Mood improvement was temporary only, according to new analysis

napi.hu: The most recent, April confidence index of GKI, the Hungarian Economic Research Institute, decreased by the same amount (five points) as it had improved in March. This index has been hovering in a comparatively narrow range at levels lower than previously. Why does production fail to improve faster? One of the reasons is that the lack of workforce now prevents an expansion of production to a much higher degree than before. The limited amount of workforce available mainly disrupts smaller companies with less than 50 employees. Based on seasonally adjusted figures, the short term outlook of Hungarian economy among construction companies did not deteriorate in April compared to the previous month. The ratio of optimistic and pessimistic views was 18 and 17 per cent, respectively – the same as in March.

Heavy fines on black market apartment rentals

napi.hu: According to a survey conducted in Terézváros, the 7^th district of Budapest, about 75 per cent of Airbnb hosts evade paying tax either on purpose or out of ignorance. These results are in line with those of international surveys. Failure to issue a proper invoice may result in fines up to HUF 1 million levied by the Tax Authority. The survey used local government property registers, publicly available data at the Airbnb website, and also personal interviews were made.

The Hungarian Tax Authority issued a press release recently to clear up any misunderstandings. The press release confirmed that private persons commercially letting one single room or their entire apartment for accommodation purposes through an online reservation system, such as Airbnb or similar, are legally obliged to issue an invoice and pay income tax, too.

Foreign buyers of Hungarian apartments

napi.hu: The boom of the Hungarian residential property market has raised the interest of foreign investors, too, and buyers from China, Russia, the Ukraine, and the Middle-East have become a regular feature in Hungary. According to 2016 Q1 figures less than 1 per cent of residential property transactions were effected by foreigners, but their ratio was almost 4 per cent in the most popular districts (V., VI. and VII) of downtown Budapest.

Chinese buyers had the biggest share (36 per cent), while another 15 per cent came from another country of South-East Asia. Buyers from the Middle-East had a share of 5 per cent. Judged by their combined share European buyers are still in majority, but the individual proportion of Austrian, German, French, English, Northern or Southern European buyers is small.

Most foreign buyers went for an apartment of 60-80 sq. m. in downtown Budapest at an average price of HUF 45 million.

Apartment rental: tighter rules looming

napi.hu: According to a proposed bill all private persons exploiting their residential properties for commercial accommodation purposes should pay HUF 1500 tax a year for every sq. m. of the property. Each private person could exploit a maximum of three residential properties this way. This would be a simplified but more stringent method of enforcing the principle of equal tax treatment in tourism-related accommodation sharing (such as Airbnb), one of the most popular fields of sharing economy. The frequency of targeted inspections by the tax authority would also be increased. Legislators believe it would also be necessary to align the rules of private apartment rental to those applicable to traditional hotels.

Property prices may surge on account of refugees

napi.hu: In the next 15 years residential property prices may see a significant rise in German cities like Berlin and Hamburg because the growing number of refugees increases demand for residential properties, analysts of German Postbank say, assuming that by 2030 a total number of one million refugees will be granted a permanent residence permit in Germany. According to their results a 1 per cent increase in population triggers a price hike in urban apartment and house prices of 3.5 per cent and 1.9 per cent, respectively. The Eastern part of the country may benefit from the influx of refugees, but cities like Hamburg or Berlin will be facing serious difficulties on account of the increased demand for residential properties. The report says a fact of key importance is that according to Destatis, the Federal Statistical Office of Germany, German population will decrease even if the highest estimates of the number of immigrants should come true.

Residential property prices on the increase – huge differences

Napi.hu – According to an analysis that processed more than 100,000 residential property advertisements the increase of prices may, at first sight, seem dramatic, but the trend is far from general. Between July 2015 and January 2016 the average price of a square m of residential property in Hungary increased from HUF 220,000 to HUF 312,000. The hike was probably caused by the changes in the government’s real estate policy. In the above period the average asking price increased from HUF 323,000 to HUF 403,000. The Western part of the country soared, too, but the performance of the remaining counties was rather varied. One of the key reasons was that the asking price of hard-to-sell properties, mainly larger detached houses, had to be continually decreased. Average prices are likely to grow in popular parts, while in less trendy settlements further price decreases are to be expected.

You could have made a 40 per cent profit last year

Hvg.hu: There is a good chance you could never guess where you should have invested you money in 2015. It is always easy to be clever in hindsight and this is no exception. While demand bank deposits earn next to zero per cent and even sums tied up bring 2-3 per cent maximum, the price of apartments in concrete housing blocks in Buda increased by 41 per cent on average last year — and this happens to be the type of property that sells like hot cakes if you need your money fast. Selling times average at 35 days and buyers have the least margin for bargaining. In contrast, the average selling time of residential houses is six months and sellers will need to be prepared to reduce the price to catch a buyer.

