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Real estate prices up or down?

Hungary had the worst performing real estate market in Central Europe in the second quarter of 2020, according to the MNB’s housing market report. The average house price fell by 7% from the peak, while the market in the surrounding countries was stagnant or further rising. Behind this is the highly above-average price increase in Hungary between mid-2017 and mid-2019. After a larger increase, a smaller consolidation was warranted.

In 2021, a number of favorable regulatory decisions will strongly change the situation in the real estate market:

VAT on newly built properties will again fall to 5% (from 27%).The purchase of both used and newly built flats will be tax-free if the buyer uses Csok ( housing subsidy). This represents a specific financial advantage of HUF 1.2-2.5 million in Budapest when purchasing a property.

Housing renovation support of up to HUF 3 million will be available from January 1, for which a discounted, fixed 3% interest rate loan will be available to families raising at least one child from February 1.

Points 2 and 3 put second-hand home buyers in a substantially better position. If they undertake the renovation, they will be able to get the same housing quality up to HUF 4-6 million cheaper through the duty-free and renovation support. All this, of course, can have an immediate positive effect on the market for apartments in a condition to be renovated.

The other side of the coin is that the real estate investments that the government wants to support will reach the same team of professionals as those who can carry out home renovations. The phenomenon may return, that it will be an honor for the property owner to receive a quote for the renovation. Under market conditions, this should mean nothing more than an increase in the cost of construction and renovation work (especially until border interoperability reaches pre-COVID levels again and capacity shortages for incoming Ukrainian, Romanian…, etc. workers are alleviated).

The big question for the average person will be what balance the positive impact of the new measures and the price increase will show. Presumably, for the braver and faster, the balance will show a positive balance. If unemployment does not rise significantly (and thus solvency in the real estate market does not weaken) in the first half of 2021, it is likely that by the second half of 2021, sometime by the end of the year, rising real estate prices will fully absorb the positive impact of government action.

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