By Bridget Daley
An indispensable component of life is a place to call home; in Budapest, apartment prospects continue to diminish as rental prices steadily increase.
Reading analyses of the Hungarian property market from late 2015, the rapid appreciation of both sale prices and rent prices is striking. On October 9th, 2015, Financial Times observed that with the newfound trust in their jobs and salaries, Hungarian couples and families began to pursue the property deals they’d previously had on hold. And by taking the influx of foreign investors using Hungary for access to the EU into account, there is a shorter turnover once properties hit the market, thus a lower availability to match buyer utility, causing prices to increase more quickly.
From an investor’s perspective, the real estate market is a notoriously stable pursuit, also unto which the returns can be higher than other investments, if one were to rent it out or renovate and resell.
“Even though the growth was serious, I don’t think this is causing a bubble. Rather, prices have levelled out and should be growing slowly from now on. From year to year, Budapest is developing, becoming a popular tourist destination. We have seen extensive renovations and landscaping developments this year in preparations for the FINA Swimming World Championship. The tourism industry is growing every year and at the same time there are a lot of foreigners who chose Budapest as their home for different reasons at different times of their lives,” Andras Cornides, a property expert at Tower International explained.
Property prices in Budapest have surged over 50% in the past two years, as per Reuters, who also speculated that record low interest rates (0.9% ) and increasinlgy higher wages in Hungary will contribute towards a healthy continuation of property demand.
What does this mean for renters?
Well, to begin with, people will become less motived to buy. Despite the low interest rates, the general increase in prices of apartments in Budapest means that buyers looking to finance their endeavor will need to take out heftier loans.
If a young couple wants to purchase a one-bedroom apartment for say, 30 million forints, and needs to finance 20 million forints of the purchase price, dependent on their income and established payment scheme of course, it may take around 40+ years to repay the loan. To serve as an example, say they decide to pay 50,000 forints per month, toward the 20 million they owe in total, and considering the current .9% interest rate in Hungary, they will be repaying the bank for 39 years, with an accumulation of over 3 million forints in interest. Despite the assumption that they would sell the property before full repayment of the loan for purposes of relocation or starting a family, is it really worth it to buy when there is an interest sum equating to more than 10% of the purchase price to pay back? Especially as one can never be completely sure if the price appreciation of the property will be enough to purpose the repayment.
According to Tower International, a real estate firm in Budapest, the average rental price in August of this year was 150,000 forints per month, whereas the most expensive district, district V. averaged around 220,000, and underwent a dramatic 90% increase in rental prices over 2013-2016.
Students are also affecting the rental market, with Tower reporting a 20-30% yearly increase in rental prices affecting areas by universities. As a result, many students are beginning to favor living in other parts of the city with efficient transportation links to their respective universities.
Considering the surge of property value, the growing population of foreign students, and the ever-increasing ambition of investors, should the Hungarian government consider introducing rent control?