Oh dear! Poor old Hungary. How embarrassing to be the only country in New Europe which has actually seen property prices decline during much of 2006 (although, overall, the country did see a slight rise of 3.8%).
So where did it all start to go so wrong, especially when it started off going so right?
Straight after the revolution, Hungary immediately became the country that the others had to beat, introducing an attractive tax regime that attracted plenty of foreign investment – more than all of the other Eastern European countries combined at one stage. In recent years, however, Hungary’s growth started to get overtaken by its rivals – not bad, but the others started doing better.
By 2006, things were looking far from ideal. GDP growth was down to 3.8% - pretty poor by the standards of the other developing markets. To make matters worse, there was a major scandal when it was revealed that the government had downright lied about some of the country’s key economic data, meaning that Hungary was in nowhere near as good a state as the official figures made it out to be (thus becoming Eastern Europe’s answer to Enron). The result was that tens of thousands of Hungarians took to the streets to demand that the government resign. Miraculously, the government survived. You can imagine that this whole situation didn’t look terribly impressive to any foreign company looking to invest in Hungary though.
This debacle is not the main reason why the property market in Budapest is actually declining though. In this respect, it is more a case of Budapest being a victim of its own success.
Although all of the major capitals in the ‘EU 8’ saw prices rise in the run up to EU accession, none of them saw as much speculation as Budapest saw. The Irish in particular were big investors in Budapest, hoping to see the same kind of growth that they had seen property in Dublin achieve in the years after EU membership. As property prices rose rapidly, so the developers got to work developing more and more property to sell, until there was simply too much available.
Of all of the new entrants to the EU in 2004, Hungary had the most regulations with regards to foreigners buying property (with the exception of Slovenia) and some of the worst mortgage conditions (again with the exception of Slovenia). With an over-supply or property and not terribly attractive conditions for anyone to buy property – foreigners or locals, it’s easy to see why the market has been pretty flat for the past couple of years.
Knight Frank believe that the market isn’t going to see substantially better growth in 2007, predicting a measly 2.5% growth in the year. Sure it’s better than prices dropping some more, but you’d still get a better rate than that from your Building Society, let alone pretty much any other of the developing markets we discuss.
So, for anyone looking to make a quick killing, Budapest is definitely not the market for you. However, for anyone looking for a decent return over the medium or long term, don’t discount Budapest altogether. Although Hungary’s economy has seen better days, it’s not going to stay that way forever. Budapest also has a thriving tourist industry – second only to Prague’s in the region when it comes to city breaks. You can’t take that away from it.
As we have said before, Hungary’s mortgage products still aren’t great. But chances are that they are going to improve and, when they do, people are going to start buying property again. The rate of new developments has slowed down dramatically as well, so supply and demand will start to get back into balance.
In comparison with most other cities in Eastern Europe, property in Budapest is looking cheap again. It’s not going to stay that way forever. Sooner or later it’s going to start catching up. Fast. And when it does, there are going to be some good profits to be made here.
You might be surprised to see that Hungary gets a mention in the resorts section of the facts and figures section with the inclusion of the Balaton region. No, it’s not on the coast as such, but Balaton is the biggest lake in Europe and benefits from having a pleasant micro-climate that makes it a major tourist destination, particularly for Austrians, Germans and Italians. RyanAir now flies direct from Stansted, so it’s likely that more British are going to be heading there over time. Property prices are still pretty low here at the moment and there’s not a lot of development happening, but the prospects for growth look quite positive. It could be worth a look if you’re looking to buy in a holiday destination and the seaside is not for you.
Additional Background Information
The above contains our thoughts on the current state of the market. But, like any type of investment, there are no guarantees as prices are always influenced by a huge number of different variables.
You can keep abreast of developments in the market by checking out the articles in our News section where we’ve trawled the Internet for every story connected with property in Hungary so you don’t have to. By checking the news reports regularly and thinking through the consequences of each piece of news, you should be able to get a good idea as to how quickly or slowly property prices in the market are going to rise in the near future.
The information in this section only tells half the story, however as only a small proportion of Hungarian property news is translated in English, which means that the locals are getting a lot more useful information than foreigners are.
Investing in the wrong markets could make the difference between making tens of thousands and losing tens of thousands over the next few years. If you’re seriously considering investing in Hungary, then you should think of subscribing to our Premium Service so that you can get all the breaking news from the market at the same time the Hungarians are hearing it.
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