Property Investment Case Study: Hungary (TPI-HU-001)
Introduction:
From residential apartments, to office space, or industrial areas—the Hungarian real estate market is booming in every area, and foreign investors have taken notice. While property prices are no longer dirt cheap, as they were considered to be a decade ago, fantastic places can still be bought for a fraction of what a Central London flat would cost. Deals can still be had, and in Hungary, they are often not hard to find. The sheer number of real estate agencies that line Budapest’s streets is testament to the city’s hot real estate market.
Hungarians are fond of saying that Hungary lies right in the center of Europe. The country is slightly less than 100,000 square kilometers (a little larger than all of Ireland), and borders seven countries—Slovakia in the north, Ukraine in the northeast, Romania in the east, Slovenia, Croatia, and Serbia and Montenegro in the south, and Austria in the west. The country’s landscape is mostly plains in the east, low hills in the west, and small mountains to the north (the highest point is just 1,014 meters). The major rivers are the Danube and the Tisza. Being a landlocked country, Hungarians are proud of Lake Balaton, which is what they call “the Hungarian Sea”. The lake, about 100 kilometers southeast of Budapest, is Central Europe’s largest lake (77 kilometers in length). The hilly north side is dotted with some of the country’s best wineries, which thrive in the volcanic soil. The flat southern side has shallower water.
But Budapest, the cosmopolitan capital city, which is rich in history, culture, and entertainment, is where most investors arrive and stay put. Hungary’s population is slightly more than 10 million. Budapest—with 1.8 million inhabitants—is the country’s only metropolis (the country’s next biggest city is Debrecen, with just 210,000 residents).
Little has changed since Hungary joined the European Union, along with nine other countries, in May, 2004. Most of the most dramatic changes had already taken place during the previous few years. Hungary had about $105 billion in GDP in 2004, and is the third largest new EU member, after Poland and the Czech Republic. Foreign investors—attracted by Hungary's 4 percent growth rate in 2004—brought a surge in the Budapest Stock Exchange's benchmark BUX index. The index reached a record 18,673.24 on March 1 and rose 55 percent in euro terms for the year, which was the third highest gain of any stock exchange in the world. The gains were led by Mol Rt., which is the largest oil company in all of the 10 new EU countries.
Location:
From residential apartments, to office space, or industrial areas—the Hungarian real estate market is booming in every area, and foreign investors have taken notice. While property prices are no longer dirt cheap, as they were considered to be a decade ago, fantastic places can still be bought for a fraction of what a Central London flat would cost. Deals can still be had, and in Hungary, they are often not hard to find. The sheer number of real estate agencies that line Budapest’s streets is testament to the city’s hot real estate market.
Hungarians are fond of saying that Hungary lies right in the center of Europe. The country is slightly less than 100,000 square kilometers (a little larger than all of Ireland), and borders seven countries—Slovakia in the north, Ukraine in the northeast, Romania in the east, Slovenia, Croatia, and Serbia and Montenegro in the south, and Austria in the west. The country’s landscape is mostly plains in the east, low hills in the west, and small mountains to the north (the highest point is just 1,014 meters). The major rivers are the Danube and the Tisza. Being a landlocked country, Hungarians are proud of Lake Balaton, which is what they call “the Hungarian Sea”. The lake, about 100 kilometers southeast of Budapest, is Central Europe’s largest lake (77 kilometers in length). The hilly north side is dotted with some of the country’s best wineries, which thrive in the volcanic soil. The flat southern side has shallower water.
But Budapest, the cosmopolitan capital city, which is rich in history, culture, and entertainment, is where most investors arrive and stay put. Hungary’s population is slightly more than 10 million. Budapest—with 1.8 million inhabitants—is the country’s only metropolis (the country’s next biggest city is Debrecen, with just 210,000 residents).
Little has changed since Hungary joined the European Union, along with nine other countries, in May, 2004. Most of the most dramatic changes had already taken place during the previous few years. Hungary had about $105 billion in GDP in 2004, and is the third largest new EU member, after Poland and the Czech Republic. Foreign investors—attracted by Hungary's 4 percent growth rate in 2004—brought a surge in the Budapest Stock Exchange's benchmark BUX index. The index reached a record 18,673.24 on March 1 and rose 55 percent in euro terms for the year, which was the third highest gain of any stock exchange in the world. The gains were led by Mol Rt., which is the largest oil company in all of the 10 new EU countries.
