What can we expect in the real estate market in 2021?

In recent years, the Hungarian real estate market has been at a peak. House prices rose at an above-average rate, even by European standards, before a downturn occurred last year. This year, however, the market may improve further as the government effectively supports transaction volumes and the premium segment continues to generate solid demand from affluent target groups.

The Hungarian real estate market recovered around 2015-16 and experienced a second real estate boom in 2017-19, following the boom at the turn of the millennium. While the first boom at the turn of the millennium was driven primarily by government housing subsidies and cheap foreign currency loans, recent years have provided a much more solid foundation for the real estate boom.

Macroeconomic data in particular have provided strong and credible support for the real estate market: GDP growth in Hungary is well above the EU average, inflation has been almost non-existent for several years, but even the recent level of around 3% is not exceptional. The strong economic growth has led to a boom in construction and the real estate market, because the latter, as we know, is the most important indicator of the economy, the litmus paper that shows whether economic processes are moving in the right direction.

The boom has had an impact not only at the macro level, but also at the level of broad segments of society. The labor market has expanded tremendously, with 800,000 new jobs created in a decade, and one of the most important figures here is the economic activity of the population aged 15 to 74, which has increased from 54% in 2010 to over 64% in 2020, according to KSH. Wages have increased, consumption has continued to expand, retail sales have grown for more than 80 months before 2020, the key interest rate has been at a record low in Hungary for years, and as a result, home loans are approaching Western European levels, not to mention government-subsidized loans.

Booming real estate market

The second real estate boom is also characterized by a high diversification of assets, so that not only commercial real estate - office buildings, logistics centers, hotels, shopping centers - but also the residential market has gained importance in a wide range. In recent years, several target groups have become active on the market, not only the cheaper residential segment, but also the mid-range new construction segment and the premium segment.

The strengthening of the latter has been accompanied by the strengthening of small and medium-sized enterprises and large companies in Hungary, while the global players established and constantly developing in Hungary have also become active on the Hungarian real estate market. It is well known that the Hungarian economy is a very open market in global terms, and so, in addition to the owners and management of global companies, there is a diversified investor base, such as the significant Russian and Chinese purchasing power, which is also active in the premium real estate market.

The spectacular growth of the last decade can be illustrated by the housing market report of the National Bank of Hungary (MNB). While prices have grown dynamically in all European capitals, Budapest has stood out from the other metropolises, with house prices already exceeding twice the 2009 level by the end of 2018.

The epidemic has slowed down the market

2020 was something of a standstill year, as the epidemic, the increase in VAT on new-build housing to 27%, and the decline in the number of investment buyers due to losses on the Airbnb market reduced transaction volumes. According to the MNB, the Hungarian housing market was threatened by inflated prices in the past, as prices began to rise dramatically over the past decade. Last year brought some relief in this regard, while prices still rose by a few percent at the national level.

We expect recovery again next year

As the above economic fundamentals are stable and experts expect the domestic economy to recover after the epidemic is contained, international analysts also predict domestic GDP growth of 4% in 2021, so the real estate market could recover after last year's slowdown. No particularly large price increases are expected this year, but the intensity of the market and the number of sales could exceed last year's levels.

The housing program, which will be expanded to include new elements starting in January, will be used for apartments worth 30-50 million forints, while more expensive land and houses will be targeted for solvent demand, which was not particularly difficult to meet even after last year's epidemic.

So the market for premium properties, townhouses and villas continues to attract potential buyers, as buyers who entered the Airbnb market for investment purposes do not target this premium segment, preferring to buy apartments in the city center with 1.5 to 3 bedrooms, according to the AirDNA database. In the investment market, the favorable terms of the Hungarian Government Bond Plus (MÁP+) launched in June 2019 have also lured a certain market segment away from the real estate market, but they are mostly thinking in terms of tens of millions of forints.

According to experts from the Housing and Real Estate Market Advisory Board (LITT) set up by the MNB, investors have confidence in the housing market, so despite a significant drop in certain price categories last year, the sellers' side has not yet seen a higher proportion of those selling their previous investments.