the U.K. have higher percentages, Germany and Italy have lower.
National legislation, the landmark 1990Besson Act, states that housing is
a fundamental human right and duty of the state. “Guaranteeing the
right to housing is a duty of solidarity incumbent upon the whole nation.
Any person or family experiencing peculiar difficulties, in particular owing
to inadequate resources or living conditions, shall be entitled to
community aid, as provided under this Act, in order to accede to and
remain in decent independent housing.” Towns with a population of
more than 5,000 must provide 20 percent social housing. The Besson Act
mandates Départmental action plans for lodging those most in need. The
national Housing Solidarity Fund provides subsidies for those in need. The
national government finances social housing but local authorities plan
and administer it.
Social housing is predominately urban with concentrations in peripheral
areas. The Urban Framework Act of 1991 ensures a “right to the city” for
all citizens. The Act requires “local bodies to provide living and dwelling
conditions which will foster social cohesion and enable conditions of
segregation to be avoided.”
23
“Trends in the French Housing Market,” Trésor-Economics, No. 71, January 2010,
Direction Générale du Trésor et de la Politique Économique (DGTPE),
www.minefe.gouv.fr.
84
5. A Look at France
La Rive Droite
La Rive Gauche
Sixteen arrondissments make up the city of Paris “intra muros,” inside the peripheral ring
st
th
road. The 1 and 8 house the central business district. The River Seine bisects the city
into Right and Left Banks—La Rive Droite and La Rive Gauche.
Commercial Real Estate
Recent trends in commercial and investment
property transactions—rentals, sales, and
construction—mirror trends in residential
real estate. The global financial crisis of
2008–09 put a damper on commercial and
investment property transactions. By the
first quarter of 2010, the markets
appeared to stabilize but well under peak
2007 levels.
In Paris, prime commercial space is
located on the right bank of the River
Seine within the Central Business District
(CBD), 1st, and 8th arrondissements and
the adjacent 2nd, 9th, 16th and 17th
arrondissements..The Boulevard
Périphérique ring road divides the city
“intra muros” from the suburbs and
encompasses all of those business areas.
Rental rates for office space, quoted in
square meters per year, reflect this
distinction. In the first quarter of 2010,
average CBD office rents were €543 m2
Photo by Simdaperce, Wikimedia
La Défense, west of the
central business district, is
dominated by modern
high-rise office buildings.
The Grande Arche de
Défense stands as a
monument to
humanitarian ideals.
85
per annum with 6.4 percent vacancy rates. In comparison, average rents
were €134 m2 per annum and vacancy rate of 6.1 percent in the outer
rim.
West of the CDB, in La Défense, a modern business district of stylish highrise office buildings, rents were €443m2 per annum with a vacancy rate of
4.6 percent. Overall, average office rents for Île-de-France—Paris and
environs—were €318 m2 per annum with an overall vacancy rate 7.1
percent.24
Real Estate Data Sources
The most widely quoted sources for data on the residential housing
market are
 INSEE-Notaires index, compiled by the Institut de la Statistique et des
Étude Économique in collaboration with the Chambres de Notaires,
www.insee.fr
 FNAIM index compiled by the Federation Nationale de l'Immobilier
from members’ real estate transactions, www.fnaim.fr
The INSEE-Notaires Index is compiled from registration records of about
two-thirds (approximately 850,000 transactions yearly) of all real
property transactions in France. The FNAIM draws information from a
smaller but timelier data pool, members’ completed transactions and
properties under contract (about 150,000 transactions yearly).
Consequently, when compared, the two indexes tend to show
inconsistencies with the INSEE-Notaires index showing greater
percentage increases in property prices and lower percentages of price
decreases. But the two indexes follow the same trend lines.
Rental Properties
Rental laws in France are very pro-tenant. Different regulations apply to
furnished and unfurnished properties. Unfurnished properties are subject
to the most restrictive regulations.
For an unfurnished property, the minimum lease term is three years for
an individual or six years for a company. At the end of the lease term, the
24
“Results 2009 and Outlook 2010,” Paris Digest, Newmark Knight Frank Global Real
Estate Advisors, London, U.K., Q1, 2010. http://resources.knightfrank.com.
86
5. A Look at France
landlord/owner can re-occupy the property only if the owner or a family
member intends to live there or if the owner plans to sell, or for some
serious reason such as failure to pay rent or obtain house insurance. The
owner must provide at least six months’ advance notice of this intention
to end the contract, even in the case of nonpayment of rent. If the
property is to be sold, the tenant has a right of first refusal at the same
price offered by a buyer. Eviction of a tenant for nonpayment of rent
entails a lengthy process and requires six-month grace period, which can
be extended by up to three years if the tenant will suffer undue harm,
such as no alternative housing or children missing school; a tenant cannot
be evicted during the winter months—November to March. To avoid a
lengthy court proceeding, leases customarily include a resolution clause
that allows lease termination, after two months’ notice, for nonpayment
of rent or failure to obtain house insurance
Rent increases, tied to construction costs, cannot exceed the quarterly
INSEE Index of construction costs.
The tenant, on the other hand, may leave at any time with two to three
months’ notice, or one month in the case of job loss or illness if over age
60. A tenant, however, may not sublet a property without the landlord’s
consent.
Furnished properties allow much more flexibility and can be rented for
one year. The lease automatically renews unless either the owner or
tenant gives notice.
Notes:
87
The French Court System
Constitutional Council
Rules on constitutionality of national legislation before enactment
Court System
The French legal system, a successor to the Napoleonic Code, is based on civil (codified) law. Prior court
cases influence judicial decisions but do not set precedent.
 Public law involves claims against government, public administrative matters, and criminal matters.
 Private law involves disputes between citizens or between companies.
The French Court Systems consists of two separate streams
 Judicial Courts adjudicate civil and criminal cases.
 Administrative Courts rule on citizens’ claims against government offices and agencies.
Judicial
Courts
Administrative
Courts
Court of Cassation (Supreme Court)
Rules on compliance with law, not the merits of the case.
Council of State
Appeals Court
Civil Courts
Social
 Labor Tribunal
 Social Security
 Agricultural
Land Tribunal
 Employment
Tribunal
Commercial
 Business
Tribunal
Criminal Courts
Civil
 Tribunal de
Grande
Instance
(divorces,
adoptions)
Correctional
 Correctional
Tribunal
Local Community Courts
 Tribunal of
First Instance
 Police Court
Administrative
Appeals
Criminal
 Assize Court
(Serious
criminal cases,
jury trials)
Administrative
Tribunal
Médiateur de la
République
Attempts to mediate
cases before
recourse to courts
A bailiff (huissier) handles summonses, statements, writs, court seizure of property, and certified copies
of documents and reports (constats).
88
5. A Look at France
What the Real Estate Professional Should Know About
Government
Five Republics of France—Liberté, Égalité, Fraternité
 1792–1804: First Republic
The first republic was ushered in by the French Revolution and ended
with the ascendancy of Napoleon as emperor.
 1848–1852: Second Republic
The Second Republic emerged from the Revolution of 1848, but soon
ended with the restoration of the monarchy by Louis-Napoleon.
 1870–1940: Third Republic
The Third Republic rose from defeat of Louis-Napoleon by Prussian
forces and subsequent year-long Siege of Paris. Although it continued
for 70 years until 1940, it could not survive WWII. The Third Republic
was disbanded by the German occupation of France and replaced by
the collaborationist Vichy government.
 1946–1958: Fourth Republic
The period immediately following WWII was a time of both rapid
economic growth and internal political turmoil. The old allegiances
crumbled as colonies sought independence through armed conflict. A
stunning military defeat at Dien Bien Phu, Vietnam (Indochine),
followed by the Algerian uprising of 1958 proved the breaking point.
General Charles DeGaulle, a WWII hero, won the presidency and
brought the nation out of crisis.
 1958–present: Fifth Republic
A new constitution ushered in the current republic. In the years of the
Fifth Republic, France has been a leader in strengthening the EU and a
vigorous participant in global diplomacy. Presidents of the Fifth
Republic are: Charles DeGaulle, George Pompidou, Valéry Giscard
d’Estaing, François Mitterrand, Jacques Chirac, and Nicholas Sarkozy.
National Executive and Legislative Branches
The national government consists of the executive and legislative
branches. The executive branch is headed by the president as chief of
state, and a prime minister, appointed by the president, as head of
89
government. The term “gouvernment” refers most often to the group of
appointed ministers who serve under the prime minister.
The legislative branch consists of a bicameral parliament. The lower
house, the National Assembly, has 577 members, each of whom
represent a constituency of about 100,000 inhabitants. The upper house,
the Senate, has 346 (as of 2011) members and is elected by an electoral
college (grand électeurs) made up of the members of the municipal,
department, and regional councils.
Major Political Parties
Left
Center
Right

Socialist Party
Communist Party

New Center
(former UDF)

Popular
Movement

Greens

Democratic
Movement

National Front
(extreme right)
Parliament meets for one nine-month session each year. The president
can call an additional session under special circumstances. Although
parliamentary powers have gradually diminished under the Fifth
Republic, the National Assembly can still cause a government to fall
through a no-confidence vote.
Regions, Départments, Communes
Below the national level, the structure of departmental and municipal
governments remains largely unchanged from the Napoleonic era. The
authority of regions, départments, and communes frequently overlap.
Traditionally, French governance and decision-making was very
concentrated at the national level, but the trend in recent years is toward
more decision-making at the local levels.
Starting at the most local level, 36,000 communes created during the
French Revolution, each with a mayor and council, govern the villages
and towns. The communes have growing control of local government
spending and priorities. But with the migration from rural areas to cities,
the populations of some communes have dwindled to a handful of
inhabitants; in these cases, the national government has encouraged
amalgamation with neighboring communes. The attempt to amalgamate
smaller communes has achieved uneven results. By contrast, the United
90
5. A Look at France
States has about 19,400 municipal governments and 3,100 counties
among the 50 states.
The 96 Départments are also a product of the
French Revolution. The Départments are configured
on the basis of territory, not population, and are
roughly equivalent in area. Today the Départments,
under supervision of locally elected Councils,
function as a representative of the national
government under the supervision of the Ministry of
Interior. The Départment Conseil Général oversees
economic development, infrastructure, and the like.
The Départment Préfecture, a parallel structure,
acts as the liaison to national government and
oversees police, firefighters, passports, driving
licenses, vehicle registrations, and similar matters.
Traditionally the distance a coach and horse could
travel in out and back one day from the capital city
determined Départment size; this quaint measure
holds little relevance today. In an effort to
streamline governance, a system of 22 Regions,
each containing several Départments, was
introduced in 1964. The Regions, for the most part,
echo the historic provinces of France (see page 76).
A directly elected Conseil Régional oversees regional
affairs.
22 Regions
Regional
Général and
President
96 Départments
ConseilGénéral
and President
36,000 Communes
Municipal Council and
Mayors
French Taxes—Income, Real Estate, Capital Gains, and More
France is a very tax-intense country with a complicated tax code. If your
client plans to purchase an income property, buy a second home, start a
business, inherit property, or spend an extended period of time in France,
the advice of a French tax advisor can help manage a potentially
expensive tax bill. Following are highlights of taxation of income, real
estate, rental income, capital gains, social charges, social security, and
other taxes.
91

Capital Gains Tax—Impôtsur les Plus Values
No capital gains tax on principal residence if owned for 5 years, or for pensioners (65+) and invalids
regardless of citizenship or residency
 Notary withholds applicable taxes at time of transaction closing
French and EU Residents, SCIs
Société Civile Immobilère (SCI)
 16% on net gain
 A property investment partnership with taxtransparency and limited liability
 French residents and SCIs pay additional
12.1% social charges


Basis adjustments of 7.5% for acquisition
costs and 15% for capital improvement
Larger deductions available with proof, i.e.
invoices
After 5 years ownership, 10% per annum
discount results in no tax after 15 years
Non French or EU Residents
 33.3% on net gain

After 5 years of ownership, 10% per annum
discount results in no tax after 15 years

Establishes French residency of ownership
entity, qualifies for lower capital gains tax
treatment

Requires registration and annual accounting
reports in French; penalty of 3% market for
failure to report. If value exceeds €150,000
requires a French tax representative

Not applicable to rentals of furnished
properties or for developers, subdividers, and
property dealers
Social Charges—Cotisations
 Not withheld, taxpayer receives an annual statement (avis d’imposition) in September/October
based on tax return filed previous May 15th
 About 50% of amount is deductible from income
Three rates:
 8% on salaries, self-employment income, unemployment benefits —applied to 97% of total

7.1% on retirement income, disability, and pensions—applied to 95% of total

12.1% on investments, annuities, rental income, capital gains—applied to 100% of total
Social Security—Sécurité Sociale
 Typically about 13% contribution by employee

40–50% contribution by employer, about 22% for self-employed

Covers pension and healthcare
Value Added Tax (VAT)—Taxe sur la Valeur Ajoutée
 19.6% tax on consumption (sales tax) including first sale of a new home

Applies to real estate commissions

5.5% for improvements, conversions, and repairs of principal residence and second home. Not
available for: construction that increases size more than 10%, adds height, reconstructs more than
50%, or adds balconies, terraces, parking areas, swimming pools, and similar features
92
5. A Look at France
Taxes on Real Estate Income
Rental Income
 Nonresidents pay 20% on net income for furnished and unfurnished properties; may apply for a
lower rate if a French tax resident but must declare worldwide income
 Residents’ rental income taxed as ordinary income. Two types of rental income: foncier or BIC
Foncier
Bénéfices Industriels et Commerciaux (BIC)
 Applicable to rentals of unfurnished
 Applicable to business and commercial income
property and land, developed (bâti) or
 Income under €32,000, 50% standard
undeveloped (non-bâti)
deduction for expenses
 Allows deductions for expenses, under
 Micro BIC: for furnished rentals allows 71%
€32,000 income, 50% flat deduction
deduction for expenses up to €80,000 income,
 Offsets personal income up to €10,700
but cannot show a tax loss
 Micro-foncier, under €15,000, 30%
 Can opt for RRS plan, irrevocable for 3 years
deduction
SCI Ownership: Establishes French tax residency Régime Réel Simplife (RRS)
 Applicable to furnished rentals, vacation rentals
for the entity. Penalty if a “tax haven” company
with income of €32,000 +
owns the SCI. If SCI owners are tax residents of a
 Allows deduction for itemized expenses and
country without a tax treaty, assessed value is
carryover of losses
three times the notional value
Corporate Real Estate Tax: 3% on market value of French real estate
Income Tax
French tax residents are taxed on worldwide income. Treaties may prevent double taxation.
Tax Residency Criteria: Meeting one of four
qualifies an individual as a tax resident of France.
 Principal residence (foyer) in France
 Principal place of abode (lieu de séjour
principal), 183 days residency in a year,
cumulative, not consecutive, or spend more
time in France than anywhere else
 Principal work activity in France
 Most assets or economic interests based in
France
Payment: No withholding, individual is
responsible for all payments
 May be paid in 3, 10, or 12 installments
 May 15th annual filing date
 Social charges, taxes foncier and d’habitation
billed separately in autumn
Progressive rates: 5.5%, 14%, 30%, and 40%
 Income below €5,875 no tax, 40% tax on
income over €69,783
 18% on bond and bank interest, dividends
 Deductions: employment expenses, loan
interest, aged 65+, disability
 Exempt income: pensions up to €38,000,
profit-sharing plans, portion of selfemployment income up to €32,000
 Credits: mortgage interest, childcare,
electronic filing, purchase of environmentally
friendly auto
Parts: Household income is divided into parts
based on number of family members and tax
applied to parts. Adult = 1 part, minor child = ½
part 1st and 2nd child, 1 part 3rd + child. Adult
children up to age 25 can “re-attach” to family
93
Tax d’Habitation






Paid by the occupant, owner or tenant, of a residence as of January 1. Includes annual TV license.
Tax due = assessed notional value (valeur locative cadastrale) x local tax rates set by Regions,
Départment, and Communes; notional value is usually less than market value
Collected by national tax authority on behalf of Region, Départment, and Commune
2.5% additional state collection fee
Occupant receives an annual invoice (avis d’imposition) payable in autumn
Usually pro-rated between buyer and seller for midyear sales






Inheritance and Gift—Droits de Succession et de Donation
Recipient pays tax
Rates based on the amount received and relationship with the donor or deceased
Spouses and partners: 5% to 40%
Other relatives: 55%
Siblings: 35% to 45%
More remote relatives and unrelated persons: 60%



Wealth Tax—Impôt de Solidarité sur la Fortune
Annual tax on high net worth individuals
€720,000+ in assets, applicable to assets in France for nonresidents
.55%–1.8%, highest rate for assets of €1.5 million+
Défiscalisation
As stated earlier, France suffers from a chronic shortage of housing. In
order to alleviate the housing shortage and encourage investment in new
housing and rehabbing of existing homes, France instituted several types
of tax deductions and exemptions for certain types of investment.
Advising taxpayers on these tax plans spurred the growth of a profession
of défiscalisation counselors. An Internet search for “défiscalisation
immobilère” produces thousands of Web site listings for counseling
services. Some of the principal défiscalisation tax laws applicable to real
property include:
 Loi Demessine: encourages development of housing in rural areas.
 Loi Girardin: promotes housing construction in overseas territories.
 Loi Malraux: provides tax deductions for rehabbing existing homes.
 Monuments Historique: provides favorable tax treatment for
preservation of historic buildings.
94
5. A Look at France
 Loi Scellier: provides tax deductions for developing and renting lowincome housing, replaces depreciation amortization with flat
deductions up to 37% of investment.
 LMP-LMNP: offers favorable tax treatment to encourage individuals
to purchase and lease-back furnished residential rentals. Allows
recovery of VAT, amortization of capital costs, capital gains tax
reduction, and full deduction of operating costs.
Doing Business in France—Beyond the Basics
The French are known for their pride in excellence, whether in traditional
products or contemporary creations. The cost of living tends to be high in
a country that places such a premium on quality, even in imports, but
fortunately even the simpler and cheaper products tend to be good.
Although generally polite in business dealings, the French are sometimes
perceived as haughty by their European neighbors. But speaking even a
little French will go far to overcome barriers. As in the world over, people
tend to be more reserved in large cities like Paris than in small towns and
provinces.
The French tend to be rather private and family-oriented with different
codes of conduct for those inside the circle of friends and family and
those outside. Families tend to be small and the role of parent is taken
very seriously. The extended family can be called on for connections and
emotional and sometimes financial support. It is only with the inner circle
that they can relax and express individuality. Friendship implies frequent
contact and mutual support when needed.
When introduced, a handshake is appropriate along with the greeting for
the time of day. Close friends may greet each other with a light kiss on
both cheeks—left and then right. Business cards are exchanged without a
formal ritual though cards should always be treated respectfully; French
business cards may be a bit larger than the North American standard
format. Business conduct stresses courtesy and formality. Before doing
business, the French expect to establish a foundation of mutual respect
and trust, which is earned through proper, courteous behavior.
Appointments should be made by letter or phone at least two weeks in
advance. A secretary may handle appointments for senior executives.
Avoid scheduling a meeting during the months of July and August as
95
these are the traditional vacation periods. Punctuality is important; if
delayed, phone immediately and provide an explanation.
Business meetings are for the purpose of discussing issues, not making
decisions. During discussion, the French may be quite candid and direct in
their communications. Usually the upper levels of company hierarchy
make business decisions. And many French businesspeople are quite risk
averse.
When making a presentation, avoid high-pressure tactics—low key is a
better approach. Maintain direct eye contact and present information in
a detailed, logical progression. Do not be surprised if spirited debate
ensues. Although business is conducted slowly, once an agreement is
reached, it may be documented by a precisely worded, comprehensive
document or contract.
Appearances matter, so dress conservatively and in well-tailored clothing.
The French appreciation for the finer things in life includes stylish apparel
and accessories.
If invited to a home, arrive on time and phone ahead if you will be
delayed more than 10 minutes. It’s appropriate to bring a gift of flowers
(an uneven number of blossoms but not 13) or wine of exceptional
quality. Ask the florist for help in selecting the appropriate flowers as
certain varieties and colors have symbolic meaning. For example, white
lilies and chrysanthemums are associated with funerals, red carnations
signify bad will, and white flowers in general are associated with
weddings. If invited to a large dinner party, send flowers on the morning
of the event so that they can be displayed that evening.
96
5. A Look at France
Holidays
January 1
New Year’s Day
April/May
Easter Monday
May 1
Labor Day
May 8
Victory (1945) Day
April/May
Ascension (40 days after Easter)
April/May
Whit Monday (50 days after Easter)
July 14
Bastille Day
August 15
Assumption of the Virgin Mary
November 1
All Saints Day
November 11
Remembrance Day
December 25
Christmas
Key Contact
Federation Nationale de l'Immobilier (FNAIM)
129, rue du Faubourg Saint Honoré
75407 Paris
France
Phone: 33-1-44-20-77-24
Fax: 33-1-42-25-80-84
Email: [email protected]
www.fnaim.fr
97
Notes:
98
Europe &
6. A Look at Germany
99
Geography and Structure
In land area Germany ranks
fourth in Europe (France,
Spain, and Sweden are larger),
but first in terms of
population. Germany’s 80
million inhabitants (about
one-fourth the U.S. population
of 310 million) dwell in an area
equivalent to the U.S. state of
Montana.
Germany borders Denmark,
Poland, Czech Republic,
Austria, Switzerland, France,
Belgium, and the Netherlands.
The Baltic and North Sea form
its coastlines. Because of its size in relation to the rest of Europe, almost
half of Europe’s population lives within 500 kilometers (about 300 miles)
of the German borders.
Major cities are the capital of Berlin, Dusseldorf, Hamburg, Frankfurt,
Munich, Cologne, Essen, Stuttgart, and Bremen. The former West
German capital city of Bonn remains an important center for federal
administration.Despite densely populated urban centers, Germany enjoys
vast swaths of farm and forest land and unspoiled natural environments.
Terrains range from low plains in the north, rolling hills and valleys in the
center and east, and the mountainous alpine region of the south. Three
historic and navigable rivers—Rhine, Danube, and Elbe—cross Germany.
The months from May to September offer the best weather. Winters,
from November through March, tend to be quite cold and snowy.
More than 7 million foreigners reside in Germany, many of whom are the
families and descendants of former guest workers. In the ‘50s–‘60s,
Germany filled labor shortages by inviting foreign guest workers, mostly
from Turkey, and many settled there permanently. Germany also offered
asylum to thousands of refugees fleeing the Serbo-Croatian wars and
continues to receive economic refugees from developing countries.
Before a 2002 reform of immigration laws, German citizenship eluded
most foreign residents, even those born and raised in the country. The
reforms harmonized citizenship and immigration law with other EU
countries. Now, children born in Germany of foreign parents become
German citizens at birth if one of the parents was legally in the country
for eight years and a permanent resident for three years. Dual citizenship
100
is not recognized. Therefore, between the ages of 18 and 23, the children
of foreign parents must affirm Germany citizenship by renouncing foreign
citizenship. Immigrants can apply for naturalization after eight years of
legal residency provided they speak German adequately and neither
receive welfare payments nor have a criminal record.
16 Federal States (Länder) of Germany
















