Vancskó László

26. 04 .2024

Renewable Energy

Competitive Energy Supply, ESG Complexity, Interest and Credit Cycles, Valuation Rules and Transparency, Incentives and Results, Regulatory Efficiency and Urban Planning Fundamentals, i.e., Economic Development Priorities from a Real Estate Developer's Perspective

In the 1980s, I had the opportunity to study at BME (Budapest University of Technology and Economics) and Közgáz (Corvinus University of Budapest) simultaneously, earning degrees in Civil Engineering and Economics. I studied micro and macroeconomics along with Political Economy and engineering sciences. Over 30 years of professional experience in real estate have built on what I learned at these universities, which I have kept up to date through continuous reading and striving to understand. The opinion pieces I wrote as the leader of REM Group, which appeared on our website and later in the press, reflect the perspective shaped by these institutions and studies. This perspective allows me to interpret daily news, events, and economic changes differently than most. A different perspective is the foundation of thinking differently and recognizing essential processes below the surface in time.

A prime example of this is the reevaluation opportunity arising from the extended lifespan of PV panels. I am convinced that those currently living on salaries and wages should be offered the opportunity to acquire capital income that provides greater family financial security through frugal family management, in collaboration between the National Bank of Hungary (MNB) and the government. A bourgeois majority creates political stability. Political stability allows for long-term family, clan, and national economic planning and its calm, thoughtful execution.

Household savings seek safe and passive investment opportunities. Half of household wealth is in real estate and half in liquid securities. Of the liquid portion, half is in bank deposits and treasury bills. The rest is shared between insurance, stocks, etc. Households save 15% of their disposable income, which is the third best in Europe after Germany and the Czech Republic. This means real estate, bank deposits, and treasury bills—the three classics, while the domestic economy ranks only 25th in per capita income. €17,000 per capita per year. Source. The difference between GDP measured at USD purchasing power parity and nominal GDP is 238%; in euros, it's 158%.

After the 2020-2027 economic development cycle, the country is expected to reach or exceed the EU average development level. This means that EU subsidies will phase out within five years. The costs of the UA-RU conflict and increased defense spending further likely reduce EU investment and support funds. The EU will run out of centralized and redistributable income. To survive, the EU will have to introduce policies such as "work instead of aid," "family support instead of emigration," and tax incentives for labor income and child benefits instead of capital income. As Charlie Munger said, long-term incentives create results, while aid creates work aversion and immigration. The shortfall or reduction of EU subsidies can only be compensated by institutional involvement of household savings. According to the Pareto principle, 20% of a community creates 80% of the societal added value. However, the economic success of the 20% does not create the 51-67% majority needed for political stability. The common interest of politics and the majority aspiring for bourgeois status is for economic development to extend from the top 20% to the economically less active 80% of the community and families.

The domestic household savings rate of 15% of income demonstrates the population's commitment to future generations. To leverage this, government-created investment opportunities that generate passive capital income while stimulating the economy are necessary. Central communication is needed for understanding, and support and family tax benefits for widespread adoption. The proposed PV panel installation on residential roofs and the related PowerWall installation program and EV procurement offer families significant monthly energy cost savings, providing a higher return on investment than bank deposits or treasury bills through their own homes.

The rapid spread of PV-EV-PW assets becoming real estate creates a competitive advantage for the economy by reducing and keeping energy costs low in the long run. The 15GWp PV capacity created in 3 million households can dominate the Carpathian Basin's electricity market. PV electricity surplus, efficiently transmissible within 1,000km, can flow from East to West or North to South through Hungary's centrally located electrical grid, offsetting network development and balancing-storage investments with transit fees.

The inclusion of PW-installed family homes and EV owners in reducing balancing and peak electricity costs creates a win-win situation for all participants. The population receives passive income, less energy import is needed, the country's financial balance improves, and domestic businesses gain a competitive advantage due to favorable energy costs. The PV-EV-PW industry is the country's first opportunity to overcome its energy supply disadvantages, eliminate supplier dependencies, and build a globally competitive, sustainable, agricultural-industrial production base.

Household savings dominate the residential segment of the real estate market, but 85% of the housing stock is owner-occupied. Only 15% generates rental income for its owners. Non-residential investment properties are mostly owned by international institutions.

International institutions channel foreign household savings into the Hungarian real estate market, so the rental income generated by their utilization leaves the country, worsening the financial balance. The secondary effect of the current UA-RU crisis is that institutions from the EU core countries are selling their Hungarian real estate portfolios, creating a buyer's market. With household savings, a significant portion of domestic office, hotel, and warehouse stocks offered for sale by international investors could be acquired by domestic institutions.

