Hungary’s housing market is now struggling

Hungary’s housing market conditions are deteriorating fast, amidst plunging demand and weak residential construction activity, coupled with an ailing economy.

Hungary’s nationwide house price index rose by 2.82% during the year to Q2 2023, a sharp deceleration from y-o-y increases of 10.56% in Q1 2023, 17.19% in Q4 2022, 24.12% in Q3 2022 and 24.85% in Q2 2022, according to figures from the Hungarian Central Statistical Office (KSH). When adjusted for inflation, the index actually dropped by 15.6% over the same period.

On a quarterly basis, house prices fell by 1.69% (-2.95% inflation-adjusted) in Q2 2023.

Hungary’s house price annual change

Pest, the eastern part of Budapest comprising about two-thirds of the capital city’s territory, saw the biggest y-o-y price fall of 35.62% in Q1 2023. It was followed by the Northern Great Plain (-21.02%), Southern Great Plain (-11.8%), Northern Hungary (-10.56%), and Southern Transdanubia (-10.53%). A more moderate decline was seen in Central Transdanubia (-5.17%).

In contrast, only Budapest and Western Transdanubia saw minimal price increases of 3.47% and 1.15%, respectively.

Nationwide, the average price of new homes was HUF 56.9 million (€147,297) in Q1 2023, while second-hand home prices averaged HUF 26.2 million (€67,824).

Demand is falling sharply. During 2022, the total number of second-hand homes sold in Hungary fell by 17.6% to 122,586 units from a year earlier, in stark contrast to a y-o-y growth of 19% registered in 2021, according to KSH. Then in Q1 2023, sales of second-hand homes plunged further by 64.7% y-o-y to just 13,629 units.

With plummeting demand, it is not surprising that residential construction activity is also falling. In H1 2023, housing completions in Hungary fell sharply by 19% y-o-y to 7,353 units while housing permits dropped 38.6% y-o-y to 10,880 units over the same period, according to figures from KSH.

The overall economy is now suffering, with its real GDP declining by 2.4% y-o-y in Q2 2023, following a 0.9% drop in the previous quarter, amidst weaker external demand, higher commodity prices, and tighter financing conditions. It was the steepest decline seen since Q4 2020. On a seasonally adjusted quarterly basis, GDP dropped by 0.3% in Q2 2023, at par with the previous quarter.

As such, the European Commission expects the Hungarian economy to expand by a meager 0.5% this year, a sharp slowdown from annual growth of 4.6% in 2022 and 7.2% in 2021. In fact, the International Monetary Fund (IMF) is even more pessimistic, projecting the country’s real GDP to contract by 0.3% this year.

Local house price variations

Budapest and Pest have the most expensive housing in Hungary, with the average prices of second-hand homes in 2022 reaching HUF 48.3 million (€125,034) and HUF 44.1 million (€114,162), respectively.

In the Transdanubia region, the average price of second-hand homes was HUF 27 million (€69,895) in the central area, HUF 26.2 million (€67,824) in the western area, and HUF 18.2 million (€47,114) in the southern area.

The Great Plain and the North region had the least expensive housing in the country. In Northern Hungary, the average house price stood at HUF 13.7 million (€35,465) in 2022 while it was about HUF 16.2 million (€41,937) in the Northern Great Plain and HUF 16.9 million (€43,749) in the Southern Great Plain.

The large concentration of foreign homebuyers in Budapest is one of the main reasons for the huge price difference between the city and the whole country. A foreigner buying a home in Budapest spends above HUF 40 million (€103,547).

Hungary Mean Price of Sold Second-hand Homes graph

Demand is plunging

During 2022, the total number of second-hand homes sold in Hungary fell by 17.6% to 122,586 units from a year earlier, in stark contrast to a y-o-y growth of 19% registered in 2021, according to KSH.

By region:

  • In Central Hungary, second-hand home sales were down by 21% y-o-y to 33,236 units in 2022, in sharp contrast to an annual increase of 12.8% in 2021. In Budapest, sales fell by 13.2% to 27,293 units in 2022 while sales in Pest dropped 44.2% to 5,943 units.
  • In Central Transdanubia, second-hand home sales fell by 22.3% y-o-y to 12,195 units last year.
  • In Western Transdanubia, sales of second-hand homes dropped 15.6% to 12,627 units in 2022 from a year earlier.
  • In Southern Transdanubia, sales plunged 19% y-o-y to 11,785 units in 2022.
  • In Northern Hungary, sales fell by 13.1% y-o-y to 16,106 units last year.
  • In Northern Great Plain, second-hand home sales fell by 14.3% y-o-y to 19,270 units last year.
  • In Southern Great Plain, the number of second-hand homes sold dropped 14.9% to 17,367 units in 2022 from the prior year.

Demand continues to fall this year, with the number of second-hand homes sold nationwide plummeting by 64.7% y-o-y to just 13,629 units in Q1 2023. In Budapest, which accounts for more than one-fourth of total sales, second-hand homes sold fell sharply by 62.7% to 3,480 units over the same period.

Hungary Sales of Second-hand Homes graph

Foreign home buying remains weak

During 2022, foreign investors - who were not citizens of the European Union, the European Economic Area (EEA), or Switzerland – accounted for just 2,524 housing purchases. This represented only about 2% of total housing transactions last year.

Budapest remains to be the favorite destination among foreign investors, accounting for more than half of foreign property demand. District 7 was the most popular location for foreign homebuyers, followed by District 6 and District 8.

Towns and villages in the counties around Lake Balaton are also sought after, representing more than 10% of foreign demand.