Hungarian residential property prices almost on pre-crisis level

hvg.hu: Residential property prices are still on the increase. In Q3 2014 buyers were facing the same prices as at the turn of 2008/2009. According to figures published by FHB Jelzálogbank there has been a continuous hike in residential property prices since Q2 2014, although the rate of increase has been diminishing gradually. Between April 2014 and September 2015 residential property prices increased by about 25.8 per cent both nominally and in real terms. The number of planning permissions granted (8616, an increase of 1000 over the same period of the previous year) also increased between January and September 2015.  The volume of loans also reflects the boom of the residential property market. In Q3 2015 the value of residential loans granted exceeded HUF 100 billion, an increase of 43.5 per cent over Q2.

Unlucky apartment buyers seek help from the Prime Minister

napi.hu: Apartment buyers who signed their contract last year at a gross purchase price (as opposed to a “net + VAT” price) will not be able to enjoy the benefits of the VAT reduction – not even if they can take delivery of the “product” in a year or two. There is no legislation for this situation and even though this is against the intention of the legislator, there is nothing to force developers to pass on to their buyers the extra profit they happen to make. The only option the latter have is to cancel the contract but this would, too, benefit the developers who in view of the significant price increase that has occurred in the meantime can resell the apartment at an even higher price. As there is no comforting solution at present, affected apartment buyers wrote a letter to the Prime Minister, asking him for help.

Don’t hope for cheaper residential properties as yet

napi.hu: The government expects a doubling of new residential property developments as a result of the VAT cut, but prices will reflect the changes in the long run only. Earlier discounts and subsidies have been cancelled which made new homes more expensive, but the new subvention scheme will hopefully boost the market.

The twin pillars of the new subvention scheme are the reduction of VAT levied on new residential apartments to 5 per cent from 27 per cent (for apartments and houses up to 150 and 300 square metres, respectively), and a refund of up to HUF 5 million for private person developers of VAT levied on not more than 70 per cent of construction expenses backed with an invoice. Both schemes apply until 31 December 2019. A new apartment/house is one that has no occupancy permit yet or whose residency permit is not older than 2 years.

Do you own a house? Here’s some good news

napi.hu: A call for tenders for state subvention of the comprehensive overhaul of residential properties will be published soon. Property owners will be invited to submit their tenders from August. The objective of the government is to provide a state-funded scheme for the modernisation of residential properties owned by private individuals. The source of the funds will be GINOP, the Economic Development and Innovation Operational Programme. The government approved the amount dedicated to the extension of the programme back in mid-December. Part of the funds amounting to HUF 103.9 billion and available from August this year will be used as loans aimed at improving the energy efficiency of residential properties and the increase of the use of renewable sources of energy.

Apartment Rental Fee Trends in Hungary

napi.hu: The average monthly rental fee of a 40-80 square metre apartment in Budapest was HUF 130,000 in October and November. Compared to the same period of the previous year apartment rental fees increased in Budapest, Pécs and Miskolc by 8, 33 and 28 per cent, while in Szekszárd and Szombathely they decreased by 18 and 20 per cent, respectively.

There are significant differences among Budapest districts. District 16 exhibited the highest increase, 56 per cent, to HUF 106,000. Based on October and November advertisements, district 5 is still the most expensive at an average rental fee of HUF 180,000, which is a 20 per cent increase on a year-over-year basis. District 2 showed the biggest decrease: in October and November 2015 the average rental fee was HUF 140,000, 12 per cent less than in the same period of the previous year.

Intend to sell your apartment? We have some good news

napi.hu: The property price hike continues: the FHB property price index climbed from 179.36 points at the start of the year to 184.2 in Q2 2015 – this is a 2.7 and 1.7 per cent nominal and real increase, respectively. Despite the fact that the hike has been going on for 18 months prices are still lower than they used to be in 2008.

All in all, during the more than one year since the start of the price increase nominal and real prices increased by 14.9 and 14.6 per cent, respectively. Last year more than 100 thousand apartments changed their owners. For this year, property agents predict that the number of sale and purchase transactions will exceed 150 thousand, which is the same as in 2008.

Possible effects of a VAT cut of newly built apartments

napi.hu: If the government approves the proposed VAT cut we can expect the following effects: at a VAT rate of 18 per cent there can be a slight increase in the number of new apartments on offer, but the prices remain stable. At a VAT rate of 5 per cent prices may fall by 8-10 per cent at most.