The most efficient and crisis-resistant form of real estate ownership is the publicly listed regulated real estate investment trust, SZIT/REIT. If the MNB could offer competitive long-term, fixed-rate HUF financing, and domestic SZITs could invest just 10% of the 52,000 billion HUF household liquidity in the current buyer's market at a conservative 50% leverage ratio, it would replace 5 trillion HUF (12.5 billion EUR) in capital and 12.5 billion EUR in foreign euro loans, totaling 25 billion EUR in foreign passive investments. This replacement would improve the Hungarian budget's financial balance by 1.5-2.0 billion EUR annually, increasing Hungarian savers' and the MNB or Hungarian banks' income by 300 billion HUF each.

Long-term SZIT/REIT investments from retirement savings accounts are returned to domestic households tax-free. As BÉT-listed securities, SZIT/REITs can be freely traded among the population. 90% of the profit generated by SZITs annually can be distributed among investors. If the SZIT model successfully monetizes the domestic real estate market, improving the real estate regulatory environment can enhance the value of household investments.

Our first step in regulatory change proposals is a Disclosure Act for real estate transactions, significantly increasing market transparency and reducing risks. Since every real estate transaction requires lawyer or notary authentication, these officials can provide automatic notifications to the KSH as part of the land registry or banking documentation, available to market participants, banks, insurers, municipalities, owners, and tenants only in aggregated form.

Reduced market risk makes participants interested through lower financing and insurance costs. Rental and leasing transactions can be similarly regulated. A strong domestically financed real estate market, through the re-emerging international demand with the investor cycle change, generates HUF demand, appreciating the domestically owned market. This demand tide raises all boats in the domestic market, including the population's.

Significant improvements in the current financial balance, reduced HUF-EUR exchange rate risk, and additional income for domestic savers improve the country's overall risk rating, further strengthening the economy's external perception. This allows the MNB to expand monetarily, supporting domestic enterprises' foreign investments with a corporate bond purchase program and QE, similar to the Fed, exclusively for long-term regional investments.

Stabilizing the real estate market through SZITs creates the opportunity to rely on household savings for other capital-intensive infrastructure developments. As real estate, SZIT-investable assets could include toll highways, HFH toll electric lines, transmission fee optical-IT networks, and oil and gas pipelines and buffer storage. In REIT/SZIT form, with uniform tariffs, majority state and minority household ownership, and stock market trading and transparency, mobile phone relay towers and the optical networks ensuring their connectivity could also operate.

With the capital thus freed, capable domestically owned but internationally proven companies can build regional monopolies at the most favorable time. This would significantly reduce the GDP-GNP gap and accelerate domestic accumulation, investment abroad, and debt reduction. Growing domestic accumulation makes family support sustainable. Family support finally reverses the trend, turning mortality into natality, and birth rates begin to rise slowly. A modernizing, industrializing, but numerically stable, or at least not decreasing, economy can achieve long-term growth. The growing economy allows for the development of the country's defense, further reducing economic, financial, and political risks.

In summary, the above economic-political logic is as follows:

  • Political stability can be maintained through broad economic upliftment. For this, the key is the correct reinvestment of domestic family savings generated by a work-based economy into the economy (the alternative is the domestic takeover of foreign savings).
  • It is essential to reduce the EU's and within it, Hungary's energy dependency (PV and Paks) because then accumulation can accelerate in both the population and corporate sectors (today, only DE and CZ precede HU in the EU in the savings rate).
  • Dynamic growth achievable in the PV-PW industry with the involvement of domestic sources reduces daytime electricity prices in the entire region to the point where it is no longer worthwhile to install large-capacity PV plants elsewhere within 1,000km, as they do not pay off.
  • Therefore, it is crucial for HU to be a leading PV and PW power within the Carpathians, requiring domestic battery production by international companies for the storage infrastructure and regional development of REIT/SZIT.

The only tool for political stability is sustainable family support, which can be financed with a GDP-GNP gap and an accumulation rate exceeding the developed country average. (This requires a high domestic savings rate of 15% of disposable income and the operation of investment systems like SZITs.) For sustainable growth, large-scale PV capacity construction (residential, commercial, industrial, agricultural) within the Carpathians, battery production, and distribution must be built. The future balance of power within the EU will be determined by the technological accumulation of regions and their management.

The above has been translated from Hungarian to English with the use of AI.