The Hungarian residential real estate market appears to be becoming an ever more attractive place for foreign investors, according to recent data summarizing investments from 2016. Q4 data shows that overall the Hungarian market was the second fastest growing in terms of residential real estate prices in the European Union, closely following Czech Republic.
A total of 3,163 residential properties were purchased in Hungary by foreigners last year, the majority of them being houses and flats, according to statistics made available in the database of official government website kormany.hu. The top three countries in terms of such investments are China (1,213), Russia (446) and Ukraine (231). Although the popularity of applying for credit is falling, some investors did opt for the possibility.
Attention to the market here grew the last year, as in 2015, only 2,358 residential real estate units were purchased by foreigners, though the top three source countries did not change. While Chinese citizens purchased almost twice as many units in 2016 than the preceding year (724), residents of the other two countries actually purchased fewer properties in last year: Russia 513 in 2015, and Ukraine 344.
As investor mood seems to be growing, it might be beneficial to note that foreigners have numerous possibilities in applying for credit. “The majority of Hungarian institutions make it possible for foreigners to apply for credit, but naturally the process is different than it is for Hungarians,” says Krisztián Vincze, the chief of the GDN Real Estate Network’s Credit Center, in a commentary sent to the Budapest Business Journal. “Although citizenship is an important factor when applying for credit, what is more important is whether the foreign client counts as a resident (devizabelföldi) or nonresident (devizakülföldi),” he adds.
A resident is a natural person who has identification documents issued by Hungarian authorities, which grants more credit possibilities for them compared to nonresidents. Another important factor seems to be where the individual receives their general income. If a foreigner receives their earnings from Hungary, even more possibilities are available for them.
In the case of individuals who do not reside in Hungary, and are solely interested in investing in the country, though the possibilities for credit are much reduced, they still might be able to receive bank financing for 60-70% of the real estate’s value.
The GDN professional notes that nonresidents can even be entitled to state funding, if all the criteria are clarified, such as why the individual is interested in Hungary, where they pay their taxes and if they have a Hungarian tax number. Vincze adds that it is a wide misconception that a foreigner will meet more complex administration and slower credit process, because the majority of creditors do not ask for translation of foreign language documents. Furthermore, as long as they are in English or German, in the majority of the cases no translation is needed at all, he adds.
Although interest in the residential real estate market in Hungary appears to be growing among foreign nationals, prices are also increasing here rapidly, two facts that may not be entirely unconnected. According to the latest statistics from Eurostat, the EU’s statistical authority, Hungary was second only to Czech Republic, out of 27 investigated member states, when it came to the growth in residential real estate prices in the fourth quarter of last year.
Prices of residential real estate units in Hungary grew by 9.7% in Q4 2016 as compared to the same period a year earlier, according to Eurostat, just behind the Czech market at 11%. In the first three-quarters of the year, Hungary actually topped that list, while the Q4 data is much higher than the regional average, according to an analysis sent to the BBJ by real estate firm OTP Ingatlanpont. The analysis also noted that, in the case all of the 27 countries investigated by Eurostat, an increase was observed in Q4 as compared to Q3, evidence that property prices are on the rise across the Union.
As compared to the preceding quarter, real estate prices in Hungary grew by 1.5% in 2016 Q4, putting the country among those in the middle. Malta, for example, saw a 6% quarter-on-quarter price increase in Q4.
“Average residential real estate prices for the whole country reached HUF 200,000 by the end of 2016 per sqm. In Budapest, buyers had to pay much more, approximately HUF 360,000 per sqm,” says Dávid Valkó, chief analyst of OTP Ingatlanpont, in the analysis. “An above the average price increase in terms of blocks of flats inflated prices [in that sector] to around HUF 300,000 per sqm in the capital, which used to be the level of top blocks of flats a few years before,” Valkó comments.
Additionally, nominal price levels broke a record at the end of last year, exceeding the peak prices of 2008, just before the financial crisis hit, OTP Ingatlanpont observes. In terms of real value, with the exception of Budapest, residential real estate prices lag behind approximately 10% to 2008, while the prices related to wages resemble that of 1998-1999, which is again about 10% lower than the respective peak before the crisis, OTP Ingatlanpont adds.
Valkó expects the expanding numbers of newly built residential real estate due to hit the market will slow price growth to a single digit in Hungary, while regional differences could further deepen.