Property boom in Hungary continues in 2017
November 10, 2017
While by 2015 property prices had already matched pre-crisis levels in nominal terms - a year when property prices rose 14.69% across Hungary (or 14.1% after inflation) and rose a nominal 24.44% in Budapest - in real terms property prices are still below pre-crisis levels, according to the Ministry for National Economy.
Housing transactions were up almost 10% in 2016, with strong increases during the first half of the year. From around 86,000 in 2012, transactions rose to around 131,000 in 2016. Prices of existing dwellings rose by 10.23% (9.8% inflation-adjusted) in 2016, while prices of new dwellings increased by 8.63% (8.2% inflation-adjusted), according to the Hungarian Central Statistical Office (KSH).
Higher demand for both new and existing dwellings was reflected in a surge of housing credit, with credit for second-hand homes rising by 34.6% and for new homes by 63% y-o-y in 2016.
Dwelling permits issued rose by 10.61% during the first half of 2017.
"Rising real income and favourable labour market conditions contributed jointly to the improvement in long term income expectations which are of key importance in terms of housing investments," said the MNB's Housing Market Report in May 2017. "In 2016, lending processes also continued to support the recovery of housing market demand."
The recovery has been partly caused by a series of government steps. First, at the beginning of 2013, the government increased the amount of 5-year loan subsidies, the maximum value of subsidized loans, and the loan house price threshold, causing significantly stronger credit demand in the second half of 2013.
From July 1, 2015 a non-refundable subsidy, the family housing allowance (CSOK) became available. It can be used for buying new- and used homes, for apartment expansions, and for home construction.
On December 15, 2015, the National Assembly lowered the VAT rate for new dwelling units to 5% from the previous 27%, in a further attempt to boost the property market. The new VAT rate will be effective from 2016 to 2019. The amendment also contained other measures to improve construction sector's performance and reduce red tape, according to the Ministry for National Economy.
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.
Gross rental yields acceptable in Budapest
Gross rental yields, i.e., the gross return on investment in an apartment if fully rented out, are around 5.6% in Buda, while in Pest rental yields are a little lower, around 5.2%.
These are moderately good yields. The average prices per square metre (sq. m.) of apartments in Buda, the greener side of Budapest, range from EUR 2,000 to EUR 2,200, with higher prices in Pest, the business and commercial centre of Budapest. In Pest prices are around 2,500 per sq. m..
Smaller apartments tend to be cheaper (on a per square metre basis) both in Buda and in Pest.
Rents in Buda range from around EUR 9.50 to EUR 11.50 per month per sq. m., whereas in Pest, monthly rents per sq. m. range from around EUR 10.60 to EUR 11.00.
When buying property, take into consideration that round trip transaction costs are quite high in Hungary. See our Property transaction costs analysis in Hungary and Round-trip residential property transaction costs in Hungary, compared to the rest of Europe.
Hungarian taxes are moderate to high
Rental Income: Net rental income is taxed at a flat rate of 15%. When computing for taxable income, income-generating expenses are deductible from the gross rent.
Capital Gains: Net capital gains are taxed at a flat rate of 15% in Hungary.
Inheritance: The inheritance of close relatives and the surviving spouse is exempt from inheritance duty.
Residents: Resident individuals are taxed on their income at a flat rate of 15%.
Buying costs for is low to moderate in Hungary
Roundtrip transaction costs are around 7.09% to 14.21% of the property value. Transfer tax is levied at progressive rates, from 2% to 4%. Real estate agent’s fee is around 3% to 5% plus 27% VAT. First transfer of property is subject to 27% VAT.
market in Hungary is pro-landlord
Hungary’s rental market is generally pro-landlord. New tenancies in Hungary are generally unregulated, with the exception of state and municipal property.
Rents: The parties are free to negotiate rents, and to negotiate the method of any increase in rent that they may wish to devise. The deposit, its rate and other conditions can be freely agreed by the contracting parties.
Tenant Security: The tenancy agreement may be concluded for a definite term, or an indefinite term, or until the occurrence of a certain condition defined in the agreement. The landlord must give a termination notice to the tenant prior to the expiration date of the contract.
Hungarian economy accelerating in 2017The Hungarian economy grew by only 2% in 2016. The economy had performed better during the previous three years, with GDP rising by 3.1% in 2015, 4% in 2014, and 2.1% in 2013.
The sluggish growth was attributed to the decline of EU investment funds, as gross fixed capital formation fell by 15% y-o-y. Household consumption rose by 4.2% y-o-y, mainly driven by increasing employment and real wages, while government consumption stagnated at 0.1%, according to the Hungarian Central Statistical Office (KSH).
Hungary's Ministry for National Economy expects the economy to accelerate to 4.1% GDP growth for the full year of 2017, due to the strength of the market services sector, as well as the implementation of projects backed by funds made available in the EU programming period 2014-2020, according to the Ministry for National Economy.
"Highly favourable investment data and steady GDP growth are signalling, as a whole, that the country’s economy has been growing dynamically," the Ministry stated in a recent publication. The European Commission also expects the Hungarian economy to grow robustly and the OECD has revised Hungary's growth estimate for 2017 from 2.5% to 3.8%, and raised its growth forecast for 2018 from 2.2% to 3.4%.
Unemployment in Hungary was at 4.3% in Q2 2017, down by 0.9% from the same quarter last year. In August 2017, consumer price in the country rose by 2.6% y-o-y.