On the Trace of the Ring: globalisation and real estate on the “most emblematic (Buda)Pest street”

Budapest, the capital of Hungary, boasts a number of invaluable national monuments. Many of these are residential houses still owned by the local governments. Recent years have witnessed the demolition and elimination of these buildings with no regard for their national monument status. This is especially true of Budapest’s District VII, Erzsébetváros (Elizabethtown, the old Jewish ghetto). This is where the three buildings of our concern, Király Street 25-27-29, are located. Using social network analysis, we have researched and charted the history of their privatisation since the political transition.

Buildings nos. 25-27-29 on Király Street are in poor condition. Years ago, it seemed that the local government could ameliorate the situation by selling them. They did so, but the exchange was conducted in a highly irregular manner. The goal of our research has been to unveil the process and background of this exchange. Over the course of time, several new players entered the field, making the story increasingly difficult to untangle, especially for the outsider. This called for a methodology that would render this exchange process visible, so as to make “order” in the mesh of names and firms that seemed unrelated at first glance.

Our small world is held together by the force of relationships. We ourselves are the individual points who strive to find our way day by day in this unfathomable and complex world sustained by the links of relationships. Our orientation and awareness are often hindered by our failure to recognise how interdependent we are. Often, with more or less success, we try to form a mental picture of a space where we can position ourselves and those surrounding us. Reality, however, is much too complex and unfathomable for us to comprehend it outside our immediate environment.

In the past years – partly to satisfy this desire – the network approach has gained ever greater popularity. This school is specialised in studying the network of relationships: harmonising qualitative and quantitative methods, its subject of observation is the relationship itself: among individuals, groups, or even institutions. One of the most intriguing trends in social network analysis – adopting the work of, among others, Mark Lombardi – is the visualisation of the network of relationships. Its goal is to make reality known in its very complexity and impenetrability.

While Mark Lombardi ventured to graph all this manually, today there are a number of software applications at the disposal of researchers. “Reality” is now displayable with these, after building an appropriate database and running specific algorithms.

The database necessary for exposing the case of real estate manipulation on Király Street was based on the systematic research of a – considerable – number of press publications regarding the issue. We mapped the data in a two-mode social network matrix, in which we linked individuals relevant to the story with the firms they were connected with on the basis of the press material. The data collection encompassed every article (26 in all) published on the topic between 2004 and 2009, and included the complaint submitted to the court against the local government. Upon completion, the 2-mode database was analysed using the MDS (multi-dimensional-scaling) option in NetDraw. In the social network thus graphed, individuals and firms with similar relationship indexes are juxtaposed, while players filling very different functions are distant to one another.

The following 14 stages are required for such a complex and non-transparent social network to develop:

Stages 1- 14: the route to obtain real estate on Király Street

1. The local government commissions its own firm to carry out the appraisal of the buildings. The assessed price is generally equivalent to the cost of relocating the residents.

2. Following the appraisal, a project firm, established by private individuals with the specific purpose of purchasing the residential house in question, “approaches” the local government to make an offer for the building.

3. The president of the local government’s economic committee (EC) submits a proposal to the local government’s Board of Representatives (BR) regarding the sale of the building. The proposal includes the name of the buyer and the purchase price (a fictive price that will never be paid to the local government)

4. The BR meeting is chaired by the District Mayor. The sale of the residential houses is decided at a closed session. The EC proposal is distributed at the meeting, and the BR passes the proposal; in other words, accedes to selling the building. At the conclusion of the board meeting, the proposal is collected from the board members. After the vote, all documents regarding the real estate sale are held exclusively by the president of the Economic Committee and the District Mayor.

5. Residential houses in which BR members or MPs hold apartments are not subject to sale.

6. The residential houses are sold without a public tender, violating public procurement law.

7. Owners of the firms established for purchasing the residential houses come from the same circle and are personally related to the local government. The newly established firm is well informed, and this is how, months before the official decision to sell the real estate is issued by the Board, they begin negotiations with foreign investors.

8. Based on a contract of sale with the local government, the buyer firms acquire a 3-year right of purchase on the residential house, with the local government’s retained ownership.

9. The buyer firms’ headquarters and the law firms involved are registered at identical addresses. Two law firms have had an instrumental role in the sales, accommodating the firms established solely for the purpose of purchasing and re-selling the buildings.

10. Subsequently, the buyer firm – without having paid a penny to the local government – begins to pass on its right of purchase by selling shares in the firm. The firm itself is sold at an extremely low price (8-10,000 euros), including the rights of purchase in its property.

11. The tenants living in the residential houses are completely oblivious to the above proceedings. They receive no information whatsoever about the roof being sold from over their heads. The representative of the “investor” calls on the tenants, showing them documents of authorisation from the firm and the local government, informing them that they need to vacate their flats.

12. In most cases, the tenants protest against the sale of their building, and claim their right of pre-emption regarding their apartment, which is denied by the local government.

13. Once the project firm finds a serious buyer, its ownership is passed on to offshore firms in Cyprus, the Seychelles or Ireland (without any transfer of money), who pass on the right of purchase to mainly Irish investors. The purchase price paid by the investors is a multiple many times over the value originally appraised by the local government; thus, the owners of the project firms acquire enormous profit.

14. Eventually, the local government ends up selling the property for as much as it cost to relocate the tenants, thus relinquishing ownership of the building, while being left with virtually zero return on the sale. Meanwhile, the project firms acquire an abundant profit despite selling the buildings below market value. The outcome: ownership of the buildings is passed into foreign hands, and a part of this world heritage is destroyed to give place to modern, featureless buildings.

Presently, the above case is before the court, and numerous politicians and businessmen have been arrested. Investigation is underway in the case of 14 buildings in all.

We hope that social network visualisation has helped us render the story of the sale of Király Street 25-29 visible and more comprehensible even for those personally not involved. We believe this “clarity of vision” provides important and useful knowledge for all.