...real estate agency Colliers International Ákos Balla, Head of Valuation and analyst Krisztián Murai examined the way the residential market reacts to current challenges, mainly the changes of the EUR/HUF rate.

Prices that were stagnating in 2008 on the residential real estate market have started decreasing at the beginning of 2009. The fall was around 10% in the suburban (not overvalued) areas of Pest, while it reached 30% in overvalued Buda or Pest central districts. Colliers International, which monitors the market for residential developments and valuations of major residential properties, has pointed out that those who currently intend to invest in real estate instead of the money market are in a favorable position. Supply has jumped – at times as current owner is unable to pay back loans. At the same time, demand has dropped, an observation also confirmed by residential real estate agencies.

“From a valuation point of view, we must emphasize that property values have not followed foreign currency exchange rate movements, moreover, real estate prices have also lost some of their nominal value,” according to Balla. “This is unfavorable for owners, but favorable for investors, and might once again attract international attention towards Hungary if one is willing to take regional and country risks.”

The majority of domestic buyers have financed their apartment purchase from loans, mainly denominated in Euro and Swiss Francs. These were greatly affected by currency fluctuations, causing a drastic increase both in equity and in the monthly installments; owners are therefore facing difficulties when trying to pay their loans and monthly utility and other costs at the same time. Demand from foreign buyers have already priced in the value of Hungarian residential properties compared to international levels. While a weak Forint decreased euro-denominated prices, high risks have cast a shadow on the attractiveness of Hungarian real estate.

“Foreign demand for residential property – especially for the bank of the Danube and downtown Budapest – could rise as foreign investors might profit not only from the drop in nominal value in Forint terms, but also from forex gains. These could add up to more than 30% of gains,” Murai said.

Banks generally do not or just partly pass on to their domestic clients those positive impacts that have taken place in the meantime, including the 0.25% base rate cut by the Swiss Central Bank in March, and the 12% drop in the Swiss Franc rate versus the Forint since then. Domestic demand for apartments is expected to be temporarily invigorated by last-minute applications for the soon-ceasing social subsidy system. The spring is also a preferred season for seeking new homes, but foreign currency rate fluctuations in these cases are not expected to affect the sales procedure.

The leasing segment of the real estate market is stirring, although lessors are willing to pay rents way below earlier levels. Demand is mainly driven up by those who cannot afford to buy property, therefore are forced to rent them. This is mainly the case in districts easily accessed by public transport: at these locations, rents asked for average and renovated flats are almost the same. The strong Euro causes a drop in costs for foreign lessors, although this has no significant impact on the market.

Source: O|G|H