Budapest, Hungary Property Investment

Economic and policy background

Since the introduction of the new housing policy of the central government in 2001 the output of new dwelling construction has increased quite steadily throughout Hungary. Due to this, large developers became extremely active, mostly in the Budapest housing market. During the year of 2003 the number of dwellings put to use was about 6,300 in Budapest and as the new permissions testify 11,800 new dwelling constructions were started. Compared to the 2002 figures this means 15.9% increase in constructions issued. Such an increase had not been forecast by previous data, this boom took place during the last quarter of the year as a direct consequence of a change in the government s housing policy. Despite the recent aggravations both for buyers and developers, no significant decline is expected on the market.

The connection between general economic trends and the performance of the Budapest property market is obvious. The following table reveals a steady GDP-growth in Hungary, well above the EU15 average. The figure for this latter (EU15) in 2003 was only 0.7%, compared to 2.9% in Hungary. Future projections estimate that this difference will remain in mid-term.

Back to the city

There are several large-scale projects on the way or starting recently in Budapest, and lot more in the pipeline. The largest is the Marina Part project in District XIII, where, according to the plans, around 4,000 dwellings will be built near the Danube, in several phases. The largest rehabilitation program (Corvin-Szigony project), is to start in the near future; it covers the building of 2,500 new dwellings and the renovation of 1,400 older ones in District VIII, giving a large impetus for the development of this area.

The largest developers if they have the possibility concentrate on the city centre of the Pest side (District VI, VII, IX), or targeting the Danube oriented locations (District XIII, III and as for the future plans District XI). By now, the decade-long process of suburbanization slowed down a bit, and the gradually renewed city is becoming more attractive for the home-buyers. However the extremely high price of the remaining few construction plots significantly increases the prices of flats being built here.

The demand for inner city parts of Pest is enhanced by forecasts expecting significant growth in prices due to EU-accession in this segment. The residential redevelopment of the brownfield zone stretching through the Pest side considered as the reserve area of Budapest has not yet started in large-scale.

On the Hungarian housing market, a general price increase is estimated by professionals, both by investors, developers and agencies. Despite that during the last 2-3 years the inner city zone was the area where prices grew most, this process will not likely to slow down significantly in the next years. Since 2000 an average 80-100% increase could be detected in District VI and VII, in nominal value. For the year 2004 as a whole, because of the quite limited supply in quality dwellings 15-20% price increase would be reasonable in these most desired downtown areas. In this location (inner parts of District VI, VII, IX and District V), after the EU accession the pace of price growth will surely remain at this high level.

As for the newly built units in Budapest an average 15-17% nominal price increase is estimated by the end of 2004, compared to the Dec 2003 figures. In locations with limited development possibilities (near the Danube, downtown of Pest, inner part of the Buda side) higher price growth will be seen.

View on the Danube

Homes by the Danube are traditionally popular amongst well-to-do purchasers. The penthouse apartments of the newly built condominium close to the new National Theatre by the Danube (District IX) were sold at extra high prices, mostly to foreign buyers. Dwellings with panoramic view on the Danube are purchased in 90 % for investment purposes, as second or third apartments. Also on the Pest side, home-buyers are willing to pay even a million HUF per sqm for a second hand dwelling in good condition, with panoramic view on the Castle Hill.

As for the Castle District (District I), Anjou Residence, being the only new project under construction represents a good example of the price increase effect of unique features. By the lack of new construction sites on the top of the Castle Hill, the price of the elegant dwellings at the Anjou Residence, equipped with several kinds of luxury elements, is very stiff; it is between 900,000-1,4 million HUF per sqm. The price of the cheapest unit equals to the amount of 15 years average gross salary in the capital

The prestige of the Danube shore is strengthened in the Buda side as well. On the R mai-part shore (District III), stretching north from the jpest railway bridge, several residential park constructions have started during the last months, close to each other. Developers are building upon the attractiveness of the river and the wonderful view. Out of the unique ambience buda coast, there are no larger areas to be built-in near by the city centre.

Investment possibilities

In the last decade foreign investors were mostly interested in the office and retail property market part of the Hungarian, primarily Budapest real estate market. However, in the last one and half year, thanks to the above examined favourable market environment attention turned towards the residential market. It seems development will be long-term in this segment, what is confirmed by experts forecast of further price increase in the Budapest area.

Examining the long-term processes, as the Budapest market is developing and is getting mature, foreign investors are discovering other areas of the city (Buda side). During 2003 about 1,000 dwellings in Budapest had been purchased by foreigners for the value of some 10 billion HUF. This is about 5% increase compared to the 2002 figures. The majority buys for their own use, but the investment purpose becomes more and more significant. Among the Western nations Irish, British and American investors remarkably increased their activity, while German buyers are traditionally on the first place in number and value of deals.

Among foreigners the most popular area is the downtown, where they are seeking for dwelling with average size (70-100 sqm) and price (20-35 million HUF) parameters. In District VI 142 units were sold, while in District V 109, in Distict VII 92 dwellings were bought by foreigners. Their confidence can be further increased by the average 5-7% yields what is higher than the ordinary returns in Western Europe, by the nice general look of Budapest, its attractive natural environment and the development of the quality of the real estate stock.