Investing in Budapest? Then checkout this list of pros and cons
Investments in real estate in Hungary in general, and in Budapest in particular, have been a popular investment choice by many foreign investors for over 20 years. This fact by itself is a good indicator for the stability of the market when compared to other markets in central and eastern Europe, and for the business potential the Hungarian Capital offers foreign investors from all around the world.
The reasons why Budapest is such a popular destination for real estate investment (and for such a long period) are mainly its strategic location in the heart of Europe, its dozens of universities in which scores of international students attend courses every year, its beauty which attracts more than 3 million visitors every year, its low living costs combined with a unique vivid atmosphere which attracts business people from all around the world, its easy process of buying a property alongside the government’s active encouragement by giving incentives to buyers, and its relatively week currency, which allows foreign investors to benefit from a high yield, a quick return, and a constant appreciation of property value.
From a statistical point of view, the rentals market in Budapest is very active, and presents attractive results in both long and short term rentals transactions, which in some cases show yields of over 12%. There’s a steep and steady rise in property values in the regenerated areas over the last couple of years, and in some cases, investors sold their properties after just a couple of years making very high profits. One of the most substantial factors in the rentals market is the limited supply of available properties in the city, which is emphasized by the the small size of the more central parts of Budapest, in which besides a handful of still empty lots, no new construction is planned in the more sought after locations in the city, which creates a situation in which there’s very high demand for properties in the city center for rent on one side, and a very limited supply on the other.
A bit more about the location:
Hungary is located in the center of Europe, and Budapest, the capital, is a lively business and cultural center, a cosmopolitan city in Western European standards, and one of the biggest cities in the European union. Often referred to as “The Paris of East Europe”, the city is world renowned for its sights.
Real estate prices in Hungary rose over the last couple of years in about 20%, as the city came out of the rescission caused by the global financial crisis which started at 2008. With low interest rates, low supply of properties, and incentives to buyers (both local and foreign investors), prices soared across the city, especially in its most central locations.
Average yield in the city center for long term rentals is between 6%-10%, depending on the property’s condition and location. Many investors chose to let the property during the summer months for short term periods, raising the average yield to 12% and even higher.
So what are the advantages and disadvantages?
Investing in Budapest in real-estate is a common practice which has proven to be a smart decision for many, as it balances between high yield, stability and low risk. Foreign buyers who bought properties in Budapest prior to the global crisis in 2008 are seeing today a substantial appreciation in the value and property prices of their purchased properties, which is just an added bonus after having their properties constantly rented out during that time period, as the rentals market in Budapest is always active and generally not very much affected by macro effects. One can say the main affect was the rise in rentals prices as a result of the rise in properties for sale prices.
Many foreign investors which have available capital for purchasing real estate in Europe chose to focus on Budapest. Above the reasons stated above, on a regional comparison, one can compare Budapest to other major cities such as Warsaw and Prague, in which property prices are currently substantially higher (and many say without any realistic reason for that), so from an appreciation perspective, a property purchased in Budapest will provide much higher yield when its sold down the road. And as for other Western European cities, Budapest enjoy from a higher security level, as the government blocked the borders during the recent immigrants crisis, so the population is quite homogenized and not expected to change as in other cities in the region.
Trending – international students in Budapest buying apartments
Spread across Budapest (and Hungary) are some of the most famous universities in Europe, in which many foreign students gain advanced degrees in professions such as medicine, veterinary, psychology, engineering, business management, and more. The duration of these studies spends across several years, and adjusted to inflation, the tuition increased over the last few years as well as the rental prices. As a result, more and more students, especially in the medicine faculties, are buying properties in Budapest during their 2nd or 3rd year at the university. This allows them to not only save on the increasing rental prices, but also finance part of the academic tuition – and more importantly, own a property once they graduate.
For students planning to stay in Budapest for a period of 4 years or more, buying an apartment is an option which should be considered favorably. The forecast in the market is that real estate prices will continue their rise in about 35% (while between 2014-2016 they already rose in more than 20%), and even if they won’t rise to that extent, “student flats” in the city are rented easily, so at the very least, a graduating student with gain a yielding property that will generate passive income during the internship period.
Over the last few year, there has been a clear realistic economic growth across Hungary, which alongside investments from the EU in infrastructure, and the move of many international business hubs into the city, indicate that from a risk management perspective, investing in Budapest is a low risk opportunity.
What are the disadvantages?
Understanding of the market – When you look at the expected yield, property value appreciation and annual rental opportunities, the indicators are positive, as long as the property is located correctly. The problem is – knowing where to buy the apartment, and to foresee changes in the market. Budapest is divided to districts, which are divided to neighborhoods, which are sub divided to streets, and in these streets, one side of it or the other will have different yields.
Control from afar – Buying a property in Budapest requires giving full trust to a property management company.
Maintenance costs – Properties have a tendency to have problems and required fixes surfacing up every now and then. In Hungary, usually the most expensive problems relate to the heating system, so make sure to inspect the condition of the heating system when checking an a property before purchase.
Additional fees – Buying a property in Europe will have fees and commissions which needs to be taken into account. In any case, the above calculated yields already take those into account.
Time period for sale – In order to avoid paying a higher tax, it’s required to hold the property for 5 years before reselling it.
Finance – Foreign investors might have difficulties in getting a mortgage.
Travel – Although its not mandatory to have a look at the property before buying it, its highly recommended, so the cost of travel and accommodation should be take into account as well.
So, what’s the conclusion?
It can be said with a high degree of certainty that purchasing an apartment in Budapest as in investment is a smart move by foreign investors. The rentals market is sizzling, and the scores of students, expatriates, tourists and visitors coming to the city every year for more than 20 years are not going to stop, since the city is a major Capital which is strategically located in the heart of the continent. In addition, students buying a property in Budapest can benefit twice – one time by lowering their living expenses and financing their tuition, and second by owning a property that they can sell or let out after graduation for a high yield.
The central location of Hungary pretty much guarantees its economic stability and real estate market growth, especially when compared to other main cities in the region, in which property prices are currently higher, so the advantages out-wight the minor disadvantages, making Budapest a very popular destination with local and foreign investors.
For summary – those looking for real estate investment in Budapest should be sure that they research the different locations in the city properly and have a trusted real estate agency that walk them through the process. We are here to assist if you have any questions or need more information.