Baden-Wurttemberg
Bayern†‡
Berlin*
Brandenburg*
Bremen‡
Hamburg‡
Hessen
Mecklenburg-Vorpommern*
Niedersachsen
Nordrhein-Westfalen
Rheinland-Pfalz
Saarland
Sachsen*†
Sachsen-Anhalt*
Schleswig-Holstein
Thuringen*†
* Formerly East Germany
†
Referred to as free states (freistaaten)
‡
City States (stadtstaaten)
The Modern State of Germany
Although many of its towns and villages are old, some dating back to the
Roman Empire, the country that we know today as Germany is a rather
recent construction. The modern state of Germany grew from the
German Empire, proclaimed in 1871, and its history entwines with other
European countries. Before that time, the German-speaking territories
were a loosely affiliated collection of duchies, kingdoms, bishoprics,
principalities, fiefdoms, and independent towns.
101
Formation of the State of Germany
1618–1648
The Thirty-Years War splits German-speaking lands along religious
lines with the Protestant cause in the northern lands and the
Roman Catholic Church in the south and Austria. Two imperial
families rise to power—the Protestant Hohenzollern in the north
and the Catholic Hapsburgs in the south and Austria.
1806–1814
Napoleon organizes the German states into the Confederation of
the Rhine, which collapses with his defeat at Waterloo.
1814
Diplomats from Russia, Prussia, Austria, Britain, France, and other
countries meet in Vienna to redraw national borders jumbled by
Napoleon’s conquests. German-speaking land are grouped s into a
loose confederation.
1834
Prussia, under Hohenzollern rule, becomes the dominant power
and rivals Hapsburg-ruled Austria. Prussia leads a group of 18
German states in forming the German Customs Union with a
loosely organized federal Diet, the Deutscher Bund. Austria forms
its own customs union among Hapsburg territories.
1870
Queen Isabella of Spain, a notorious political schemer but also a
great-granddaughter of Louis XIV, abdicates. The vacant throne
was offered to a German prince of the Hohenzollern line. In
reaction, France declares war on Germany.
1870–1871
1914–1918
102
Franco-Prussian War decides the future of Germany as a united
country. Germany defeats France and imposes harsh reparations.
The unified German Empire is proclaimed at Versailles in occupied
France. William I of the Hohenzollern is declared emperor (Kaiser)
of the new empire.
Across Europe, a web of mutual defense alliances clicks inexorably
into place leading to the devastating First World War.
1919
Treaty of Versailles ends hostilities. England and France demand
harsh reparations. France regains lands lost in 1871. Other
portions of German territory are ceded to Austria, Czechoslovakia,
Poland, Belgium, and Netherlands.
1919–1939
Weimar Republic in Germany, in place of the monarchy, struggles
through two decades of hyperinflation, militant extremists, and
the continued hostility of France, England, and Russia. In 1939,
Hitler’s political faction, the National Socialist (Nazi) Party, brings
about the Weimar Republic’s downfall.
1938–1939
Annexation of Czechoslovakian territory followed by invasion of
Poland (lands formerly part of German territory) triggers World
War II.
1945
At close of WWII Germany’s territory is divided among the allies—
France, Britain, the United States, and Russia. The allied sectors
and Berlin are merged into West Germany, but Russia refuses to
cede its portion. Berlin, located 110 miles inside the border of East
Germany, becomes a flashpoint for Cold War relations but also an
escape route.
1961
The Soviet Union under Nikita Khrushchev, fed up with the
continuous flow of refugees through Berlin, begins construction of
the Berlin Wall in August. Berliners awake to a newly divided city.
1989
A wave of popular uprisings sweeps through former Iron Curtain
countries and Soviet Russia. In November the Berlin Wall is opened
allowing free movement between east and west.
1990
Germany, East and West, is officially united.
103
Germany—Logistics Center of Europe
The northern seaports of Hamburg and Bremen are an important
shipping point for trade with the United Kingdom and Scandinavian and
Baltic states. An extensive network of roads, railways, and inland
waterways in the Rhine-Ruhr region, centered in Dusseldorf, connects
and closely integrates with the trade in the Benelux countries. Land and
water links also connect with Switzerland, Austria, and the Balkans. The
Rhine-Main-Danube Canal running from Bamberg to
Kelheim provides a water route for large barges and
ocean-going ships to travel from the North Sea across
central Europe to the Black Sea. As the EU expands
eastward, Germany’s eastern urban centers—
Dresden and Leipzig—are quickly developing as
freight hubs to serve Poland, the Czech Republic, and
points east.
The Port of Hamburg is Germany’s
largest logistics center for shipping,
warehousing, and freight handling.
With the dense network of roads, seaports, railways,
and roads, it should come as no surprise that
logistics—shipping, freight handling, storage, and
warehousing—constitute a major economic sector for
Germany. In fact, logistics is the third largest
economic sector, more than a quarter of Europe’s
total, and produces about 8 percent of the German
GDP. Shipping alone accounts for almost half of the
logistics activity and shipping and storage companies
occupy 60 percent of the warehouse space in
Germany.
Approximately 60,000 German logistics companies
employ 2.5 million workers—about 8 percent of the workforce. The
volume of traffic to the Benelux, United Kingdom, and Scandinavia
concentrates the logistics workforce along the Rhine to North Sea
corridor.
Germany—Unified and Still Divided?
Remaking Germany into one country, economically and socially, has been
a long-term, expensive, and emotional process without precedent.
Together, east and west had to devise an orderly way to dismantle a
state-operated socialist system and combine it with a capitalistic
democratic one.
104
Privatizing Property
A first step toward unification was privatizing former state-owned real
property and businesses in the East. More than 50 years of Nazi and
Soviet expropriations and confiscations left few records of ownership of
most properties and businesses. Some prewar owners of properties were
able to buy them back; others recovered them through the courts. Mass
confusion and numerous lawsuits made investors wary of purchasing
properties with murky titles.
The easiest properties to dispose of were state-owned apartment
buildings. Many were sold to property developers who, with the help of
government grants, rehabbed the units or demolished the crumbling
buildings and replaced them with upscale row houses and apartment
buildings. Twenty years later, affluent families from the west now cluster
in Berlin’s trendy enclaves where once stood stacks of dreary Soviet-era
apartment blocks.
German Postage stamps
commemorate the fall of
the Berlin Wall.
Restarting Private Enterprise
The government-established Treuhand (Trust Agency) took over about
8,000 East German enterprises and sold them to bidders. The agency also
took control of thousands of hectares of agricultural and forest land and
property of the former National People's Army. Despite interest from
foreign investors, the Treuhand favored German investors. As a result,
more than 95 percent of the investment was from within Germany; a
sizeable portion of that was simply expansion of western companies into
eastern markets.
Uncertain conditions, labor unrest, and parity between the West and
former East German mark made investors hesitate to start up business
operations. Furthermore, some economists believe that the one-to-one
conversion rate between the East and West German mark, although
105
politically popular, offered little support and actually retarded eastern
economic development. The east/west parity meant that goods produced
in the east, often inferior quality, quadrupled in price. Parity also meant
that in the notoriously underproductive state-owned enterprises
workers’ wages far exceeded productivity level. Trade union demands for
equal pay, east and west, further exacerbated the wage-work imbalance.
In a number of cases, investors bought eastern firms on a wait-and-see
basis; they conducted a minimum level of business operations to satisfy
Treuhand requirements, but not enough to start up operations or
increase employment opportunities. Instead of starting up business
operations in the east, West German firms found it easier and cheaper to
serve the new eastern markets by expanding production in existing
western facilities. Conditions sent eastern Germany into an economic
tailspin while the western economy experienced a boomlet resulting
from a new market of 16 million consumers and westward migration of
thousands of trained, motivated workers.
Unemployment and Westward Migration
In the transition, shutdown of hundreds of factories and state-run farms
put 2.5 million workers (out of 4 million total) out of work and many
moved westward. Since unification about 1.7 million people, almost 12
percent of the population, have left the eastern states. Soviet-style
factory towns have fared very badly. For example, Eisenhüttenstadt, built
by the Soviets in 1950 to house 13,000 steel mill workers, has dwindled
to about 2,500 inhabitants; a shutdown of the steel works seems
inevitable. Lack of jobs has forced many young people westward and
young women make up a disproportionately high number of these
migrants. In some regions the number of women aged 20–30 has
dropped by more than 30 percent and created an extreme gender
imbalance.
Solidarity Tax
Government stepped in where private enterprise failed to lift the Eastern
states out of economic lassitude. Years of neglect left behind crumbling
roads, railways, and bridges, unreliable telephone service, and
inadequate power supplies. In order to foot the several-trillion-euro bill
for rebuilding infrastructure and providing a social safety net, the
Germany government introduced a Solidarity Tax (solidaritaetszuschlag)
in 1995. Only western taxpayers pay the 5.5 percent surcharge on income
taxes; for example, a taxpayer who owes €5,000 in income tax would also
106
own €275 in solidarity tax. The surcharge yields about €11 billion yearly
and will continue until 2019. West Germans, who see little result for their
tax dollars, are understandably resentful of the
surcharge.
But not all of the east is locked in economic torpor.
For example, as noted earlier, exports to Central and
Eastern European countries have made Leipzig and
Dresden into thriving logistical centers for shipping
and warehousing. Dresden is also developing into a
center for chip making and technology
development. Jena, a traditional university town, is
quickly developing into a center for biotechnology
research. Former Hanseatic cities on the Baltic coast
are also enjoying a resurgence of shipping activity.
The Social Divide
One of the few remaining
Perhaps the most difficult division to overcome has
sections of the Berlin Wall stands
been the social one. Despite two decades of unity,
out of the European Parliament
many Germans see a distinct and enduring social
building. Photo courtesy of
and cultural divide between east and west—the Ossi European Commission Audio
Visual Service.
and the Wessi. Some speak of the “wall in the mind”
while others, Indulging in “ostalgie,” yearn for the
“good old days.” Twenty years after unification, a survey conducted by a
leading Berlin newspaper found that only 22 percent of former East
Germans (40 percent of under-25s) consider themselves “real citizens of
the Federal Republic.” A full 62 percent feel in a kind of limbo, no longer
citizens of East Germany but not fully integrated into the unified
Germany.25
Economy
According to the World Bank, $1.4 trillion in exports makes Germany the
world’s second-largest exporter (China and the United States rank first
and third). It is also the most export-dependent of the EU countries. A
strong euro, however, has reduced exports to non-euro trading partners
such as the United States, United Kingdom, and Europe outside of the
Eurozone. The global slowdown slowed Germany’s economic growth,
25
"Nochnichtangekommen—Survey of 2,900 adults in the New Länder in summer 2008".
Berliner Zeitung. 21 January 2009. www.berlinonline.de/berliner-zeitung/archive.
107
even though internally it was not experiencing the financial sector
imbalances to the same degree as its trading partners.26
Corn, wheat, potatoes,
sugar, beets, barley,
hops, viticulture,
forestry, and fisheries
Agriculture,
1%
German Economy
Source: World Bank
www.data.worldbank.org
, 0%
Industry,
30%
Export: 1.498 trillion. Major
markets: France, U.S., U.K.
Services,
69%
Business services, healthcare,
information technology,
insurances, banking, financial
services, retail, tourism and
hospitality
Imports: $1.232 trillion.
Major suppliers: France,
Netherlands, Belgium, China
Motor vehicles, electrical and
precision engineering, iron and
steel, petroleum products,
chemicals, green technology,
apparel, food products, optics,
medical technology,
biotechnology, aerospace,
logistics
Mining: lignite, potash, natural
gas, iron ore, coal
Real Estate Professionals in Germany
About half of the real estate transactions in Germany involve a real estate
agent or broker. There are no federal or state licensing requirements for
real estate agents or brokers. Immobilienverband Deutschland (IVD), the
national organization for real estate professionals, requires as a condition
of membership successful completion of a qualification exam before an
admissions committee as well as proof of professional liability insurance.
It is not uncommon for young real estate professionals to have university
degrees in real estate. In addition to real estate agents and brokers, IVD
membership includes property managers, financial services, valuation
experts, and developers.
26
“The German Property Market—an Overview,” Real Estate Market Outlook German,
German property market, Aberdeen Property Investors,
www.aberdeen propertyinvestors.com.
108
The IVD was established in 2004 as a merger of two former real estate
associations: the Ring Deutscher Makler (RDM) and the Verband
Deutscher Makler (VDM).
Transaction Steps
There are no legal restrictions on foreign nationals buying property in
Germany. Financing is possible for foreigners, but mortgage loans to
foreigners typically cover only 60% of the purchase price.
Property Search
Because Germans see buying a home as a once-in-a-lifetime event, the
search process may take several months or years. But once the right
property is found, buyers begin the transaction process by making an
offer through the listing agent (makler).
Purchase Contract
The makler conveys the offer to the seller. When the buyer and seller
agree on price and terms, the next steps is for the notary (notar) to
prepare the purchase contract. The notar serves as an impartial
middleman between buyer and seller. The buyer may choose a notar and,
since all legal proceedings are conducted in German, may select a notar
who speaks the same language or hire an interpreter.
The notar checks the land register to uncover any impediments to the
sale of the property and restrictions on its use.
The purchase contact states the following:
 Full names and addresses of the buyer and seller
 Details of the property including a precise description
 Purchase price and terms
 Contingencies and stipulations in case either party fails to fulfill the
contract terms
The buyer should check the property for any major defects. Although
obligated to disclose hidden defects, the seller has no obligation to point
109
out any easily observable conditions. The notar will verify that there are
no outstanding liens on the property, but is not responsible for the
condition, or any defects, of the property.
The buyer must demonstrate ability to pay for the property by present a
mortgage approval—an irrevocable acceptance of loan financing—from a
bank of good standing or, for a cash transaction, proof of existing funds.
The seller agrees to entry of a priority notice in the land register, which
protects the buyer from other sales activity such as a competing offer.
Signing Ceremony
There is no extended preclosing time period during which inspections are
completed and contingencies met. Signing the contract completes the
deal. At the signing ceremony, the notar reads the contract aloud, in
German, in the presence of the buyer and seller. The proceedings may be
interrupted by either party to question a contract point and receive full
clarification. It is advisable to obtain a copy of the purchase contact
before meeting with the notar, review if carefully, and have it translated
if necessary, and prepare any questions to ask during the contract
reading.
The buyer’s purchase funds are deposited into the notar’s account and
paid to the seller upon recording of the transaction in the land register.
Notar’s fees, about 1.5–2 percent of the purchase price, cover contract
preparation, the signing ceremony, and land register entry. The notar’s
fees and the makler’s commission (subject to 19% VAT) are also paid
from this account. Real estate transfer tax must be paid by the buyer
within four weeks after completing the transaction.
Land Register—Grunbuch
Following the signing ceremony, the notar applies for registration in the
local land registration records—the Grunbuch, usually located at the
district courthouse. The land registration is the primary documentation
for a piece of property. The transfer of ownership is complete when:
 The notar has applied for registration
 An entry has been made in the land register
 Previous mortgages have been paid
 The tax office has certified that the seller has no unpaid property
taxes
110
On average, it takes about 40 days for completion of property transaction
registration procedures and for the seller to receive payment.
Germany is a nation of renters. Only40 percent of Germans own their
own home—the lowest rate of home ownership in the EU. Economists
point to several reasons for this condition.
 The post-War housing shortage continued into the 1970s and need
for housing was met by government-subsidized construction of
inexpensive apartment blocks.
 Germans tends to view the purchase of a home as a once-in-lifetime
event. Homeowners seldom change residences as life circumstances
change.
 “Once a renter always a renter.” Popular wisdom holds that families
who have lived as tenants for many years do not aspire to home
ownership.
 Land is scarce and expensive. As noted earlier, Germany’s large
population is densely packed into urban centers making land scarce
and the single-family homes that sit on it expensive.
 Although mortgage rates are low, down payment requirements tend
to be high—usually 20 percent or more.
Because Germans tend to buy houses for life, they tend not to sell and
buy homes as their lifestyles and stages change. As a result, residential
market values fluctuate little. Although in 2008–09 house prices fell, the
drop was small compared to other EU countries and the demand for
choice locations remains high.
Consistent with population migration trends, the highes-priced
residential properties are concentrated in the south (Munich and
Stuttgart) and West (Frankfurt, Cologne, and Dusseldorf). The lowest
residential prices cluster in the East (Dortmund, Dresden, and Leipzig).
With the exception of Berlin, depressed property prices will likely persist
in all of the former eastern German states.
Rental Properties
In a nation of renters, it’s not surprising that Germany’s laws generally
favor the tenant.
111
 Deposit cannot exceed three months’ rent and is held in an interestbearing account.
 Rent increases are strictly controlled. A landlord must provide a
reason for a rent increase and justify it by providing information on
rents for similar properties. If increased rent is more than 20 percent
above the comparable properties, the landlord can be fined. The
lease may contain a graduated rent increase clause, or an index
clause. Graduated rent clauses generally do not exceed 20 percent
over a three-year term.
 If not stated in the lease, the landlord is responsible for utilities.
 The landlord must provide one of two types of notice to remove a
tenant.

Ordinary—three to nine months: If a landlord needs the
premises for his own use, tenant breaches contract such as
nonpayment of rent, or the lease contract prevents the landlord
from making economically justifiable use of the premises. The
tenant can object to the notice and demand a continuation if the
removal would cause undue hardship.

