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Learn about the latest trends in the Hungarian property market, from rising rental yields to a decline in flat supply, and how they affect Hungarian property prices in the second part of a series of articles on the Hungarian housing market.

Rental yields in Budapest are moderately good, with Buda apartments outperforming Pest, and apartment rents are rising again. The main reason for the rent increase is a decrease in rental flat supply.
Despite rising interest rates, the Hungarian housing loan market is expanding, with more people purchasing homes with loans.

Hungarian property market trends

Number of housing transactions made by private persons by quarter years – source: KSH

Residential Construction Rise

The Hungarian property market surge has resulted in a sharp increase in residential construction, with almost half of the new supply being in Budapest and Pest. In 2020, the total number of newly built dwellings in Hungary rose 33.5% y-o-y to 28,208 units, despite the pandemic. However, in 2021, newly built dwellings fell by 29.5% y-o-y to 19,898 units due to rising material costs.

Budapest Rental Yields are Moderately Good with Rents Rising Again

The rental yields in Budapest are moderately good with the Hungarian property market rebounding from the decline due to travel restrictions and Airbnb regulations. Gross rental yields in Buda apartments are yielding higher returns than Pest.

The apartment rents in Budapest are on the rise again, particularly due to the decline in the supply of rental apartments.

Higher Yields in Buda, Lower in Pest

According to a Global Property Guide research, apartments in Buda have higher yields ranging from 5.63% for smaller-sized apartments of 90 sq. m. to 5.73% for larger apartments of 120 sq. m. In comparison, apartments in Pest have slightly lower rental yields ranging from 5.16% to 5.24%.

Rising Rents

According to KSH-ingatlan.com rent index analysis, apartment rents in Hungary surged 23.4% YoY by end-Q2 2022, with rents in Budapest increasing 24% YoY over the same period. However, the longer-term data indicate a moderate rise in prices, with average rents rising by almost 66% nationally and 57% in the capital since 2015.

Decline in Rental Apartment Supply

The decline in rental apartment supply is the main reason for the surge in rents. The number of apartments for rent has dropped from 20,000 to just over 10,000, a 49% decline, in the past year, said László Balogh, the leading economic expert of ingatlan.com.

Rent Range in Budapest

The average monthly rents for brick apartments in Budapest range from HUF 125,000 (€294) to HUF 350,000 (€825). Districts 1, 2, 3, 5, 6 and 12 are among the most expensive areas while Districts 4 and 10 and the peripheral districts on the Pest side are the cheapest.

Hungarian Property Market Trends - Rent range in Budapest

Source: KSH (Hungarian Central Statistical Office)

Interest Rates on the Rise

Despite the increasing interest rates, the Hungarian housing loan market is growing, with more people buying houses with loans. However, the size of the mortgage market remains small compared to GDP.

According to the European Central Bank, housing loan interest rates are beginning to rise, with the average interest rate on housing loans increasing to 4.83% in August 2022 from 4.49% in the previous year. As a result, this may have an impact on Hungarian property market in the near future.

Hungary Interest Rates

The average interest rates on loans for house purchases by initial rate fixation (IRF) in August 2022 were as follows:

  • IRF of up to 1 year: 6.52%
  • IRF over 1 year and up to 5 years: 4.7%
  • IRF over 5 years: 4.83%

Mortgage Market Growing Strongly

The growth of Hungarian property market continues to drive the mortgage market, which is showing strong signs of expansion.

The value of new housing loans disbursed rose significantly by 36.2% to HUF 1.25 trillion (€2.94 billion) in 2021, and the total number of new housing loans disbursed increased 16.7% to 121,347 last year.

New Loans Disbursed

Hungarian property market have witnessed a significant rise in the number of new loans disbursed for buying second-hand homes, which surged by almost 35% y-o-y to HUF 857.8 billion (€2.02 billion), and loans for buying new homes rose strongly by 21.7% to HUF 135.61 billion (€319.4 million) last year.

Loans for housing construction rose slightly by 2.1% to HUF 80.4 billion (€189.3 million) last year, and loans for home renovation almost tripled to HUF 118.72 billion (€279.6 million) in 2021.

