Hungary's housing market boom continues
Lalaine C. Delmendo | October 25, 2019
During 2018, the national house price index rose by 18.3% y-o-y (14.5% inflation-adjusted), based on the Hungarian National Bank's (MNB) house price index, following annual rises of 15.1% in 2017, 16.9% in 2016, 18.2% in 2015, and 8% in 2014.
Prices of new dwellings rose by 18.4% y-o-y (14.7% inflation-adjusted) during 2018, while prices of second-hand dwellings went up by 10.8% (7.4% inflation-adjusted), based on figures released by the Hungarian Central Statistical Office (KSH).
Demand continues to rise. The total number of second-hand homes sold rose by 4.7% to 154,599 units in 2018 from a year earlier, the sixth consecutive year of growth, according to KSH. Credits for purchasing second-hand homes surged by 37% y-o-y in 2018, while credits for new homes rose by 27%.
On the supply side, dwelling permits increased slightly by 0.9% to 18,227 units during the first half of 2019 compared to the same period last year. Dwelling completions fell marginally by 0.7% y-o-y to 6,472 units in H1 2019.
The housing market is expected to remain strong this year, amidst robust economic growth. The economy grew by 4.9% in Q2 2019 from a year earlier. The economy is expected to expand by 4.4% this year, its seventh consecutive year of robust growth, based on projections from the European Commission.
Hungarian law requires that real estate purchases shall be concluded through private contract (purchase agreement) countersigned by a lawyer. Non-Hungarian citizens must gain the approval of the relevant Administrative Office 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.
Strong economic growth continues in HungaryHungary’s economic growth has been robust for the last six years, and this year won’t be an exemption. Hungary’s GDP rose by 4.9% in 2018, up from a 4.1% expansion in 2017 and the highest growth since 2004.
The economy grew by 4.9% in Q2 2019 from a year earlier, following expansions of 5.3% in Q1 2019, 5.1% in both Q3 and Q4 2018, and 4.9% in Q2 2018, according to KSH. Services, construction and industry contributed mostly to the country’s strong Q2 2019 performance.
The economy is expected to expand by 4.4% this year, based on projections from the European Commission.
In August 2019, nationwide unemployment rate stood at 3.4%, down from 3.7% a year earlier, according to KSH figures. Jobless rate fell to an average of 4.3% in 2016-18, from an average of 8% from 2000-15.
The country’s inflation slowed to 2.8% y-o-y in September 2019 from 3.6% a year earlier – still in line with the central bank’s 3% plus or minus 1.0 percentage point inflation target.
Is Orban’s star waning?
Since coming to power in 2010, Hungary's nationalist prime minister Victor Orbán has concentrated power and media organs in his hands, and regularly clashes with Brussels over migration and rule-of-law issues. Strong economic growth since the crisis has boosted his popularity, propelling him and his party, Fidesz (the Hungarian Civic Union) to victory in the 2014 elections, and again in the 2018 national elections, with a two-thirds majority. The Fidesz–KDNP alliance won a two-thirds majority, with 133 seats out of 199.
However in an extraordinary turnaround in October 2019 the opposition beat Orban's candidate for Budapest mayor, and won 10 of 23 of Hungary’s main cities. The impetus was widespread urban discontent, and a strategy of alliance among opposition parties to enable them to present single candidates.
Orban’s growing authoritarianism has in fact been meeting rising resistance. In a move towards the creation of an "illiberal" state, in April 2017 the Hungarian Parliament imposed stringent restrictions on foreign universities, a move primarily directed towards the Central European University (CEU), founded by philanthropist and Hungarian NGO supporter George Soros. Forbidden to accept new students after January 1 2019, the CEU re-launched all U.S. accredited degrees in Vienna from September 2019.
In May 2017, large anti-corruption street protests occurred in Budapest, expressing support for CEU and NGOs. During the same month, two United Nations Special Rapporteurs also expressed their objection against the Hungarian government’s draft "Bill on the Transparency of Organisations Financed from Abroad" that would limit NGO activities. The bill was eventually passed as law in June 2017.
The victory in Budapest of pro-European centre-left challenger Gergely Karácsony, backed by a wide range of opposition parties from across the political spectrum, bears resemblance to the June 2019 victory of opposition candidate Ekrem Imamoglu in Istanbul. Maybe people eventually tire of authoritarian rulers, if given a choice.