Immediate: A specific reason must be cited, such nonpayment of
rent or serious breach of the contract, for immediate removal.
Eviction for non-payment of rent can take up to a year.
Energy Efficiency a Top Priority
Germany responded quickly to the European Commission’s energy
directive and enacted legislation in 2008 requiring energy certificates for
existing residential properties. The two types of certificates are:
 Demand-oriented: analyzes energy usage based on the building
envelope, construction materials, and heating system
 Consumption-oriented: analyzes actual usage based on heating bills
for the previous three years
112
The certificates provide potential buyers and occupants with full
information on operating costs related to energy consumption. A growing
trend in the rental market is energy efficiency as a factor in determining
rent indexes—the standard
that determines allowable
rent increases. In order to
prevent conflicts between
landlords and tenants and
provide incentives for
energy efficiency upgrades,
municipalities are
developing residential-rent
indexes that incorporate
the energy status of the
building. These “ecological
indexes” allow higher rents
for energy-efficient
buildings.
In Berlin, trendy row houses replace Soviet-era apartment blocks and
gentrify neighborhoods.
Five global cities—Berlin, Hamburg, Düsseldorf, Frankfurt, and Munich—
contain the concentration of Class A office space. These cities also have
highly developed service sectors, which usually generates corresponding
demand for office space. Class B office space tends to cluster in regional
markets where both the inventory and size of office spaces are smaller
scale. In both Class A and B markets, very little construction of office
space is done on a speculative basis; most is purpose-built. In regional
markets, return relies more on income than value appreciation.
The towns of Bonn, Münster, and Wiesbaden are traditionally
administrative centers. Bonn is the former capital of West Germany.
Following unification, relocation of Bundestag and federal capital to
Berlin had little impact on space usage in Bonn. Many federal
administrative offices remained in Bonn and vacated offices no longer
met modern standards. In addition to federal offices, UN organizations
and corporate headquarters of Deutsche Post and Deutsche Telecom
headquarter in Bonn.
Essen is growing as a center for corporate offices, commerce, and
administration and some of Germany’s largest corporate are
headquartered there—Aldi Nord, ThyssenKrupp, Hochtief AG, and others.
Information and technology companies and administrative offices of
113
healthcare and insurance companies occupy the largest portion of office
space in Essen. Dortmund is also developing as a center for information
and communications technology.
With the exception of Berlin, the commercial market in eastern Germany
lags behind the west. High vacancy rates, low rents, and low appreciation
potential combine to depress returns. On a regional basis, western price
levels are higher and vacancy rates lower than regional locations in the
east. Regional markets have low liquidity requiring a long-term
perspective and lower rate of return, with the largest share of return
coming from income.
Office Space Rents, ROI, and Vacancy Rates27
City
Average Class A
Office Rent,
Monthly per M2
% Rate of
Return
% Vacancy
Rates
Berlin
€22
5.4
8.1
Dusseldorf
€23
5.3
10.4
Hamburg
€24
5.1
6.9
Frankfurt
€37
5.2
13.6
Munich
€32
5.5
8.1
Cologne
21,5
8.3
5.5
Stuttgart
€17.5
5.5
6.2
Bonn
€9.60–€16.70
6.50–7.50
5.9
Münster
€12–13
6.6
5.8
Essen
€12.50
6.3
3.6
Dresden
€10
6.95
13.6
Leipzig
€11
6.65
16.9
Germany’s real estate investment climate and approach generally could
be characterized as rather risk-averse and conservative. Overall, a
combination of little speculative building and above-average, fixed-rent
prices suppresses market dynamics.
27
Thomas Beyerle, “The Regional German Real Estate Markets,” Germany Real Estate
Yearbook 2009, www.reman-re.com
114
As stock market volatility pushes capital out of equity markets, it seeks
safe investment in high-quality, saleable properties. Consequently,
demand remains high for investment grade properties in good locations
with predictable rates of return, value appreciation, stable income, and
liquidity. Demand is also driven by institutional investors seeking safety
and income, and continuing capital formation as a result of high savings
levels in emerging eastern and central European countries.
Real Estate Information Web Sites
Visit the following multi-lingual Web sites for helpful information on real
estate and business.
 www.deutschland.de: main Web site of the Federal Republic of
Germany
 www.bundesbank.de: Central Bank of Germany
 www.destatis.de: Federal Statistical Office
 www.germany-re.com: gateway to the German real estate market
 www.invest-in-germany.de: primary contact for entrepreneurs and
companies wanting to start business operations in Germany
 www.german-business-portal.info: gateway to basic information
about foreign trade and investment
 www.dihlc.de: Association of German Chamber of Industry and
Commerce
 www.bfai.de: German Office for Foreign Trade
115
Court System in Germany
No trial by jury. All verdicts are determined by a judge or panel of judges. Victims may participate in criminal cases as co-prosecutors.
Constitutional Court
Rules on constitutionality of legislation, resolves disputes between Federal and Länder states,
may hear suits of individuals claiming violation of constitutional rights.
Specialized
Federal Court of Justice
(Appeal only on points of law. No further appeal.)
Criminal
Civil
Family
Civil
Civil
Local
Criminal
Civil
Federal Finance
(Appeal)
Federal Social
(Appeal only on
points of law)
(Appeal only on
points of law)
Higher Labor
(Appeal)
Higher Social
(Appeal)
Administrative
Labor
Social
Hears citizen
complaints for
compensation
when government
actions cause harm
Hears cases
involving labor
disputes, collective
bargaining, and
workplace issues
(Appeal only on
points of law)
Finance
Tax Court
Family
Regional
(Trial and appeal)
Criminal
Federal Labor
Higher
Administrative
(Appeal)
Higher Regional
(Appeal)
Criminal
Federal
Administrative
Family
A specialized Patent Court hears cases involving industrial and intellectual property.
116
Hears cases
involving social
security, workers
compensation,
unemployment
compensation
Government
Germany’s constitution is its Basic Law adopted in 1949. Federal
governance is the responsibility of two bodies: the directly elected
Bundestag and the appointed Bundesrat. The judiciary is independent of
the legislative and executive.
The top federal leadership positions are the President and the Chancellor.
 President
As head of state, the President’s duties are mainly ceremonial. The
President and Chancellor usually represent the same party but during
the single five-year term the President puts aside party affiliation.
 Chancellor
The Chancellor, who serves as head of government and the executive
branch, is elected by the Bundestag from the majority or leading
party. The Chancellor serves a four-year term and may be re-elected
but cannot be removed unless a successor has already been
identified.
The parliament consists of two deliberative bodies: the elected 598member elected Bundestag and the smaller, appointed Bundesrat.
Bundestag
The Bundestag, selected by
a general election, is the
most powerful of the two
federal legislative bodies.
One member is elected
from each of 299 districts
ina first round of voting.
Additional seats are then
allocated to the parties on
the basis of national share
of the vote. If a party is
underrepresented in the
first round of voting,
members can be added
The Bundestag, Berlin
from party roles. If
overrepresented, the
parties are allowed to keep the overhang seats, which increase the
number of seats in the Parliament. For example, the 2009 parliament
117
seated 629 members. Because only half of the Bundestag members are
elected directly and the rest are appointed from party roles, German
voters tend to place more emphasis on party affiliation than individual
politicians.
A party must receive either 5 percent of the national vote or win at least
three directly elected seats in order to claim a place in the Bundestag.
This rule prevents fragmentation among minority parties, which can
engender a factionalized, ungovernable parliament, such as brought
down the Weimer Republic. Furthermore, the Constitutional Court may
ban any political parties that advocate goals antithetical to the
constitution.
German Political Parties in Parliament
Left
 The Left
(Die Linke)
Left-Center
 Social Democratic
Party (SPD)
 Greens (Grün)
Right-Center
 Christian Democratic Union
(CDU)
 Christian Social Union (CSU)
 Free Democratic Party (FDP)
The CDU and SPD have been the dominant political parties since 1949.
In 2005 Angela Merkel of the CDU made history as the first woman and
the first East German elected as Chancellor.
The President of the Bundestag (not to be confused with the President of
the Republic) presides during legislative sessions.
The Bundestag elects its President who is usually a member majority
party. Appointment of several vice presidents, one from each
parliamentary group (fraktion), fosters Parliamentary harmony. The
leadership of each fraktion consists of a parliamentary party leader,
several deputy leaders, and an executive committee. Fraktion leaders
enforce party cohesion and orchestrate the party's parliamentary
activities.
The Presidium of the Bundestag consists of the President and a small
circle of Vice Presidents who assist in management of parliamentary
affairs including public relations and supervision of workforce.
The President is also assisted by the Council of Elders who apportions
committee appointments and chairmanships, facilitate agreement on
legislative matters, and determine daily agenda items.
118
Bundesrat
Each of the 16 federal states appoints delegates to the Bundesrat.
Constitutional changes and legislation affecting the states require its
approval. Because state governments appoint members, and state
elections are not coordinated, there can be extensive turnover in the
Bundesrat at any time and majority party distributions can change after
each election.
Each state is assigned a number of votes based on population; the
minimum number of votes is three and the maximum is six. The state
may send as many delegates as votes or fewer. Sending fewer delegates
does not impact the number of the state’s votes. States must cast their
votes in a single bloc. Although the voting bloc cannot be split, astate
delegation that cannot agree mayabstain; an abstention is in effect is a
negative vote because Bundesrat decisions require a super majority.
State (Länder) and Municipal (Gemeinden) Governments
Most of the states are governed by a cabinet led by a Minister-President
(Ministerpräsident). The governments in the city states of Berlin and
Bremen and Hamburg are called Senats and are led by a Senatspräsident.
A Bürgerschaft and Erster Bürgermeister governs the city state of
Hamburg.
Municipal governments oversee public services such as water, electricity,
and waste management.
They also oversee town planning duties of:
 Land use plan and building plan including dispossession procedures
 Building approval procedure
German Taxes—Income, Real Estate, Capital Gains, and More
If your client plans to purchase an income property, buy a second home,
start a business, inherit property, or spend an extended period of time in
Germany, the advice of a German tax advisor can help manage a
potentially expensive tax bill. Following are highlights of taxation of
income, real estate, rental income, capital gains, social charges, and other
taxes.
119
Income Tax




German tax residents are taxed on worldwide income
Treaties may prevent double taxation
Lohensteuer—taxes withheld at the source
Einkommensteuer—taxes paid by the individual or business
Tax Residency: An individual is considered a tax
resident if the principal residence is in Germany or
time spent in Germany exceeds 183 days over the
course of two years
 All taxpayers must have a Federal Tax ID
 Nonresidents pay taxes on German-sourced
income
Payment:
 Employers withhold from wages
 Single wage earner with no other income is
not required to file a tax return
 Annual filing date is May 31
 Quarterly payments due 3/10, 6/10, 9/10, and
12/10
Progressive rates: 14%, 42%, 45%
 No tax on income below €8,004 (€16,008
married filing jointly), 45% tax on income over
€250,731
 Nonresident foreigners pay progressive rates
of 25%, 42%, 45%; top rate on income over
€250,000

25% tax plus solidarity tax on income from
capital assets in excess of €801 (€1,602
married filing jointly)

Deductions and Exemptions: insurance,
medical expenses, expense of selfemployment, job training, children’s
education, charitable contributions, disability,
household help, childcare, €920 exemptions
for wage earners

Credits: foreign taxes paid if applicable tax
treaty
Dividends
 25% tax on income from capital assets
 25% tax on dividend
 15% tax on royalties
 Withheld at source
Solidarity Tax—Solidaritaetszuschlag
 5.5% surcharge on amount of income tax (not taxable income) paid by West Germans
 Provides funds for social support and rebuilding infrastructure in former East German states
 Expires in 2019
120
Church Tax—Kirchensteuer
 Optional for members of Protestant, Roman Catholic, and Jewish congregations
 8%–9% surcharge on amount of income tax (determined by Länder)
 Supports faith institutions
Value Added Tax (VAT)—Umsatzsteuer or Mehrwertsteuer
 19% tax on consumption (sales tax), 7% reduced rate for food, magazines, books, hotel
accommodations
 19% on real estate commissions
 Business that collect VAT pay it quarterly to the federal tax authority, large and new businesses pay
monthly
 Businesses may deduct VAT input tax) paid to other businesses
 Small enterprises (less than €17,500 revenue) do not pay in VAT but cannot claim a deduction for
input tax
Social Security—Deutsche Sozialversicherung
 Contributions split between employer and employee

Employees contribute about 18% of salary

4 components:
 Pension—Rentenversicherung
 Unemployment insurance—Arbeitslosenversicherung
 Health insurance—Krankenversicherung
 Nursing/Care insurance—Pflegeversicherung
Capital Gains Tax—Abgeltungsteuer
 No capital gains tax on real estate held for more than ten years
 No taxable gain on sale of a personal home occupied as a primary residence for three years
 Financial instruments (shares, certificates, bonds) purchased after Jan 1, 2009 are subject to capital
gains tax
 Capital gains are taxed at regular income tax rates for individuals
 Sale of valuables—jewels, art, gold, collectibles—taxable if held for less than one year; if used to
generate income, taxable if held less than ten years
121
Taxes on Real Estate
Transfer Fee—Grunderwebsteuer
 3.5%–4.5% of the purchase price
 Rates set by the Länder
 Paid by the buyer
 Collected by the Notar at closing
Rental Income
 15% Nonresidents citizens of EU
 25% for citizens of non EU countries
Television License—Rundfunkgenuehren
 €17 monthly fee for TV and radio
 Also known as GEZ
 Funds public broadcasting
 Rates will change in 2013
German Property Taxes—Grundsteuer
 Rate set by each municipality
 Basic federal rate of 0.35% x local multiplier
(hebesatz)
 1.5% average multiplier
 Property owner receives quarterly notice of tax
due
Corporate Income Tax—Korperschaftssteuer







Applicable to publicly traded stock companies, Aktiengesellschaft (AG), and limited liability
companies, Gesellschaftmitbeschränkter Haftung (GmbH)
15% plus solidarity tax and municipal trade tax
95% of dividends paid to a German corporation are tax exempt, 5% are added to profits and taxed.
Average total tax of 30%
2%–3% depreciation allowances (straight line or declining balance) on capital assets
Small and medium enterprises (SMEs) receive an advance depreciation allowance up to 40% on
planned capital expenditures
Sole proprietorship and partnership income taxed at ordinary rates, may apply for reduction if rate
exceeds corporate rate
Three ways for foreign businesses to operate in Germany:
Dependent Permanent
Establishment
 Subunit of a foreign
company, controlled by
parent company
 Taxed on German-sourced
profits
 Cannot function as a holding
company
122
Branch
 Independent but
transactions performed by
branch obligate the parent
company
 Taxed on German-sourced
profits
 May function as a holding
company
Subsidiary
 Entirely independent of
parent company
 Fully taxable
 May function as a holding
company
Municipal Trade Tax—Gewerbesteuer
 Rate fixed and collected by local authorities
 Deductible as a business expense
 Solidarity surcharge applies
Inheritance tax—Erbschaftssteuer
 Paid by heir
 7%–30% for spouse (€500,00 exemption) and children (€400,000 exemption), grandchildren
(€200,000 exemption); similar exemptions for gift tax
 12%–40% for siblings, parents, in-laws, divorced spouse
 17%–50% all others
 €1,100 exemption if both deceased and heir are nonresidents
 Contractual rights and obligations of deceased transfer to the heirs
 A business may be inherited tax-free if the heir continues business operations
The Web site for the Federal Tax Office of Germany (Bundeszentralamt für Steuern)—Foreign
investors help desk: www.germantaxes.info.
123
Beyond the Basics—Doing Business in Germany
Germans are masters of planning. Careful planning provides security in
both personal life and business because it ensures order, structure, and
stability. Germans generally want the assurance of knowing what they
will be doing at any given point in time. Therefore, rules and regulations
are carefully followed because they contribute to an orderly life.
Important values are discipline, responsibility, achievement, and
education.
There is a proper time for everything and business and personal life are
kept strictly separate. Working overtime shows a lack of careful planning.
Be careful about trying to do business after hours. If you invite a client or
a client’s subordinate to dinner, it may be perceived as a conflict of
interest.
In Germany, although business proceeds without a personal relationship,
following established protocol and deferring to authority maintains the
business relationship. Establish your standing through academic
credentials and company affiliation. Deference to authority is important
for Germans, so be clear on your level of authority.
When introduced, a firm handshake is appropriate. It is polite to shake
hands with everyone present (including children). Shake hands with each
person present as you are introduced. Senior executives will offer their
hands first. Stand until the senior host invites you to sit down.
Use all appropriate titles and forms of address. Use first names only if
specifically invited. Titles are very important; address others as Herr or
Frau along with the title and surname: for example: Herr Prokurist Jahn.
Do not use gestures such as touching or backslapping. Casual greetings
and smiles are reserved for close friends and acquaintances. Germans
usually do not greet strangers. Maintain a communication distance of 18
inches or more, similar to North Americans. Do not attempt to sit or
stand close.
Punctuality is essential in both business and social settings. If unforeseen
conditions prevent a timely arrival, telephone immediately and explain
the reason for the delay.
In communications, Germans can be straightforward to the point of
bluntness. Exhibiting impatience or confrontational behavior is
counterproductive. Maintain direct eye contact while speaking. Expect a
124
great deal of written communication to summarize business discussions
and maintain a record of document decisions.
Meetings, which begin and end on time, are rather formal and follow a
strict agenda. Although business does not rely on personal relationships,
first meetings are for getting acquainted. The eldest or highest ranking
person enters the room first—men enter before women if their status
and age are otherwise about the same. Germans sometimes rap their
knuckles on the table to express approval.
When making a presentation, dress formally and conservatively. In your
presentation, stress shared interests and benefits that appeal to
Germans—efficiency, performance, and quality. Be direct, factual,
concrete and precise. Neatness is essential in all correspondence and
presentations. Avoid using hand gestures when talking. Observe formality
in business meetings; visitors should keep ties and jackets on, and refrain
from casual behavior. An erect posture and neat appearance are
essential for a good impression.
After brief small talk, expect to get down to business. Companies tend to
be quite hierarchical with decisions made at the top. Respect the chain of
command of the German firm. Once a decision is made, it is seldom
changed. It may be rendered into a series of detailed action steps that
will be accomplished meticulously. Contracts are very important and are
followed to the letter.
German families tend to be nuclear and small, with the father as the
dominant figure. The Germans take great pride in their homes and
orderliness is a virtue. In fact, the home is seen as the one place where a
German can relax and show individuality. If you are invited to a home,
bring a gift such as chocolates, a good-quality French wine (not German),
or flowers. Avoid red roses as they are associated with romance; lilies,
chrysanthemums, and carnations are associated with funerals. Send a
handwritten thank you note the next day.
125
Holidays
January 1
New Year's Day
January 6*
Epiphany
April/May
Good Friday, Easter, Easter Monday
May 1
Labor Day
May/June
Ascension (40 days after Easter)
May/June
Whit Monday (50 days after Easter)
May/June*
Corpus Christi
August 15*
Assumption of Virgin Mary
October 3
Day of German Unity
October 31*
Reformation Day
November 1*
All Saints Day
November 17
Repentance Day
December 25–26
Christmas
*Not official national holidays but observed in some federal states.
Key Contact
Immobilienverband Deutschland (IVD)
Littenstrasse 10
Berlin 10179
Germany
Phone: 011-49-30-27-57-260
Fax: 011-49-30-27-57-2649
www.ivd.net
126
Europe &
7. A Look at Russia
127
Geography
Russia curves around the Arctic Circle and spans half the globe, including
nine time zones, across Europe and Asia. Its territory, about double that
of the United States, makes it the world’s largest country in terms of land
area. The Asian portion alone equals the land area of India and China
combined. European Russia shares borders with the Scandinavian
countries Norway, Finland, and the former USSR states of Latvia, Estonia,
Ukraine, Azerbaijan, and Georgia.
Throughout its history, Russia has been challenged to maintain a yearround warm-water port west of the Urals. Since the breakup of the Soviet
Union, the commercial port city of Novorossiysk on the Black Sea serves
this purpose. Most of its northern coastline remains icebound almost
year round except for Murmansk, on the Kola Peninsula north of Norway,
where a wrinkle in the Gulf Stream ocean currents warms the coastal
waters. The European coastlines lie along the Baltic and Arctic Ocean in
the north and the Black Sea and Sea of Azov in the South. Although
Russia has thousands of miles of Pacific coast, a vast emptiness separates
these ports from populated western quadrant.
Moscow
Moscow, the capital, largest city, and the heart of Russia, is home to 10.5
million people. It is the seat of the federal government and also a magnet
for foreign investment and businesses. Perhaps the most recognizable
landmark in Russia sits at the center of the city, the thousand-year-old
Kremlin, which is a UNESCO World Heritage Site. Although the Cold War
years made the Kremlin synonymous with repressive Soviet rule, its walls
128
7. A Look at Russia
surround the Presidential Palace, museums filled with historic treasures,
and historic onion-domed churches including Assumption Cathedral,
traditional site for coronation of the tsars. Heroes of the Soviet Union,
such as astronaut Yuri Gagarin, and prominent Party leaders lie
entombed in the Kremlin Walls. The tomb of John Reed, an American
journalist and idealistic socialist, also holds a place of honor along the
Kremlin Wall; in his book, Ten Days the Shook that World, he recorded an
eye-witness account of the tumultuous events of the Russian Revolution.
The famous Trans Siberian Express railway runs from Vladivostok to Moscow, a distance
of 9,300 kilometers (5,800 miles). The trip takes eight days. Map courtesy of Stefan
Ertmann & Lokal Profil, Wikimedia.
St. Petersburg
St. Petersburg, on the Baltic coast, is the second largest city and cultural
capital of Russia. The city lies far enough to the north to experience 24
hours of daylight in midsummer—St. Petersburg’s white nights. Peter the
Great established his namesake city in 1703 as capital of the Russia
Empire. Throughout its history, the city has worn several names:
Petrograd during the First World War, then Leningrad from 1924 until a
1991 city referendum restored its historic original name. Before the
capital was moved to Moscow in 1918, St. Petersburg was the center of
court life for the tsars and Russian nobility, a military and naval
headquarters, a financial and business center, and the cultural and
intellectual center of the country. The galleries of the Hermitage attest to
the city’s rich cultural heritage. The Winter Palace, former residence of
the tsars, houses one of the world’s finest and largest art collections with
more than 3 million items on display. Russians hold a special respect for
St Petersburg, Leningrad at the time, as a hero city of World War II: with
meager supplies of food or fuel, it endured a grueling 900-day siege by
129
German forces. Russians are justifiably proud of their national tradition of
literature, music, fine arts, and performing arts as well as endurance.
Landmark towers of the Kremlin,
 Moscow.
NevskyProspekt, St. Petersburg’s
main thoroughfare.

Resource Rich, Sparsely Populated
Although Russia’s land area is almost twice the size of the United States
and dwarfs continental Europe, its population totals only 142 million
people, less than half the population of the United States or about equal
to the combined populations of Germany and France. A distinctive aspect
of Russia’s demographics is that almost 75 percent of the population lives
in the western-most quarter of the country. Despite government
incentives to settle in remote parts of the country, the eastern lands,
including Siberia, remain extremely sparsely populated. The lopsided
geographical distribution of population creates a mismatch between
resources and needs. In the western quadrant of the country, demand for
water and energy surpasses available supplies while Russia’s far eastern
sections contain a wealth of resources.
Like other European countries, Russia’s population is aging and growth is
almost zero. Unfortunately, this is more a consequence of low life
expectancy than a low birth rate. Russia has the shortest life expectancy
of any developed nation—59 years for men, 73 years for women, and 66
years overall average. Several factors produce this regrettable statistic;
cultural acceptance of heavy smoking and alcohol consumption
combined with inadequate healthcare lead to extremely high rates of
heart disease and cancer. Traffic accidents and violence are also
contributors.
Outside of its major cities, Russia’s sparsely populated terrain varies from
vast prairies in the central sections, rolling hills along the Urals, the
130
7. A Look at Russia
Europe-Asia dividing line, and southern Caucasus Mountains, endless
expanses of tundra, and dense snow-bound forests. In early autumn, the
arid plains of the Russian Steppes send cooling winds whooshing across
the Black Sea and into the Mediterranean. The fabled Russian winters
provided a natural ally during two wars, vanquishing Napoleon in 1812
and German forces in 1942.
The glasnost era opened Russia to global scrutiny of a dismal
environmental record. An unfortunate legacy of 70 years of Soviet
“industrialization at any cost” policy is multiple environmental
catastrophes. Relentless exploitation of resources, without regard of the
environmental or human costs, has left behind the irradiated landscapes
of Chernobyl, shrinking lakes and wetlands, befouled rivers, and a toxic
mixture of pollutants in the urban air.
Dissolution of the Soviet Union
The Soviet rule of Russia was rather brief—about seven decades from
1918 to 1991. Soviet Russia grew from the turmoil of the Russian
revolution. Popular dissatisfaction with Russia’s involvement in World
War I, compounded by the monarchy’s uninformed misrule, created
fertile ground for the seeds of discontent and revolution. Out of the
violent armed conflict between factions, the Bolshevik (maximalist) party
headed by Vladimir Lenin rose to power and formed the Union of
Socialist Soviet Republics. The idealism of the early socialists was coopted by Joseph Stalin, who plunged Russia into an era of totalitarian rule
that made the state the adversary of the people. Following WWII, Stalin,
fearing invasion, locked buffer states firmly behind the “iron curtain,” a
term coined by Winston Churchill.
Following Stalin’s death in 1953, Nikita Khrushchev, a WWII war hero of
the Battle of Stalingrad, came to power. From 1957 through 1961, he
rejected the Stalinist belief in the inevitability of war and declared a goal
of "peaceful coexistence" which would allow capitalism to collapse on its
own. The later Brezhnev Doctrine (1964–1982) claimed the right to
intervene in any country attempting to replace communism with
capitalism. In contrast, Mikhail Gorbachev, the last communist leader of
the Soviet Union (1985–1991) envisioned peaceful coexistence as an end
in itself rather than a form of ideological struggle. The early perestroika
reforms allowed foreigners to invest in joint ventures with Soviet
ministries and state enterprises and initiated the replacement of the
Soviet command economy with a market economy.
131
When President Gorbachev withdrew the Brezhnev intervention doctrine
and launched his perestroika and glasnost policies, it is unlikely that he
intended, or expected, the dissolution of the Eastern Bloc, Warsaw Pact,
and ultimately the Soviet Union to follow.

