Is There Money to be made from Property in Hungary in 2007?

It’s a well known fact that the residential property market in Hungary is stagnating and even shrinking in terms of property prices in certain areas of the nation and that international investor confidence has fallen dramatically in this sector.  Furthermore, traditional developers previously focused wholly on residential real estate such as InterEstate are now diversifying away from residential, and the mortgage market in Hungary has shrunk to half its size. 

All this begs the question ‘is there money to be made from property in Hungary in 2007?’ Well, if an investor is hell bent on buying residential stock, then unless they can negotiate bulk buy discounts on unsold stock in recently completed buildings in the main employment and population centres and look to the long term for ROI the answer is probably ‘no’ – but if you turn away from residential and begin to look at the commercial property market prospects you’ll find there is some positive news for property investors in Hungary.

The retail sector of the commercial property market in Hungary currently offers international property investors an interesting entry point.  It is a sector undergoing significant change and development and it is a sector suffering from a lack of required space whilst an intensification of international retailer focus on Hungary is pushing up the affordability barrier.  In other words there is a positive demand/supply dynamic which translates into potential profit for an investor.

Mind you, I’m sure some would disagree – after all, if you just look at the statistics you can see that retail concentration actually shrank by 0.5% in the third quarter of 2006 and indications are it likely shrank further in the fourth quarter.  But this tiny statistic actually manages to hide the bigger picture.  Yes, concentration shrank but that was as a result of the number of small retailers leaving the marketplace.  It’s a case of consolidation resulting in a more mature and refined retail market which offers an investor a more secure platform upon which to base investment decisions.

Another negative factor that some would cite as a reason to avoid investment into retail property in Hungary in 2007 is that the real GDP growth rate is predicted by the Economist Intelligence Unit to contract to just 2.6% in 2007 before rising to around 3% in 2008.  This contraction is forecast to result in a slowdown in domestic demand and a reduction of household consumer spending, resulting particularly from tax increases and ongoing fiscal reform likely to cause lower disposable income and even raise the prospects of higher consumer debt levels. 

However, most analysts predict that this period of consumer economic adjustment will be relatively short and that positive consumer spending patterns will resume by 2008 meaning that retail property investment should be seen as a medium to long term commitment for maximum potential in terms of profitability.

So, what’s available and what’s in demand?  Well, mall development has been significant and there is new space due to come to the market in Budapest in 2007 with take up expected to be very high indeed; elsewhere in Hungary the development of malls is strong and new and significant projects are under development in Gyor and Tatabanya for example. 

Consumer spending in Hungary particularly in Budapest is still strong and there is a demand for a broad range of product from discounted lines at factory outlets to luxury goods meaning there is a demand among retailers for a range of space with rents adjusted to the desirability of the location.  The number of super and hyper markets is growing, with the market leaders Tesco and Auchan leading the way and squeezing the smaller retailers out of this particular segment in the larger population centres.  In rural Hungary of course the influence of retail giants has yet to have any impact and this is where you will see the retail sector untouched at the moment. 

Overall the retail property market is diversifying, maturing and competition is heating up and international retailer confidence and commitment is based on the belief that strong spending patterns will resume as underlying GDP growth levels positively adjust from 2008 onwards.  DTZ the leading global real estate advisory believes that there are strong prospects for short term rental growth and long term ROI. 

Special Reports: Property News for Hungary

Hungary for Property Buyers
Hungary has a popular real estate market with local and international property investors it offers strong profit and yield potential.

Hungary Property Buying Process
The duration of the property buying process in Hungary can seem interminable, but apart from that the process is straightforward

Hungary Property Investment
Investors are enjoying good capital growth in Budapest where the majority of property investment is centered in Hungary