Booming housing market in Hungary
December 17, 2018
During the second half of 2018, the national house price index rose by 16.2% y-o-y (12.7% inflation-adjusted), based on the Hungarian National Bank´s (MNB) house price index. Budapest house prices surged by 20.2% y-o-y (16.6% inflation-adjusted) during the same period.
Prices of existing dwellings rose by 10.6% y-o-y (7.7% inflation-adjusted) in Q2 2018, while prices of new dwellings went up by 10.4% (7.5% inflation-adjusted), according to the Hungarian Central Statistical Office (KSH).
Housing transactions increased by 5.1% in 2017, with strong increases during the first half of the year. From around 86,000 in 2012, transactions rose to around 154,000 in 2017. Credits for purchasing new homes surged by 80.1% y-o-y in 2017, while credits for second-hand homes rose by 31.1%, according to the Hungarian Central Statistical Office (KSH).
On the supply side, dwelling permits issued during the first three quarters of 2018 went up by 1.2% y-o-y. But this a sharp slowdown compared to the 11.2% y-o-y growth last year, based on KSH figures. However completions increased by 28% y-o-y during the first nine months of 2018.
Part of the recovery in housing demand 2014-5 was caused by a series of government measures. First, at the beginning of 2013, the government increased the amount of 5-year loan subsidies, the maximum value of subsidized loans, and the loan house price threshold, causing significantly stronger credit demand in the second half of 2013.
From July 1, 2015 a non-refundable subsidy, the family housing allowance (CSOK) became available. It can be used for buying new- and used homes, for apartment expansions, and for home construction. This subsidy scheme was expanded in March 2018, allowing families returning from abroad and those already owning a property who are about to buy new or resale homes to apply for the CSOK.
On December 15, 2015, the National Assembly lowered the VAT rate for new dwelling units to 5% from the previous 27%, in a further attempt to boost the property market. The new VAT rate will be effective from 2016 to 2019. The amendment also contained other measures to improve construction sector´s performance and reduce red tape, according to the Ministry for National Economy.
A proposal to extend the implementation of the 5% VAT rate up to 2023 was submitted to the Parliament in November 2018. The said extension would only be applicable to properties with a final building permit obtained by November 1, 2018.
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 five years, and this year won't be an exemption. Hungary's GDP rose by 4% in 2017. This was reassuring, as the economy had slowed to 2.2% growth in 2016 due to a decline in EU investment funds, after 3.4% growth in 2015, and 4.2% growth in 2014.
Domestic consumption, which is a combination of household consumption and investment volume, contributed strongly to last year's growth, according to the Ministry for National Economy. One-fourth of 2017's 4% growth was due to a six-year tax and wage agreement between social partners and the government concluded in November 2016, resulting in job growth and salary hikes pushing up consumption.
The resumption of the EU investment funds in 2017, as well as the favourable borrowing conditions, also helped fixed investment growth last year.
Domestic demand remains buoyant. With 4.9% y-o-y GDP growth in Q3 2018, Hungary is one of the fastest growing countries in the European Union. Economic growth above 4% is forecast by the government in the years up to 2020. In 2018 the economy is expected to expand by 4.3% to 4.5%, and by above 4% in 2019, according to Finance Minister Varga. The European Commission largely echoes the government's prediction, albeit with more conservative growth estimates of 4% in 2018 and 3.2% in 2019.
Unemployment in Hungary was 3.7% in Q3 2018, down from 4.1% the same quarter last year. In November 2018, the country's inflation slowed to 3.1% y-o-y from 3.8% in October, nearly approaching the midpoint of the central bank's 3% plus or minus 1.0 percentage point inflation target.