Foreign Investment in Hungary’s Real Estate Has Dropped Significantly

Those involved in the real estate market in Hungary have noticed a significant drop in foreign investments. Experts connect this reduction in investments to the coronavirus pandemic.

Relevant Statistics

Data from ingatlan.com indicates that foreign participation in the Hungarian real estate market went down a whopping 80 percent from January to October, annually.

This is particularly important for Hungary given the large number of foreign investments, many of whom seek international investments in Hungary for tax planning and favorable corporate tax rates. To provide some perspective, consider that over half of Budapest’s properties were bought by foreign investors. Most of those were within the inner districts.

Historical Foreign Investments in Hungary

It has been true throughout the years that foreigners own real estate in Hungary. Data from the Central Statistical Office indicate that just last year, foreigners purchased 7,000 apartments. Most of these purchases were by Chinese and German foreigners, some of whom wanted foundation assets while others wanted to live in Hungary with their passports.

Of the apartments in Budapest’s city center, most of those were purchased with the goal of renting them for profit. Foreign investors have been more likely to buy big family homes in the Buda area of Budapest to live in, while renting the smaller apartments in the city center.

There is also a high number of holiday homes by Lake Balaton purchased by Germans and Austrians. The majority of those homes are expensive and have lovely views, requiring in-person management.

The Likely Effects

Experts predict that now that these investors have left, there is bound to be an effect on the market. Magyar Nemzet, the pro-government Hungarian newspaper, expected that the result would be lower prices.

Not a Complete Surprise for All

Despite the dramatic drop in foreign investments in real estate in Hungary, it is not a surprise to everyone. In July 2020, there were some predictions that the epidemic’s changes to the real estate market would lead to foreigners leaving the real estate market.

To make matters worse, the foreign interest in Hungarian property had already seen a decline in the rate of increased interest. For 2018, there was an increase in interest of 23 percent over the previous year. In 2019, there was only an increase of 6 percent.

The predictions in July came from ingatlan.com’s leading economic expert, László Balogh. Balogh said that there was an increase in visits to websites advertising properties but a decrease in serious interest. Balogh cited two factors for this. The first was that Hungarians who live abroad considered buying a property at home to move back and regain residency, hence the increase in visits. However, they chose not to follow through, therefore the lower purchases. This combined with the fact that foreigners did not want to buy property in different countries during a pandemic, given the challenges associated with it. These challenges include having to rely on a director or manager due to the inability to travel.

The Rental Market as a Whole Has Deflated

It is not just foreign investors who have changed their fiduciary strategies for real estate investments. Hungary’s rental market has deflated overall. As of September, the rental prices for apartments were 5 percent lower compared to the same rates a year ago. While this is better than the previous 10 to 15 percent drop seen earlier in the year, it is still a reduction that shareholders feel.

The problem is only predicted to get worse. This is because higher education has officially gone digital across the country, which will likely encourage many students to move home, further reducing the demand for rental units. These changes make it unappealing for any private equity fund, trust, company, or other financial entity to invest in Hungarian real estate at the moment.

Sources:

https://hungarytoday.hu/foreign-investors-disappear-from-real-estate-market/

https://dailynewshungary.com/foreign-property-investors-to-disappear-from-the-hungarian-real-estate-market/

https://xpatloop.com/channels/2020/11/hungarian-fall-rental-market-deflated-by-covid-19.html

https://bbj.hu/real-estate/investment-housing-rent-yield-down-25_190630