The Russian Federation flag, first
displayed by President Yeltsin, flies over
the Parliament headquarters.
Photo courtesy of the Office of President
of the Russian Federation
Russian postage stamp commemorates
the August 1991 “Triumph of Democracy”
over a failed communist coup.

In March 1989, the Russian voters were given the opportunity to elect
representatives to the Congress of People's Deputies, the national
legislative body, and the results marked a stunning defeat for the
Communist party. In the following months, the Party’s control of the
government and economy eroded quickly and the ties that bound
together the USSR’s constituent parts frayed with equal speed. On
Christmas Day of 1991, the USSR was dissolved and was replaced by the
Russian Federation.
In the conversion from a state-controlled demand economy to a
capitalistic, market-driven system, one of the early challenges was
transitioning state-owned real property—residential, commercial,
industrial, and agricultural—into private ownership. Large parts of the
Russian economy were transferred to private ownership in ways that
lacked legitimacy in the eyes of the Russian people. In the ensuing
confusion, entrepreneurs, as well as a criminal element, with the insider
political connections, were able to amass great personal wealth and
become Russia's new class of super-rich oligarchs. Former highly placed
Party officials used their personal connections to exploit the situation and
gain control of factories, oil production, mineral extraction,
manufacturing industries, and other state-owned assets. Real estate
132
7. A Look at Russia
professionals who witnessed the transition attest that the government
officials, with no experience of real estate as an asset, failed to realize the
value of properties.
Economy
Since the dissolution of the Soviet Union, Russia has experienced two
periods of extreme economic duress. The first coincided with the 1998
Asian Financial Crisis which shook investor confidence in developing
economies worldwide and sent capital fleeing. The resulting economic
tailspin produced a 60 percent drop in the value of the ruble along with
delayed payments of both private and sovereign debt, breakdown of
transactions through the fledgling banking system, and 85 percent
inflation. Chronic inflation dogs the Russian economy. By 2007, inflation
stabilized at 7–9 percent. The Central Bank of Russia sees its primary
function as maintaining the ruble’s exchange rate; managing domestic
inflation ranks second.
Between 2000 and 2008, the economy grew at 7–10 percent annually.
Both domestic consumption and exports, mainly oil and gas, kept the
economy humming along and produced a $600 billion reserve. During the
2008 global economic crisis, as oil prices dropped by half, the reserve
fund dwindled and turned negative; accumulating foreign external debt
of $540 billion by October 2008.
GDP Growth
$70
$61
6.8%
-10%
2006
2009
2008
2007
2006
2009
2008
11.9%
9%
$47
2007
2006
13.3%
5.6%
8.1%
Sources: Rosstat, World Bank, Russian Ministry of Finance, Ministry of Economic Development
133
2009
7.7%
Inflation
2008
$95
2007
Oil Prices
2008 Economic Crisis
The 2008 economic crisis in Russia started with extreme capital flight,
which triggered a stock market collapse. The government responded by
pumping liquidity into the banking system, which prevented a bank run
and serious ruble devaluation, but depleted its reserve funds. By late
2009 the Russian economy started a modest recovery, due mainly to
rising oil prices. But the experience taught Russian leadership a lesson in
diversifying the economy and making it less oil dependent. The World
Bank estimates that Russia’s GDP will be back in positive territory in
2011–2012 with a growth rate of about 3.5 percent, depending on global
oil prices.
Some of the foreign capital that fled in 2008 is beginning to return to
Russia in the form of loans to Russian companies. Russian Central Bank,
wary of the excessive inflows of foreign capital, has sought to impose
controls on foreign borrowing by corporations with state participation—a
sizeable portion of the manufacturing base. More than half of the FDI
inflow into Russia funnels through offshore companies based in tax
havens such as Luxembourg, Cyprus, Bermuda, Bahamas, and the British
Virgin Islands. Popular wisdom holds that the flow a capital through these
offshore companies represents investment by expatriates.
Economic Sectors
Although industry represents almost a third of economic activity in
Russia, much higher than its neighbors in Western Europe, years of low
investment in industrial capacity have left much of the industrial capacity
antiquated and inefficient. Former collective farms have been privatized
but management and adoption of modern methods is uneven. Small
plots, urban and suburban gardens, and communal gardens provide more
than half of Russia’s food supply. Thanks to the Soviet education system,
Russia’s workforce is well-educated and skilled but mismatched with the
changing needs of a modern, competitive economy.
About one quarter of the population live and work in one of the 1,500
Soviet-era “monotowns,”built to house the workers of a single industrial
plant and totally dependent the plant or operation for livelihood. During
boom times, no effort was made to disperse or diversify the towns which
are now very vulnerable to economic downturns. Wage arrears are a
serious and growing problem for the plants. In towns where the plants
supply heating, electricity, and water, utility price increases combined
with shutdowns, layoffs, and unpaid wages create a volatile situation.
134
7. A Look at Russia
Agriculture,
10%
Industry,
31.9%
Russia's Economy
Souce: RosStat
Services,
58.1%
Russia’s economy remains quite oil-dependent. In 2009, balancing the
country’s budget depended on a minimum oil price of $70 a barrel. Oil,
natural gas, metals, and timber account for 90 percent of Russian
exports. Russia’s economy, GDP, and surplus or deficits are closely linked
to world oil prices. The location of Russia’s rich deposits of minerals and
petroleum are far removed from most of the population. Extraction
processes—mining and drilling—must cope with extreme climatic
conditions and isolated locations. Despite these challenges, Russia’s oil
and natural gas industry is booming and Western Europe depends on its
pipelines for energy supplies. Using energy supplies as a diplomatic
bargaining chip makes dependent European countries wary of Russia as a
reliable supplier.
The Banking Sector
The banking sector is dominated by large Moscow-based banks. There is
little competition for deposits or incentive to lower interest rates for
borrowers, although large, politically connected borrowers usually
receive favorable treatment. In 2004, Russia enacted a deposit insurance
law to protect deposits up to 700,000 rubles but banks and the public
generally distrust each other. Entrepreneurs struggle to obtain financing
from banks that generally perceive small business operations as high risk.
A mishmash of banking and securities market regulations obstruct
transfer from capita-rich sectors, such as oil, to areas in need of capital
investment, like manufacturing and agriculture. Furthermore, conflicting,
overlapping, and changing laws, decrees, and regulations, as well as
135
inconsistent enforcement, impede the business environment. The result
is an ad hoc and unpredictable approach to doing business with frequent
political pressures and everyday “under-the-table” dealing.
In an effort to facilitate foreign investment, the federal Ministry of
Economic Development created a central point of contact
(www.economy.gov.ru/wps/wcm/connect/economylib4/en/home) to
improve customs services, cut red tape, and fight corruption. The
American Chamber of Commerce, the Association of European
Businesses, and the Russian Union of Industrialists are lending their
collective expertise to foster a better business climate. When the
associations petition on behalf of their members, the most frequent
complaints deal with “problems with administrative barriers,” a
euphemism for willful delays imposed by local officials.
The Ruble
Although credit and debit cards are becoming more common, Russian
commerce runs on cash. ATMs, called bankomats, dispense cash at the
current bank rates plus a service fee. The ruble is the official, and only
legal, currency but is virtually unconvertible outside of Russia.
Consequently, euros and dollars circulate freely. Prices in retail stores
and restaurants may be presented in Y.E.s (equivalent units)
corresponding to euros or dollars, although the customer is expected to
pay in rubles. Many Russians maintain their personal savings in dollarand euro-dominated accounts and these currencies pass freely, although
unofficially, particularly in the informal economy.
Renationalization of Industries?
In the 1990s the Russian conglomerates acquired control of companies
through a “loans for shares” arrangement. Private banks loaned money
to the cash-strapped government with shares in the state-owned
companies as collateral. Government default on the loans resulted in a de
facto privatization as lenders took control of pledged collateral and
auctioned it off—often the bank itself purchased the shares through
rigged bidding.
But some of the industries, privatized in the free-for-all following the
dissolution of the Soviet Union, are gradually being renationalized—by
plan or loan default. The impetus to regain control of certain economic
sectors combined with default on loans is renationalizing certain
136
7. A Look at Russia
industries. For example, recent high-profile renationalizations have
occurred with Gazprom, the state gas monopoly, and the Yukos oil
company. Some of the renationalization trend resulted from defaults on
loans made by state-owned banks. When certain of Russia’s high-profile
oligarchs pledged their personal stakes in companies in order to obtain
short-term loans from state-owned banks and defaulted on the loans, the
banks took possession of pledged collateral.
There is, however, a growing realization that building up another
behemoth of inefficient state-owned enterprises will stifle innovation and
impede economic development. In 2010, speaking at a forum of Gulf
sovereign wealth funds and private investment companies, Prime
Minister Putin reinforced Russia’s commitment to privatization and
reduced intervention in the national economy.28
Real Estate Professionals in Russia
Government licensing of real estate agents and brokers was dropped in
2002. Fortunately, the Russian Guild of Realtors (RGR) stepped in to
provide standards for professionalism and competency. The RGR is a
national real estate association representing more than 2,000 companies
and 59 regional associations throughout Russia.
The RGR’s Voluntary Brokerage Services Certification System establishes
standards of practice for real estate brokerages and provides a way for
consumers to evaluate the reliability of a company. Activities of the RGR
include:
 Education services for real estate professionals through the National
Realtor Education Center
 Certification and standardization of professional real estate services
 Mediation for resolution of disputes
 Legislative activity
 Gathering and reporting data on real estate market conditions
 Maintaining an integrated database of properties listed by RGR
member companies
28
“Russian Economy: Privatisation—Here We Go Again,” EIU ViewsWire, Economists
Intelligence Unit, Ltd., New York, Sep 30, 2009.
137
DOMEXPO International Real Estate
Exhibition sponsored by the Russian
Guild of Realtors, Moscow Association
of Realtors, and the City of Moscow.
Buying Real Estate
Foreigners enjoy the same private property rights and protections as
Russian citizens and may freely own real estate with two exceptions.
Foreigners are not permitted to own agricultural land or land near state
borders or sensitive areas. A foreigner who acquires restricted lands
through inheritance must dispose of it within one year.
Russia’s mortgage lending market is not well-developed and escrow
accounts and wire transfers are viewed as unreliable. Therefore, most
real estate transactions—up to 90 percent—are cash deals and, for
security reasons, take place at a bank.
Transaction Steps
 The buyer and seller execute a preliminary purchase agreement with
the assistance of the real estate agents. The agreement outlines the
terms and conditions of the deal. A down payment accompanies the
agreement.
138
7. A Look at Russia
 The agreement is witnessed by the real estate agents and a notary.
 The buyer places the full amount of cash for the purchase in a bank
safe deposit box on the condition that the funds will be released to
the seller only upon the presentation of completed paperwork.
 The buyer’s attorney conducts an investigation to ensure that there
are no encumbrances on the property and the privation procedure
was properly completed making the property legally available for
sale.
 If all conditions of the property are in order, the buyer and seller
meet at the bank or notary’s office to complete the final contract. The
notary fee of 1.5 percent of the contract cost is paid by the buyer.
 The signed purchase agreement is sent for state registration, after
which the actual transfer of ownership takes place. Registration takes
about 30 days and costs about $50; expedited registration is possible
for an extra fee.
 An Acceptance Act is signed by buyer and seller on the date of
transfer, certifying that the property is being transferred to the buyer
in an acceptable condition.
 When all of the paperwork and registration are complete, the safe
deposit box funds are released to the seller.
 Russia maintains a country-wide unified State Register. Apart from
this register, the main technical and legal information about a
property, such as measurements and boundaries, is on record with
the state land cadastre.
Except for agricultural and land in border and sensitive areas, the Land
Code of the Russian Federation does not specifically bar foreigners from
land. But most of the land outside of the cities is designated as
agricultural land and much of it is still owned by the state. Land
designated for agriculture must be reclassified before it can be used for
industrial or residential development. State or municipal authorities can
refuse the reclassification or co-opt the sale.
The 1991 Law of Privatization enabled people to gain possession of their
living quarters and almost three quarters of residences are now privately
139
owned. Privatization is optional and some prefer to continue living on the
old social rental contract.
There are very few single-family homes in Russia and most people, about
80 percent, live in apartments. Consequently most of the residential
property transactions involve sales of apartments. The Land Code
integrates property ownership and the right-to-use, which is an
important distinction. Much of the housing stock dates from the Soviet
era. It was poorly constructed and now is in need of repair or
replacement. Under the Soviet system, maintenance and repairs were
the responsibility of the government. As apartment blocks were
privatized, it was assumed that the resident owners, many with very
limited means, would take over responsibility for maintenance and
repairs but generally this has not happened. Some of the newer
apartment developments, however, now have homeowners’
associations.
Communal apartments are a holdover from the Soviet system. These are
usually large multi-room apartments that are shared by several families.
Each family has one or two private rooms and all share bathroom and
kitchen facilities. Tenants within the communal may sell rooms to others,
but the nonliving spaces cannot be owned by any individual. Ownership
of the land is frequently a murky issue. An investor who purchases a
building of communal residences for redevelopment must relocate those
living in the apartments.
Russia is Pro-Tenant
Residential rentals tend to be pro-tenant in Russia. A one-month security
deposit is standard practice. Leases are usually for one year; a lease
exceeding one year must be registered with the State Registration Office.
The landlord cannot evict a tenant early, but a tenant can terminate the
lease with a one- to three-month advance notice. A tenant must be at
least six months behind in payment of rent before the landlord can begin
eviction proceedings. Payment of rent in cash is common. In the high-end
market, rents may be quoted and paid in euros or dollars.
The Dacha—A Country Retreat
Despite the decades of government ownership of real property, one
enduring tradition—the country dacha—makes Russians the world’s
foremost owners of second homes. As early as the Stalin era, Russian
140
7. A Look at Russia
citizens were allowed private ownership of a small plot of land with a
rustic cottage as a way to ease urban pressures and supplement the food
supply. Today, an estimated 1 in 4 Russian families own one of these
country retreats for the stressed-out city dweller. During the Soviet era,
limits on size and fittings restricted dachas to one-room cottages without
indoor plumbing, electricity, or year-round heating. Most of the cottages
are still quite simple but newly constructed and refurbished ones are
fully-equipped and some are luxurious, country homes. Russia’s growing
real estate resale market makes the high-quality new or refurbished
dacha a financial asset as well as a haven from urban life.
 A dacha settlement near St. Petersburg.
A famous dacha—author Boris
Pasternak’s country retreat at
Peredelkino.

The small plots of land still provide space for city dwellers to grow fruits
and vegetables and the May Day holiday marks the traditional time for
planting the dacha garden and tending the fruit trees. “Dachnik” (literally
gardener), as year-round dacha residents are called, implies a low-key,
frugal lifestyle.
141
Almost all of Russia’s investment-grade real estate is located in Moscow
and St. Petersburg. As the political and business capital of Russia,
Moscow leads in quantity and
quality of investment
property as well as
opportunities. More than half
Investor Origin
of investment deals center on
Austria, 7%
Other, 2%
Moscow (57%), and about a
third in (35%) on St.
Petersburg.29
Confidential,
20%
Russia, 71%
In 2008, when investors and
their capital fled the country,
the real estate market
dropped sharply and the
credit market ground to a
halt. In 2010, some signs of
recovery emerged but high
yields evidence investors’
perceptions of risk levels.
Investment by Sector
Industrial,
1%
Residential,
40%
Office, 37%
Hotel, 9%
Retail, 11%
Mixed, 6%
Source: “Russian Economic and Investment Market Commentary,
The credit market is
recovering after coming to an
almost complete standstill in
2008. As a result of the dearth
of bank lending, financing
through bond issues remains
a popular method of financing
for commercial projects.
The majority of investment
capital originates inside of
Russia with a significant
amount of expatriate capital
funneling through tax-haven
countries such as Luxembourg
and Bahamas.
On.Point, Q2 2010, Jones Lang LaSalle, www.joneslanglasalle.ru
29
“Russian Economic and Investment Market Commentary,” On.Point, Q2 2010, Jones
Lang LaSalle, www.joneslanglasalle.ru.
142
7. A Look at Russia
Panorama of Moscow
Moscow
Prime location for Moscow office space traditionally is inside the Garden
Ring but new development is beginning to push out of the city center.
High vacancy rates have shifted the rental market from a landlord’s
market to a tenant’s market. Vacancy rates in Moscow for Class A office
space are in the range of 30 percent and 16 percent for Class B space.
33%
Commercial Real Estate, Prime Yields (2010)
Source: Jones Lang LaSalle
www.joneslanglasalle.ru
20%
12%
30%
10%
12.5%
16%
11%
13.5%
12.25%
St. Petersburg
Moscow
St. Petersburg
Few new companies are moving into space so most demand is currently
driven by relocation. The most popular districts of the city are the
outlying areas of Primorsky and Vasileostrovsky; least popular locations
143
are the Admiralteysky district overlooking the Neva River and the Nevsky
district along the city’s main thoroughfare. Vacancy rates for Class A
space is about 33 percent and about 20 percent for Class B. A substantial
portion of the vacant space, however, is subpar and lacks adequate
support for technology and communications or is located in less desirable
areas.
Judicial System
The court system of Russia is divided into three branches: regular courts,
arbitration courts, and a constitutional court. Commercial disputes
between companies move through the arbitration court system. Regular
courts hear criminal cases and civil disputes between individuals. There is
no trial by jury. The progression of court jurisdiction for both the regular
and arbitration courts flows from local to district or regional to Supreme
Court. Court cases do not set precedent but the Supreme Courts do issue
guiding instructions, which are binding on lower courts. The guiding
instructions are meant to ensure consistency but, without setting case
precedent, they have become the main source of law in the Russian
Federation. Judges of the Constitutional Court, the Supreme Court and
the Higher Arbitration Court are appointed by the upper house of
parliament, the Federation Council.
Courts of General Justice
Criminal cases, civil disputes
between individuals
Arbitration Courts
Commercial disputes
between companies
Supreme Court
Higher Arbitration Court


Courts of Federal Subjects
Federal District Courts


District Courts
Appellate Courts

Municipal Courts
Justices of the Peace

144
Federal Subject Courts
Constitutional Court
Determines constitutionality
of laws
7. A Look at Russia
Government
Considering its vast size and diversity, governance of the Russian
Federation presents some unique challenges. It is important to
remember that after more than 70 decades of centralized, top-down
Soviet rule, governance structures at all levels are still evolving as is the
balance of powers among the federal, oblast and republic, and municipal
levels. The federal government is challenged to find ways to govern and
administer consistently while respecting the autonomy of a collection of
republics, regions, territories, and states.
Federation Structure
The Russian Federation structure is made up of 83 Federal Subjects,
which includes oblasts, republics, krais, okrugs, and federal cities.
 46 oblasts: provinces
 21 republics: based on a non-Russian ethnicity, somewhat
autonomous with its own constitution and official language,
 9 krais: territories
 4 okrugs: semi-autonomous regions of distinct ethnicity, falling under
the jurisdiction of another Federal Subject
 2 federal cities: Moscow and St. Petersburg
 1 autonomous oblast
The Federal Subjects, and particularly the republics, each have state- and
municipal-level governments. A federal law passed in 2000 prescribed
streamlined and standardized local governing structures. Although there
are variations, most include the following structures:
 Administrative districts called raions
 Municipal districts (urban settlements, rural settlements, and intrasettlement territories)
 Urban okrugs (unincorporated areas within urban settlements)
 Municipal okrugs
 Intra-city territories of a federal city
 The Moscow federal district is divided into raions
 The St. Petersburg federal district contains districts, municipal okrugs,
towns, and settlements
145
Federal Districts
For purposes of administration, the country’s Federal Subjects are
grouped into eight Federal Districts. A presidentially appointed
Plenipotentiary Representative overseas each district, acts as liaison
between federal and state-level governments, and oversees the work of
federal agencies.
Federal Administrative Districts
Administrative Center

Central Federal District.................. Moscow

Southern Federal District .............. Rostov-on-Don

Northwestern Federal District....... St. Petersburg

Far Eastern Federal District ........... Khabarovsk

Siberian Federal District ................ Novosibirsk

Urals Federal District ..................... Yekaterinburg

Volga Federal District .................... Nizhny Novgorod

North Caucasian Federal District ... Pyatigorsk
Economic Regions
For the purposes of statistical and economic planning purposes, the
Federal Subjects are grouped into 12 economic regions. Federal Subjects
within a zone have similar economic development goals and potential as
well as climates and ecology. The Economic Regions are defined
differently from the Federal Districts and may overlap district boundary
lines.




