More Bad News from Hungary’s Property Market

We recently posed the question ‘is property in Hungary a good investment’ and drew the conclusion that one should err on the side of caution across Hungary’s real estate sector in the short term at least – but it’s likely that we didn’t go far enough with our report because the latest and most overwhelming news from Hungary’s property market is very bleak indeed.

Property prices in Hungary are falling, the market is stagnant, all those who could take out mortgages did, all those who wanted to move house have, Hungary has joined the EU already meaning that there is unlikely to be another surge of investor interest in the nation and those foreign buyers who were attracted to the market have now either bought or changed their minds – these are the conclusions drawn by a property journalist for HVG.HU a leading Hungarian news source.

The low cost of finance and the availability of mortgages in Hungary saw the number of tangible asset backed loans increase five times in four years to 2004.  Initially this surge in affordability was resulting in developers constructing thousands of apartments and homes and resulting in local Hungarians ploughing all their borrowed money into real estate - but now that the Hungarian government have committed to tightening economic controls and reducing budgetary outlay, local Hungarians are going to witness a real drop in income and a sharp reminder that mortgages still have to be paid even when the cost of living increases and wages decrease.

Some analysts are predicting that Hungarians will see a drop in income of up to 10% and just talk of this has resulted in a dramatic downturn in the property and consumer spending markets.  Those who could afford finance previously have already taken it out already – but whether they can still afford to pay it when they lose income is another matter.  Mortgage market activity in Hungary has shrunk to almost half its size since 2004, the number of properties sold in Hungary’s most buoyant and active market, namely in Budapest dropped by over 60% in just one year and now developers who had massive plans for the ongoing construction of thousands of properties have curtailed or even cut projects because completed units are standing empty and asking prices are regularly being cut.

Locally there is little ongoing interest in property, there are also affordability options which will be exacerbated by the government’s budgetary cut back plans, the lack of rental interest or tourism activity in Hungary is putting off international investors and so we see very little to get exciting about in terms of property in Hungary as a solid returning investment commodity.

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