| The outlook for 2012 is stagnation, reaching the bottom, and hopefully the beginning of a slow rise in the apartment market, according to the Residential Property Monitor of Otthon Centrum for Q1, 2012. In spite of the good start this year, the market is expecting the repetition of 2011 as regards number of transactions and even prices. Macro economic indicators, the immediate economic environment, and tougher conditions for financing do not allow for more, it seems. Experts are looking to see more government intervention in 2012.
In the tables below you will see trends in average prices in Hungary in the past years. Note the difference in exchange rates, hence the 2 tables.
Average prices of residential property in Hungarian cities in HUF (thousand forints)
Average prices of residential property in Hungarian cities in EUR
Apartment construction
Decrease continues: The number of usage permits decreased by 22% since Q1, 2011. There were 11% less building permits granted for the same period.
The largest drop was registered in Budapest: New-built apartment handovers have decreased by a massive 65% in Q1, 2012, compared to the already low Q1 of 2011. A mere 453 apartments were built in the capital city with a population of over 2 million.
Low developer activity: There is a greater drop in units built for the market than construction by owner.
Financing
Weak year: 2011 was the weakest year in new household mortgage loans, since the beginning of the financial crisis, according to the National Bank; in spite of government intervention to ease the exchange rate burden.
Double problem: Low demand and low supply account for poor performance among mortgage loan products.
Cautious buyers: The average amount of household mortgage loans decreased by 35% between 2008 and 2011, according to the Central Statistical Bureau. The average term has also decreased.
Trend not expected to turn: The National Bank is calculating with further decreases in the residential mortgage sector even in 2013.
Effects of the government incentives to convert CHF and EUR loans: Altogether 170,000 clients took advantage of the opportunity to pay back their loan or convert it to a forint (HUF)-based loan, which comprises roughly a quarter of the total number of loans. The phenomenon has significantly boosted the real estate market.
New apartments
Decreasing sales: The trend continues: Every year less new-built apartments are sold in Hungary.
Stock holding out: The number of completed but unsold apartments is stable: there are just as many in the first quarter of 2012, as there were in the previous two years. In Budapest there are around 3200 completed but unsold apartments. There are less off-plan unsold units.
Smaller projects: Developers have turned towards the low-risk, smaller-volume projects. The average number of units in projects handed over in 2011 and planned in 2012, was 20. In 2007 this was 60.
Old apartments
The demand for new-builds has decreased, 3.97% of all apartments in 2011 down from 9.15% in 2008. Old (used) apartments are cheaper and there is a loss of trust in new developments.
Strong start of the year: 20% increase in number of transactions in Q1, 2012, as compared with Q1, 2011. Note the government incentives for fixed-rate pay back of CHF and EUR loans were over at the close of 2011, so this increase is independent of artificial government intervention.
Effects of the government incentives for loan repayment at favorable exchange rates: Apartment prices have decreased a few percentage points in Q1, 2012, as compared with Q4, 2011. Family house prices, on the other hand, have slightly increased.
Significant differences between real estate types: Sellers forced to decrease prices in Q1, 2012 by (Difference between advertised and actual sales price):
Takes longer to sell: The time to sell property in Hungary has doubled since 2007.
Rental market
Decreasing rental fees: Rents have dropped by average 20% between 2007 and 2011. Panel blocks have seen a 14% decrease during the same period, older brick family houses rented for 13% less.
Yields: Currently 8-9% yields are achievable on investment property.
Government policy and regulation
Government subsidies: Social subsidies based on the number of children in the household for young couples wishing to purchase a home, as well as interest rate subsidies have reappeared in 2012, however they are not expected to bring about a breakthrough in the new home market even when combined. They are projected to play a more important part in increasing the demand from 2013 onwards.
Capped loan exchange rates: Owners of property who were forced to put their homes on the market because of a default in payments, are no longer compelled to sell. This would shrink the supply further, decreasing the pressure on the prices that came from an oversupply.
Foreclosures: Government has limited the number of foreclosures per year, even so the banks do not seize the opportunity; they have foreclosed merely 78.4% of the maximum number allowed in Q4, 2011. In Q1, 2012, this percentage has increased slightly to 82.5%. The banks have chosen rather to sell the property jointly with the client. Therefore, it seems neither the foreclosures, nor the joint sales will influence the prices significantly.
Domestic Energy Certificate: Owners are required to present an energy certificate when selling a second-hand apartment or house, and when renting for longer than a year, as of January 1, 2012. This is a reasonable, objective basis for comparison for the buyers, however its influence on the prices will only be marginal, because energy efficiency is just one of many deciding factors. Buyers are not looking at the energy rating of a home, but are more concerned with the monthly energy costs.
Sources: Residential Property Monitor of Otthon Centrum for Q1, 2012, Central Statistical Bureau, National Bank of Hungary
Andras Patkai (Director) www.ceinvest.hu
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