The Impact of the Economic Crisis in the Developed Countries on the Real Estate Market and Public Sector in the Transition Economies - A Belarusian Case Study

This paper attempts to identify some aspects of the relationship between the crisis, real estate market and public services. It is known that the difficulties of construction and real estate in the early 1990s were largely responsible for a decade of low growth. And yet, few in academia seem to care much about the construction sector and real estate. Paper distinguishes three aspects of the economic crisis ñ the banking crisis, the credit squeeze, and the recession ñ and their different effects on high income countries and developing countries, and on the real estate, some public and private sectors. It is examined the behavior of American and European real estate markets after the mortgage crisis in comparison with transition countries real estate markets, with an emphasis on Belarus and Russia. A number of hypotheses about the relative performance of the CEE countries relative to their western counterparts are investigated. The questions addressed are the ways construction firms cope with the volatility of construction, the speculative or market fundamentals driven nature of those fluctuations. We also try to make clear if state and local regulation is responsible for speculative behavior and find better ways to predict construction demand and development of real estate markets. Predicting the development of real estate markets has always been a major concern for market participants, especially for investors. The amount and depth of data about a subject market as well as the stability of the market's institutional environment largely impact the quality of market forecasts. Therefore, the prediction of emerging real estate markets is especially difficult. Using the case of Belarus, this paper explores to which extent economic-mathematical techniques can be helpful in the context of predicting the development of an emerging real estate market. Statistical and econometric techniques are employed to find the drivers that influence the major housing market and its development in future. A variety of different factors is examined in the time period 1992 to 2008 based on the macroeconomic multifactor model. We analyze the relation between incomes, gross domestic product, investment, R&D expenditure and real estate prices. Econometric input-output analysis as a primary technique for understanding the aggregated relationship between the construction sector and the various sectors that are linked with it either upstream or downstream in the productive chain is applied to evaluate the potential of Housing Construction doubling to 2011 in Belarus to overcome economic recession. It then also examines: - the pattern of government responses, and the impact on real estate market, public sector and public spending; - the implications for some selected public services; - the effects on the private companies involved in public sector contracts, and - some discussion of the role of the state in the Times of Financial crises.