Second-hand dwelling prices fell 10.2% in 2012 (-14.8% inflation-adjusted), the biggest decline since Q4 2010, according to the Hungarian Central Statistical Office (KSH).
In contrast, the primary housing market showed remarkable improvement, with new dwelling prices rising 7.4% in 2012 (1.9% inflation-adjusted), the first year-on-year increase since Q2 2009.
Yet despite that surprising rise, Hungary’s housing market is still extremely weak. During Hungary’s housing boom (1998-2007), house prices soared by 264% (102% inflation-adjusted). However, the market started to fall in 2008, mainly due to the global financial meltdown. House prices dropped sharply. Demand waned, and construction activity started to fall.
- In 2008, house prices fell by 1.7% (-5.7% inflation-adjusted) y-o-y
- In 2009, house prices fell 11.34% (-15.73% inflation adjusted)
- In 2010, house prices rose by a meagre 0.11% (-4.06% inflation-adjusted)
- In 2011, house prices fell 2.12% (-5.94% inflation-adjusted)
Construction remains very weak in 2013. Residential permits plunged 36.6% to just 493 in the first two months, compared to the same period last year. In 2012 the number of new residential building permits issued dropped 12%, to 6,099. The number of dwellings built also fell 16.6% to 10,560.
The mortgage market is very tight, with lending conditions punitive. New housing credits were down a stunning 54.6% in H2 2012, as compared to H2 2011, with only HUF61.76 billion (US$270 million) approved. Total outstanding housing credits fell by 16.9% in 2H of 2012, compared to last year.
Mortgage-backed foreign currency lending was banned in August 2010, which had greatly affected the market, since loans denominated in foreign currencies are important.
In 2013, the economy continues to struggle. It contracted by 1.7% in 2012, from real GDP growth rates of 1.7% in 2011 and 1.2% in 2010. In 2013, economic growth is expected to be subdued, mainly due to the weak business environment, poor investment climate, and low labour participation, according to the IMF.
Analysis of Hungary Residential Property Market »
Smaller apartments tend to be cheaper (on a per square metre basis) both in Buda and in Pest.
Rents per sq. m. in Buda range from around EUR 6 to EUR 10 per month, whereas in Pest, monthly rents per sq. m. range from around EUR 7 to EUR 12.
Gross rental yields, i.e., the gross return on investment in an apartment if fully rented out, ranges from 4.58% to 5.58% in Buda, whereas in Pest, rental yields are higher, ranging from 5.38% to 6.47%.
Duna House, Hungary's leading real estate firm, reports that buyers prefer small and cheap, than large and expensive homes. For example in District 6, most of the advertised apartments are 70 sq.m. , but buyers bought 57 sq. m. apartments on average.
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: Resident individuals are taxed on their income at a flat rate of 16%.
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.
In October 2008, the government was forced to ask the International Monetary Fund (IMF) and the European Central Bank (ECB) for a rescue package worth US$25 billion to restore financial stability and prevent the Hungarian economy from collapsing.
After the election of Prime Minister Viktor Orban in 2010, the new government nationalized US$13 billion worth of private pension-fund assets, and domestic banks were forced to convert their foreign-currency denominated mortgage loans to Hungarian forints.
The Hungarian economy returned to growth in 2010, with real GDP growth rates of 1.2% in 2010 and 1.7% in 2011. However, the economy contracted again by 1.7% in 2012, amidst high debt, high unemployment and the eurozone debt crisis.
In Q4 2012, the economy contracted for the fourth quarter in a row, with real GDP shrinking by 0.9% from the previous quarter, according to the Hungarian Central Statistical Office (KSH).
In 2013, economic growth is expected to be subdued, mainly due to weak business environment, poor investment climate, according to the IMF.
“Hungary has been plagued by low growth and high debt for much of the last decade,” said Thanos Arvanitis of IMF. “Weak growth in recent years has been due to an adverse external environment, structural factors, such as the ongoing balance sheet adjustment in the economy, and policy missteps by the government. Hungary needs a different mix of policies to jump start growth and increase employment.”
In 2012, Hungary’s general government deficit was about 2.5% of GDP. The deficit is expected to increase to 3.2% of GDP in 2013 and to 3.4% of GDP in 2014, according to the IMF.
The country’s gross public debt was about 79% of GDP last year and projected to rise to 79.9% of GDP in 2013 and 80.3% of GDP in 2014.
In the fourth quarter of 2012, the overall unemployment rate stood at 10.7%, up from 10.4% in the previous quarter, according to the KSH. Unemployment is projected to increase slightly to 11.1% this year, according to the IMF.
In an effort to buoy the struggling economy, the National Bank of Hungary (NBH), the country’s central bank unveiled the introduction of the program called “Funding for Growth Scheme”. This measure is aimed at increasing lending to businesses and reducing companies’ exposure to foreign currency denominated loans.
Under this program, commercial banks would get up to HUF250 billion (US$1.1 billion) in interest-free loans from the NBH while companies would get the same amount to convert their foreign currency denominated loans to forints. The program will be applied for three months starting June.
In addition, the NBH also plans to use €3 billion (US$3.82 billion) of its foreign currency reserves to help local banks cut their short-term currency debts.
In March 2013, the annual inflation rate fell to 2.2%, from 2.8% in the previous month and the lowest level since the country’s transition to a market economy. This sets the ground for more rate cuts to boost the economy.