Hungary looks to housing to drive growth, but some prices are off the market, Real Estate News, ET RealEstate
BUDAPEST: Hungarian Prime Minister Viktor Orban bets on housing revival to kickstart economy after COVID-19 crisis, but relentless price hike is crowding out many first-time buyers from one of the world’s busiest real estate markets hot from Europe.
Orban, who has been criticized by businesses that his government has done too little to support them through COVID lockdowns, is looking to stimulate the economy ahead of an election next year in which he will run for a fourth term consecutive.
Measures in favor of the housing sector include reducing the VAT on housing to 5%, as opposed to the Hungarian standard rate of 27%.
The government also provides grants worth approximately $ 10,000 for home renovations. Housing market professionals say this will likely drive up prices by increasing demand for building materials and labor.
Since 2015, Hungary has experienced the second largest increase in house prices among the 37 members of the Organization for Economic Co-operation and Development (OECD), after Luxembourg.
The trend has been driven by generous grants to families for the purchase of a new home, interest rate cuts fueling investor demand, a labor shortage in the construction industry and higher material costs.
Many Hungarians, like Krisztian, a 31-year-old teacher, found themselves on the wrong side of the rally. Krisztian did not want to give his last name because he did not want to make his personal situation public.
It took him four years to save enough money for a 20% deposit for an apartment on the outskirts of Budapest. He will have to take out a mortgage of 20 million forint to finance the rest, a prospect he describes as terrifying.
“Being single, I think it is very difficult that there is no help at all. None of the family grants apply and I will also have to pay a tax when buying the apartment. which is a big burden, ”he said.
Krisztian’s parents are just paying off the last installment of a mortgage on the apartment he grew up in.
The Hungarian central bank says Budapest now ranks fourth among European capitals when it comes to housing affordability, behind Paris, Prague and Bratislava.
Housing experts say the average price of new apartments in Budapest could reach 1 million forints ($ 3,300) per square meter in the coming months, double its level five years ago. The average monthly net salary was 284,100 forints in February.
Economists say the construction sector will be a major driver of Hungary’s recovery from the pandemic. Takarekbank analysts say construction output could rise 13% this year and 8.2% in 2022 after falling 9.1% last year.
Peter Virovacz, economist at ING, said Orban’s housing measures could boost economic growth by up to a percentage point. The government is forecasting growth of 4.3% this year and more than 5% in 2022.
“The economy will contract on a quarterly basis in the first quarter, but the construction sector will not, which will help mitigate the decline in industry and services,” he said, adding that the availability of building materials could pose a risk.
A survey by construction alliance EVOSZ found that one in five businesses was fully booked for 2021, with Orban’s home renovation grants compounding the shortage of skilled workers.
Building materials supplier Mapei said customers face an average five-month queue for mechanics and electricians.
Mate Kishonti, a 35-year-old electroacoustic systems engineer, is also trying to buy his first apartment this year.
“The situation is disheartening. You feel lost as to what to do,” he said. “If your family cannot help you, you may not be successful, despite the blood, sweat and tears.”