Economy:
The Hungarian economy has been doing better than expected, with a lower than expected inflation (4.1 percent as of January) and a strong forint. Hungary has a strong export sector, which is largely composed of firms owned by foreign investors, and growth has averaged 4.25 percent annually since 1997. Exports have been competitive, which helped the country maintain a real GDP growth of 4 percent in 2004.
Export growth is likely to slow in 2005, according to the Economic Intelligence Unit, while domestic demand will be slightly accelerated, which will help maintain real GDP growth of 3.7 percent in 2005. Growth is forecast to return to 4 percent in 2006, which is an election-year.
Because Hungary had a speedy integration into European production networks, there was little confusuion or chaos after European Union accession in May 2004, which, overall was a smooth transition. In recent years, Hungary has become a desirable location for companies opening regional headquarters and service centers, because of the country’s affordable real estate, its lower labour costs than Western Europe, and its well-educated and well-trained workforce. There is, however, a distinct regional divide between the more prosperous central and western part of the country (which has concentrated growth and labour shortages), and the poorer, less-developed eastern part of the country. Overall, the country’s unemployment rate, as of February, was 6.9 percent.
Hungary would like to join the euro in 2010, but it must shape up its economy in several areas. Government debt was 60.7 percent of GDP in 2004, exceeding the 60 percent EU ceiling. The budget deficit must also fall from 5.4 percent of GDP (which it was last year) to 3 percent. Prime Minister Ferenc Gyurcsany says he is aiming for a budget deficit of 4.7 percent this year.
Property Market:
Hungary has been a popular market for foreigners for years now, particularly among Germans who like to buy houses at Lake Balaton. But the latest wave of investment has come from the Irish. They’ve even been known to buy property without ever traveling to Hungary first, according to one potential investor.
There are a few basic types of real estate in Budapest: detached or semi-detached houses in the Buda hills, apartments in newly constructed buildings, downtown apartments in classic buildings built between 1880 and 1948, and the crumbling blocks of Socialist-style apartments in the city’s outskirts (stay away from these). Prices vary widely by the district. For districts within the city center, price by the square meter ranges from 177,619 HUF in some areas of district nine, to 560,288HUF for a flat in the desirable castle district.
Examples:
Trigránit Development Corporation (www.trigranit.hu), run by Sándor Demján (one of Hungary’s richest men), has undertook some of the city’s most exciting developments over recent years. The company is currently focused on its Millennium City Center project, which will be an expansive development on the Danube bank in district nine (next to the new National Theater), which will include luxury residential flats, hotels, a new convention center with a capacity of 10,000, and cultural facilities on 10 hectares. The Duna-Pest Residences at the Millennium City Center will include approximately 310 suites will offer floor plans ranging from 30 to 240 square meters with final layout and buildups arranged at the owner's requests. The building will feature all amenities, and cultural centers will provide nearly constant entertainment. Prices will begin at 350,000 HUF per square meter, and will be as high as 750,000 HUF per square meter depending the location and size.
Autóker Holding (www.autoker.hu), another leading real estate developer, is currently working on eight projects, including both new buildings and renovations of classic buildings. The most anticipated of its projects is the reconstruction of one of downtown’s (district seven) most well-known (and biggest) buildings, Gozsdu Udvar. The complex is composed of a chain of architecturally unique courtyards that connect two parallel streets, seven buildings, and staircases with vaulted passageways. The secessionist-style building—located in an UNESCO World Heritage protected area—will include luxury apartments (30-70 square meters), shops and restaurants in the courtyards, and a spa and wellness center. Average selling price for these apartments is 600,000HUF per square meter
Attractions:
Being a large European capital, there is always a full entertainment calendar in Budapest, and lots of attractions and activities to keep residents and visitors occupied from the early morning, late into the night. Music lovers are drawn to Budapest for its variety of concerts, from Hungarian folk and vibrant gypsy music to opera and theater at the elegant Opera House on Andrassy út and classical or jazz at the art nouveau Franz Liszt Music Academy. Even better, a brand new National Theater and a new National Concert Hall have recently opened along the Danube bank in Pest, bringing even greater entertainment options.