12 Economic Zones
When economic data is reported it may be grouped according to these zones.
Central (Tsentralny)*
 West Siberian (Zapadno Central Black Earth
Sibirsky)
(Tsentralno-Chernozyomny)
Urals (Uralksy)
 East Siberian (Vostochno Far Eastern
Sibirsky)
(Dalnevostochny)
North Caucasus
 Volga-Vyatka (Volga Northern (Severny)
(Severo-Kavkazsky)
Vyatsky)
Volga (Povolzhsky)
 Northwestern (Severo Kaliningrand
Zapadny) **
(Kaliningradsky)
* Moscow
** St. Petersburg
146
7. A Look at Russia
Federal Government
The leader of the Russian Federation is the president, who serves as head
of state. The president is elected directly and can serve a maximum of
two six-year terms. The prime minister serves as head of government and
is appointed by the president. Constitutionally, the president is more
powerful than the prime minister and overall more power is vested in the
executive branch than in the legislature.
The federal parliament is made of two houses: the Federation Council
and the Duma.
 Federation Council: The upper house is made up of two deputies
from each Federal Subject. One deputy is elected by the Federal
Subject’s legislature and the other is appointed by the entity’s head.
Because the deputies are elected and appointed based on the Federal
Subject’s election cycle, terms of office and turnover of deputies in
the Federation Council happens at various times. No political factions
or parties are to exist in the upper house.
 Duma: The 450 deputies of the Duma, the lower house, are elected
directly from party lists and serve five-year terms. All legislation,
including bills proposed by the Federal Council, must be approved by
a majority of the Duma. A bill approved by the Duma is sent to the
Federation Council for approval. If the two houses disagree, they
form a commission to work out a compromise.
Political Parties Represented in the Duma
In order to prevent splintering into factions, a political party must receive a
minimum of 7 percent to be seated in the Duma.
Left
Center
Right
 Communist Party
 Liberal Democratic
 United Russia Party
 Just Russia Party
Party
147
Russian Taxes—Income, Capital Gains, Real Estate, and More
Income Tax

Russian tax residents are taxed on worldwide income, nonresident foreigners are taxed on Russiansourced income
 Treaties may prevent double taxation
Tax Residency: An individual whose stay in Russia Individuals:
exceeds 183 days within a consecutive 12-month
 Tax residents pay a flat rate of 13%
period is considered a resident for tax purposes. A  Nonresident foreigners pay 30%
permanent domicile or established place of
 Deductions allowed for medical and education
business is not required.
expenses
 One-time deduction for home purchase
 Dividends: 9% for residents, 15% for
Payment:
foreigners
 Employers withhold from wages
 Interest: 20%
 Single wage earner with no other income is
 Royalties: 20%
not required to file a tax return
 Self-employed make three advance payments
Corporations:
throughout year based on previous years’
 Standard rate is 20%
income (July 15, August 15, November 15)
(2% federal, 18% regional)
and must file a complete return by the end of
 9% on dividends
April of following year
Value Added Tax (VAT)
 Standard rate of 18% tax on consumption (sales tax), 10% on food and medicines
 Leasing and sales of real property is exempt
Unified Social Tax
 Flat rate of 34% paid by employer
 Employer pays entire amount, employee pays nothing
Taxes on Real Estate
Land Tax
 3.5%–4.5% of the value
 Determined locally
148
Rental Income
 30% on rental income received by nonresident
foreigners
7. A Look at Russia
Capital Gains Tax
Individuals
 Standard rate of 13% for individuals, 30% for foreign residents (same as regular tax)
 Gain on sale of real estate held for more than three years is exempt
 Maximum deduction for expenses on sale of residential real estate held for less than three years is
one million rubles, on other assets maximum deduction is 250,000 rubles
Corporations
 Standard rate of 20% (same as regular income tax)
 Losses offset other income and may be carried over and spread over remaining useful life of the
asset