Reasons for Increased Loan Demand

Hungary’s relatively low interest rates and subsidized lending schemes, such as the Family Housing Subsidy Scheme (CSOK), have led to increased loan demand. The government’s newly introduced home improvement subsidy has also contributed to this.

Housing Loans Outstanding

The value of housing loans outstanding increased 15% to HUF 4.58 trillion (€10.8 billion) in 2021, and the share of “problem-free” loans slightly declined to 96%. The non-performing exposure ratio also increased to 3.7% last year.

The state of Hungary’s economy

Hungary’s economy has had a strong recovery since the pandemic, registering a real GDP growth rate of 7.1% in 2021, one of the fastest in the EU. In Q2 2022, the economy grew by 6.5% YoY, with all sectors contributing except agriculture.

However, the European Commission’s forecast expects the economy to slow down to 5.2% this year due to rising inflation, tightening fiscal and monetary policies, trade disruptions, and the situation in Ukraine and Russia. These factors may also strongly affect the Hungarian property market.

GDP Growth and Contributing Sectors

Hungary’s Finance Minister noted that Q2 growth was supported by all branches of the economy, particularly industry, trade, tourism, the financial sector, and ICT. Quarter-on-quarter, the economy expanded by 1% in Q2 after growing by 2.1% in the previous quarter.

Forecasted Slowdown in Economic Growth

While Hungary’s economy has been experiencing strong growth, it is expected to slow down due to various factors such as inflation, fiscal and monetary policies, trade disruptions, and uncertainty in Ukraine and Russia. As a result, the growth of the Hungarian property market is also expected to be impacted.

Unemployment and Inflation

Unemployment in Hungary is at a low of 3.4%, and the nationwide inflation rate in August 2022 rose to 15.6%, the highest since May 1998. The surge in inflation was due to a rise in food and other commodity prices, far above the central bank’s target range of 2% to 4%.

According to data from the Hungarian Central Statistical Office (KSH), Hungarian housing market saw a surge of 22.8% (11% inflation-adjusted) in Q2 2022, the highest annual price growth recorded in recent history.

The demand for homes has also risen after a decline in 2019-20, with the total number of second-hand homes sold increasing by 13.8% in 2021. Meanwhile, foreign demand has recovered due to the weakening of the forint against the euro.

Regional Price Trends

Pest, the eastern part of Budapest, had the highest y-o-y increase of 33.7%, followed by Northern Great Plain, Northern Hungary, Southern Great Plain, Central Transdanubia, Southern Transdanubia, and Western Transdanubia. Budapest saw a more modest increase of 9.7% in the mean price of second-hand homes y-o-y.

Local House Price Variations

Budapest and Pest have the most expensive housing, with the average price of second-hand homes reaching HUF 39.7 million (€93,491) in 2021. Meanwhile, the Great Plain and North regions have the least expensive housing, with the average price standing at around HUF 11.7 million (€27,553) and HUF 14.3 million (€33,676), respectively.

Hungarian Housing Market: Price Trends

Mean price per sqm by region and settlement type, source: KSH

Average Home Prices

In Q1 2021, the average price of new homes was HUF 45.6 million (€107,862), while second-hand homes averaged HUF 22.8 million (€53,931).

Overview of the Hungarian Housing Market

Hungarian Housing Market – trends in housing prices, source: KSH

Rising Demand

The demand for second-hand homes has bounced back strongly, with an annual increase of 13.8% in 2021. This is a significant improvement from declines of 14.3% in 2020 and 5.7% in 2019. Foreign demand is also on the rise due to the weakening of the forint against the euro.

Hungarian housing market continues to rise, with an increasing number of people looking to purchase homes, particularly in Budapest.

The number of second-hand homes sold rose by 13.8% to 142,138 units in 2021 from a year earlier, a significant improvement from annual declines in 2020 and 2019. Second-hand home sales increased in Central Hungary and Transdanubia by 12.8% and 15.6% year-on-year, respectively. In contrast, sales in Pest decreased by 25.4% in 2021.

Hungarian Housing Market: Rising Demand

Source: KSH

Hungarian Housing Market: Weak Construction but Improving Demand

Despite a robust overall economy, Hungary’s residential construction activity remains weak. In the first half of 2021, housing completions fell by 6.8% year-on-year to 9,133 units, with a 16.8% drop in Central Hungary and a 1.9% drop in Great Plain and North. Newly built homes increased 21.6% year-on-year in Transdanubia.