Eating and drinking is another pleasurable pastime in Budapest. Fashionable open-air cafes line trendy Ráday utca and Liszt Ferenc tér, and world famous Gundel in Varosliget is the best choice for fine dining. But there are also excellent international eating options, particularly Italian and Indian. And, Hungarian food is known for being tasty, for being flavorful, and for being served in heaping portions. The country is also being increasingly recognized for its wine—which has improved drastically in quality over the past decade—and wine bars are plentiful in Budapest.
Thermal water abounds in Budapest, and visiting the city’s 16th century Turkish baths is always a good way to spend an afternoon. Budapest has a good dose of art galleries, and browsing the city’s antique shops and antique markets is just as interesting. From September’s International Wine and Sparkling Wine Festival and the Autumn Festival, to summer’s Ballet and Opera Festival and the Pepsi Sziget Festival, there seems to always be something going on in Budapest.
Transport Infrastructure:
Getting to and from Budapest is easy from nearly everywhere in Europe. Since the introduction of Budget airlines in 2003, it is particularly easy to get to Budapest from the UK and Germany, and the city has become a favorite weekend destination for travelers flying on budget airlines. Currently, eight low cost carriers fly in and out of Budapest—easyJet, WizzAir, SkyEurope, Sterling, Snowflake, Air Berlin’s NIKI, germanwings, and EUjet (only to Kent). In addition, FlyNordic (the Finnish discount airline) will enter the market in June. Tickets on these low cost carriers can be had for under £100, depending on how far in advance they are purchased. In addition to those carriers, the Hungarian national carrier, Malév, and nearly all major international airlines fly into Budapest’s Ferihegy airport, which last year recorded a record number of passengers (6.5 million), and is Central Europe’s third busiest airport, according to KPMG Hungary. Ferihegy airport’s terminal one has been under construction, and is scheduled to open this summer, which will allow greater numbers of flights in and out of the capital.
Budapest, and Hungary, are also well served by railways (7,937 km throughout the country) and highways (81,680 km of paved highways, including 438 km of expressways throughout the country). Budapest is just a three hour train or car ride from Vienna, and a train ticket is approximately 8,000HUF. Additionally, Hungary has ports on the Danube in Budapest, Dunaújváros, Győr, Csepel, Baja, and Mohacs.
Budapest has an excellent public transportation system, and it’s possible to get to nearly anywhere within the city limits by public transport. There are three metro lines, with construction recently beginning on a fourth after years of planning and debate, and there’s some talk of building a fifth metro line as well. There is also an extensive bus, tram, trolley, and commuter rail system, although traffic jams are still a problem (particularly during the summer).
Local Mortgage:
Foreign currency based loan: 6%; Hungarian government subsidised loan: 6%; non-subsidised loans: 15%
Inflation:
4.1 % (January, government statistic)
Economic Growth:
4% (2004)
Sunshine Days:
1,853 (Budapest)
Annual Rainfall:
517.9mm
Temperatures:
Winter: January (high 1°, low -4°)
Summer: July (high 26°, low 15°)
Property Price Inflation:
6.8% (2004)
Local Currency:
Hungarian forints (abbreviated as HUF or Ft); €1=246 HUF
Cost of Living Index:
70 (ranking: 88th place) (Economic Intelligence Unit, August 2004)
Income Tax:
To be advised
Property Tax:
For the first 5 million HUF, 2% of the property price; for the remainder of the balance, 6% (all legal fees can be deducted from this)
Capital Gains Tax:
To be advised
Buying and Selling Costs:
Lawyer fees (0.5-1% of property price); if you’re taking out a mortgage at a Hungarian bank, there will be bank and notary fees. Agents Fees 3-6% paid by the seller; In a few rare cases, an agency will charge both the buyer and the seller 2%.
Rental Yields:
Typical annual rental yield in Budapest is about 8 % of the property price. Lettings agencies typically charge commission of 10-15 % of the monthly rent.
Report Compiled By:
The Property Investor Research Team - Copyright © 2005 thepropertyinvestor.net
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Report ref: TPI-HU-001
Date created: 17-08-2005