Inheritance, Gift, Wealth Tax
No inheritance or gift tax for family members
13% on gifts to unrelated individuals of real estate and other high-value property
Doing Business in Russia—Beyond the Basics
Russians are quite proud of their rich cultural history and want others to
esteem it too. You will win the respect of Russian colleagues if you show
sincere admiration for Russian culture. They also pride themselves on
flourishing in challenging conditions, such as frigid Siberia.
Russians do not need a personal relationship to do business, but a
network of personal connections can smooth the way. Connections are
known as svyasi, which implies friends in high places—essential for
cutting through bureaucratic red tape. A network of trustworthy contacts
can facilitate making connections and doing business. A request to
perform a favor is a sure sign that a relationship has been successfully
established.
When introduced, a firm handshake and direct eye contact are
appropriate. Business cards are exchange without ritual; if someone does
not have a card, make a note of the name, title, and contact information.
Close female friends and associates may exchange air kisses on both
cheeks (left cheek first) and male friends may exchange a hug or pat on
the back.
149
Russian names consist of three names: a first name, a patronymic formed
by adding –ovich for a man, –ovna or –avna for a woman, and a surname;
for example, Anna Ivanova (daughter of Ivan) Borodin. In formal address
all three names are used, but close friends and associates may use only
the first name and patronymic, or first name only.
Appointments for meetings are necessary and should be made as far in
advance as possible. Expect a six to eight week wait for an appointment
with a government official. Be on time for meetings but be prepared to
wait. Russian schedules are constantly changing and appointments may
be cancelled on short notice.
Initial meetings are for getting acquainted and evaluating if you and your
company are worthwhile business associates. Expect a long period of
socializing and conversation as a way to get acquainted. Be prepared for
a slow pace of business. Be patient and let your Russian contacts set the
pace.
During a presentation, be prepared with a comprehensive treatment of
the subject. Russians are accustomed to detailed presentations that
include a project’s history and precedents. Do not show disapproval or
impatience if the discussion is interrupted by unrelated side
conversations. Decisions are made outside of meetings and at the upper
levels of the hierarchy. Hierarchy is quite important and Russian
businesspeople prefer to meet with those of similar rank and authority.
At the conclusion of a meeting, you may be asked to sign a protocol
summarizing the discussion. But, nothing is final until an agreement is
signed. Even after signing, contracts are viewed as rather elastic and
modifiable.
Russians are tough negotiators and view negotiations as a win-lose
proposition. They may use raised voices, threats to walk out, and displays
of temper to coerce an opponent into compromising, which is viewed as
a sign of weakness.
If invited to a home, arrive on time and dress in business clothes to show
respect for the host. Bring a modest gift, which will be refused at first;
you can ease acceptance by saying the gift is “just a little something.”
150
7. A Look at Russia
Holidays
January 1–6
New Year
January 7
Russian Orthodox Christmas Day
February 21
Day of the Defenders of the Motherland
May 1–2
Labor Day
May 9
Victory in Europe Day
June 12
Russia Day
November 4
National Unity Day
December 12
Constitution Day
December 25-26
Christmas
Key Contact
Russian Guild of Realtors
4th Floor
14/1, Radio Street
Moscow 105005
Russia
Phone: 7-495-261-9680
Fax: 7-495-261-0398
e-mail: [email protected]
www.rgr.ru
151
The Next Chapter
The following chapter contains “snapshots” of European countries in
which NAR has a real estate association partner. Your instructor may
divide the class into learning teams and assign one or two country
profiles to each team. Read the assigned profile(s) and answer the
following questions. Maximize use of the time allotted by dividing the
profile so that each team member reads and reports on a designated
portion. You may add your personal knowledge and refer to information
presented earlier in the course.
What important facts should the real estate professional know about:
 Geography?
 Foreign ownership of real estate?
 Real estate practice?
 Economy and business?
 Business and social etiquette?
152
Europe &
8. Country Profiles
153
Bulgaria
Bulgaria lies in the far southeastern corner of Europe. It shares borders
with Greece, FYROM, Romania, Serbia, Greece, and Turkey. Two great
bodies of water also define its borders: the Danube River defines most
of Bulgaria’s northern border (Romania lies on the opposite bank) and
the Black Sea marks its eastern border. Bulgaria is subdivided into 28
provinces called oblasts, or oblasti. In land area, Bulgaria is about the
size of the U.S. state of Tennessee. The capital city of
Sofia lies in the westernmost quadrant of the country.
Bulgaria occupies a very strategic location. Its border
with Turkey connects it to the land routes between
Europe, the Middle East, and Asia.
Broad, fertile plains stretch along the banks of the
Danube. The rugged Balkan mountain range bisects
the country east to west and the Rhodope mountain
range marks the border with Greece. The mountain
ranges lie atop fault lines that make Bulgaria
susceptible to strong earthquakes. Since ancient
Roman times, Bulgaria has been renowned for its
mineral springs and has become a popular spa
destination for Eastern Europe. The Black Sea coast
enjoys a Mediterranean-like climate; inland the climate is more temperate with cold, damp
winters and hot, dry summers. Snow caps the highest mountain ranges year round.
Real Estate
Bulgaria’s real estate market has been on a roller-coaster ride between 2008 and 2010. Foreign
investment coming into the country mostly went into real estate and construction and
overheated the market causing house prices to increase up to 300 percent. Toward the end of
2008, as the global financial crisis reached Bulgaria, foreign capital beat a hasty retreat. The
direct foreign investment that drove the boom dropped by half in 2009, and even more in 2010.
Investment in real estate fell by more than two-thirds, and house prices tumbled by 50 percent
or more.
Foreign Ownership of Real Estate
Foreigners are allowed to own structures, like condominiums, but cannot own land directly.
The Bulgarian government has approved a change to this regulation that will take effect seven
years after Bulgaria’s membership in the EU, in 2014. EU citizens are exempted from this sevenyear waiting period if they reside continuously in Bulgaria or have a permanent residence there
and are engaged in agricultural activity.
154
8. Country Profiles
Foreigners can own land through a Bulgarian corporation with the buyer as the sole owner and
director of the company. Bulgarian real estate agents may offer setting up the corporation as
part of their service package.
A real estate transaction is an expensive proposition for the buyer due to 20 percent VAT on
purchases. When combined with other fees and taxes, the buyer’s transaction costs can reach
more than 25 percent of the property value.
Real estate owners are liable for taxes on their Bulgarian properties. The assessed property
values and tax rates, about .01–.25 percent, are set by local tax authorities.
Agriculture,
7.5%
Services,
56.1%
Bulagarian Economy
Source: CIA Worldfactbook
Industry,
36.4%
Economy
Bulgaria’s main exports included clothing, footwear, iron and steel, machinery and equipment,
and fuels. Main trading partners are Germany, Greece, Italy, Romania, Turkey, Belgium, and
France.
Bulgaria, a former Communist country that entered the EU on January 1, 2007, averaged more
than 6 percent growth from 2004 to 2008, driven by significant amounts of foreign direct
investment. Successive governments have demonstrated a commitment to economic reforms
and responsible fiscal planning, but the global downturn is reducing exports, capital inflows,
and industrial production. In 2009, the GDP contracted by approximately 5 percent. Corruption
in the public administration, a weak judiciary, and the presence of organized crime remain
significant challenges.30
30
CIA World Factbook
155
Doing Business in Bulgaria
Relationship building is very important to successful business conduct in Bulgaria. After
establishing a face-to-face relationship, communication can proceed by e-mail and phone. It
may, however, be necessary to make repeated trips to Bulgaria to maintain the relationship.
When introduced, offer a firm handshake with eye contact and the appropriate greeting for the
time of day. Only close friends and family members embrace. Business cards are exchanged
without formal ritual. If your company has been in business for a long time, it will enhance your
standing to feature this on your business card, such as ‘’Founded in (year).” List you academic
degrees too.
July and August are the most popular vacation periods so it is best to avoid scheduling
appointments during that time.
The first meetings are for getting acquainted. After the initial meeting, subsequent meetings
can get down to business after exchanging some small talk. Presentations should emphasize
facts with the statistics to back them up. Bulgarians are wary of “big talk” and too much of it;
succinct and low key are better approaches.
Don’t be surprised if meetings move slowly. Proceedings are not bogging down, but just
following the tendency to make sure all details are thoroughly explored. Deadlines do not hold
much meaning so it is wise to resist any urge to rush discussion or proceedings. Because
Bulgarians are guarded about saying anything that could be detrimental, discussions may seem
circumspect or meandering, and meetings may last beyond scheduled time frames. If responses
to questions seem evasive or vague, try rephrasing the question. Hierarchy is very important in
business and lower ranking members of the team will usually defer to the most senior for
decisions. But group consensus is important too.
Remember that Bulgaria Is a former communist country and older business people may have
retained an old-style bureaucratic mindset toward business and management.
Maintaining a formal demeanor and tone demonstrates professionalism and serious intent.
Until invited to proceed on a first-name basis, address business contacts as Mr. or Mrs.
followed by the surname or by title if you know it. Eye contact is important because it shows
trust and sincerity.
Punctuality is appreciated in both business and social settings. Be on time for business
appointments and call ahead if you are delayed to apologize and offer an explanation.
Beyond the Basics
The extended family is the fundamental, and most important, social unit. Several generations
may live in the same household. The network of family connections provides mutual assistance
and support. The elders of the family are revered. The oldest members of the family are
156
8. Country Profiles
greeted first, seated first at meals, and offered the tastiest morsels on the table. In return for
this deference, the family elders are expected to take responsibility for making wise decisions
for the group.
Gifts should be selected with more thought for meaning than extravagance. A gift that is too
expensive may embarrass the recipient who will feel obligated to reciprocate. If invited to a
home, it’s appropriate to bring a gift for the hostess, flowers (an odd number of stems and not
chrysanthemums, lilies, or gladiolas) or bottle of spirits are good choices. Gifts are usually
opened when received.
Name days as well as birthdays are celebrated. Name days are celebrated on the day of
commemoration for the Saint for whom the individual is named. For example, men named Vasil
celebrate their name day on the first day of January—the day of commemoration for St. Basil.
Although table manners tend to be somewhat informal there are a few do’s and don’ts. When
dining at a home, wait for the hostess to indicate where to sit. Even if you are the guest of
honor, it is customary for the oldest person to be served and begin the meal first. Unless others
place their napkin in their laps (usually a formal dinner), leave the napkin folded next to the
plate. Although elbows on the table are improper, both hands should always be visible, the free
hand can rest on the table next to the plate. A small initial serving of each dish allows room for
a second helping—a sure way to compliment the hostess.
Holidays
January 1
New Year’s Day
March 3
National Day of Liberation
April/May
Easter (Orthodox)
May 1
Labor Day
May 6
St. Cyril and St. Methodius
September 6
Unification of Bulgaria
September 22
Independence Day
November 1
Bulgarian Revival Leaders Commemoration
December 24–25
Christmas
December 31
New Year’s Eve
157
Key Contact
National Real Property Association (NRPA)
LachezarIskrov
36-A, Patriarh Evtimii Blvd., Floor 1, Ste. 3
1000 Sofia
Bulgaria
Phone: 359 2 30 988 68 90
Fax: 359 2 30 988 68 91
E-mail: [email protected]
www.nsni.bg
Czech Republic
The landlocked Czech Republic, slightly smaller than the U.S. state of
South Carolina, occupies a central strategic point in central Europe. It
borders Austria, Germany, Poland, and its compatriot state, Slovakia.
Following the First World War, the Czechs and Slovaks, both remnants
of the former Austro-Hungarian Empire, merged to form
Czechoslovakia. The presence of a German-speaking population in the
Sudetenland served as a pretext for invasion by
German forces, an event that led to the outbreak of
WWII. Czechoslovakia was enclosed behind the iron
curtain until the collapse of Soviet Union. In 1989,
Czechoslovakia was among the first of the Soviet
satellite countries to regain its freedom through a
peaceful "velvet revolution." Then, on New Year’s
Day of 1993, a "velvet divorce" separated the two
national components into the Czech Republic and
Slovakia. The Czech Republic joined NATO in 1999
and the European Union in 2004.
The terrain of the Czech Republic varies from
lowlands, susceptible to flooding, to heights. In the
west, the area of Bohemia is marked by rolling hills, plains, and plateaus. The eastern area of
Moravia is surrounded by steep hills and low mountains.
158
8. Country Profiles
Economy
Maintaining an open investment climate has been a key element of the Czech Republic's
transition from state control to a functioning market economy. The country’s central location,
export-driven economy, and well-trained labor force attract high levels of foreign investment.
The Czech Republic approach to economic management is conservative and cautious. After
years of sustainable growth, the economy contracted by about 4 percent in both 2008 and 2009
along with other EU countries. These contractions resulted more from the distress of trading
partners than the Czech Republic’s economic fundamentals. But conservative fiscal policy
helped the economy weather the crisis in better shape than its neighbors.
Agriculture,
2.3%
Industry,
37.2%
Czech Republic Economy
Services,
60.5%
Main export products include machinery and transport equipment, raw materials and fuel,
chemicals, armaments, glassware, and beers. The region of Bohemia is renowned for the
production of fine crystal and glassware. The pilsner style of beer takes its name from the city
of Plzen (Pilsen). Almost a third of all exports are to Germany. Other major trading partners
include Slovakia, Poland, France, U.K., Austria, and Italy.
Real estate professionals in the Czech Republic must be licensed although there is a movement,
supported by banks and attorneys, to cancel license requirements.
Like its EU neighbors, property prices fell, about a 7 percent decrease, in the last quarter of
2008. The decline was further worsened by frozen credit markets. Overall, however, the real
estate market did not experience the bubble effect of other overheated markets.
159
Since the Czech Republic joined the EU, citizens of EU countries and the United States, and legal
entities headquartered in the Czech Republic face few obstacles to purchasing real property.
Foreign individuals must obtain permission to reside in the Czech Republic in order to purchase
real estate there. Permission is readily granted upon presentation of a passport or an ID-card, a
certificate of health insurance, and an affidavit attesting to sufficient funds to avoid becoming a
burden on the social security system.
U.S. citizens may purchase a second home by obtaining a visa allowing a stay of more than 90
days.
The process for all other foreigners (non-EU or -U.S. citizens) is more complicated. They must
obtain a visa allowing them remain in the Czech Republic for seven years or marry a Czech
citizen; this qualifies them to obtain a green card which allows purchase of property.
Alternatively they can buy property through a limited liability company (known as an S.R.O.),
but an EU citizen must control the company. Consequently, a Czech or EU citizen, or someone
holding a long-term visa, must serve as the company’s executive director. The company
representative (Jendnatel), normally a Czech citizen or permanent resident, must be granted
full access to the company bank account as well as full power of attorney over business
decisions; needless to say the representative must be selected carefully.
A shell company can be purchased “off the shelf” and required documentation completed
within about 24 hours. There are, however, ongoing requirements for filing tax returns and
financial reports.
Doing Business in the Czech Republic
Appointments are mandatory and should be made in advance. Avoid scheduling meetings on
Friday afternoons because many Czechs leave for their country cottages after lunch. It is also
best to avoid scheduling meetings during August which is the traditional vacation period.
When introduced, offer a handshake with direct eye contact and the appropriate greeting for
the time of day. Wait to be invited before using someone's first name or an informal greeting.
The oldest or highest-ranking person will signal when it is appropriate to move to an informal or
first-name basis. Rushing the transition to informality may be interpreted as a humiliating
insult.
Punctuality is taken extremely seriously for both business and social occasions.
Czechs use initial meetings for getting acquainted and evaluating if you are trustworthy; a first
meeting may be with a company “gatekeeper” instead of anyone in authority. After
introductions and some small talk, expect to get down to business. Maintaining direct eye
contact when speaking conveys trustworthiness and seriousness of purpose. Lowered eyes may
160
8. Country Profiles
signal disapproval or discomfort. The tone of meetings is usually formal and it will take several
meetings before Czech colleagues relax a bit and show a friendly demeanor.
Czechs are formal and somewhat indirect in their communication. They try to avoid
confrontation and may substitute statements such as, “we’ll see,” or “it is difficult” for saying
no.
Business is hierarchical and formal. It moves slowly and according to strict protocol. Decisions
are made at the highest levels and may ascend through several levels of authority. Attempts to
rush the process or circumvent protocol will likely derail a deal.
Likewise, it is best to avoid high-pressure tactics in negotiations. Czechs generally state their
expectations up front and do not make counteroffers.
Beyond the Basics
Czechs are private people until they get to know you. Once you develop a personal relationship
they may open up a bit, but may always be a bit reserved. Although always polite, they tend not
to acknowledge people whom they do not know as they walk along the street or ride the train.
If you are invited to home, bring a gift, such as good quality chocolates or spirits. Flowers are an
acceptable gift for the hostess but may be misconstrued as romantic intentions. If giving a gift
of flowers give an odd number of stems (not 13) and avoid lilies as they are associated with
funerals. Ask a florist for help in making the right choice.
Dressing modestly but well shows respect for the host. In return, guests are treated with great
honor and respect.
When entering the home, remove your shoes if others do so.
Czechs keep business and personal life quite separate so discussing business during a social
occasion is inappropriate.
Table manners are rather formal in Czech Republic. Remain standing until invited to sit down
and shown to a particular seat. The oldest woman or honored guest is generally served first but
do not begin eating until the hostess starts. Unless the meal is formal, the napkin remains
folded next to the plate; napkins are placed in the lap for formal dinners.
Always refuse second helpings the first time they are offered but accept when the hostess
insists. Compliment the meal is a compliment to the hostess and allows her discuss the food
and the preparation.
161
Holidays
December 31–January 1
New Year’s Holiday
April/May
Easter, Easter Monday
May 1
Labor Day
May 8
Liberation Day
July 5
Sts. Cyril and Methodius Day
July 6
Commemoration of Jan Huls
September 28
Czech Statehood Day
October 28
Independence Day
November 17
Freedom and Democracy Day
December 25–26
Christmas
Key Contact
The Association of Real Estate Offices of the Czech Republic (ARKCR)
Na Chodovci 2880/3
Praha 4 - Sporilov 141 00
Czech Republic
Phone: 42-02-727-762953
Fax: 42-02-727-766401
162
8. Country Profiles
Denmark
Denmark is the smallest and most southern of the Scandinavian
countries. It occupies the Jutland peninsula north of Germany, with which
it shares its only land border. Denmark’s coastlines lie along the North
Sea on the West and the Baltic on the East. It is about twice the size of
the U.S. state of Massachusetts.
Its maritime climate, created by the surrounding seas,
is temperate, damp, and often overcast.
Flooding is a chronic threat and some areas of the
country and outlying islands are protected by systems
of dikes.
The country offers an interesting mix of lively cities
and rural countryside.
Denmark’s thoroughly modern economy generates
one of the highest standards of living in the world;
GDP per person stands at about $62,500 and is well
distributed amongst the population of about 5.5
million. The well diversified economy includes hightech industries, agriculture, maritime shipping,
renewable energy technologies, pharmaceuticals, and medical equipment. Denmark is one of
the leading exporters of wind-driven turbines. The Danish economy is also marked by high
levels of government spending on social programs.
Danish Economy
Agriculture,
1.2%
Industry, 23.8%
Services, 74.9%
163
Domestic consumption and exports produced a healthy budget surplus for many years, until
2008, when the budget dipped to a deficit level. Loss of consumer confidence, higher borrowing
costs, and reduced export demand from trading partners began slowing the Danish economy in
2007 and pushed it into negative territory for the first time in many years.
Although Denmark’s economy meets the criteria to join the European Monetary Union, it has
so far declined to adopt use of the euro. The Danish krone is, however, pegged to the euro.
Denmark’s healthy industrial section produces iron, steel, nonferrous metals, chemicals,
processed foods, machinery and transportation equipment, textiles and clothing, electronics,
construction materials, furniture and wood products, shipbuilding and refurbishment,
windmills, pharmaceuticals, and medical equipment. Its main trading partners are Germany,
Sweden, U.K., United States, Norway, Netherlands, and France.
There are significant barriers for non-resident foreigners to own real estate in Denmark. Nonresident foreigners may not purchase real property unless they have resided in Denmark for at
least five years, are EU citizens working in Denmark, or have a valid residence or business
permit.
Popular vacation-home areas along the coasts have more stringent restrictions. These
regulations are sometimes called “anti-German” rules because of the objective of preventing
Germans from buying too many second homes in the areas.
A non-resident foreigner can purchase real property by forming a Danish limited company, an
ApS (Anpartsselskab). A company can be set up, off the shelf, in a few days, but keep in mind
that there are ongoing tax and financial reporting requirements.
Danish real estate agents must receive authorization from the Danish Enterprise and
Construction Authority in order to conduct business.
Doing Business in Denmark
Danes believe that there is a proper and acceptable way to act in any given situation and
someone who does not conform to this expectation will likely be admonished by co-workers.
Modest, courteous behavior is expected at all times. Danish business, like society, is very
egalitarian, but there are protocols and norms of courteous behavior that everyone is expected
to follow.
Women are highly respected in business and generally receive equal pay and have access to
senior positions. Working mothers can easily arrange flexible hours so that they can maintain
both a career and a family.
164
8. Country Profiles
Appointments are necessary and should be made in advance and reconfirmed in writing. Initial
correspondence should be addressed to the company and not an individual. Scheduling a
meeting during June through August, may be difficult as those are the traditional vacation
months and most Danish workers enjoy up to 5 week of vacation time. Some Danish companies
close for extended periods during the summer months.
Punctuality is very important and more than a five-minute holdup is cause for a telephone call
to explain the delay. When arriving for a meeting, a handshake with a smile and direct eye
contact is appropriate. You should shake hands with everyone present, women first, when both
arriving and departing. Although Danes tend to introduce themselves by first name, it is
appropriate to use their professional title or Mr. (Herr), Mrs. (Fru), or Miss (Froken) and
surname until invited to move to a first-name basis. Business cards are exchanged without
ritual.
Danes do not need to develop a personal relationship before doing business. Expect a minimum
amount of small talk before getting down to business. Plan to send an agenda of discussion
items in advance and stick to it without deviation. Going off the agenda may be seen as a lack
of preparation and in conflict with expected protocol. Presentations should be well-organized,
factual, and supported by data. A moderate, low-key presentation style is the appropriate
demeanor as is avoiding any attempt at a hard sell. Maintaining eye contact while speaking
communicates trust and seriousness about the matter at hand. Danes are straightforward, but
always courteous, communicators.
With the emphasis on egalitarian society, in many Danish companies, bosses often take the role
of team leader and, before making a decision, encourage everyone to express an opinion.
Nevertheless, final decision making is done at the upper levels of the company.
Customary social distance for Danes is wider than most any other European culture. Danes
prefer to stand at least two arm lengths apart. Gestures to avoid include: circling the temple
with the index finger used to insult other motorists, the thumb and forefinger okay sign which is
considered vulgar, and the two-finger victory sign if done with the palm facing inward which is a
very rude insult. When ascending a flight of stairs, men precede women. When descending,
women precede men. If you must pass between chairs in a restaurant, meeting room, or
theater, it is considered quite rude to turn your back toward those you are trying to press pass.
Beyond the Basics
All foreigners traveling to Denmark must register with the local police within 24 hours of their
arrival. Hotels usually take care of this procedure for their guests, but you must do it yourself if
you are not staying in a hotel. Forms can be obtained from the local police or at the post office.
The Danes are rather reserved in public. For example, they generally do not strike up a
conversation with a stranger and are wary of anyone who does. Modest, low-key behavior that
does not call attention to oneself is the appropriate demeanor. The key to being accepted and
165
respected in Denmark is to blend in rather than be conspicuous. Denmark has a very
homogeneous population without ethnic, social, or class differences. Although there are
certainly wealthy and poor people amongst the Danes, an ostentatious show of wealth is
inappropriate. Danes strive to minimize social differences and discourage giving preferential
treatment to anyone, regardless of rank or wealth. Most Danes are modest about their own
accomplishments and expect others to be equally self effacing.
The small, nuclear family is the center of social structure, as well as the focus of governmentsupported social programs. Marriage is not a prerequisite to starting a family and many couples
live together and raise children without legalizing the arrangement. Children are raised to be
independent from an early age. With the highest percentage of working mothers in Europe,
most one-year-olds are enrolled in day care centers.
If you are invited to a Danish home, arrive on time; punctuality is expected in both social and
business occasions. Bring a gift for the hostess such as flowers, good quality chocolates, or a
good quality wine. If you know that there are children in the home, small gifts for them are
appreciated. If the occasion is a dinner party or large gathering, send flowers in advance so that
they can be displayed during the event. Contacting the hostess ahead of time to see if she
would like you to bring a dish is considerate.
When you enter the home, check if others remove their shoes at the door and follow suit.
Danes enjoy showing off their homes; since many of them do the decorating themselves and
are proud of their accomplishments. If asked, they will gladly give you a tour of the house.
At the table, wait for the hostess to tell you where to sit. Table manners are continental, so you
should keep elbows off the table, but keep both hands visible with wrists resting on the table
edge. The meal begins with the host offering a toast—“skol.” When toasting others during the
meal, raise your glass to eye level and make eye contact with those seated closest to you. At
the end of the meal, usually during dessert, the man seated to the left of the hostess offers a
toast of thanks complimenting the hospitality. Danes do not like to waste food. Try everything
that is offered and finish everything on your plate. Although second helpings will be offered,
you may refuse with causing offense. Offer to help with meal preparation and the cleaning up.
Do not discuss business.
166
8. Country Profiles
Holidays
January 1
New Year’s Day
Apr/May
Good Friday, Easter Monday
April
Common Prayer Day
May
Ascension Day
May
Pentecost
June 5
Constitution Day
December 24-26
Christmas
Key Contact
Danish Association of Chartered Estate Agents (DACEA)
Islands Brygge 43
2300 Copenhagen S
Denmark
Phone: 45-70 25 09 99
Fax: 45-32-64-45 99
www.de.dk
167
Greece
Greece lies in the southern Balkans surrounded by seas: the Aegean,
Ionian, and Mediterranean. About half of the country consists of
islands spread around the mainland in a wide arc from Corfu to Samos.
Although the country is small, about the size of the U.S. state of
Alabama, is has more than 14,000 kilometers of coastlines.
The Corinthian canal bisects Greece into two portions:
the northern mainland and the Peloponnesus
peninsula. The terrain of Greece is crisscrossed with
rugged mountains extending into the sea. The 160
permanently inhabited islands tend to be rocky and
arid. An extensive system of ferryboats connects the
islands and mainland ports.
Greece shares land borders with Bulgaria, Albania,
Turkey, and the Former Yugoslavian Republic of
Macedonia (FYROM). The flow of illegal immigration
from Albania and Turkey is a chronic social and
political issue as well as a drain on Greek resources.
Earthquakes are a hazard throughout the country and
some of the most populated areas—Corinth and
Sparta—have been leveled at one time. Government-mandated building standards require new
construction to withstand earthquakes.
Greece was an early member of the European Community and in 2001 joined the eurozone. In
2010, f eroding finances, chronic economic underperformance, and lax collection of taxes,
exacerbated by a credibility gap in reporting government borrowing, pushed Greece to the
brink of bankruptcy. Before the International Money Fund and other EU countries shored up
Greece’s economy with $147 billion in loans and guarantees, the rancorous debate strained the
unity of the EU and monetary union. Worldwide, economists speculated that Greece might
withdraw from the eurozone and questioned the EU’s commitment to backing the euro.
Greece responded with spending cuts, stepped-up tax collections, reduction in the civil-service
workforce, and deep cuts in pensions and social programs. The austerity measures have cost
many Greeks their jobs and caused social and labor unrest throughout the country.
168
8. Country Profiles
Real Estate in Greece
Foreigners and citizens of EU countries can purchase property in Greece without restrictions.
Importation of funds for real estate acquisition must be documented and requires permission
of the Bank of Greece. The buyer must also obtain a Tax Registry Number from the Internal
Revenue Service. Acquiring property in sensitive areas near military installations, national
borders, and on some islands close to Turkey requires permission of the Local Council; non-EU
citizens seldom receive such permission.
Despite Greece’s economic problems, it remains a popular location for second-home buyers
from northern countries, especially the United Kingdom and Germany.
Greek real estate agents are not licensed but the most professional are members of the
Hellenic Association of Realtors.
Transfer tax on the sale of real property ranges from 7–11 percent; areas covered by fire
protection, a chronic hazard, pay the highest rates. Municipal tax is a 3 percent surcharge on
the amount of transfer tax. New properties constructed after January 2006 are subject to 19
percent VAT on first sale, in place of 7–11 transfer tax. State real estate tax is imposed on the
assessed value of a property based on square meters. The state does not tax private, primary
residences of less than 200 m2 and €300,000. Local authorities, however, do levy an annual real
estate tax.
Residential rentals have a minimum duration of three years. A lease of less than three years
obligates the landlord more than the tenant. Leases do not automatically renew. When renting
a property for a shorter length of time, such as for a vacation rental, the lease must stipulate
that the premises will be used as a short-term holiday rental or temporary residence and reality
must match the statement.
Doing Business in Greece
Doing business in Greece means making personal connections and nurturing relationships. First
meetings are for getting acquainted and evaluating trustworthiness. Developing the
relationship requires several meetings and may take place outside of the business setting, over
lunches, dinners, coffee breaks, or social occasions—always accept the invitation. Greeks prefer
to conduct business face-to-face instead of by phone, but once the relationship is established it
is acceptable to maintain contact by phone or e-mail.
Discussions may veer from a set agenda and participants may talk at the same, interrupt, and
hold side conversations. Be patient and maintain an unruffled demeanor. Showing irritation or
imposing a deadline will derail the relationship. An attempt to conclude a matter too quickly
will likely raise suspicions. Greeks tend to be quite expressive so if a colleague becomes quiet
and withdrawn, something has gone awry in the relationship.
169
Although the pace of business is relaxed, it is not casual. Business discussions follow a logical
progression and Greeks are very shrewd negotiators. Because hierarchy is respected and
authority is concentrated at the top of organizations, decisions are made at the highest levels.
Presentations should be directed at the most senior people present as they are the likely
decision makes. Matters involving government bureaucracies move at a snail’s pace and often
involve decisions and approvals at multiple levels of authority.
As an accommodation to the hot climate, traditional business hours are from 8:00 a.m. to 2:00
p.m. and 5:00 p.m. to 8:00 p.m. Businesses may observe these traditional hours during the
summer months, but most now operate year-round on a nine-to-five schedule. Stores are
usually open from 9:00 am to 9:00 pm. Banks typically close for the day at 2:00 pm.
Business appointments are necessary and should be made a couple of weeks in advance,
although short-notice appointments may be possible. Confirm the time and location the day
before. Avoid scheduling appointments between 1 p.m. and 3 p.m., the typical lunch time, or
during the traditional vacation month of August. Greeks appreciate punctuality but are rather
relaxed in their approach to time. It is acceptable to arrive up to 30 minutes late for a social
occasion, but not for a business appointment.
A firm handshake and direct eye contact is appropriate when introduced. Business cards are
exchanged without ritual. Do not move to a first-name basis unless invited to do so. Many
Greeks speak English, particularly younger people who study it in high school or language
academies.
Greek business attire is conservative but, due to the hot climate, somewhat less formal than
other European countries. Nevertheless, senior-ranking business people tend to dress
conservatively; men in dark-colored business suits and women in business suits or tasteful
dresses. Dressing well shows respect for colleagues and sets a serious tone for business
conduct.
Challenging a colleague’s honor, integrity, or veracity, or causing a loss of face is a sure way to
end a relationship. Greeks may show disapproval with a sharp upward nod of the head. Never
show an open palm toward another, as this is a serious insult.
Beyond the Basics
The family, particularly the extended family, is the basic social unit and provides both emotional
and financial support. The extended family is expected to help its members make connections
for jobs and business, and nepotism is accepted. Friendship and family connections implies the
exchange of favors. The wrongdoing of one family member can compromise the reputation of
the entire family, particularly in villages and the countryside. Greeks tend to be warm and
hospitable. Close friends often greet each other with embraces, pats on the back, and kisses on
the cheek. Close female friends and relatives may walk together arm in arm.
170
8. Country Profiles
Because Greek children are almost always named after their grandparents, it is not uncommon
for several cousins in the family to share the same first name. Greek names honor Orthodox
saints and observances. Name days, which are usually shared with several members of the
family, are much more commonly celebrated than birthdays. The appropriate wish is “kro-nia
po-lah” (many years). The traditional name day celebration is an open house for family and
friends.
Greek Orthodox religious tradition is deeply interwoven into the life in Greece, even for the
non-observant. Most holidays and festivals are religious; Christian observances of Epiphany,
beginning of Lent, Easter, and the Dormition of the Virgin Mary are major public holidays.
Younger people tend to be less devout than their elders but still turn to the church to observe
important rituals such as baptisms, marriages, and funerals. Easter is the highpoint of the Greek
calendar, eclipsing Christmas traditions which are regarded as northern customs. Although
Greece is becoming more secular, the Greek Orthodox Church maintains an influential role in
political, civic, diplomatic, and governmental affairs.
If invited to a Greek home, bring a modest gift—flowers, fine chocolates, and pastries, are good
choices. Because gifts are usually reciprocated, giving a gift of high value could create a burden
for the recipient. Dressing well and complimenting the house shows respect for the host family.
Remain standing until invited to sit down by the hostess. Family elders are respected and the
oldest person may be served first, even if you are the guest of honor. Table manners are
continental—keep elbows off the table but both hands visible. Finish everything on your plate
and accept a second helping, which honors the hostess. People often share food from their
plates.
Cyprus—Small Island, Complicated Situation
The republic of Cyprus, a former British colony that gained independence in 1960, lies in the
eastern Mediterranean. In 1963–64, long-simmering tension between the Greek majority and
Turkish minority erupted in violent demonstrations in the capital of Nicosia, which were
brought to an uneasy cessation by UN peacekeeping troops. A decade later, an ill-conceived
attempt by the Greek government, under the Papadopoulos dictatorship, to seize control of
Cyprus sparked military intervention by Turkey. A UN-brokered cease fire divided the island
between the northern third occupied by Turkish troops and the southern sector by Greek
Cypriots. The northern zone declared itself the “Turkish Republic of Northern Cyprus” and
received recognition only by Turkey. The entire island entered the European Union in 2004, but
EU rights, obligations, and citizenship apply only to the Greek Cypriot sector.
The division remains a thorny, divisive issue between Greece and Turkey. Recent thawing in
diplomatic relations has eased tensions enough to allow some opening of the fortified line
between the northern and southern sections. The border opening, however, brought a
contentious real property issue to light. Some Greek Cypriots who traveled north to visit their
171
former homes found that the properties they were forced to abandon had been confiscated
and sold at bargain prices to foreigners, primarily British, for holiday homes. European courts
have consistently favored the former Greek Cypriot owners and forced the new “owners” to the
vacate properties without compensation. Because Cyprus is a former British protectorate, U.K.
second-home buyers feel an affinity with the island and a large population of expatriate retirees
has settled there.
Relations with Turkey and FYROM
Greece won independence from the Turkish Ottoman Empire, in 1832 after 400 years of
subjugation. Greeks have never forgotten, or seldom forgiven, the harsh treatment of the
former Ottoman rulers. Despite centuries-old enmity, Greece supports EU membership for
Turkey. If Turkey becomes a full EU member it must abide by EU principles of human rights
protection; the Greek minority in Turkey and the Greek Orthodox Ecumenical Patriarchate
located in a tiny enclave of Istanbul would be assured freedom of religion and accorded greater
protection. Turkey’s membership would also force a resolution to the Cyprus division—an
ongoing flashpoint between Greece and Turkey.
The controversy with the Former Yugoslavian Republic of Macedonia (FYROM) originates from
that country’s claim to the name of a traditional Greek province. The issue, however, runs
deeper than a title or claim to the legacy of Alexander the Great. Greeks fear that FYROM, if
recognized as Macedonia, will soon make territorial claims on Greece’s northern province of
the same name.
Holidays
January 6
Epiphany
Feb/March
Clean Monday (first day of Lent)
March 25
Greek Independence Day
April/May
Easter (Orthodox), Easter Monday
May 1
Labor Day
May/June
Pentecost
August 15
Dormition of the Virgin Mary
October 28
Oxi (Oh-hee) Day
December 24–25
Christmas
172
8. Country Profiles
Key Contact
Hellenic Association of Realtors (HAR)
Odos Kerkyras 47
Athens 11362
Greece
Phone: 30-210-823-2931
Fax: 30-210-881-0936
www.sek.gr
Hungary
Although landlocked, Hungary occupies a strategic connection point for
land routes to Ukraine, the Balkans, and Mediterranean. Two great
rivers, the Danube and the Tisza, flow north to south through the
country and divide it into three large regions.
The capital city of Budapest—actually two cities of Buda and Pest—is a
cosmopolitan, sophisticated European city
picturesquely arranged on opposite banks
of the Danube. The city’s architecture is a
distinctive mix of styles from Baroque to Art
Nouveau. T
The climate is temperate with hot
summers, cold winters, and many days of
overcast skies. The terrain is mostly flat
rolling hills and plains which open into the
largest grassland in Europe. Low mountains mark the northwestern border with Slovakia.
Spa culture is a unique and distinctive part of Hungarian life. The thermal spas of Hungary were
well known even to the ancient Romans. Today there are close to 500 public baths throughout
the country and natural thermal springs and lakes dot the landscape.
The modern state of Hungary was created out of the post-WWI breakup of the AustroHungarian Empire. It was enclosed behind the iron curtain during the Soviet years but was also
the first to liberalize its economy. Early liberalization measures, “goulash communism,” were
introduced in the late 1960s. Hungary held the first multiparty democratic elections in 1990. It
joined NATO in 1999 and the EU in 2004.
173
The Roma
Hungary hosts a large population of Roma, preferable to the term gypsy which has a negative
connotation. The Roma are nomadic people who live outside the boundaries and regulations of
any country and make a livelihood through itinerant trades. They are a protected minority
under the aegis of the United Nations. Never make the mistake of confusing Hungarian and
Roma culture or nationality. It is the gravest insult.
Economy
