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. Last Updated: 07/27/2016

Czechs Find Real Estate a Reality

BEROUN, Czech Republic -- Jana Skuhrovcova skipped out of the bank grinning at having done something her parents only dreamed of. She had bought a house.

The 28-year-old doctor in this bedroom suburb west of Prague looks an unlikely revolutionary. Nor would her actions seem out of the ordinary to most Europeans.

But Skuhrovcova is part of a new wave of homeowners across post-communist Eastern Europe, buying up bricks and mortar in countries where that was beyond the dreams of all but the elite for nearly five decades.

"My parents think it's a little crazy to borrow so much money to buy something, but I think they're also a little jealous," she said. "It's something they couldn't do when they were young because of communism, and now they're too old to take such a risk."

The fall of the Iron Curtain a dozen years ago was supposed to herald the freedom and capitalism that Eastern Europe had missed out on. Central to it all was housing.

The vast majority of people lived in state-supplied apartment blocks that one Prague mayor described as rabbit cages.

But it has taken more than a decade for wages to rise to levels that can support a mortgage market. Interest rates have had to settle into less volatile patterns as central banks get the upper hand on inflation. The shock of unemployment has needed time to subside.

As most of the countries in the region approach European Union membership, probably in 2004, real estate is becoming a reality.

Nowhere are the conditions now more evident than in and around Prague. Thousands are rushing to get their own piece of the Czech capital.

Prague has long suffered from a chronic shortage of new housing, but many private construction projects are taking off now that the privatization of major banks has helped spur the creation of a mortgage market.

In the first half of this year, Czech mortgage banks granted 9,349 mortgage loans, a 70 percent increase year on year, and mortgage loan volumes are expected to show similar growth in the second half.

The central bank, or CNB, has coincidentally added further impetus to the housing boom with its battle of wills against the market over the strengthening koruna currency.

The CNB, fearing the koruna's rise may be faster than the fundamentals of the economy can bear, has cut interest rates to below EU levels. Its key two-week rate stands at a historic low of just 3 percent.

Builders have been quick to respond, with housing starts up by 12.7 percent in the first half of this year.

The result for consumers is that mortgage loans are now averaging below 6 percent, comparable to rates found in many EU countries. Supply is slowly catching up with demand.

"For most of our projects, it's kind of like it was before [under communism]. People stand in line now just as they did to buy Trabants in the former East Germany," said Vaclav Cerny of the largest Czech homebuilder, IPB Real.

The Czech Republic is not alone to witness this home building and buying boom.

Hungary built more than 10,000 new homes in the first half of the year, up 22.2 percent on the same period in 2001. Local authorities have issued 22,650 new home construction permits in the first six months of 2002, 8 percent more than last year.

Zoltan Speeder, deputy CEO at OTP, Hungary's biggest bank, said he expects mortgage lending to jump threefold to nearly 6 percent of gross domestic product by 2005 as living standards catch up with those in the EU.

Slovakia and Slovenia are also seeing the start of a rise in private house ownership.

"At present, housing construction is not growing quickly enough to meet the demand for new flats," said Marian Horecky of the Slovak Statistical Office.

Poland is one of the few EU candidates lagging behind, trapped by high interest rates, unfriendly legislation and consumer fears that unemployment will remain stubbornly high.

But analysts say recently approved changes to mortgage laws there will clear some of the bureaucracy between potential homeowners and lenders, and boost the market.

"The new law is an important impulse for mortgage issuance," said Piotr Cyburt, CEO at Polish bank Rheinhyp-BRE, which recently became the first institution following the legislation to issue mortgage-backed bonds.

For Skuhrovcova, though, the future is now. As she sits in her parents' living room poring over plans for her new two-bedroom home, she eyes the standard tiny communist-era kitchen where her mother has cooked for a quarter of a century.

"Whatever happens, I'll have a full-size fridge," she said. "I can't stand the thought of paying all this money for a house and still having to bend over just to see what's inside."