Budapest, 18 November 2019 – In the first half of 2019, the annual growth rate of house prices accelerated to some extent at national level, while in Budapest the annual dynamics slowed down from 24.8 percent to 22.5 percent. Although the currently strong housing market demand is supported both by home starter programmes and the favourable economic and financing environment, the decline in housing transactions in Budapest in parallel with the introduction of the MÁP+ may indicate a decline in investment demand. New home completions may peak in 2019 at 19,800. From 2020-21, supply is expected to fall, due mainly to strong cost-side pressure and the increase in VAT to its previously higher rate. New housing supply is unable to keep pace with demand, the renewal rate of the housing stock in Budapest is still very low.
In 2019 H1, Hungarian house prices continued to rise. In Q2, the annual growth rate of house prices amounted to an average 17.1 per cent at a national level, exceeding the 16.3 per cent recorded at the end of 2018. In Budapest, however, price dynamics slightly declined from 24.8 per cent at the end of 2018 to 22.5 per cent. According to preliminary data for 2019 Q3, the growth rate of house prices continued to decline in Budapest and also decreased on average nationwide.
The demand side of the Hungarian housing market continues to be supported by high employment, increase in real incomes, a high level of savings and a low interest rate environment. Despite that, in 2019 H1 the number of housing market transactions in the capital dropped by a significant 29 per cent year-on-year, mainly reflecting a major downturn in Q2. This may also have been due in part to the high number of preliminary contracts made in recent years in the market of new homes, which will appear in transaction statistics only later. In Budapest, a slight increase in the median bargain and the median time on the market of flats may also point to a decline in demand. According to the Housing and Real Estate Market Advisory Board (LITT), the launch of the Hungarian Government Security Plus (MÁP+) may also explain the falling demand for residential property through investor interest. The number of transactions stagnated in rural towns and increased by 6 per cent in villages year-on-year, indicating sustained demand in rural areas.
In 2019 H1, the volume of new housing loans continued to grow by some 20 per cent year-on-year. The volume of new lending shifted towards longer-term interest rate fixation. The number of signed contracts slightly decreased according to the latest data. The latter may be explained by the crowding-out effect accompanying the prenatal baby support launched in July, which is partly for housing purposes. Households’ demand for credit is also supported by favourable financing costs, government support programmes (HPS, rural HPS, prenatal baby support).
In 2019 Q1, the number of new housing completions increased substantially, followed by a temporary drop in Q2 due to widespread delays to residential projects. In the capital, 55 per cent of new homes under development have suffered delays. Substantial growth in completions is likely to continue for the rest of the year at a national level, with new supply expected to peak in 2019 with 19.8 thousand new homes. In 2020, delays may keep the level of new completions high at 18.5 thousand units, while a decline is already expected from 2021, with 16 thousand new completions forecast for that year. Housing supply cannot keep up with demand. In Budapest, tightening supply is shown by the fact that the number of homes under development fell to 20.5 thousand in 2019 Q3 from 21.9 thousand in the previous quarter; additionally, the number of units in new projects announced in Q3 was the lowest in recent years at 770 homes, compared to the quarterly average of 2 to 3 thousand new homes since 2016. Supply is also being tightened by the VAT reset to its previous higher rate, strong cost-side pressure, and a shortage of skilled labour. The renewal rate of the Hungarian housing stock is low by regional standards. Budapest is lagging even further behind, with an annual renewal rate of a mere 0.4 per cent compared to Vienna’s 1.5 per cent.
Looking ahead, LITT members forecast a significant fall in the supply of new homes from 2021 onwards. They believe that developing construction capacities could reduce the construction costs of new homes and increase supply as a result. As additional cost drivers, they pointed out strict requirements across Europe, and high material prices due to the absence of any substantial production of building materials in Hungary. They also underlined the need to develop the rental market as a way to create more housing opportunities.
MAGYAR NEMZETI BANK