Hungary made a quick and almost total transition to a market economy. Increasingly affluent
consumers, a strategic location in the heart of Europe, and logistics infrastructure connections
with its 7 neighboring countries made it a magnet for foreign direct investment. In fact,
Hungary consistently attracts more foreign investment than any other Central or Eastern
European country.
Between 2000 and 2006, Hungary’s economy grew at a very fast pace of 4–5 percent a year and
its quick expansion eased the way for full membership in the EU. But when the global economic
crisis hit in 2008, a huge amount of external debt, substantial budget deficits, and heavy
borrowing in Swiss franc- and euro- denominated loans produced a very hard landing for the
Hungarian economy. Foreign investors quickly pulled capital out of the country and trading
partners cut back sharply on exports. By mid-2010, inability to service its debt, and subsequent
downgrading of its bond rating, brought the Hungarian government to the crisis point. The
result was a sharp economic contraction with little positive growth anticipated for the near
future.
The government introduced measures to cut spending and raise tax revenue. But by the end of
2010, as new leadership took office, the IMF, the European Commission, and business interests
were all pressing the Hungarian government to impose deeper spending cuts.
Agriculture,
2.8%
Industry,
34.7%
174
Hungarian Economy
Services,
62.5%
8. Country Profiles
Privatization of housing pushed Hungary’s homeownership rate over 90 percent. But much of
the formerly state-owned housing stock is substandard with many residences lacking central
heating and adequate plumbing. In response to widespread discontent with substandard
housing, the government introduced generous subsidies for new housing such as mortgage
interest rate subsidies, construction grants for young families with children, VAT relief for new
housing, energy subsidies, and stamp duty waivers. Within a couple of years, more than two
thirds of new housing loans were government subsidized and close to 90 percent of housingrelated expenditures were government financed. More than half of mortgages were Swissfranc or euro-denominated loans. Interest rates on these foreign-currency loans were
significantly lower, almost by half, than Hungarian forint denominated loans.
Withdrawal of housing subsidies, loss of value of the forint against the Swiss franc and euro,
and rising levels of unemployment produced a triple threat for Hungary’s homeowners. Swiss
franc mortgages were withdrawn from the market in late 2008. The program of subsidies and
availability of inexpensive, subsidized mortgages overheated the housing market, particularly in
the capital city of Budapest. When the recession hit, house prices fell sharply.
There are few restrictions on foreigners buying property in Hungary except for the purchase of
arable land. Foreigners need the approval of the Administrative Office (AOB) before they can
buy property, which takes two to three months to receive. Most lawyers advise foreign
nationals to set up a company registered in Hungary in order to purchase property, which does
not require a permit to purchase property. A shell company can be set up in one or two days.
Doing Business in Hungary
Although a personal relationship is not essential for doing business in Hungary, an introduction
through a mutual contact, someone known and trusted, can help with making the right
contacts. Remember that many older managers and government workers rose through the
ranks of communist-era organizations. The right connection can cut through red tape and
delays.
Appointments are necessary and should be made two or three weeks in advance and in writing.
It is best to avoid scheduling an appointment on a Friday afternoon or during the traditional
vacation months of July and August or around the Christmas and New Year’s holidays. Canceling
a scheduled appointment at the last minute without a very good reason is seen as bad manners
and could derail the possibility of future business.
Hungarians pride themselves on observing proper etiquette in all situations and appreciate it
when others make the same effort. When introduced, a handshake with eye contact is
appropriate. Business cards are exchanged without ritual. If you have an academic degree,
175
include it on your business card. If you company has been in business for a long time, include
the founding date on your business card. With the emphasis on formality, it is best to address
others by their titles and surnames. Business dress is conservative for both men and women.
Gifts are not usually expected or exchanged when visiting a business contact.
Hungarians associate direct eye contact with sincerity and trustworthiness. They may be
suspicious of someone who cannot look them in the eye as well as a person who is too reticent
in sharing their thoughts. Initial meetings are usually for getting acquainted. At subsequent
meetings expect some small talk and getting-acquainted conversation before getting down to
business; it is best to let your Hungarian contact initiate discussion of business.
The pace of business is rather slow and concluding a deal may entail a lot of eating and
drinking. But it would be a mistake to view this socializing as less than serious. Socializing is part
of the relationship-building process. If invited to share a meal or attend a cultural event, always
accept the invitation and reciprocate.
Hungarians tend to be skilled negotiators and want to know every detail before reaching an
agreement. Emphasis on maintaining polite demeanor makes confrontation or high-pressure
tactics a bad idea. Contracts are viewed more as a statement of intent than a hard and fast
agreement; if circumstances change, a renegotiation of terms is expected.
Hungarians are rather emotive speakers and may use stories and anecdotes to illustrate and
emphasize points. They are, however, straightforward in sharing their thoughts, feelings, and
details about their lives and expect others to do the same.
Beyond the Basics
The family is the center of the Hungarian social structure and members of the extended family
often live together with grandparents playing an important role in raising grandchildren. It is
expected that the family will provide emotional and financial support in times of need.
If you are invited to a Hungarian home arrive punctually. A handshake is an appropriate
greeting. Close friends may embrace and kiss one another lightly on both cheeks left cheek first.
If it is a large gathering or party, you may arrive up to half an hour after the scheduled start
time without offending the host, but not for a sit-down dinner. When entering the home you
may be asked to remove your outdoor shoes. The home is a very private domain so do not
expect, of ask, to tour the house.
Bring a gift such as a box of good-quality chocolates or flowers. It is best to avoid gifts of wine
as Hungary produces its own fine wines and is justifiably proud of them. If you choose flowers
as a gift, give an odd number of stems (not 13) and avoid chrysanthemums and lilies which are
associated with funerals and red roses which signal romantic intentions. Gifts are usually
opened when received; open a gift if you are a recipient and compliment the giver.
176
8. Country Profiles
Table manners are continental and rather formal in Hungary. Elbows are kept off the table, but
both hands should be kept visible. At the start of each course, the hostess will wish guests a
hearty appetite. When the hostess begins eating it is the signal for others to start. Usually the
guest of honor will offer a toast of good health to the host, hostess, family, and guests at the
start of the meal. The meal should conclude with another toast complimenting the meal and
thanking the host and hostess for their hospitality. When participating in a toast, never clink
beer glasses.
Holidays
March 15
Commemoration of 1848 uprising
April/May
May 1
Labor Day
May/June
Pentecost
May 8
Liberation Day
August 20
National Day
October 23
Republic Day
November 1
All Saints Day
September 28
Czech Statehood Day
December 24-25–26
Christmas
Key Contact
Hungarian Real Estate Association (HREA)
Margit krt. 43-45
H-1024 Budapest
Hungary
Phone: 36-1-336-0072 or 36-1-315-1039
Fax: 36-1-336-0073
177
Latvia
Latvia is one of three Baltic countries that emerged from the breakup
of the Soviet Union. It shares land borders with Estonia to the north,
Lithuania to the south, and Russia and Belarus to the east. A longstanding dispute with Belarus over the location of the border was
recently settled. Latvia lies in an arc around the Bay of Riga, named for
its capital city, with the western most coastline facing the Baltic Sea.
Because of its strategic location, large contingents of
Russian army and naval forces were stationed in Latvia
during the Soviet years. Soviet troops were withdrawn
when Latvia re-established itself as an independent
nation in 1991, but a large Russian population, about 30
percent, remained in the country. Discrimination
against the Russian minority is an ongoing controversy
between the two countries. As one of the countries
that make up the eastern external border of the EU,
Latvia maintains strict border controls with Russia and
Belarus.
The terrain of the country is dominated by low plains and coastlines; the highest point in the
country is only 312 meters in elevation. Latvia has a temperate, maritime climate, which
moderates the winters despite its northern location.
Economy
Despite its small size, Latvia has a diversified economy with healthy manufacturing and
agricultural sectors. Manufacturing includes buses, street and railroad cars, appliances, radios,
and electronics. The agricultural sector produces grains, vegetables, meat, fish, and dairy
products. Almost half of its exports go to its neighbors: Lithuania, Estonia, and Russia.
Most companies, banks, and real estate have been privatized, although the state still holds
sizable stakes in a few large enterprises
Latvia, along with its Baltic neighbors, took a very hard economic hit in 2008. During the boom
years up to 2007, low interest rates combined with an annual 10 percent growth rate,
overheated the economy and the housing market. Latvian banks were lending money to
consumers at interest rates lower than the inflation rate. When the worldwide economic
downturn hit, Latvia’s economy contracted by almost 18 percent within one year; one out five
Latvians lost their jobs. By 2010, the economy had started to recover and growth rates moved
back into the positive range but at more modest, sustainable levels.
178
8. Country Profiles
Industry,
21.9%
Agriculture,
3.8%
Latvian Economy
Services,
74.3%
Although Latvia is a member of the EU, it has not adopted the euro as its currency. However,
Latvia’s currency, the lat, is pegged to the euro and this exacerbated the economic crisis. As the
euro gained value, product prices increased and inflation rates started to climb. Because the
currency peg effectively took away the central bank’s ability to lessen inflationary pressures by
managing currency value, it resorted to restricting credit and raising interest rates. When
combined with sharply reduced consumer spending the result was a very severe and sudden
economic contraction.
The real estate market echoed the boom and bust economic phases. In the run up to the 2008
economic crisis, real estate prices had zoomed upward fueled by speculative buying and
mortgage interest rates below the inflation rate. The central bank’s actions to bring down
inflation by stopping the flow of credit and raising interest rates also pulled the plug on an
overheated real estate market. In 2007, inflated property prices fell by almost 70 percent. By
2010, the real estate market showed signs of modest revival with property values increasing by
2–3 percent.
Foreigners can freely buy, develop and sell buildings, termed movable property but not the land
(immovable property) it occupies. Direct acquisition of land by foreigners is subject to
permission of the local municipality. Foreigners may, however, lease the land for up to 99 years.
Ownership of land and buildings is registered separately in official property records, the Land
Book.
VAT of 18 percent is imposed on the sale of newly built real estate (or for properties sold within
one year of construction or reconstruction), but used real estate is exempt.
179
Doing Business in Latvia
When introduced, handshakes with all present are appropriate. Latvian business is rather
formal in tone and others should be addressed with their professional or academic title if they
have one or Mr. (kungs) or Mrs. (kundze). Business cards are exchanged without ritual and with
those you are meeting for the first time.
For younger business people, appropriate attire trends toward business casual, but dressing
conservatively is the accepted norm and shows serious intent toward the conduct of business.
Many senior managers rose through the ranks of state-controlled enterprises and continue to
manage by old command and control methods. When the meeting begins, the most senior
Latvian attendee will typically make an opening speech. The most senior member of the visiting
team should respond with an opening speech. As the meeting gets down to business, the
senior member of the Latvian team will direct the meeting and manage the decision making
process, which can be a lengthy process since decisions are made at the highest levels. Expect
meetings to stick to the planned agenda.
Latvians tend to be reserved and somewhat austere in their aspect and verbal communications.
They do not let their emotions show and are quite comfortable with long periods of silence. But
do not rush to fill in an awkward silence with words. Latvians value concise communication and
are put off by “too much talk.” Although sparing in their words, Latvians are extremely
courteous in interpersonal interactions and do not interrupt others when they are speaking.
During business meetings it is best to emulate this economy of speech and focus presentations
on essential information. When Latvians do speak, they tend to be quite succinct and candid in
their comments, but negative comments will be moderated or understated so as not to give
offense.
Holidays
April/May
Good Friday
April/May
May 1
Labor Day
May 4
Declaration of Independence Day
June 23
Ligo (Midsummer Eve)
June 24
Jani (Midsummer Day/St. John Day)
November 18
Latvian National Day
December 25–26
Christmas
180
8. Country Profiles
Key Contact
Latvian Real Estate Association (LANIDA)
45/47 Elizabetes Street
Riga LV-1010
Latvia
Phone: 371-7-332-034
Fax: 371-7-332-034
www.lanida.lv
Poland
The nation of Poland traces its roots to the mid-10th century and
reached its golden age in the mid-16th century. Over the centuries,
neighboring countries played out conflicts and invaded repeatedly
testing Poland’s resolve to endure. In the late 18th century, Russia,
German Prussia, and Austria divided up the country amongst themselves
and Poland remained a divided state until after the First World War. A
newly constituted Poland gained its independence in
1918 only to be invaded two decades later by German
Nazi forces. Poland’s central location and its flat
terrain have made it an historic field of battle. Its
cities suffered great destruction in WWII clashes
between Nazi forces and the Red Army. The capital
city of Warsaw was virtually leveled. Following WWII,
Poland became a satellite state of the Soviet Union. It
was among the first to loosen the hold of communist
rule and, following the breakup of the Soviet Union,
moved quickly to institute a market economy. Labor
turmoil in 1980 led to the formation of the
independent trade union Solidarity that over time
became a political force and by 1990 swept
parliamentary elections and the presidency.
In land area Poland is about the same size as Norway, slightly smaller than the U.S. state of New
Mexico. The climate is temperate with cold, snowy winters and humid summers with frequent
rain and thunderstorms. Two major rivers, the Vistula and the Oder, flow from low-lying
mountains along the southern border north to the Baltic; flooding, particularly during the
spring, is a chronic problem.
181
Poland shares borders with Belarus, Czech Republic, Germany, Lithuania, the Russian oblast of
Kaliningrad, Slovakia, and the Ukraine. It has a long coastline along the Baltic and the largest
coastal city, Gdansk, is a center for shipping and shipbuilding.
Poland became a member of NATO in 1999 and the European Union in 2004. It had targeted
2012 to become a member of the European Monetary Union, but economic troubles as a result
of the global economic downturn, will likely push back that date. As an eastern-most border of
Europe, it is charged with strict enforcement of the Schengen border and intercepting illegal
trade and immigration transiting Ukraine and Belarus
Economy
A "shock therapy" program during the early 1990s enabled the country to transform its
economy into one of the most robust in Central Europe, but Poland still faces the lingering
challenges of high unemployment, underdeveloped and dilapidated infrastructure, and a poor
rural underclass. Poland's economic performance could improve over the longer term if the
country addresses some of the remaining deficiencies in its road and rail infrastructure and its
business environment. An inefficient commercial court system, a rigid labor code, bureaucratic
red tape, burdensome tax system, and persistent low-level corruption keep the private sector
from performing up to its full potential.31
Agriculture ,
4.6%
Polish Economy
Industry,
28.1%
Serivces,
67.3%
31
U.S. State Department Country Briefings, www.state.gov
182
8. Country Profiles
Poland’s industries include machine building, iron and steel, coal mining, chemicals,
shipbuilding, food processing, glass, and textiles, its largest trading partner is Germany which
accounts for about one quarter of all exports.
Foreigners can freely buy condominium units in Poland but there are restrictions on ownership
of land. EU and EEA citizens, however, must obtain permission from the Ministry of Internal
Affairs and Administration to purchase land for commercial or recreational purposes. There are
limits on the amount of land that can be purchased for the purpose of permanent residence.
Foreigners who are not citizens of EU or EEA countries must obtain permission to purchase any
type of land. Land sales are subject to 22 percent VAT. The permit is allowed if the foreign
buyer can show proof of substantive connections with Poland such as a residence. Land can be
leased without restriction
Non-EEA citizens need MIA permits to buy any kind of land, residential or commercial. The MIA
permit will only be issued if the foreigner can prove links with Poland such as temporary or
permanent residence in Poland.
Real estate agents in Poland must be licensed.
Doing Business in Poland
When introduced, and greeting business colleagues, a firm handshake with good eye contact is
appropriate. A woman should extend her hand first. It is polite to address each person in group
individually when meeting and departing. A group greeting or wave would be inconsiderate.
Appointments should be made about five days in advance and reconfirmed the day before.
Many Poles take vacation time during February, July, and August, so it is best to avoid these
time periods. The business day is usually 8:00 a.m. to 4:00 pm.
Punctuality is important.
Business conduct is formal and hierarchical. Colleagues rarely use first names; addressing
people as Mr. (Pan) or Mrs. (Pani) along with the surname is customary. Do not move to a firstname basis unless your Polish contact indicates that it is acceptable, which will probably be well
after a relationship has been established.
Gifts may be presented at the beginning of a partnership, but be careful that the gift is not
misconstrued as an attempt at bribery. Gifts are also exchanged at the end of a collaboration.
Doing business in Poland relies on relationships of trust and mutual benefit. Relationship
building often involves informal get-togethers, eating and drinking, outside of the office. A sure
183
way to get to know business contacts better is to invite them out for lunch, a coffee break, or a
beer at a pub. As the host, you should pick up the check although your guests may offer. Wait
for your guests to bring up the subject of business and don’t be disappointed if they do not; you
have still made progress in developing the relationship. Business is usually not conducted over
breakfast or evening meals.
Poles are rather intuitive decision-makers. Presentations should include factual information,
backed with data, as well as information about you as a person, your experience, and provide a
picture of the proposed business relationship. Maintaining eye contact helps to develop a
feeling of trust.
Because business and decisions follow hierarchy and protocol, first meetings are for getting
acquainted, information sharing, and discussion. Do not expect decisions to be made during
meetings unless a decision maker is present.
Conservative, low key, tasteful, and modest are the key words for dressing for success in
Poland. Appearances matter. Even if the accepted dress standard is business casual, as it is in
some small- and medium-sized companies, clothing should always be in good condition and
well pressed. Poles do not like ostentatious displays of wealth, so jewelry and accessories
should be good quality, but modest.
Beyond the Basics
Sincere trust does not usually extend beyond the family circles. The family will usually take
precedence over work.
If invited to a home, bring a gift. Something representative of your culture is a good choice, but
a bottle of wine or flowers for the hostess are good choices too; ask a florist for help in
selecting appropriate blossoms. You will make a very good impression if you send a
handwritten note the day after the occasion thanking your host and hostess for the invitation
and complimenting the hospitality.
Arrive on time for a formal occasion, but you can arrive up to a quarter of an hour late for an
informal event, which allows time for unhurried preparation. Do not, however, be late by more
than half an hour.
Your host or hostess will indicate where to sit at the dinner table. Meals usually begin with
toasts proposed by the host to everyone at the table. If you propose a toast it is important to
maintain eye contact. Do not begin eating or drinking until the toasts are concluded and your
host and hostess begin. Table manners are continental. During meals, you should keep elbows
off the table but your hands should be visible. Conversation at the table should include
everyone in the discussion, avoid conducting private conversations.
184
8. Country Profiles
Making an effort to learn some basic Polish words is always appreciated and received as a
friendly gesture.
Time outside of work is for family and friends, so it would be inappropriate to call a business
colleague after work hours. Poland is an intensely Roman Catholic country and Sundays are off
limits for work too.
Holidays
January 1
New Year's Day
Apr/May
Easter Monday
May 1
Labor Da
May 3
National Day
May 13
Ascension
June 3
Corpus Christi
August 15
Assumption
November 1
All Saints Day
November 11
Independence Day
December 25–26
Christmas
Key Contact
Polish Real Estate Federation (PREF)
Swietokrzyska 36,Suite 8, 5th floor
00-116 Warsaw
Poland
Phone: 48 22 654-58-69
Fax: 48 22 825-34-95
email: [email protected]
www.pref.pl
185
Spain
Spain shares the Iberian Peninsula, and a land border with Portugal.
The Pyrenees Mountains define the northern land border separating
Spain from France. The rest of Spain’s boundaries are formed by seas:
the Mediterranean, Atlantic, and the Bay of Biscay. It shares the island
of Gibraltar with the Britain, a small but contentious land dispute. Two
small enclaves in Morocco give Spain the distinction of the only
European country to share land borders with an
African country. In addition to the mainland, Spanish
territory includes the Canary Islands and Balearic
Islands. The islands and Mediterranean coastline are
favorite destinations for vacationers from the U.K. and
Northern European countries.
Until 2007, the Spanish economy racked up fifteen
straight years of above average-GDP growth, making it
the fifth largest economy in Europe. The economy,
however, began losing buoyancy in 2007 and by 2008
slipped into a deep recession. The ingredients of the
2008 recession, from which Spain is struggling to
emerge, included an over-heated real estate market,
with almost a million new housing units on the
market, significant decline in construction jobs, faltering consumer confidence, and declining
export markets. Although conservative fiscal management sheltered the banking system from
serious blows, high levels of exposure to construction and real estate loans are a significant
source of risk. In 2010, unemployment in Spain was the highest of any European country,
reaching almost 20 percent, largely as a result of the disintegration of the housing market.
Economy
Agriculture,
3.3%
Spanish Economy
Industry,
26.8%
Services,
70.0%
186
8. Country Profiles
Spain’s industrial section produces textiles, apparel and footwear, processed foods, metals,
chemicals, ships, automobiles, machine tools, ceramic products, pharmaceuticals, and medical
equipment. Tourism is a major source of revenue, particularly for the coastal resort areas.
Spain’s major trading partners are France, Germany, Portugal, Italy, and the U.K.
A glut of new homes, estimated at more than one million units, weigh on Spain’s real estate
market. Buyers from the U.K. are the largest percentage of foreign buyers, particularly for
holiday homes on the Mediterranean coast, as well as buyers from the Netherlands,
Scandinavia, and Eastern Europe. With the U.K. weathering its own economic downturn, the
real estate market in Spain went into a steep decline and wiped out thousands of construction
jobs.
There are no restrictions for foreigners to buy and resell real property—residential,
commercial, or land—in Spain. The purchase of a house is subject to a lower tax rate than land
or commercial premises. New homes are subject to a 7 percent VAT and vacant land,
commercial premises, and parking spaces are subject to 16 percent VAT; it can be more
economical to buy land with an existing building on it than vacant land. All property owners are
subject to a flat tax of 24% on gross rental income. A special annual 3% tax is levied on the
cadastral value of real estate owned by non-residents and property owners are also liable to
Net Wealth Tax and real estate tax levied by the municipal government. Nonresidents pay a flat
rate of 18 percent capital gains tax.
The government of Spain abolished real estate licensing laws in 2000. The industry is currently
unregulated and licenses titled “API” (Agente Profesional Inmobiliario) are no longer valid but
are recognized by the public as a high education standard for real estate.
Doing Business in Spain
The Spanish prefer to do business with those they know and trust. Therefore, it is important to
take the time to develop a relationship before doing business. The quality of a person’s
character is crucial to sustaining a business relationship. Loyalty is to the individual, not the
company; relationships are between individuals and move if an individual moves to another
company.
Face-to-face communication is preferred and, in business, follows rules or protocol. Hierarchy
and rank are respected. Spaniards prefer to deal with people of similar rank and you should try
to do the same. You should, however, present yourself modestly without bragging about your
company or your accomplishments.
187
Appointments are mandatory and should be made in advance. An appointment may be made
by phone, but is best reconfirmed in writing. Arrive on time.
First meetings tend to be formal in tone and are for the purpose of getting acquainted. You may
supply an agenda of discussion items, but do not be surprised or distressed if the discussion
wanders off the agents. Decisions are not made during meetings. Participants generally do not
express opinions during a meeting, which makes observance of body language all the more
important. Because decisions are made at the highest levels of a company, you may never meet
the actual decision makers if they rank higher than you.
When introduced, a handshake is appropriate along with the greeting for the time of day. Close
friends may embrace; men may pat each other on the shoulder and use a two-handed shake,
placing the left hand on the forearm of the other. Close women friends may kiss each other on
both cheeks, left cheek first. Unless invited to proceed on a first-name basis, address business
contacts as Mr. (Don) or Mrs. (Dona) along with surname.
Saving face is important and Spaniards do not like to publicly admit error. Consequently, they
will not always admit to not understanding something.
Agreements usually originate from an oral understanding before being captured in detail in a
written contract. Expect your Spanish colleague to study all details of a contract and strictly
adhere to its terms.
Beyond the Basics
The family, nuclear and extended, is the basic social structure in Spain. However, as families
have become smaller, the traditional networks have somewhat loosened. Nepotism is
acceptable, but it is less common today for individuals, particularly those with university
degrees, to work in a family business
Spain is an intensely Roman Catholic country and many of its traditions, observances, and
cultural events are anchored in Christian tradition.
If invited to a Spanish home, you should bring a gift for the hostess; good quality chocolates,
pastries, wine or spirits, or flowers are all appropriate gifts. A small gift for children in the home
is an appreciated gesture, too.
When invited to the dining table, remain standing until the hostess indicates where you should
sit. Table manners are continental with both hands visible when eating. Do not begin eating
until the hostess begins. Utensils are used to consume almost all foods; even fruits are eaten
using a knife and fork. At the beginning the meal, the host usually gives the first toast and the
guest of honor should return the toast later in the meal.
188
8. Country Profiles
One of the most intense rivalries in the world of sports is between the football teams of
Barcelona and Madrid. This intense rivalry spills over into other areas of life too. Therefore, it is
best to avoid making any comparisons between the two cities.
Holidays
January 1
New Year's Day
January 6
Epiphany
March 19
San Jose
Apr/May
Maundy Thursday, Good Friday
May 1
Labor Day
August 15
Assumption
October 12
National Day
November 1
All Saints' Day
December 6
Constitution Day
December 8
Immaculate Conception
December 25
Christmas
Key Contact
Asociacion Empresarial Gestion Inmobiliaria (AEGI)
Lopez de Aranda, 35
28027 Madrid
Spain
Phone: 34-91-320-8070
www.aegi,org
189
United Kingdom
The United Kingdom encompasses
four distinct component regions:
England, Wales, Scotland, and
Northern Ireland (sometimes referred
to by its historic provincial name of
Ulster). Although, any citizen of the
U.K. may be referred to as British, only people from England
are referred to as English. Each of the four component regions
maintains a strong sense of nationalistic identity.
Through a process of devolution, Scotland, Wales, and
Northern Ireland have achieved a degree of home rule. Each
has its own legislative and executive bodies but there is a wide
variation in the extent of powers of the devolved governments.
Perhaps the most distinct is Scotland which has its own systems
of law, education, local government, and state church, the
Church of Scotland.
The United Kingdom's population totals 66.2 million which
makes it the second largest country, after Germany, in the EU.
It is also one of the most densely populated countries in Europe with more than a third of the
population concentrated in the southeastern sector. London alone is home to 7.5 million
people and ranks as the largest city in Europe.
The United Kingdom is as island nation sharing a short land border only with Ireland.
Surrounding waters, the Atlantic, North Sea, Irish Sea, and English Channel, create its
temperate climate and cloudy skies (more than half the days of the year). The terrain of the
U.K. varies from craggy hills and low mountains in the north, especially the Scottish Highlands
and the England’s Lake District, to the rolling hills and plains of the southeast. Because of the
deeply inset coastline, the farthest distance from any point in England to the coast is only 150
kilometers. Some of England’s landmarks are also Europe’s most recognizable sites, such as
Stonehenge, cliffs of Dover, Tower Bridge, Big Ben, and Buckingham Palace.
Although it is an island high-speed rail service through the undersea Channel Tunnel, or
Chunnel, connects it to the continent. The Chunnel runs through Folkestone in southeastern
England to Calais on the French coast. High speed Eurostar trains carry passengers from London
and Paris in 2 hours, 15 minutes via the Chunnel. The undersea portion of the rail journey lasts
about 20 minutes. Special shuttle trains, Le Shuttle, carry cars and Lorries (semitrailer trucks).
190
8. Country Profiles
Colonies and Overseas Territories
The land area of the United Kingdom is slightly smaller than the U.S. state of Oregon, but British
territory once circled the globe and hence the saying that “the sun never sets on the British
Empire.” In the United States and throughout Europe, grammar school students during the ‘50s
and ‘60s remember well the map of the British Empire with one fifth of the world’s countries
highlighted in red.
The British Empire reached its zenith during the long reign of Queen Victoria (1837–1901). Its
far-flung colonies enriched the United Kingdom, produced a period of tremendous economic
prosperity and industrial development as well as accumulation of national and personal wealth,
and provided an influential position in world affairs. The gradual loosening of the imperial ties,
and transition from tightly held colonies to the loosely joined Commonwealth, began between
the two World Wars with independence for Australia, Canada, and New Zealand; these
countries became the first members of the British Commonwealth of Nations. India and
Pakistan gained independence in 1947, and in 1948 the modern state of Israel was created out
of the former British protectorate of Palestine. Within the next decade the British Empire was
almost completely dissolved and most of the former colonies became members of the
Commonwealth, as it is now know, headed by England’s Queen Elizabeth.
About a dozen islands scattered through the Caribbean, Pacific, and southern Atlantic continue
close ties with England as British Overseas Territories; these include Bermuda, Cayman Islands,
Falkland Islands, and Pitcairn to name a few. The islands of Jersey and Guernsey and the Isle of
Man are Crown Dependencies.
Economy
The U.K. is part of the European Union but is not a member of the euro currency union. The
Bank of England, however, does coordinate interest rate moves with the European Central
Bank.
The U.K. is one of five trillion-dollar European Union economies (Germany, France, Italy, and
Spain are the others) ranking second only to Germany. Services, particularly banking and
financial services, make up 80 percent of the economy. Although the agricultural sector is quite
small, (less than 2 percent of the GDP and labor force) it is remarkably productive and provides
more than half of food needs. Because of the emphasis on financial services, the U.K. economy
took a very hard hit during the in global economic slowdown. In the U.K., the crisis played out in
high levels of consumer debt, bank runs, a credit freeze, growing unemployment, and sharply
declining home values.
191
United Kingdom Economy
Agriculture,
1.4%
Industry,
18.2%
Services,
80.4%
The United States and the United Kingdom share the world's largest foreign direct investment
partnership. U.S. investment in the United Kingdom reached $421 billion in 2008, while U.K.
direct investment in the U.S. totaled $454 billion. This investment sustains more than one
million American jobs. The U.S. is also the leading trade partner of the U.K., accounting for
close to 15 percent of exports.
It is hoped that the flagging economy will receive a boost from preparing for the 2012 Olympic
Games. Infrastructure improvement plans include refurbishment of London’s public
transportation system and redevelopment of East London, a former industrial area.
Real estate professionals and brokers, known as estate agents, are not licensed but the
National Association of Estate Agents (NAEA) requires completion of various levels of real
estate certification (diploma) programs as membership qualifications. There are no restrictions
or barriers for foreign ownership of U.K. real estate.
The process of acquiring real property involves the following basic steps.
The process begins with making an offer through the estate agent. The offer is not a legally
binding on either the buyer or seller, except in Scotland where offers are legally binding. It is
not uncommon for an offer to be withdrawn; the seller is free to accept a better offer, known
as gazumping, before the deal progresses to the contract stage.
The next step in the process is arranging for the legal transfer of the property, known as
conveyancing. Between the offer and conveyancing stage is the time to arrange for property
inspections, or surveys. Conveyancing proceeds through the attorneys (solicitors) for the buyer
192
8. Country Profiles
and seller who prepare a draft contract setting forth the price, terms of the transaction, and
information about the seller’s deeds of title.
The requirement for the seller to provide a Home Information Pack (HIP) was suspended in
May, 2010 but an energy performance certificate is still required.
When both buyer and seller have agreed, through their attorneys, on the terms of the
transactions, a final contract is signed and the buyer makes a deposit, usually 10 percent. Both
parties are now legally bound to go through with the transaction.
A date is set for transfer of the title to complete the sale. Between the contract signing and title
transfer, arrangements are made to record the transfer with the Land Registry and pay the
stamp duty and other fees. The transaction is completed by signing a transfer document and
arranging payment to the seller.
The U.K. housing market is chronically undersupplied and consequently high priced. In the precrises years, it was fairly common for young couples to purchase a home abroad, in Spain or the
United States, in order to build enough equity to eventually purchase a U.K. home. A stagnated
pace of homebuilding, aging housing stock, and accumulated pent-up demand keep prices high.
Nevertheless, the global economic crisis hit the housing section hard. In London and its
environs, the U.K.’s bellwether market, house prices fell by more than 20 percent in 2008–09.
Price declines in Northern Ireland dropped by 40 percent, and up to 17 percent in Scotland.
Doing Business in the U.K
When introduced, a handshake with eye contact is appropriate. Other touching such as back
pats, hugs, and air kisses are inappropriate. The British tend to maintain a wide social distance
and direct eye contact is minimal.
When making introductions, a younger person is introduced to an elder and a junior colleague
is introduced to a senior; when introducing people of equal age or seniority, introduce the
person you know best to the other. Courtesy titles—Mr. or Ms.—are used along with last
names unless invited to proceed on a first-name basis. Business cards are exchanged without
ritual.
Arrive on time for meetings and appointments; the Scots in particular are sticklers for
punctuality.
Meetings involving colleagues of equal rank tend to be open discussions; when present, a
senior or high-ranking participant usually leads the discussion.
The English in particular tend to be masters of understatement although they can be quite
candid and direct. When making a presentation, persuade with objective facts and solid
193
evidence and avoid a hard-sell approach. Although not needed to conduct business, the British
like to develop long-term business relationships.
A business appointment may include a visit to the pub for a light meal and a pint. It is common
practice to pay for a round of drinks for everyone in the group.
Beyond the Basics
Multiculturalism in the U.K. reflects the colonial history of the British Empire with threads from
India, the Middle East, Caribbean, Asia, and other countries woven into the modern social
fabric. Cultural background may greatly influence personal behavior but, like in the United
States, first and second generation children of immigrants tend to bridge the cultures.
Both personal and business behavior is quite conservative, reserved, and formal. The British are
extremely guarded of their personal privacy and even friends may avoid discussions of personal
or family matters. There is a long-standing tradition of “keeping a stiff upper lip” in the face of
adversity or embarrassment.
Observance of proper protocol is a core value for the British. Although the old system of social
classes is increasingly an anachronism, it is still present and observed in subtle ways. Younger
generations may, however, be more relaxed about protocol and informal in demeanor and
interpersonal interactions.
Avoid the use of slang expressions and gestures which will likely be perceived as too familiar.
An extremely rude gesture to avoid is the two-finger “V” for victory sign with the palm facing
inward.
Holidays
January 1
New Year’s Day
March 17
St. Patrick’s Day (Northern Ireland Only)
Apr/May
Good Friday, Easter Monday (except Scotland)
May, 1st Monday
Bank Holiday
May, Last Monday
Bank Holiday
July 12
Orangemen’s Day (Northern Ireland Only)
August, last Monday
Bank Holiday (except Scotland)
November 30
St. Andrew’s Day (Scotland Only)
December 25-26
Christmas and Boxing Day
194
8. Country Profiles
Key Contact
National Association of Estate Agents (NAEA)
Arbon House
6 Tournament Court,
Edgehill Drive ,
Warwick, Warwickshire, CV34 6LG
United Kingdom
Phone: 0844 387 0555
[email protected]
www.naea.co.uk
195
Resources
196
Resources
Web Sites
NAR Web Sites
National Association of REALORS® Global
www.Realtor.org/global
Realtor.com (U.S. real properties)
wwww.realtor.com
World Properties
www.worldproperties.com
FIABCI World Congress
www.fiabci.com
European Union Web Sites
European Union Gateway
www.Europa.eu
SALTO-YOUTH (Support for Advanced
Training and Learning Opportunities within
the YOUTH)
www.SALTO-Youth.net
Black Sea Forum
www.blackseaforum.org
CEREAN Conference
www.cereanconference.com
Central Bank of Germany
www.bundesbank.de
Collective Security Treaty Organization
www.dkb.gov.ru
Council of Europe
www.coe.int
Entrepreneur and Business Gateway
www.invest-in-germany.de
EU Eastern Partnership and Civil Society
Forum
www.eeas.europa.eu/eastern/civil_society
Eurasian Economic Community
www.eurasianhome.org
European Free Trade Association
www.efta.int/eea
International Web Sites
Association of Foreign Investors in Real
Estate
www.afire.org
Association of German Chamber of
Industry and Commerce
www.dihlc.de
Barcelona Meeting Point
www.bmpsa.com
Benelux
www.bwnwlux.be
European Mortgage Federation
www.hypo.org
European Property Indicators
King Sturge Research
www.kingsturge.com
Expo Real
www.exporeal.net
Federal Republic of Germany
www.deutschland.de
197
Federal Statistical Office
www.destatis.de
Global Property Guide
www.globalpropertyguide.com
Federal Tax Office of Germany
Foreign investors help desk
www.germantaxes.info
INSEE-Notaires Index
www.insee.fr
FNAIM Index
Federation Nationale de l'Immobilier
www.fnaim.fr.
Jones Lang LaSalle
www.joneslanglasalle.ru
NATO
www.nato.int
Gateway to basic information about
foreign trade and investment
www.german-business-portal.info
Transport Corridor Europe-Caucasus-Asia
www.traceca-programme.eu
Gateway to the German real estate market
www.germany-re.com
MIPIM Europe
www.mipim.com
German Office for Foreign Trade
www.bfai.de
RECon Global Retail Real Estate
Convention
www.icsc.org
Russian Ministry of Economic
Development
www.economy.gov.ru/wps/wcm/connect/e
conomylib4/en/home
SIMA
www.simaexpo.com
198
Resources
Major Newspapers Online
International
International Herald Tribune
http://global.nytimes.come
Spain
El Pais
www.elpais.com/global
Financial Times
www.ft.com
Ireland
Irish Times
www.irishtimes.com
BBC News
www.bbc.co.uk/news
Germany
Der Spiegel Online International
www.speigel.de/international
United Kingdom
The Times
www.timetimes.co.uk
France
Le Monde
www.lemonde.fr/international
Italy
La Stampa
www.lastampa.it
Greece
Ekathimerini
www.ekathimerini.com
Poland
Warsaw Voice
www.sarsawvoice.pl
Hungary
The Budapest Times
www.budapesttimes.hu
Russia
Pravda
http://english.pravda.ru
199
Resources
Economic Rankings by GDP
US $ GDP
Germany
United Kingdom
Russia
France
Italy
Spain
Turkey
Poland
Netherlands
Belgium
Greece
Sweden
Austria
Switzerland
Ukraine
Norway
Romania
Czech Republic
Portugal
Denmark
Hungary
Finland
Ireland
Slovakia
Bulgaria
Latvia
200
2,810, 000,000,000
2,128, 000,000,000
2,100,000,000,000
2,097,000,000,000
1,739,000,000,000
1,302,000,000,000
875,000,000,000
689,000,000,000
660,000,000,000
383,000,000,000
338,400,000,000
331,400,000,000
321,800,000,000
314,700,000,000
290,100,000,000
267,500,000,000
254,700,000,000
254,100,000,000
232,600,000,000
197,800,000,000
186,000,000,000
178,800,000,000
172,500,000,000
115,700,000,000
90,100,000,000
32,220,000,000
US $ GDP
European Union
United States
China
Japan
India
Brazil
South Korea
Canada
14,430,000,000,000
14,140,000,000,000
8,748,000,000,000
4,150,000,000,000
3,570,000,000,000
2,013,000,000,000
1,364,000,000,000
735,000,000,000
Resources
Post-WWII Economic Organizations
1948
General Agreement on Tariffs and Trade
1947-1951
Marshall Plan


