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Real Estate Market Malaise

Pandemic Decimates Number of Construction Permits, Foreign Buyers Absent

D&T
July 31, 2020

The economic crisis triggered by the coronavirus pandemic has wreaked havoc in nearly all sectors of the Hungarian economy and the real estate market was no exception. The latest data show that the number of construction permits plummeted in the wake of the crisis and experts warn that the disappearance of foreign property buyers could also have serious implications for the sector.

The number of construction permits issued by authorities and notifications of construction intent declined by 32% in the first six months of 2020 to 12,475, compared to the same period a year earlier, according to data from the Central Statistical Office. Nearly half of new residential properties (39%) were originally planned to be built in Budapest, the figures show.
The number of dwellings to be built decreased in all community categories compared to the first half of 2019: in Budapest by 21%, in larger cities by 51%, in smaller cities by 34%, and in villages by 25%. Based on the number of new construction permits issued, a total of 5,437 residential buildings are planned to be built in the country, 27% fewer than last year. The number of planned non-residential buildings decreased by 4 percent nationwide, to 1,918.
The steepest decline was recorded in the months following the outbreak of the coronavirus epidemic, with the number of dwellings to be built on the basis of construction permits and notifications falling to two-thirds of last year’s number in March and just over half in April-May. The trend reversed in June, when the annual decline was 10%.

Different picture
With respect to the number of occupancy permits, the data show a different picture. In the second quarter of 2020, the number of completed dwellings was 40% higher than in the same period of the previous year. “The reason for the increase in the number of occupancy permits is that flats which have been sold with 5% VAT in recent years are now being completed. On the other hand, the number of new building permits is decreasing, as, developers hardly start new projects due to the VAT increase. The new market trend is that supply on the market is constantly narrowing,” Tibor Földi, chairman of the board at real eastate developer Cordia told realista.hu.

Absent foreigners
The robust increase in real estate prices recorded over the past few years was in part due to property purchases (mainly in Budapest) by foreign nationals. In 2018 alone, foreign interest in Hungarian properties showed an increase of 23% compared to the previous year. According to a ranking compiled by real estate website ingatlan.com, the highest number of visits to the website from outside Hungary was from the United States but only 7,000 of them were actually interested in a Hungarian property for sale, which means a 23% decrease compared to last year. Visitors from Germany are in second place, but the number of inquiries has dropped by 15%. The UK came in third, with actual inquiries falling by 22% in the first half of the year.
With the coronavirus epidemic showing few signs of abating and travel restrictions remaining in place or new ones being introduced, it is safe to say that real estate purchases by foreigners will remain subdued this year. In addition, the government and the Municipality of Budapest plan to restrict short-term house rentals in the capital, which could also have a significant impact on the market as many foreigners purchase apartments in Budapest for short-term sublets like Airbnb. The future course of the pandemic and the speed of the economic recovery will be the decisive factors for this segment of the property market. One thing is for sure, a protracted absence of foreign buyers is bound to have far-reaching implications for the Hungarian real estate market.

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