Hungary’s fly-to-let investors should buy city centre new-build rather than being wooed by a holiday resort glow, according to experts at the Property Investor Show (21-23 September, ExCel London.)
Hungarian raised Managing Director of Access Hungary, Valeria White, who will be exhibiting at the Property Investor Show, says: “We offer real local knowledge, recommending and specializing in city investments, as this is where a country’s wealth is always concentrated. Traditional investment has often focused on happy holidaymakers returning from resorts. But typically infrastructure in these areas has to catch up with the development and surrounding poverty is often a concern. In Hungary’s capital, Budapest, for example, it is growing indigenous wealth that drive the market and locals who will be most likely to buy from you in the future.
Every investor should consider their exit strategy - who are they going to sell to? You shouldn't rely on it being another overseas buyer.” Budapest properties currently cost a third less than in many European capitals and last year saw around 2000 foreign property investors arrive, with the British, Irish, and Spanish buying 56% – mostly apartments. A significant number of beautiful 19th and early 20th Century buildings exist, providing apartments requiring renovation. Says Valeria White: “These eye-catching historical buildings are still attractive but, while buy-to-renovate presents an excellent opportunity to add value, it is a specialised field. Importantly, new-build is often more attractive to Hungarian buyers.
City centre wealth boosts the market, so that vital exit strategy is not dependent on continuing outside investment.” Budapest, with a fifth of Hungary’s population, produces 65% of the country’s GDP. The city is not only the country’s business heartland but has a strong claim to being the 'gateway to eastern Europe.' The average capital appreciation experienced in Budapest significantly exceeds the Hungarian average. Although growth has encountered a relatively flat period this year, forecasts expect this to pick up to around 10% per annum for each of next two years. This may be cautious, given the historical picture of 15%-20% per annum and Access Hungary has seen well-chosen commercial developments grow in value by 50% or more in twelve-months.
The Euro is also expected to boost the economy when it arrives around 2011. As large international companies invest in multimillion-euro office park projects, providing growing footplates for incoming firms, so it is more important than ever to choose your district carefully to achieve the best returns. Districts five, six, seven and thirteen have seen price rises and the boom is now spreading to neighboring areas.
Up and coming Corvin
Corvin Promenade, in Budapest’s Eighth district, is on the cusp of taking off and beginning to shake off its once down-at-heel image. It is the equivalent of Hoxton or Shoreditch in London over ten years ago and Central Europe’s largest urban renewal project. The regeneration covers six blocks of land including hotels, retail, commercial property, a science institute and residential development. Harvard Business School has been involved with the social planning to include green spaces and renovation of two underground stations, linking to the city centre only 5 minutes away. All the retained historic buildings will be restored.
Those who point at Corvin’s less salubrious corners forget that Hoxton, Shoreditch or not so long ago, Clapham, once sported such seedy images. But London gentrification now sees two-bed East London flats fetching £0.5 million. Those in the know watch the Corvin clean up and predict a similar poshness pervading the area, where prices now start at approximately £35,000 for a studio and £50,000 for a 1-bed apartment. Access Hungary’s, Valeria White, says: “70% of direct foreign investment in Hungary pours into Budapest. The demand for rental homes is high, with returns showing at least 5%-6%. We have options on Phase One of the Corvin regeneration. These are superb value for buyers, showing huge growth between phases and making excellent profits for our clients.”
Best to invest in Pest (or on the other side of the bridge, in Buda)
A report from analyst the Economist Intelligence Unit (EIU), cites Budapest as the best city to live in among the newly entered cities of the European Union, with good facilities and infrastructure. Hungarian banks offer easy loans up to 70% of the property price, over a maximum 20 years. Hungary has one of the lowest corporation tax rates in the whole of Europe. Savvy real estate companies, specialising in buy-to-let arrangements, enjoy a legal system that is relatively hassle free, typically taking less than two months from sale to completion.
Legal costs come in at around only 1.5% of the total property bill. An important factor in the rental market is the nine thousand wealthy foreign students per annum, who pour in from Eastern Europe, Greece, Germany and America. Able to afford anywhere in the world, Budapest’s eight universities are their destination of choice, where they study medicine, engineering and finance. With a dearth of pre-prepared student flats, residential investors find they can tap into attractive year-long leases rather than two-week holiday lets. Rates are also bolstered by corporate lets, typically around 1-2 years in duration.
Off plan for excellent growth
Marina Part is currently the most prestigious development in Budapest; the marina location on the banks of the River Danube contributing to the project being cited the city’s best residential project. Developers are claiming an anticipated 15% capital growth on off-plan investment in the development, which is close to the city centre. A one bed flat costs as little as £60,000 while 2-bed homes start from £76,000. In addition, there is a bank guaranteed staged payment plan (30% down / 70% on completion) with completion due in January 2008.
Airport expansion within booming economy
“Interest in Hungarian property from foreign investors shows no sign of slowing,” says Access Hungary’s Valeria White, “against a backdrop of an expected 2% fall in inflation (down to an anticipated 6% by the end of 2008 according to the OECD), good levels of foreign direct investment (FDI) and a plethora of chartered flights to regional airports.” Hochtief Airport (HTA), the new owner of Budapest Airport, has ambitious plans to transform Ferihegy into a hub for the Central-Eastern European region. Traffic has been growing at 11% annually, and though this sort of increase cannot expect to continue, HTA is still predicting 5-6% annual growth rate in the short term. Budapest will become a self-contained “airport city” with a 4-star hotel and conference facilities, car parking, a business and trade park. Both passenger and cargo capacity are to increase, with international standard retail facilities also planned.
International firms move in
Mobile phone giant Vodaphone is among international firms relocating back-office operations to Hungary. European headquarters are already established for firms such as General Electric, Citibank and IBM. Further investment comes from German high-tech PC game designers Crytek, which cites the “impressive talent pool in Budapest and its attractive location.” Investment bank Morgan Stanley, the Hilton Hotel group and British supermarket giant Tesco are among well-known names looking to expand Hungarian operations. Investment bank Credit Suisse is raising €137.5 million (£93.8 million) from London-based hedge funds and other institutions to fund EuroVegas in Hungary – a series of supercasinos, hotels, and a giant amusement arcade. It is understood to be the first time financing of this kind has been carried out in Europe, and aims to attract wealthy Russians in particular to the casino resort. While nearer to Bratislava or even Vienna than Budapest, the sheer scale of the project cannot avoid impacting on major conurbations.
On the ball with the Reds
A particularly British interest in Hungary has also been ignited via Liverpool football club. The Reds recently signed youngsters András Simon and Krisztián Nemeth from the Budapest-based MTK Hungaria, and a more formal association between the two clubs has been announced to include financial support for MTK's Károly Sándor academy. “It’s worth watching the sentiment generated by these kind of deals as footballers’ investment can boost the popularity of a location many times,” says Property Investor Show exhibitor Valeria White of Access Hungary.
Hungary: key facts
Population of 10 million – 20% in Budapest, generating 65% of the country’s wealth. Seen as the capital of Central Europe, bordering seven countries (Austria, Croatia, Romania, Serbia & Montenegro, Slovakia, Slovenia and Ukraine). Highly developed land register compared to other Eastern European countries; 12 month+ rents are common. One of the key benefits of investing in the city compared to holiday destinations, Hungary joined the EU in May 2004 and is expected to adopt the Euro in the next 2-3 years.