Home purchases by foreigners plunged in the past three years, mainly due to pandemic-related travel restrictions. But before the COVID-19 pandemic, foreign homebuyers had been steadily rising in Hungary – from 3,207 purchases in 2017 to 3,529 purchases in 2018 and finally to 3,753 purchases in 2019. Chinese citizens accounted for more than half of the total, followed by EU citizens (22%), primarily Germans. Other large groups of buyers were Israelis (11%), Russians (4%), and Turks (2%).

Hungarian law requires that real estate purchases shall be concluded through a 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. 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 a 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.

Residential construction activity falling

Housing completions in Hungary fell sharply by 19% y-o-y to 7,353 units in the first half of 2023, following a 6.8% decline in H1 2022, according to figures from KSH.

In H1 2023:

  • In Central Hungary, newly built homes dropped nearly 25% y-o-y to 3,904 units, following a 16.8% decline in H1 2022. In Budapest, completions fell by 36% y-o-y to 2,316 units in H1 2023 while they were more or less steady in Pest at 1,588 units.
  • In Transdanubia, newly built homes fell by 9.5% y-o-y to 2,148 units in H1 2023.
  • In Great Plain and North, completions dropped 16.7% y-o-y to 1,301 units over the same period.

Hungary Housing Permits graph

In H1 2023, the total number of permits issued for residential buildings plunged by 46.6% y-o-y to 4,238, following a 15.9% decline during 2022, according to KSH. Likewise, dwelling permits fell sharply by 38.6% y-o-y to 10,880 units over the same period, in contrast to a 16.9% growth for the full year of 2022.

Currently, there are about 4,586,878 dwelling stock in Hungary, up slightly by 0.1% from a year earlier.

Hungary Dwelling Stock graph

Housing cycle

It was in 2014 that the housing market started to recover from the 2009 global financial crisis when the forint’s steep decline had caused the mortgage market to collapse. From 2008 to 2013 house prices fell by 21% (36% inflation-adjusted). However, legislation in November 2014 required financial institutions to convert all outstanding foreign currency-denominated loans into HUF by December 2015, by which time only 0.2% of the stock of housing loans was in foreign currency, sharply down from 52% in December 2014. 

In 2014 house prices rose 6.6% (7.3% inflation-adjusted). House prices have been rising by double-digits annually since then, surging by a total of 120% (99% inflation-adjusted) in 2014-19.

House price growth decelerated to 8.93% (5.95% inflation-adjusted) in 2020, amidst the economic repercussions brought by the Covid-19 pandemic and the ensuing lockdown measures and travel restrictions.

The housing market bounced back quickly in 2021, registering a house price increase of 21.93% (13.87% inflation-adjusted), as economic conditions gradually improved. During 2022, house prices rose by 10.64% from a year earlier but actually declined by 9.85% when adjusted for inflation.

Year Nominal Inflation-adjusted
2008 0.21 -3.87
2009 -9.26 -13.75
2010 0.53 -3.63
2011 -3.90 -7.68
2012 -6.56 -11.34
2013 -3.57 -4.28
2014 6.56 7.30
2015 14.36 13.77
2016 15.37 13.96
2017 14.65 12.08
2018 16.51 12.85
2019 18.12 14.24
2020 8.93 5.95
2021 21.93 13.87
2022 10.64 -9.85
Sources: MNB, Global Property Guide

Part of the recovery in housing demand during 2014-5 was caused by other government measures. 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 for buying new and used homes, for apartment expansions, and for home construction. It was expanded in March 2018, allowing families returning from abroad and those already owning a property about to buy new or resale homes to apply for the CSOK. The government now repays HUF 1 million (€2,578) of the mortgage loans of families with at least two children. Moreover, every woman under the age of 40 is also eligible for a CSOK interest-free loan when she first gets married.

From 2016 to 2022, nearly 230,000 families had already benefited from this program, receiving a total of HUF 560 billion (€1.44 billion). The average amount of loan per disbursement was HUF 2.4 million (€6,187).

As a result of the surge in demand, residential construction rose sharply, with almost half the new supply being in Budapest and Pest. In 2020, the total number of newly built dwellings in Hungary soared 33.5% y-o-y to 28,208 units despite the pandemic, following annual rises of 19.5% in 2019, 22.9% in 2018, 44% in 2017, and 31.3% in 2016, based on KSH figures analyzed by the Global Property Guide. However, in 2021 and 2022, newly built dwellings fell to an annual average of 20,200 units, amidst rising material costs.

Moderate rental yields; rising nominal rents

Gross rental yields in Budapest are moderately good, ranging from 3.5% to 8% with a city average of 5.12% in Q2 2023, based on Global Property Guide research. Rental yields in other Hungarian cities are significantly different.

  • In Debrecen, gross rental yields for apartments range between 4.47% and 5.43%, with a city average of 5.06%.
  • In Pécs, gross rental yields range from 4.47% to 6.45%, with a city average of 5.37%.
  • In Nyíregyháza, gross rental yields for apartments range from 4.11% to 5.88%, with a city average of 4.94%.
  • In Kecskemét, rental yields range from 4.62% to 5.45%, with a city average of 4.95%.

After plummeting in recent years due to travel restrictions imposed to curb the spread of the coronavirus, as well as the new rules restricting Airbnb rentals, apartment rents in Hungary are rising again.

In August 2023, apartment rents in Hungary rose by 12.43% from the same period last year, according to the latest rent index analysis. In Budapest, rents also increased 12.55% over the same period. However, when adjusted for inflation, rents in Hungary as well as in Budapest actually declined by 3.43% and 3.27%, respectively.

“Nominal rents in August 2023 were already 33% higher than their peak in January 2019 nationally and 29% higher in Budapest,” said the report. However when adjusted for inflation, “real rents were 7.5% and 10% lower than before the epidemic.”