Market in Depth

It is something of a disaster

Lalaine C. Delmendo | February 01, 2021

It is something of a disaster.  During the year to Q1 2020, the price index for second-hand homes in Hungary has plunged 18.3% - in sharp contrast to the previous year's 14.5% price rises and the first y-o-y property price decline in seven years, according to the Hungarian Central Statistical Office (KSH).

When adjusted for inflation, residential prices actually fell 21.7%. On a quarterly basis, second-hand home prices fell by 6.1% in Q1 2020 (-7.5% inflation-adjusted).

The primary market is in an even worse condition, with the price index of new homes plummeting by 21.2% during the year to Q1 2020 (-24.5% inflation-adjusted). Quarter-on-quarter, new home prices fell 9% (-10.3% inflation-adjusted).

The pandemic has also adversely impacted the rental market. In April 2020, the number of flats for rent in Budapest – a city that is a big tourist destination – surged by 22% as compared to February 2020. A large number of dwellings, which had been previously rented out short-term to tourists, have been shifted to the long-term rental market, according to the Housing and Real Estate Advisory Board (LITT). Unsurprisingly, the average asking prices for flats to let has fallen in most districts of Budapest, especially in the downtown districts.

In Q1 2020, the average price of second-hand homes in Hungary was HUF 16 million (€ 44,415) while it was HUF 24.7 million (€ 68,565) for newly built homes.

Even before the pandemic, demand was already falling. The total number of second-hand homes sold fell by 8.7% to 141,115 units in 2019 from a year earlier, in contrast to a 4.7% growth in 2018.

New dwelling completions, mostly started before the pandemic, rose strongly by 34.4% y-o-y to 8,697 units in H1 2020. But new dwelling permits fell by 31.6% y-o-y in H1 2020, according to KSH.

The situation is not expected to improve during the remainder of the year given the huge uncertainty pose by the pandemic.

Hungary's economy shrank by a huge 13.6% y-o-y in Q2 2020, in sharp contrast to annual expansions of 2.2% in Q1 2020, 4.5% in Q4 2019, 5% in Q3 2019, 4.9% in Q2 2019 and 5.3% in Q1 2019, according to KSH. It was the biggest y-o-y contraction ever recorded.

The economy is expected to contract by 7% this year before bouncing back with a GDP growth of 6% in 2021, based on projections from the European Commission.

Hungary house prices
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.


Analysis of Hungary Residential Property Market »

Rental Yields

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.

Read Rental Yields »

Taxes and Costs

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%.

Read Taxes and Costs »

Buying Guide

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.

Read Buying Guide »

Landlord and Tenant

Unregulated rental
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.

Read Landlord and Tenant »

ECONOMIC GROWTH

Economy contracts for the first time in 8 years

Hungary’s economy shrank 13.6% y-o-y in Q2 2020, its biggest contraction ever, with the COVID-19 pandemic hurting most sectors of the economy.  The economy had previously grown by a robust 4.9% in 2019, following expansions of 5.1% in 2018, 4.3% in 2017, 2.2% in 2016, 3.8% in 2015 and 4.2% in 2014, according to the International Monetary Fund (IMF).

During the year to Q2 2020:
  • Household spending dropped 8.4%;
  • Investment plunged 13.5%;
  • Exports and imports fell by 24% and 15.8%, respectively;
  • Government spending increased 5.8%

The economy is expected to contract by 7% this year before bouncing back with a GDP growth of 6% in 2021, based on projections from the European Commission.

Unemployment stood at 4.8% in the three-month period ending July 2020, up from 3.4% a year earlier, according to KSH figures.

Hungary gdp inflation
The country’s inflation edged up to 3.9% in August 2020, up from 3.8% in the previous month and near the top of the central bank’s target range of 2% to 4%.

Orban’s power grab continues
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.

Economic growth 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, when the Fidesz–KDNP alliance won a two-thirds parliamentary majority, with 133 seats out of 199.

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.

Orban’s growing authoritarianism has met resistance. 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 to 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.

Orban’s latest target is the University of Theatre and Film Arts in Budapest (SZFE), which the government identified with the “left-liberal” ethos. This coincides with yet another move to shut down the country’s last independent political radio station, Klubrádió. In September 2020, the state media authority, NMHH, announced that it would not extend Klubrádió’s broadcasting license due to expire in February 2021 because of numerous but unspecified irregularities, sparking fresh concerns about media freedom.
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