Foreign Buyers Rising Again

In the first half of 2022, the number of foreigners interested in Hungarian residential properties rose by 10%, partly due to weakening domestic currency against the euro. The high concentration of foreign homebuyers in Budapest is one of the main reasons for the huge price difference between the city and the rest of the country, with foreigners spending on average over HUF 40 million (€94,195) on a home in Budapest.

Foreign Homebuyers in Hungary: Popular Locations and Legal Requirements

Hungary has been a popular destination for foreign property buyers in recent years, with Budapest being the most favored location. In fact, more than half of foreign property demand is in Budapest. District 7, 6, and 8 are the top three districts preferred by foreign homebuyers. Moreover, towns and villages in the counties around Lake Balaton also represent about 11% of foreign demand.

However, the Covid-19 pandemic has negatively impacted the foreign property market in Hungary. Home purchases by foreigners have significantly dropped due to travel restrictions. Before the pandemic, foreign homebuyers were on the rise.

From 2017 to 2019, the number of purchases increased from 3,207 to 3,753. Chinese citizens accounted for more than half of the total, followed by EU citizens, primarily Germans. Other large groups of buyers were Israelis, Russians, and Turks.

Hungarian law requires that real estate purchases be concluded through private contracts countersigned by a lawyer. Non-Hungarian citizens must obtain approval from the relevant Administrative Office to purchase property as a private person. The process usually takes 2-3 months.

To avoid this approval process, most lawyers advise foreign nationals to set up a company registered in Hungary to purchase property. This process takes only 1-2 days, and all expenses can be written off.

In conclusion, Hungary is a popular destination for foreign property buyers, particularly in Budapest and towns/villages around Lake Balaton. However, purchasing property in Hungary as a foreigner requires following legal requirements, and it is advisable to consult a lawyer for guidance.

Hungary’s Housing Cycle: From Crisis to Recovery

The Hungarian housing market has experienced a tumultuous cycle from crisis to recovery, with government measures playing a significant role in boosting demand. The COVID-19 pandemic has had an impact on the housing market, but it has quickly bounced back in 2021. As Hungary continues to recover, the housing market is likely to see further growth in the coming years.

The Hungarian housing market suffered a severe decline from 2008 to 2013, with house prices falling by 21% (36% inflation-adjusted) as a result of the 2009 global financial crisis and the forint’s steep decline that caused the mortgage market to collapse.

However, legislation in November 2014 required financial institutions to convert all outstanding foreign currency-denominated loans into HUF by December 2015, causing a sharp decrease in the stock of housing loans in foreign currency. House prices began to rise by 6.6% (7.3% inflation-adjusted) in 2014, and have been increasing annually by double-digits, surging by a total of 120% (99% inflation-adjusted) in 2014-19.

COVID-19 Impact on the Hungarian Housing Market

The housing market’s growth decelerated to 6.8% (3.9% inflation-adjusted) in 2020 due to the economic repercussions brought by the COVID-19 pandemic, the ensuing lockdown measures, and travel restrictions. However, the Hungarian housing market bounced back quickly in 2021, registering a house price increase of 21.4% (13.4% inflation-adjusted), as economic conditions gradually improve.

Government Measures Boost Demand

Part of the housing demand recovery during 2014-5 was due to other government measures. In 2013, the government increased the amount of 5-year loan subsidies, the maximum value of subsidized loans, and the loan house price threshold, resulting in significantly stronger credit demand in the second half of 2013.

In 2015, a non-refundable subsidy, the family housing allowance (CSOK), became available for buying new- and used homes, apartment expansions, and home construction. The program was expanded in 2018, allowing families returning from abroad and those owning a property to apply for the CSOK.

By end-2021, almost 192,000 families had benefited from the program, receiving a total of HUF 467.4 billion (€1.1 billion). Furthermore, every woman under the age of 40 is eligible for a CSOK interest-free loan when she first gets married. The government also repays HUF 1 million (€2,355) of mortgage loans for families with at least two children.

