Foreign Demand For Real Estate Falls In Hungary

By Boma Oduma






With unrealistic expectations for the performance of the residential real estate market in Hungary leading up to the nation’s EU accession in May, 2004, demand for Hungarian real estate by foreigners has taken a downward turn. Before accession, anticipation for increased foreign interest was very high in Hungary. The expectation drove developers to start new projects with some of them successfully developed in less than a year. An example of this tremendous success is the Duna-pest residences in Budapest’s district IX, which managed to complete 90% of its apartments in less than a year.

Although the residential market enjoyed the enormous benefit between 1997 and 2004 of catapulted real estate prices thanks in large part to foreign investment – most notably by the Irish – by the end of 2004 the market as a whole began to encounter less interest from foreigner investors.

“The increase did not reflect local investment,” said Andor Szel of Central Home, a leading Budapest realtor that specializes in selling downtown flats to foreign investors, “and, likewise, the downturn does not really reflect the Hungarian economy either, which is in fact growing.”

The 1990’s saw a great influx of German, Italian, and Israeli investors coming into Hungary as the market first opened to foreign buyers, according to the Central Home website. Rental income reached levels around 12%. With these days past and gone, however, foreign investors are turning away from Hungary, pitching their tents and their presence in Dubai, among other places, which appear to be more favourable at the moment. Dubai’s real estate popularity with foreign investors stems in part from coverage in British media: an exposure sorely missed by Budapest, even by the media of its most recent investors - the Scandinavians, the Spanish, and the Brits – whose general public lack the awareness of Budapest as a possible place of investment.

A vital issue for choosing a country of investment is access to local mortgages. Unfortunately, Hungarian mortgages are not easily accessible: with high interest rates, it is quite difficult for investors to purchase real estate and to invest in Hungary.

“Mortgage facilities in Hungary are not functioning well,” said Szel. “Due to economic pressures, it is very difficult to obtain mortgages from local banks. And those that are available come with very high interest rates, thereby discouraging locals from buying.”

The loan ratio is also relatively low in Hungary when compared to other western European countries, which likewise keeps down the relative prices of Hungarian real estate. Citizens as well as foreigners are affected by this fact, which holds back private investment. In Britain, there is an open possibility to take a British mortgage for a foreign investment, which gives British investors a comparative advantage so long as interest rates in Hungary stay high.

All hopes are not completely lost, as there are high expectations for 2007 regarding the reduction of interest rates for Hungarian mortgages. This promises to enhance the allure of the real estate market, churning forth a new wave of investors in Hungary since other market factors are indeed quite favourable. These include a fully-implemented computerized real estate register - unlike other countries in the region where printed documents are required as valid proof of ownership - as well as an availability of potential investments that outstrips more saturated markets in Western Europe.