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Residential rental demand dwarfs supply

A confluence of forces is driving up the numbers of would-be renters in Budapest, while the available stock of long-term leases is limited. Prices have responded to the point where a 60 sqm flat costs the average Hungarian monthly wage, but the market is still out of equilibrium for now.

If you want to hear about the turbulence in the Budapest rental market, just ask Anikó Lantos, director of training at the real estate agency Buda City Cartel. “It’s totally insane out there. There are simply no apartments for reasonable rent on the market. Even if you have the cash and you are willing to pay six months upfront, you need to be very lucky to snatch a decent place. Small flats are gone before you know it and formerly stigmatized neighborhoods are gaining acceptance as desperate would-be tenants scan the property landscape for property targets,” says Lantos. “Rental conditions have also toughened. The times where you negotiated the amount or the payment timing of your deposit are gone. And prices have skyrocketed within a matter of months.”

An unfolding drama

In terms of rents, the Hungarian capital is far from Luxembourg levels, where a room can easily cost €500. For that much, you get a 60 sqm apartment in Budapest, excluding public utility expenses. That amount is, however, equivalent to the average Hungarian monthly net wage, which reflects the drama behind the price hike fairly well.

“At the end of the day the market decides how much landlords can charge,” Imre Legény, managing director of, a leading rental search website says. He adds, though, that up to 80% of rental deals in Hungary are struck in the capital, and the bulk of that demand in Budapest concerns the inner districts.

“Fees of smaller apartments in downtown soared by 40-50%, but rents in the suburbs rose only by 10-15% in the past 1-1.5 years,” László Balogh, chief business expert of leading Hungarian real estate advertisement portal points out.

Landlords can also avail themselves of the possibility of short-term rentals, for Airbnb-style arrangements, and their confidence in being able to find tenants is rock solid. “Private individuals believe that they can rent out their properties alone, without the help of agents. In Q1 2015, the number of rentals offered by them increased by 1%, whilst those listed by agents dropped by 40%,” Balogh highlights.

Tenants at the gates

The battle to get the most desired properties is led by an army of potential tenants. Foreign and domestic students make up an always-renewing basis and many people move to work here. Demand is further fueled by the high number of divorces and those who prefer to pocket the difference between the revenue from renting out their own homes and the cost spent on renting. 

“In addition, a change of attitude is gaining ground among the young. A big number of them go to live in the West and they bring home a new approach to life, so they are a lot less obsessed with possession. The spread of the startup culture helps this trend grow, and that adds even more people to the tenant bunch,” Legény says. Another group of searchers are homeowners who could not service their mortgage loan debt (denominated typically in Swiss francs) and were forced to move to rental properties. And a lot of Swiss franc debtors that have managed to keep paying that mortgage so far may decide soon to become tenants, which phenomenon would put further pressure on prices. The reason why they may do so is rooted in the fact that all loans taken out in foreign currency had to be converted into Hungarian forints by government decree and considerable amounts of money are also due to be paid back by banks to clients on statutory grounds. Many may therefore use the situation to pay off their debts by selling their home and end up on the rental market as customers instead.

The transactions that never happened

“As the crisis began to unfold, rents dropped just like sales prices did, but then they started an upwards trajectory of their own from 2011 onwards,” Attila Déry, senior analyst at Otthon Centrum, a major real estate agency tells the Budapest Business Journal. One reason for that rise can be attributed to the fact that people delayed their property purchases. Whilst the number of sales transactions on the market had reached 225,000 countrywide in 2006, it skydived to some 85,000 in 2012. As experts point out, up to 400,000 purchases were put on hold during the recession.

“Many did not buy in 2009-2013 and chose to wait for a more stable economic climate and falling property prices to come. These transactions that never happened have put continuous pressure on demand,” Gábor Rutai, senior PR and analytical manager at Duna House, a top real estate agency says.

The crisis deterred buyers on many fronts. “Monthly mortgage payments went up and the sales market was dead. Now both took a positive turn,” Legény says. True enough, forint loans are more tempting than ever. The average total cost of credit in Hungary, at 13% in early 2012, is down to just above 6% three years on, according to the figures of the National Bank of Hungary (MNB). In parallel, due to the MNB’s base interest rate cutting policy, individuals can bag only some 1.8% on their bank deposits nowadays, a figure that was 5% as recently as in February 2013.

Hysteria in top gear

These factors are pushing investors to start buying at last. “Research shows that one-third of the purchase agreements in Budapest are concluded with the intention of renting out the property,” Balogh notes. Others put that ratio at 50%. In either case, the killer instinct of investors is surely a main driver behind the overall elevated number of purchase transactions. “The purchase market is just as hysterical as the rentals one. You don’t have the time to think if the property is centrally located and thus suitable for Airbnb, many are rushed into making a down payment even without checking the property deed,” Lantos says. Buyers can count on a gross ROI of 6-10% per year on average. This vitalizes Hungarians and foreigners alike to join the hunt.

“Even if you have the cash and you are willing to pay six months upfront, you need to be very lucky to snatch a decent place.”

So supply for available rentals is going up after all, which should ease the pressure due to the current scarcity of available rental flats. But can rents defy this trend? “Their substantial rise will not last for years; their growth rate should slow down and stabilize on a sustainable path. Cheap loans and government subsidies available for buying second-hand flats will strengthen buying too. Therefore, we don’t expect any strong upswing on the rentals market in the long run,” Déry projects. One thing is certain: tenants are counting the days for a change in trend.