Apart from the VAT cut, a credit scheme with a 3-4 per cent interest rate would be needed to stimulate demand. The rollout of this scheme is, however, delayed because the European Commission objected to two clauses of the draft agreement to be concluded between the government and the banks on more active residential construction financing. That said, the construction industry would be happy to see even the slightest market boost to improve its seriously shrunken order book. In lack thereof the industry’s output will return to 2012 levels.

Return of the “Kádár-cubes”?

napi.hu: In order to support residential building projects and to “improve the quality of our constructed environment” the government plans to re-introduce the standardised residential house plans reminiscent of the “Kádár-cubes” of the socialist era. A “national standard plan catalogue” comprising plans with characteristic architectural features of the respective region will be compiled for prospective home owners. Standardised plans will be cheap and buyers will be freed from the hassle of plan approval proceedings: a simple “acknowledgement procedure” will suffice. The Hungarian Chamber of Architects is happy; its members are not. Architectural plans will be accompanied by a technical documentation including an itemised list of materials and man-hour requirements. The new scheme will apply to residential buildings with a floor-space not exceeding 160 sq. m. and three stories (basement, ground floor, attic).

Government plans to reduce VAT – apartment prices going down?

napi.hu: There is no info regarding either the rate or the date of such reduction. Apartment developments are on the back burner not because of a lack of demand but because developers can’t make profits at current price and VAT levels. If they pay 27 per cent VAT at current market prices they can’t even reach the break-even point, developers said to napi.hu. The smaller the rate of VAT reduction, the less its effect on apartment prices will be. A new VAT of 18 per cent would only result in a modest increase of supply while a reduction to 5 per cent would trigger a mere 8-10 per cent decrease of prices – provided that demand starts to increase again.

Apartment renovation is a lucrative business

Napi.hu: Ingatlan.com compared the physical repair and the asking price of almost 300 thousand properties advertised at the end of September. The national average of the price per sq. m. for apartments in a “good”, “average” and “poor” physical repair was HUF 348,000; 281,000 and 258,000, respectively.

Prices are of course stipulated subjectively by the sellers but the results are a good indication of the trends. The data show that apart from the general boom on the property market another good idea is to buy an apartment in a less pristine physical repair and renovate it. One must, of course, consider the costs involved: a fresh coat of paint new flooring cost significantly less than the removal of walls and the renewal of the entire pipeline and electricity system.

VAT of apartment renewal should also be reduced

napi.hu: The Minister for National Economy announced today that the Ministry is looking into the details of a potential reduction of rate of VAT levied for the construction of new apartments. This is an issue of national economic and social interest because a reduction of the currently 27 per cent VAT levied on residential constructions could at last boost the residential market and the number of newly constructed apartments could soon reach 20 thousand units per year.

At the same time, the Association for Residential Construction (TLE) declared that the new VAT rate should, apart from the sales of new apartments, be applied to the contractors’ fees paid by private persons for the construction of new apartments and to apartment renewals contracted by retail clients. The reason for this is that family homes (detached houses) are mainly built under a construction contract and that lawfully contracted apartment renewals are an important contribution to the improvement of the physical repair of the pool of residential properties – and also of the whitening of the construction industry.

Money flows into Budapest property funds

ingatlanhirek.hu: While three years ago domestic property funds were plagued by a trend of funds withdrawal, the situation has changed significantly since. Simultaneously with the upswing of the residential property market more and more investors turn to property funds which, as a result of the inflow of capital, have become one of the most active buyers of the property market.

Record-low deposit interest rates redirect investors to property funds offering relatively high returns. Property funds are, on the one hand, happy to have this influx of capital, but are, on the other hand, under a heavy pressure. They must buy more and more new properties to maintain their comparatively high level of returns. One of the consequences of this pressure is that domestic property funds have become one of the most active group of investors of commercial properties in Budapest (offices, shopping centres, logistics centres etc.).

Airbnb: Tax inspectors in tourist disguise?

hvg.hu: Short-term, mainly tourism-motivated apartment or room rental e.g. through Airbnb is gaining in popularity in Hungary, too. Earlier, the Hungarian Tax Authority had already reminded owners letting their property using the services of Airbnb that they need to register a tax number and must also issue an invoice. Now owners are warned that tax inspectors may even go one step further and rent rooms advertised online.

As part of their job employees of the tax authority perform test purchases and use various services, including accommodation, to find out whether providers comply with applicable tax regulations. Tax inspectors focus on spotting tax evaders and ensuring that neither tourists, nor legitimate companies or service providers, nor the state budget suffer any losses.