After two years of house price falls, the Hungarian housing market is now stabilizing. In the first quarter of 2011, house prices nationwide increased by 0.11% from the previous quarter, according to the FHB Bank. However, when adjusted for inflation, the house price index dropped by 1.12% over the same period.
On a year-on-year basis, house prices fell by 1.62% (-5.56% in real terms) y-o-y to Q1 2011, a large improvement from the 11.31% drop (-15.66% in real terms) seen during the year to Q4 2010.
In 2010, the number of real estate transactions dropped by 21% y-o-y to 72,000, showing sellers’ reluctance to lower their selling prices, according to FHB. Housing supply also started to fall in 2010, with dwelling construction permits falling 39%.
Mortgage-backed foreign currency lending was banned in August 2010, which could greatly affect the market, since loans denominated in foreign currencies are important. In 2010, total approved housing credits dropped by 26% from the previous year, due to tighter lending conditions and stricter mortgage issuance.
In 2010, Hungary’s modest economic growth of 1.21% (after a 6.69% GDP contraction in 2009) did little to boost housing demand. But FHB is quite optimistic that housing demand will increase this year as household income improves, and projects that house prices will rise by 2% in 2011. However this represents price stagnation, in real terms.
Inflation rose by 3.5% annually to June 2011 and is expected to moderate towards the central bank’s medium-term target of 3% this year. Meanwhile, unemployment slightly declined to 10.8% in April-June, from 11% in March-May 2011.
There are minor restrictions on foreigners buying property in Hungary. Foreigners need the approval of the Administrative Office (AOB) before they can buy property in Budapest. 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.
On a year-on-year basis, house prices fell by 1.62% (-5.56% in real terms) y-o-y to Q1 2011, a large improvement from the 11.31% drop (-15.66% in real terms) seen during the year to Q4 2010.
In 2010, the number of real estate transactions dropped by 21% y-o-y to 72,000, showing sellers’ reluctance to lower their selling prices, according to FHB. Housing supply also started to fall in 2010, with dwelling construction permits falling 39%.
Mortgage-backed foreign currency lending was banned in August 2010, which could greatly affect the market, since loans denominated in foreign currencies are important. In 2010, total approved housing credits dropped by 26% from the previous year, due to tighter lending conditions and stricter mortgage issuance.
In 2010, Hungary’s modest economic growth of 1.21% (after a 6.69% GDP contraction in 2009) did little to boost housing demand. But FHB is quite optimistic that housing demand will increase this year as household income improves, and projects that house prices will rise by 2% in 2011. However this represents price stagnation, in real terms.
Inflation rose by 3.5% annually to June 2011 and is expected to moderate towards the central bank’s medium-term target of 3% this year. Meanwhile, unemployment slightly declined to 10.8% in April-June, from 11% in March-May 2011.There are minor restrictions on foreigners buying property in Hungary. Foreigners need the approval of the Administrative Office (AOB) before they can buy property in Budapest. 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.
Analysis of Hungary Residential Property Market »
RENTAL YIELDS
Last Updated: Jul 01, 2011
Budapest is somewhat unusual in that gross rental yields are higher on somewhat larger apartments, peaking at 120 square metre apartments, on which yields average 8.3% in Pest, and 7.2% in Buda.
These are attractive yields.
Prices have been falling in Budapest over the past several years, especially on apartments of 120 sq. m. and above. Budapest prices are now attractive by comparison with other European capitals.
These are attractive yields.
Prices have been falling in Budapest over the past several years, especially on apartments of 120 sq. m. and above. Budapest prices are now attractive by comparison with other European capitals.
TAXES AND COSTS
Last Updated: Sep 07, 2011
Rental Income: Net rental income is taxed at a flat rate of 16%. 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 16% in Hungary.
Inheritance: Death duty is imposed at progressive rates and the applicable tax rates vary depending on the relationship of the beneficiary to the deceased. In case of lineal descendants, there is no inheritance duty on legacies.
Residents: As from 2011, a flat tax system applies to individuals. The tax rate is 16%, which applies to 127% of the total tax base, which results to an effective flat tax rate of 20.3%.
Capital Gains: Net capital gains are taxed at a flat rate of 16% in Hungary.
Inheritance: Death duty is imposed at progressive rates and the applicable tax rates vary depending on the relationship of the beneficiary to the deceased. In case of lineal descendants, there is no inheritance duty on legacies.
Residents: As from 2011, a flat tax system applies to individuals. The tax rate is 16%, which applies to 127% of the total tax base, which results to an effective flat tax rate of 20.3%.
BUYING GUIDE
Last Updated: Apr 10, 2007
Roundtrip transaction costs are around 6% to 14% of the property value. The purchase tax for residential properties below €15,000 is around 2% the property value, above that, purchase tax is 6%. Real estate agent’s fee is around 3% to 5% plus 20% VAT. First transfer of property is subject to 20% VAT.
LANDLORD AND TENANT
Last Updated: Jun 05, 2006
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.
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.
ECONOMIC GROWTH
Last Updated: Sep 03, 2011
Strong Swiss franc threatens Hungary’s economic growth
Hungary’s economy grew by 1.21% in 2010, after a sharp contraction of 6.69% in 2009. The OECD expects it to expand by 2.7% this year, driven by exports and domestic demand. Inflation is likely to moderate towards 3%, and unemployment has slightly declined to 10.8% (April-June).Facing similar pressures to Greece, Hungary decided to avoid austerity measures and introduced crisis taxes instead to narrow its budget deficit, aiming to reduce the deficit below 3% in 2011 and to 1.9% in 2014. The extra taxes will be implemented within three years. In addition, the government plans to cut 30,000 public-sector jobs.
However the government is now rethinking its fiscal plan, after the Swiss franc appreciated to record levels against the Hungarian forint. The Swiss franc’s sharp gains would mean trouble, since franc-denominated loans are HUF4.83 trillion (US$25.37 billion), or around two-thirds of Hungary’s total household loans. The rise in the cost of franc loan repayments has already hit disposable incomes.
This presents the authorities with a difficult conundrum. The weak performance of the small and medium enterprises sectors, and of commercial real estate, has already prompted Moody's to downgrade the country’s banking outlook to negative.
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