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Residential real estate market in Hungary: time to buy

Hungary is located on the border between Eastern and Western Europe. The level of wages here is lower than in most EU countries: according to the Statista portal, only 6.7 thousand euros per year is about four times lower than in France or Germany. Thanks to this, Hungary is popular with small companies and international corporations that open their offices in Budapest: for example, IBM, Morgan Stanley and EPAM.

Another advantage of Hungary over Western countries from the point of view of foreign investors is the value of real estate. According to Statista in February 2018, a square meter here costs 2.5 thousand euros, for example, 4.3 thousand euros in Germany, 11.6 thousand in Austria or 12.8 thousand in France. Experts believe that the Hungarian real estate market is a profitable investment direction: the prices for residential real estate will grow here for at least the next ten years. According to Origo, a Hungarian publication, every fifth deal with Hungarian real estate is made with buyers from abroad: mainly with citizens of China, Russia and Ukraine.

Gradual increase in prices, especially in central areas
The global economic crisis of 2008 had a negative impact on the value of Hungarian real estate: according to the Central Statistical Office of Hungary (Központi Statisztikai Hivatal), from 2007 to 2013, when prices reached the bottom, secondary housing fell by 22%, and new buildings – by 4% . However, in 2017 the cost per square meter has already exceeded the pre-crisis level: for secondary housing – by 4%, for the new – by 30%.

Price Index for Residential Property in Hungary
Hungary is the second country in terms of the growth rate of housing prices in the EU. From 2015 to III quarter of 2017, the cost per square meter in Hungary increased by 25.1%, while on average in the EU – by 8.6%. The first place is occupied by Iceland – here prices for this period increased by 35.7%.

Prices in Hungary are growing unevenly within the country. Its territory is divided into 19 regions, united in seven regions, and Central Hungary is the most expensive region, where an average square meter costs an average of 1,140 euros. Here, the price of real estate in the first three quarters of 2017 grew stronger – by 15% compared with 2016. In other regions, residential real estate costs 2-3 times cheaper, although during this period it also increased by 8-10%.

The cost of secondary residential real estate in Hungary
According to the Central Statistical Office, real estate prices in the administrative centers of Hungary are growing twice as fast as in smaller towns. The cost per square meter in new buildings is growing 25% faster than in the secondary housing.

Source: Central Statistical Office
Restoration of construction and sales
The Hungarian construction sector has suffered greatly from the crisis: according to the Central Statistical Office, if in 2008 about 17.4 thousand residential premises were built for sale, in 2015 only 3.1 thousand. Only in 2016, construction volumes began to gradually recover. : According to the latest data, in the first three quarters of 2017, 4.1 thousand new residential premises were put up for sale.

Sale and construction of housing in Hungary
Sales of resale housing in Hungary are ten times higher than sales of new buildings: in the first three quarters of 2017, 92.4 thousand residential premises were sold on the secondary market and only 2.9 thousand on the primary market. In the past ten years, more new buildings have been supplied to the Hungarian market than sold, with the exception of 2015, when 3.1 thousand premises were built and 3.4 thousand sold.

According to the latest data from the Central Statistical Office, in 2017, 38 thousand building permits were issued – 20% more than in 2016. Of these, 14.6 thousand were in Budapest.

Market Incentives
Temporary VAT rate reduction
From January 1, 2016 in Hungary, when buying property in new buildings, the reduced VAT rate is valid: 5% instead of 27%. This measure stimulated the growth in demand for new housing: in 2016, 44% more residential premises were sold in new buildings than in 2015. This, in turn, partly supports price increases: in 2016, the cost of new housing increased by 7.6% in annual terms, in the first three quarters of 2017 – another 7.8%.

However, the reduction in the VAT rate is only a temporary measure: from January 1, 2020, the Hungarian government plans to return to a tax of 27%. According to analysts, this will lead to a real estate price increase of at least 20%.

Cheap mortgage
According to the leading expert of the Hungarian real estate portal ingatlan.com Laszlo Baloga, the financial opportunities of Hungarians are growing more slowly than the cost per square meter, which, in turn, leads to an increase in demand for loans and cheap housing.

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