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Housing Market Trends in Hungary – The Big Picture

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by admin
December 27, 2015

Since property is a value itself for people and their future generations, housing market (real estate prices) will always experience bubbles and bust. This is because a long list of interconnected factors (liquidity seeks for investments with short term better returns; urban development; income opportunities; people’s psychology and behaviours etc.) in a world where 54% of the global population lives in cities. And the urbanisation will not only grow further, but also will undergo modernization to adapt to climate change related challenges (e.g. increasing energy efficiency, decreasing greenhouse gas emission etc.).

In Hungary, the stock of homes was dynamically increasing up until 2011 (Figure 1). This was mainly driven by newly built homes with 3 or more rooms while the stock of homes with 1 or 2 rooms was more or less stagnating between 2001 and 2010 (Figure 2). What is more, the average floor area of built dwellings exceeded 102.7 m2 even in the aftermath of the 2008 global financial and economic crisis that resulted in a decline in the number of homes with 1 or 2 rooms.

Figure 1. Number of homes in Hungary

Figure 1. Number of homes in Hungary

Source: Hungarian Central Statistical Office.

Figure 2. Number of homes in Hungary by rooms

Figure 2. Number of homes in Hungary by rooms

Note: Source: Hungarian Central Statistical Office.

With the crisis, the growth rate has to some extent decelerated. But, the year 2014 appeared to be a turning point when the stock of homes started to increase again. In 2014 Q1, the demand for both used and newly built homes started to increase, which was reflected by increasing prices as well (Figure 3).

Figure 3. Housing prices for used and newly built homes
(%, 100=the same period last year)

Figure 3. Housing prices for used and newly built homes.png

Source: Hungarian Central Statistical Office.

The perceived improvement by 2014 was also mirrored in the number of housing construction permits as well as that of newly built homes that started to get back in line (Figure 4).

Figure 4. Number of housing construction permits and the number of newly built homes
(2011-2015Q3)

Figure 4. Number of housing construction permits and the number of newly built homes.png

Source: Hungarian Central Statistical Office.

What is even more important is that the business sector also strengthened its activity to build new real estates. An increasing proportion of newly built dwellings was constructed by businesses (in 2012, their share was 30%, while it was 39% by 2014) (Figure 5). This is often considered as a sign of improvement in business climate and in expectations of business executives over the future.

Figure 5. Newly built dwellings by businesses and natural persons (%)

Figure 5. Newly built dwellings by businesses and natural persons.png

Source: Hungarian Central Statistical Office.

However, the improvement in the trend is rather fragile because the uncertainties prevailing in the Hungarian socio-economic system due to the anti-democratic steps of the ruling cabinet since 2010.[1] The evolving climate is coupled with more risk-aversion both from the supply (financial system) and demand side (businesses and natural persons) especially when it comes to housing market investments.

Of course, both supply and demand sides are interdependent and interconnected. As for the supply side, in case of Hungary, the volume of bank loans provided for building new homes and properties with business purposes has been mainly shrinking since 2001, while there was a more and more observable bias towards providing loans for purchasing used homes. Banks dampened their lending even more especially after 2010 onwards. Since then, lending has been mostly directed towards purchasing used homes (Figure 5.1). As for capturing demand side, data show that borrowers have been prioritising longer time horizons when filing for loans. While the average duration of a loan dedicated to purchasing used home was 8.8 years in 2001, it rose up to 14.6 years by 2011 and it was 13.6 years in 2014.

These tendencies altogether can be regarded as a certain sign of lasting risk-aversion in Hungary both at the side of financial intermediaries and private sector actors (households, businesses). A potential indication is that: if nothing else changes, the growth of housing prices might not be influenced mainly by domestic actors, but foreign investors.

Figure 5.1. Breakdown of bank loans devoted to housing purposes

Figure 5. Breakdown of bank loans devoted to housing purposes

Source: Hungarian Central Statistical Office.

As far as the geographical picture is concerned, the stock of homes has increased the most in Central Hungary (mainly in the capital city, Budapest) between 2001 and 2015 by reaching 14.4% growth rate. The second largest growth rate was observed in Western Transdanubian region (11.8%) in the same period (Figure 6).

Figure 6. Regional growth rate of housing stock (% changes between 2001 and 2015)

Figure 6. Regional growth rate of housing stock

Source: Hungarian Central Statistical Office.

Regarding the number of construction permits, that numbers were by and large increasing up until 2003 in all regions. Only the Central Hungarian region proved to be a place where permits could further increase by 2005 (Figure 7). The declining tendency was therefore present in Hungary in the pre-crisis period as well. Importantly, only the Western Transdanubian region showed a certain rehabilitation and improvement since 2010 (i.e. that number was 1,481 in 2010, while it was 2,558 in 2014). For all other regions, including Central Hungary, the lowest levels have been reached in 2013, then certain improvements arose.

Figure 7. The number of construction permits by Hungarian regions (number)

Figure 7. The number of construction permits by Hungarian regions

Source: Hungarian Central Statistical Office.

In terms of dwellings built, the year 2004 seems to be the game-changing one since then the number of homes built started to decline in all regions up to 2011 (Figure 8). Again, some minor improvement can be seen by 2014.

Figure 8. The number of dwellings built

Figure 8. The number of dwellings built

Source: Hungarian Central Statistical Office.

