Residential real estate in Hungary set to grow

Residential real estate in Hungary set to grow
Property prices in Hungary are rising faster than incomes
By Inna Opalyuk of Tranio April 18, 2018

Investors believe that Hungary’s property market is a good investment and expect local residential property prices to continue rising for at least a decade. According to Hungarian media outlet Origo, every fifth property transaction in the country involves foreign buyers, who are mainly from China, Russia and Ukraine.

Hungary is a popular location among small companies and international corporations who want a base in Central Europe. The country has a strong labour base, and salaries are low compared to most European Union (EU) countries, reports the Tranio real estate consultant that specialises in Central and Eastern Europe (CEE).

The average annual wage in Hungary is just €6,700, or about four times less than France or Germany, according to Statista. But property in Hungary is cheap. As of February 2018, prices averaged €2,500/m² compared to €4,300/m² in Germany, €11,600/m² in Austria and €12,800/m2 in France.

Growing prices, especially in central districts

The 2008 global economic crisis had a negative effect on Hungarian property prices. Between 2007 and 2013, when prices bottomed out, prices of existing residential property fell by 22%, while prices of new-builds fell by 4%. However, prices in 2017 have already exceeded pre-crisis levels by 4% among existing properties and by 30% among new-builds, according to the Hungarian Central Statistical Office (Központi Statisztikai Hivatal).

Property prices vary across Hungary. The country is divided into 19 counties forming seven regions, with Central Hungary being the most expensive, with an average price of €1,140/m². Local property prices grew the most during the first three quarters of 2017 — by 15% from 2016. In the rest of the regions, residential property is twice or thrice cheaper, despite prices increasing by 8%-10%.

 

Property prices in the administrative centres of Hungary are growing twice as fast as in small localities. The price per square metre is growing 25% faster in new builds than in the existing property market, according to the Hungarian Central Statistical Office.

The crisis affected the construction sector more severely. In 2008, about 17,400 residential facilities were built, compared to 3,100 in 2015. Construction volumes began recovering as late as in 2016. According to the latest data, during the first three quarters of 2017, 4,100 newly built residential facilities were listed for sale.

The volume of sales of existing property in Hungary is dozens of times more than for new-builds. During the first three quarters of 2017, 92,400 residential facilities were sold in the existing property market, compared to 2,900 new-builds. Over the past decade, more new-builds have been entering the Hungarian property market than have been sold, except for in 2015, when 3,100 units were built and 3,400 were sold. In 2017, 38,000 construction units were issued, which is 20% more than in 2016, 14,600 of them in Budapest, according to official figures.

Incentives for market development

Since January 1, 2016, a reduced VAT rate of 5% instead of 27% has been applied to new-build property sales. This has encouraged the demand for newly built residential property. In 2016, 44% more newly built residential units were sold compared to 2015. This, in turn, partly maintains price growth – new-builds were 7.6% more expensive in 2016 year-on-year and have risen in price by another 7.8% over the first three quarters of 2017.

“However, cutting VAT is just a temporary measure. The Hungarian government plans on returning to the old rate of 27% on January 1, 2020. Analysts believe this would lead to a price increase of at least 20%,” says Inna Opalyuk, who is real estate sales manager for Hungary and Slovenia at Tranio.

According to Laszlo Balogh, the leading expert from Hungarian property website ingatlan.com, property prices are growing faster than locals can afford, which is causing the demand for loans and cheap property to grow. The total amount of residential loans issued in the first half of 2017 was €930mn, one-third larger than during the same period in 2016. Moreover, every two of three home loans are used to buy existing property. The average interest rate for home loans as of the second quarter of last year in Hungary is, according to Statista, 3.44%, whereas in 2013 it exceeded 11%. According to Balogh, cheap mortgages are also stimulating price growth.

The Hungarian government is raising energy performance requirements for buildings, making construction more expensive for developers. In 2017, the amount developers spent on construction was 1.5 times higher than in 2015, and by 2020 costs will rise by another 40%. In contrast, construction expenses rose by 5.2% in comparison to 2016, according to the Hungarian Central Statistical Office.

Hungarian apartments are becoming an attractive investment for owners who plan to rent them out. Although the number of Hungarians renting residential property is small, it is growing gradually (from 3.6% to 5.2% between 2011 and 2017) as inhabitants of small localities move to cities in search of employment.

In particular, the growing number of international students in the country is raising the demand for rental property. According to Daily News Hungary, this number was 28,000 in 2017 and is expected to increase to 40,000 by 2023. At the same time, Hungary’s popularity among tourists is growing. In Q3 2017 the Hungarian Central Statistical Office recorded 18.7mn international arrivals, which is 5% more than during the same period 2016.

“It is relatively easy for a foreign national to buy Hungarian property. The payment is done in stages. First, the buyer puts down a deposit of about 1% of the property price, proving the seriousness of his/her intention. The buyer pays another 10%-15% during the execution of the sales agreement. The local municipal authority must approve the purchase, which takes six to eight weeks. After that the remaining amount must be paid. Buying expenses constitute 5%-6%, which includes the legal service charge (1%-1.5%) and the purchase tax. After this is paid, the transaction is registered with the Land Registry. In Hungary, sellers pay the realtor's fee,” said Opalyuk.

 

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