Budapest, 23 November 2020 – In 2020, Hungarian housing market developments were driven by the onset of the coronavirus pandemic. In the second quarter of 2020, the number of transactions on the housing market dropped by 34 percent compared to the second quarter of 2019, while Budapest experienced an even greater decline. House prices in Budapest decreased by 5.6 per cent in the second quarter of 2020, and, as a result, prices in the capital fell compared to a year earlier as well. During the summer months, however, the number of sales already exceeded the level measured in the same period of the previous year, which points to an upswing in the housing market. Construction activity fell, and the number of issued building permits dropped by 37 percent over the period to September 2020 compared to the first three quarters of 2019. The decline can be mainly attributed to the previous phasing-out of the preferential VAT rate on housing, the demand-reducing impact of the coronavirus pandemic, and uncertainty caused by the brownfield programme regulation. The new housing benefits announced by the Government may support both demand and housing projects from 2021, but in 2020 the market may take a wait-and-see approach.
In the first half of 2020, the economic impacts of the coronavirus pandemic resulted in a deterioration in the fundamentals that determine demand on the housing market. Employment decreased, but companies adapted to the situation primarily by increasing the number of part-time employees and reducing working hours. Wage dynamics slowed slightly, and the real income available to the population also fell. These uncertain economic prospects resulted in more caution from households, and consequently their savings increased significantly. Banks tightened the conditions of their housing loans, but some institutions anticipate an upsurge in demand for housing loans in the second half of 2020.
Over the course of 2020, processes on the domestic housing market developed differently in the capital to the rest of the country as a result of the coronavirus pandemic. In the second quarter of 2020, house prices underwent a significant adjustment in Budapest: on a quarterly basis, a decrease of 5.6 percent was observed on the strength of the latest MNB house price index. As a result, after a long time, June 2020 was the first time since 2013 when house prices in the capital fell by annual comparison, the rate of which was 2.5 percent. Preliminary data imply further decreases in prices in Budapest in the third quarter. Domestic house prices increased year-on-year on a national average, but the annual dynamics dropped to 7.5 percent in the second quarter from 17.9 percent at the end of 2019.
In the second quarter of 2020, as a result of the coronavirus pandemic, the number of transactions on the housing market dropped significantly, by 34 percent, compared to the second quarter of 2019, while Budapest experienced an even greater decline of 49 percent. The fact that the bargaining observed on the housing market increased from earlier years points to supply exceeding demand. Following the low number of transactions in the spring, from June the number of sales has already exceeded the level measured in the same period of the previous year, which may have been caused by postponed home purchases as well the lower base stemming from the demand-reducing impact of the introduction of the MÁP+ bond in the summer of 2019.
The number of newly built and delivered homes in the first three quarters of 2020 increased by 25 percent year on year, but most of this can primarily be attributed to the delay to 2020 of large volumes of deliveries planned for the end of 2019. The number of issued building permits dropped by 37 percent year on year, and looking ahead, a reduction in housing construction activity is likely given that property builders started to sell only 290 flats under development in Budapest in the third quarter of 2020, which is short of one tenth of the quarterly average experienced in previous years. The reduced home development activity can be explained three-fold: the return of the higher VAT rate at the end of 2019, the demand-reducing impact of the coronavirus pandemic, and the uncertainty and waiting caused by the brownfield programme regulation.
The existing support products, the home purchase subsidy (HPS) scheme and the prenatal baby support loans that make up 11 percent of retail loans, contributed to maintaining demand on the housing market during the pandemic too. Based on the survey conducted by the MNB, three quarters of the people with prenatal baby support loans will finance a housing objective with their loan, while one fifth of the housing loans were related to the HPS scheme in the second quarter. The new housing benefits announced by the Government, to be launched on 1 January 2021, may provide strong support to demand on the housing market from the start of next year, but until then the market may adopt a waiting position. The 5 percent preferential VAT rate that can be used until 31 December 2026 for newly built homes with final building permits received by 31 December 2022, as announced by the Government under the new housing benefit scheme, may increase housing development activity from the beginning of next year. The Home and Real Estate Market Advisory Board (hereinafter: LITT) believes that the permanent introduction of the preferential VAT on homes would support the development of new building industry capacities by establishing a market environment that is predictable over the long term. In Budapest and in larger towns in the country, the reduced VAT rate for brownfield areas could also help renew the stock of homes.