The coronavirus has taken its toll on the world in multiple ways, including negatively affecting the real estate market. In Budapest, the price growth of real estate has slowed down, and rental prices have dropped.
Even before the pandemic, the rate of real estate price growth had slowed in 2019. In some areas, the prices were already dropping. The pandemic only worsened this issue.
As of March 2020, Hungary’s Portfolio newspaper predicted that the Budapest real estate market would experience price drops of about 7 percent. This prediction appears to have come true. The Hungarian Central Statistical Office and the Central Bank of Hungary both calculated the same figure at the end of the year.
Looking Back to Earlier in the Pandemic
In the first wave of the pandemic, demand for real estate dropped between 40 and 50 percent. Despite the demand starting to normalize by fall, the real estate prices still dropped.
Overall, the average price per square meter of Hungarian property in the countryside dropped 6.4 percent in 2020. It fell 5.8 percent in Budapest. Meanwhile, county seats had an increase in prices of 4.2 percent.
What It Means
Many experts believe that the drop in real estate price growth, combined with rental prices dropping, indicates that Hungary’s real estate market may be at a turning point. This led to the question of what experts predict will happen to the market in 2021.
Portfolio examined its data for Budapest and made an educated prediction for Hungarian real estate. It is slightly mixed. The experts don’t expect the prices of family homes to continue dropping in 2021. The opposite is true; they predict an increase by the end of the year.
At the same time, Portfolio predicts that the prices of apartment buildings will drop by about 1 or 2 percent in 2021. According to the predictions, 2021 should still end on a good note for those buildings’ value. They predict by the end of the year, there will be an increase in the value of 4 to 5 percent.
How It Affects Rental Prices
The reduced growth of property value leads to a drop in rental prices, as well. After all, landlords cannot charge the same rent for a property that has a lower value.
Given the Portfolio predictions for real estate value in 2021, those experts predict the rental prices will continue their drop. This will at least last until spring or so.
The drop in rental prices was particularly dramatic in Budapest. There, experts connected it to the disappearance of foreign tourists due to the pandemic. There was no longer demand from international passport holders who wanted to gain residency, even temporarily.
The rental price reduction also impacted real estate purchases with the goal of an investment. Investors no longer wanted to buy properties for this reason, as buying properties to earn rental income no longer made sense. As such, most buyers were homeowners, not landlords or company entities.
Other Predictions for 2021
Experts have also already made other predictions for the Hungarian real estate market in 2021. They predict a sales volume of around 133,000. This would be less than the previous years.
That decrease makes sense given that the Hungarian government had various schemes to encourage sales. These included supporting building new homes and apartments, reintroducing a preferential value-added tax for those who build new apartments, and expanding the family support program to include renovations. Experts trust that those efforts contributed to the previous high sales.
Time will tell if these property management and investment predictions come true. Experts are also interested to see how real estate tax planning will continue to be affected. Meanwhile, managers, shareholders, and directors of private equity funds are keeping a close eye on the developments. They need to know how changes will affect their entity’s fiduciary decisions, corporate taxes, and foundation assets.
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