1995
World Trade Organization
1948
Organization for European Economic Development
(OEED)

1961
Organization for Economic Cooperation and
Development (OECD)
Development of the European Union
1951 European Coal and Steel Cooperative:
Belgium, France, W. Germany, Italy, Luxembourg, Netherlands
1951
Euratom
1957: ECSC becomes European Economic Community (EEC)
The 6
1967 EEC becomes European Community (EC)
Belgium, France, W. Germany, Italy, Luxembourg, Netherlands
The 9 1971: U.K., Ireland, and Denmark join EC
1981: Greece joins EC
The 12
1986: Spain and Portugal join EC
1993: EC becomes European Union (EU)
15 EU Members 1995: Austria, Finland,and Sweden join EU
2002: European Monetary Union—Euro
25 EU Members
2004: 10 new EU members: Cyprus, Malta, Hungary, Poland,
Slovakia, Latvia, Estonia, Ukraine, Czech Republic, and Slovenia
27 EU Members 2007: Bulgaria and Romania join EU
201
Resources
Interpreting Country Assessment
Model Data
Geography
Knowledge of a country’s geography
provides a context for understanding the
structure of the market. Locations of major
cities, capitals, ports, industrial areas, and
resort areas usually coincide with the most
active real estate markets and largest
population centers.
Divisions of a country into states, provinces,
or administrative districts can indicate an
organized approach to regulation and
governance and development of civic
institutions. The day-to-day governance of
the country, however, must be examined to
determine if administrative structures
delegate regulatory authority to local
governments or facilitate centralized
control.
Knowledge of climate, terrain, coastlines,
and borders helps the researcher
understand how the natural world shapes
the way of life as well as the economy and
business. For example, India’s monsoon
season is a closely watched economic
indicator; Mexico’s miles of coastline offer
development opportunities for shipping
facilities, such as the Punta Colonet port
project and Fonatur resort destinations. In
most cases, bordering countries are likely
trading partners.
Natural resources create and sustain a
country’s wealth. A country poor in natural
resources is import-dependent for
resources such as the minerals necessary
for modern industrial development. A
country must, however, have the ability to
access and use or export natural resources
in order to create wealth; for example, the
202
Central African Republic possesses rich
mineral deposits but ranks as one of the
world’s least-developed countries, with
most of the population engaged in
subsistence farming.
 Favorable Characteristics

Several population centers with a variety
of industrial, commercial, housing, and
resort development

Tourism

Provincial or state administrative
organization

Borders with friendly trading partners

Accessible natural resources

Signatory to environment agreements
Real Estate
The real estate market’s size indicates both
the volume and variety of transactions and
the potential commission income. In the
rental market, vacancy rates quantify the
balance between supply and demand. Thus,
increasing rents and decreasing vacancy
rates indicate a landlord’s market. Lease
terms also provide important comparison
data.
Notary fees, commissions, stamp duties,
land registration fees, transfer taxes,
acquisition taxes, and value-added taxes all
add to the cost of acquiring a property in a
particular market. These costs vary widely
between countries, states or provinces, and
cities.

Rational land use regulations

Accessible and reliable property title
records
Resources

Market support: title, finance, property
management, construction, insurance,
engineering, architectural, appraisal, and
brokerage

Laws favoring private property rights and
unrestricted ownership

Balanced landlord-tenant laws and leasing
terms

Availability of affordable financing

Good investment returns and value
appreciation trends

Market name recognition

Availability of investment-grade properties

Balanced leasing absorption and
occupancy rates

Competitive capitalization rates

Real estate agents’ professionalism and
licensing
Demographics
Population growth drives demand for real
estate, particularly for residential
properties. Most economists, however,
consider a growth rate of more than 2–3
percent too rapid for sustainable
development. Population density influences
the makeup of an economy and the types of
real estate properties that serve it. Aging
rates impact housing demand, too. A young
population correlates to demand for
housing, schools, retail, and jobs.
Conversely, an aging population usually
means less demand for all types of real
estate. For example, South Korea, one of
the world’s oldest populations, has a
median age of 36 years: the Global Property
Guide projects that by 2012 the ratio of
households to housing units in Korea will be
100 to 116.32
The size and composition of the labor force
indicate the market’s attractiveness to foreign
companies who hire local workers. The
unemployment rate reveals an economy's
actual compared to potential output.
Distribution of the labor force among industry,
agriculture, and services in comparison to
productivity is another signal of economic
balance. For example, the 60 percent of India’s
labor force employed in agriculture produces
only 17 percent of the country’s GDP; by
contrast the service section employs 28 percent
of the labor force and produces 54 percent of
the GDP.

Sustainable population growth rate of 1–3
percent and a young population

Reasonable consumption-to-savings ratio
and increasing per capita income

An educated, skilled workforce and high
rates of literacy

Job creation rate proportionate to
population growth

Low levels of unemployment and
underemployment
Government
The powers, attitudes, structures, and
stability of a government can determine the
success or failure of the economy.
Democracy, open markets, structural
stability, tax incentives, and rational
regulation are positive characteristics.
Membership in trade agreements and
alliances denotes a cooperative approach to
international trade and foreign investment.
32
Global Property Guide, www.globalpropertyguide.com.
203
Resources
A strong central government can be a
benefit or a hindrance. Laws and
regulations that emanate from a strong
central government create country-wide
standards, although implementation at
provincial and local levels can be uneven.
On the other hand, centralized regulation
allows little adaptation to local conditions.

Laws that preserve free markets and allow
foreign-owned assets

Few restrictions on ownership, capital
flow, wages, and prices

Anti-inflationary monetary policies

Conservative fiscal policy and balanced
budget

Reasonable tax laws and rates on income,
gains, sales, imports/exports, and
corporations, for both domestic and
foreign taxpayers

Promotion of trade agreements and
alliances

History of stability

Few government subsidies or tariffs
A country’s economic philosophy shapes its
business environment. Business, however,
needs adequate infrastructure—
communication systems, banking,
corporate structures, and distribution
systems—to support its functions. A survey
of base industries, level of development,
and the untapped potential indicate
competitive standing in world markets.
Ultimately, the resources, products, and
industries of an economy describe its
unique character and convey its level of
advancement.
204
Inflation rates, including historical periods
of recession or hyperinflation, measure the
loss or gain of consumer purchasing power.
Exchange rate trends show economic
performance compared to other countries.
Developed economies have a mix of
advanced manufacturing, agriculture,
services, technology, and communications.
Less developed economies, on the other
hand, tend to have a large portion of the
workforce engaged in agriculture and laborintensive industries.
Exports indicate the economy’s strengths
and base industries. Imports point to the
country’s shortcomings, needs, and wants.
Trading partners can reveal the country’s
economic alliances and dependencies. A
positive trade balance between imports and
exports means the production of exports
outpaces the cost of imports.

Internationally traded currency

Stable banking system and oversight of the
money supply

Stable or strengthening exchange rates
values

Steady growth of GDP

Positive trade balance

Existing foreign investment

History of consistently low inflation rates

Stable, competitive base industries,
services, and distribution systems

Availability of competent management

Technological advancement

Developed business infrastructure
including communication systems and
corporate structures
Resources
Infrastructure
A country cannot easily sustain economic
growth in the absence of essential
infrastructure.

Civic institutions, colleges, universities,
hospitals, and medical facilities

Reliable (and operating below capacity)
water, power, and waste disposal systems

Adequate supply of potable water

Paved roads and highways

Reliable transportation systems for people
and goods
Beyond the Basics
A country’s ethnicities, languages, religions,
traditions, and history create its unique
identity. Understanding a nation’s culture
facilitates working with its people.

Favorable cultural attitudes toward
business, industry, and trade

Informed views of world events, other
nationalities, and cultures

Religious and cultural norms that do not
preclude open trade with other countries

Women’s rights

Cooperation, mutual respect, and
harmonious relations between ethnic and
religious groups
205

Student Manual - Learning Library Inc.

Transcription

Similar documents

before they were brokers

Tweet your support #RespectAllMusic

DIBELLA`S REAL ESTATE CRITERIA

Property Brochure - The Heidi Klum Estate

News Journal - Bay to Beach Builders

Nina Roket

advantage - Join RE/MAX

5278 34th St, Lubbock, TX 79407

4841 50th St, Lubbock, TX 79414

legal publication legal publication legal publication