An advantageous economic environment supported a growth in investment volume in 2016, as the residential investment sector and other segments of the property market performed well. Generally, the market has become more balanced in recent years after the recession triggered by the economic crisis, both in terms of segmentation and in supply and demand.
Considerable new investment and development projects have appeared in recent years, triggering vigorous progress in the office sector for 2017, since some of these projects remain in progress and other, new ones, are about to commence. One of the most popular places for property investments and developments is still Budapest. The so-called office corridor on Vaci Street represents a highly popular location, with numerous projects continuing in 2017. Our law firm is proud to be assisting our client, a Hungarian investment fund, in a significant real estate transaction in 2016 in this office corridor, as well as other clients in several complex projects in the industrial and hotel segment.
Positive tendencies can be detected also on the industrial property market, although not as spectacularly as in the office sector. Statistics show positive developments here, after a previous five-year period of stagnation. The vacancy rate is very low in modern logistic parks, and since demand continues to increase, investment volume should continue to grow in 2017.
The hotel sector is a dynamically developing sector, and our country is very proud of one of our luxury hotels located in downtown Budapest, which won the TripAdvisor Traveller’s Choice Award this January in worldwide competition.
Although dynamic development appears in almost all segments of the real estate market, longer construction periods and higher construction costs – resulting in higher rental fees – are common due to manpower shortfalls in the construction industry. Due to increasing demand numerous new projects will be launched, and growing competition may be expected among the market players. Therefore, innovative development solutions, cost efficiency, and excellent accessibility will, as important decision making criteria, become more critical.
While a Eurostat survey showed a solid 4.3% increase in housing prices as measured by the House Price Index from Q3 in 2015 to Q3 2016 at the EU level, the highest annual increase (11.6%) was recorded in Hungary.
Residential property prices moved significantly in the past five years, but the extent of the increase was different in various geographical areas and segments. The most dynamic growth occurred in Budapest, while house prices in the small cities in the countryside ascended only slightly. In addition to newly built residential properties, the prices of secondhand homes have also risen significantly. Solid growth is expected to continue in 2017.
A foreseeable boom is coming in the residential property market due to the effect of the numerous flat-construction projects that started last year. The figures of the Hungarian Statistical Office reveal that the number of newly built flats increased by 22% in Budapest in 2016, with 29% growth reported in cities with county authority. According to the estimations of real estate market analysts, the number of new homes to be built in 2017 may reach 14-16,000, with Budapest (and its greater metro area) and the Lake Balaton area expected to remain the most popular areas.
The Hungarian government’s housing market policy has also had a positive impact, stimulating not only the newly built but also the used-home market by means of a home purchase assistance scheme.
Beyond the local investment funds and individual and institutional investors, more and more foreign investors are finding Hungary attractive for property investments, and as the credit rating agencies have also graded Hungary suitable for investment, we can confidently state that Hungary is back on the local and international investment map.
By Zita Orban, Senior Lawyer, Head of Real Estate, Kapolyi Law Firm
This Article was originally published in Issue 4.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.