In the first installment of this guide to renting an apartment in Budapest we looked at the process of actually finding the right property and ensuring that the legal and immigration aspects have been properly covered.

Failure may cause problems at the immigration office

Now we’ll look at the terms and conditions you need to ensure are included in your lease contract:

First of all the contract must state the right of all users of the property to live there. The contract must state “and family” or mention those family members by name as users of the property. Failure to do so may cause problems later at the immigration office.

Renting an apartment in Budapest: key contract clauses

There are then key contract clauses that you should ensure are included:

1. The security deposit should be refundable and would typically be an amount of one or two months’ rent.

2. In Hungary the tenant is not expected to return the property to the landlord in the condition it was given. The law allows that normal wear and tear during a lease is acceptable and not recoverable from the security deposit. The definition of what constitutes “normal wear and tear” is quite broad, however, and disputes can easily arise when it comes to handing back the property.

Guide ti renting an apartment in Budapest

3. It’s important to have a clause which states that should anything go wrong with the property it be fixed within seven calendar days. For critical losses of service such as power, water supply, heating, etc. to be addressed within 24 hours of notification by the tenant.

4. If the tenant has relocated to Budapest for work, it’s important to add in what’s called a diplomatic clause to the contract. This allows the tenant to break the terms of the lease at one month’s notice in the event that his or her position in Hungary is terminated and they can provide proof to that end. The pain of losing your job should not be compounded by having to pay rent on a property you no longer live in.

Housing law tends to favour the tenant

The Hungarian housing law (lakástörvény) actually tends to favour the tenant, and any contract clause that contradicts the law is considered invalid. The key of course in all such contracts is to reach an agreement that ultimately avoids the need for resolution via the courts.

Finally, before moving into your new home it’s vital to document the condition of the property to avoid any misunderstandings later. Most tenants accept some small fault or imperfection when they move into a property, and to avoid being charged to fix that fault at the end of the lease it’s important to write some kind of handover protocol, and ideally to have it witnessed when both landlord and tenant sign it.

Ideally you should also take photographs of every room and specifically of anything that isn’t perfect when you move in.

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To learn more, please contact us on [email protected] or call +36 1 278 5680

For new arrivals in Budapest, finding an apartment at the right price with the right legal conditions can be a real challenge. Read our guide to renting an apartment in Budapest.

Finding a landlord who will respect the terms of the lease agreement you’ll sign further adds to this challenge.

There are plenty of real estate agents, management companies and even English-speaking owners advertising properties for an expatriate audience. There is also an increasing number of Facebook groups for Budapest where private owners and companies alike advertise their wares. Accessing the market is not an issue.

Using many different sources to find a new home can make the search process more complex. Conversely, shopping around or renting privately direct from an owner can help make the most of a tenants budget. There are pitfalls, however.

How to rent an apartment in Budapest: prices can suddenly rise

The internet can teach you a fair market price but note that most prices quoted online assume you’ll pay cash. If you ask for an invoice you might find that the original price suddenly rises by up to 40 percent. Similar increases may happen if you mention that your lease contract will be needed for your residence permit application.

Guide to renting an apartment in Budapest

Rental income is taxable in Hungary. So if your landlord wants a cash deal or is not too keen on letting you register yourself in his home, it’s safe to assume he has something to hide from the taxman. However, you don’t encounter these landlord-related issues, there are still some potential issues when it comes to the immigration stuff.

Read part two of this guide here.

Expert guide to renting an apartment in Budapest: prove or move

One example is that at the immigration office you may be asked to provide a land registry document (tulajdonilap). This is to prove that the person you’re renting from is indeed the owner, and that there aren’t multiple owners.

Any owner has the right to throw you out into the street because they didn’t sign up to you living there.

Another example is that the apartment has not yet been registered with the state database of properties, a legal requirement before a person can be registered at that address. This is typical for new build properties.

An easy way to test this is to ask the landlord to confirm if anyone has had an address card (lakcímkártya) issued for that apartment and, if so, to show you a copy.

In the next instalment we’ll look at the key contract clauses you should always make sure you have in your lease and what power you have if the landlord isn’t doing what was agreed.

DOWNLOAD YOUR FREE HUNGARY GUIDE NOW

To learn more, please contact us on [email protected] or call +36 1 278 5680.
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