As far as the price differences per square meters across the regions are concerned, despite the limited data available, the following picture emerges:[2]

  • In case of newly built dwellings,
    • Central Hungary is seen as the most expensive region in each type of dwellings (in case of family house, row house; multi dwellings houses; and dwellings in multi-storey residential building). The average prices for such categories per square meter in EUR in 2007-2014 were as follows: EUR 829 in case of family house and row house; EUR 1,126 in case of multi dwellings houses; and EUR 997 in case of dwellings in multi-storey residential building. In Central Hungary, between 2007 and 2014, prices of newly built family houses or row houses were declining until 2014, while prices of multi dwellings houses were declining until 2011 then they have been slightly increasing.
    • Central Transdanubia experienced mainly declining prices in categories of which data are available.
    • Western Transdanubia lacks some data, but prices in case of multi dwellings houses were declining between 2007 and 2011, then a certain increase is observable.
    • Southern Transdanubian prices in case of newly built multi dwellings houses were decreasing until 2011, then they started to rise by almost reaching the price level of Central Hungary in this category (EUR 1000 compared to EUR 1010 in Central Hungary).
    • Northern Great Plain experienced declining prices, however, the volatile nature of exchange rate and the depreciation of Hungarian Forint made the square meter prices cheaper by 2013.
    • Southern Great Plain prices of multi dwellings houses were declining until 2011. The depreciation of Hungarian Forint resulted in a lowering price by 2013.
  • In case of used dwellings,
    • Central Hungary is also seen to be the most expensive region in each category. The average prices for such categories per square meter in EUR in 2007-2014 were as follows: EUR 690 in case of family house and row house; EUR 879 in case of multi dwellings houses; and EUR 681 in case of dwellings in multi-storey residential building. In Central Hungary, between 2007 and 2014, prices of used dwellings were declining until 2011, then they were mainly stagnating with a slight increase from 2014 onwards.
    • Central Transdanubia experienced declining prices in all categories considered along the period 2007 and 2014.
    • Western Transdanubia experienced declining prices in case of family houses or row houses along the whole period considered, while the prices could even rise in case of used multi dwellings houses as well as used dwellings in multi-storey residential building from 2011 onwards.
    • Southern Transdanubia experienced also a declining trend in prices in each categories between 2007 and 2014, price increase was mainly recognised in used dwellings in multi-storey residential building after 2014.
    • Northern Hungarian prices were mostly declining in all categories.
    • Northern Great Plain experienced a declining trend of prices in all categories except in case of dwellings in multi-storey residential building of which prices started to rise since 2011.
    • Southern Great Plain prices were declining in all categories. A certain turning point was seen in 2014.

In case of used dwellings, prices per square meter are the highest ones in Central Hungary in all categories. Prices in case of family house or row house were mainly declining in all regions until 2014 (Figure 10), while the demand for used multi dwellings houses increased after 2011 by maintaining or even slightly increasing their prices (Figure 11) in all regions. Prices were declining further only in Northern Hungary.

Figure 10. Prices per square meter in case of used family house, row house (EUR)

Figure 10. Prices per square meter in case of used family house, row house

Note: EUR/HUF exchange rates were used in each year (end of December). Data are from European Central Bank.

Source: ECB, Hungarian Central Statistical Office.

 

Figure 11. Prices per square meter in case of used multi dwellings houses (EUR)

Figure 11. Prices per square meter in case of used multi dwellings houses (EUR)

Note: EUR/HUF exchange rates were used in each year (end of December). Data are from European Central Bank.

Source: ECB, Hungarian Central Statistical Office.

2011 can also be regarded as a turning point when prices of used dwellings in multi-storey residential building rose significantly in Northern Great Plain and in Western Transdanubia (Figure 12).

Figure 12. Prices per square meter in case of used dwellings in multi-storey residential building (EUR)

Figure 12. Prices per square meter in case of used dwellings in multi-storey residential building (EUR)

Note: EUR/HUF exchange rates were used in each year (end of December). Data are from European Central Bank.

Source: ECB, Hungarian Central Statistical Office.

Logically, the average size of homes built by regions reflects the price differences per square meter among various regions as well. This is why that average size was mainly the lowest in the most expensive region, Central Hungary, especially in Budapest for years (Figure 13). Once the crisis hit in and the prices started to moderate from 2009, the average size of homes built has increased up until 2012 even in Central Hungary.

Figure 13. Average floor area of built dwellings by regions (m2)

Figure 13. Average floor area of built dwellings by regions (m2)

Source: Hungarian Central Statistical Office.

 

[1] After 2010, the government initiated unconventional economic policies that led to growing uncertainties that paved the way for shrinking net investment in the business sector (this is why banking sector suspended its lending) and depressed internal demand (this is why housing market got impaired), as demonstrated by Hungary’s current account balance surpluses. The main actions were as follows: winding up the original form of Hungary’s Fiscal Council; amending the constitution and adapting the authority of the Constitutional Court to the planned laws and regulations in an ad hoc fashion; introducing special taxes on the energy, telecommunications, retail and banking industries that discriminate against foreign companies; rejecting any commitment to preserving and strengthening the sanctity of private property by nationalising private pension funds; introducing flat income taxes, which are more beneficial for high earners; reducing the autonomy of higher education and cutting its budget by HUF 84 billion between 2010 and 2013; strict regulations on the media; and establishing and adopting Hungary’s new Fundamental Law, which inter alia constrains the power of the Constitutional Court and limits the room for manoeuvre of future governments without a two-thirds majority. In addition, in 2014, the Hungarian prime minister explicitly expressed the government’s ambition to create an ‘illiberal democracy’.

[2] Let us add that the volatile nature of the exchange rate of the Hungarian Forint (which went through serious depreciation against the Euro) resulted in cheaper prices in certain cases.