Is Hungary's Property Boom starting to slow down?

Is Hungary's Property Boom starting to slow down?

Following an almost meteoric rise of property sales and house prices over the last two years, Hungary may see a slowdown of both this year.

Hungary's capital Budapest is always the benchmark for what's going on in the housing market as a whole. In 2015, mortgage lending for resale homes increased by an amazing 36.% and permits for new builds increased by 38.8% in a year-on-year comparison during Q1 of 2016. According to figures collated by the Hungarian Central Statistical Office (KSH), the average price of both resale and new properties in Budapest rose by 15.53% year-on-year in Q4 of 2015, a stunning turn-around for a property market that all but collapsed in the wake of the 2008 world-wide economic crisis.

However, indicators are there that the housing boom is coming to an end now. The first quarter of 2016 already showed a sharp slowdown of Hungary's GDP with a mere 0.9% growth year-on-year. That was the slowest growth rate for three years, according to KSH, with a weakening construction and industrial growth rate responsible for the slowdown.

In 2017, the OECD's economic outlook for Hungary has been revised downwards from an optimistic 2.4% to a modest 1.6%.

Buying Hungarian Real Estate as a foreign Investor

Non-Hungarian buyers must gain the approval of the relevant Administrative Office before they are permitted to buy a property as a private individual. This process can take between two to three months, but is regulated and therefore not permitted to drag on too much. According to Hungarian property law, real estate purchases must be concluded through private contract or purchase agreement that is countersigned by a solicitor.

Most Hungarian solicitors will advise foreign buyers to set up a company that is registered in Hungary to make it easier to buy a property. In such circumstances, a permit is not required, which makes the whole property purchase a lot easier and quicker. It takes only one or two days to set up a business, and all such set-up expenses can be written off.

Purchases of Hungarian Real Estate by Foreigners

Hungarian law requires that real estate purchases shall be concluded through private contract (purchase agreement) countersigned by a lawyer. Non-Hungarian citizens are further obliged to gain the approval of the relevant Administrative Office in order to purchase property as a private person. According to regulations most foreigners should receive a permit within 2-3 months.

Most lawyers advise foreign nationals to set up a company registered in Hungary in order to purchase property. In this case, no permit is needed. This is a fairly swift and easy procedure (taking 1-2 days), and all expenses can be written off.

Investors can expect modest to good rental Yields

In leafy-green Buda, investors can expect relatively higher rental yields for apartments, ranging from 6.64% to 6.98% (gross) for spacious apartments, and more modest yields for smaller apartments, according to research conducted by Global Property Guide in July 2015.

In Budapest's less green side, in Pest, where the city's commercial heart beats, apartments provide investors with more moderate rental yields, ranging from 4.75% to 6.15% (gross), depending on the size of the apartment.

In 2015, renting an apartment in Buda cost between 9.00 euros to 10.00 euros per square metre, while tenants had to pay 10.00 euros to 11.00 euros per square metre in Pest.

Budapest's student population is ever hungry for accommodation at the start of term, and this year is no different. This year's rental values are expected to go up by between 5% and 10% in the student dwelling segment of Budapest's rental market.

A 250,000 euro investment still buys quite a lot of "dwelling" in Budapest, and demand for rental property is still high. A modern, well appointed two-bedroom apartment in Budapest's District 8, for example, can be purchased for around 95,100 euros, offering tenants 86 square metres of floor space near the city centre. In District 7, however, a modern one-bedroom apartment with just 72 square metres of floor space will come at an asking price of around 103,600 euros.

So while the rest of the country may see a slowdown in both house price rises and sales transactions, investors buying one- and two-bedroomed apartments with the view to letting to students should enjoy good rental yields in the medium to long-term.