Stimulus needed to boost supply of new homes - MNB

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The National Bank of Hungary (MNB) acknowledged the positive impact a temporary reduction in the VAT rate on home construction has had on demand, but said further measures are needed to stimulate supply on a stable basis in a biannual report on the housing market.

"As a result of the re-introduction of the preferential VAT for new homes from the beginning of 2021, willingness to build homes has increased, but further steps are needed to stimulate supply on a sustainable basis," MNB said.

MNB noted that the launch of its Funding for Growth Scheme (FGS) Green Home program in October, which aims to support the construction of environmentally sustainable homes on both the demand and supply sides, was welcomed by the real estate professionals and policymakers of the Housing and Real Estate Market Advisory Board (LITT). LITT members said demand for new homes "expanded significantly" as a result of the program.

In the framework of the Green Home Program, the central bank is providing 0% refinancing to lenders for retail loans for new homes with a primary energy consumption threshold of 90 kWh/sqm per year. Interest rates on the loans are capped at 2.5%. The initial allocation for the scheme has been set at HUF 200 billion, but MNB deputy governor Mihály Patai said earlier there is a "very good chance" central bank policymakers will continue the program if that amount is used up.

MNB noted that construction materials prices in Hungary have risen "well above the EU average" for years because of low capacity, competition and competitiveness issues, and warned that the recent global rise in building material prices could compound the problem.

"Continued, dynamic rises in home construction costs going forward would significantly deteriorate the situation of the housing market," the central bank said.

MNB said more favorable than expected macroeconomic fundamentals, together with the increase in home construction costs and home subsidies, contributed to an acceleration in the annual growth rate of home prices in the first half of 2021, and the "dynamic increase" could continue in the second half as labor market and income prospects remain good.

The bank said the risk of home price overvaluation rose "moderately" in Budapest and "to a larger degree" on a national average. It added that the price rises on the property market were "not accompanied by the penetration of risky lending".

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