Return to Normalcy?

As the economic malaise brought about by the pandemic is expected to stay with us in the first half of 2021, the property market will continue to be affected but a slow recovery may be in the cards. Analyses published recently by the Central Statistical Office, Takarékbank and real estate experts at Duna House project an increase in the number of transactions for this year, even amid the absence of foreign buyers on the market.

According to a property market report issued by the Central Statistical Office (KSH) in late January, real estate prices showed a slight increase in the third quarter of 2020, after prices declined in the previous three months. In the July-September period of last year, prices increased by 5.4% from the previous quarter. Analysts noted that the temporary lifting of restrictions in the summer months most likely contributed to the rise in prices, but the trend is unlikely to have lasted in the last quarter of the year. The property market roundup issued by domestic lender Takarékbank projects that property purchases made as an investment are set to decline further in 2021 and the office building market will take a hit from the home-office trend.

Newly built residential properties
After the government temporarily hiked the VAT rate on new homes to 27% last year, the number of residential property construction projects declined considerably in 2020. In the first three quarters of last year, 37% fewer building permits were issued than a year earlier, including single-family homes. In the case of condominiums, the decline was even more significant, with the number of permits plummeting by 48% between January and September. Experts expect a reversal of this trend this year after the VAT rate on new homes was slashed to 5% from January and the government introduced measures to further ease the home purchase of families raising children. The Takarékban study expects the number of newly built residential properties completed in 2021 to exceed the figure seen in 2020. In Budapest alone, the number of newly built homes is seen reaching 6,000 units this year, as many projects launched in 2020 will be completed this year. A significant portion of the homes planned to be finished in 2021 have already been sold, with just over 3,000 apartments still up for grabs at the end of last year.

Supply dynamics
In terms of transaction numbers, 2020 was a roller-coaster year on the property market. The first wave of the coronavirus pandemic and the lockdown measures took a heavy toll on real estate transactions, with buyers returning to the market in the third quarter of the year. The last three months of 2020 again showed dismal activity on the market as the second wave of the pandemic engulfed the country. Thus, in 2020, according to preliminary data, there were 12% fewer transactions than a year earlier. A key issue from a market supply perspective is the situation of foreign-currency mortgage holders, who are currently protected by a moratorium. Evictions are not expected to take place until 2022, but the question is to what extent those who lose their jobs will be forced to start selling their properties.

Investors to remain on the sidelines
Investor demand may be subdued in 2021 compared to previous years, with investors remaining on the sidelines, especially in the first half of the year. In December 2020, the proportion of those who purchased a property as an investment was 36% among all property buyers, compared to 45% a year earlier, according to data from Duna House. Nevertheless, market activity is still expected to be stronger than last year, as evidenced by the number of transactions concluded in January. According to the monthly transaction number estimate published by Duna House, in January 2021, 11,185 properties were sold nationwide, which is the highest monthly figure for the first month of the year since 2012. Analysts believe that there is no reason to assume that interest will decline in the coming months. According to the experts of Duna House, the real estate market is expected to remain bustling in 2021 – helped also by government subsidies -, and this will result in as many as 130-150 thousand property transactions this year.