Buying in Budapest

FinOR

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8
Hello all!

I have been researching the Budapest property market some, and I see some here also do the same. So it might be worth while starting a discussion about this market, who might be interesting if we look a few years down.

First of all. Im not at all after hitting the bottom. That is impossible. My intention is for buying and holding.

The most important factor as I can see now is that its buyers market. Even in the traditional solid areas of Buda and Pest districts. Locals seem to stay out of the market, and same with foreigners who got burned the "traditional way" with paying too much. It is a huge amount of properties for sale and rent. At least the latter is a bit scary as the locals dont rent that much in Budapest as far as I can see. Rental prices will most likely continue to fall.
Short term you are therefor most likely going to burn some cash no matter? At least you will not get more than 5-6 % yield as the apartment will be empty a lot. I can see that 1 in 4 will be empty at all times.

But no matter..... Here are some of my views of the future:

1. Interest rates are high - Lower interest rates will help bring the buyers back into the market, and boost business side in Budapest. With the government finances stabilizing, inflation get a bit lower, and credit being available again this will happen. My guess is within 1-3 years.
2. Unemployment go down - This will be a fuel for the market, as many locals stay out due to no work or they are afraid of their jobs. This will take a lot of the rental market. I expect this to happen within 1-3 years also.
3. Forint is undervalued. It has fallen a lot against the euro, and I think it is a bit excessive. At least since the interest rate is so high, and the export/import balance is quite healthy.
4. Tourism - Budapest is a jewel in central europe and will continue to be a well visited town
5. Urbanization - Is below 70 % and will be higher. They and Austria are a bit slow in that regard, but with the economy people will move to the city.
6. Falling birth rate - Negative, but that will most likely affect the countryside more than the city.
7. Property tax - At present only few of the districts have it. With district 5 for companies the most scary one. I do not think that others will introduce it, with exception of district 6. Other views?

My conclusion is to buy at least, but you have time to spend finding the right apartments. So what to buy? It is mainly 3 groups other than the locals that rent. Students, businesspeople and tourists.

1. Students - Will look for apartments with low cost, close to metro line and practical. Most likely rent 20 - 30 square meter? Or do they prefer to share 2 bedroom? District 6,7,8,9 and 13 are the most likely areas?
Very low prices for these apartments.
2. Businesspeople - Mostly high end luxury apartments with garage. This is a slightly broken market, and will continue to fall due to too many apartments out there. Prices will most likely fall short term.
3. Tourist - Very good prices but a lot on the market at the moment. Prices will go further down short term.

At present I believe the best market now is students, followed by tourists. So in my head the optimal solution would be to rent out to students 10 months a year, and then tourists for 2 months. Even if this is very hard to do it might be possible in Budapest?

So what district?

I think district 7,8,9 and 13 are the most interesting at the moment. Any other views on it?
 

budapest

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Hi FinOR,

Welcome to AAM. I've been involved in the Budapest market for almost 10 years and it has been fairly stagnant during this time. The Irish influx pushed up prices in certain areas for a short while but prices returned to where they had been previously. Budapest missed the European-wide increase in prices in the first half of the 2000s but also missed the falls in the second half. Locals tend to buy with cash in many cases, but it's still possible to get mortgages here for those on reasonable incomes. In the best parts of the city centre, I'm not sure if it's a buyer's market as, although prices are repressed, they are not falling and Hungarians tend to keep their apartments rather than sell at any price. Mortgage levels are low, when compared to other European countries. The major problem of recent years has been the CHF/EUR mortgages which some locals took out but I haven't seen any significant evidence that sales due to this are having a negative effect. In less desirable districts or for new builds, prices have fallen significantly as I had expected. There is an oversupply of new builds in XIII and rougher parts of VII.

Yes, there is a huge number of properties for sale and rent but most are not really 'on the market', i.e. at a price, location or condition which the market demands. I've found it quite easy to rent the right type of apartment here at yields of around 6%. It's possible to get 8-10% yields but only in lesser locations. The rental market is almost totally foreigner-based but there are lots of students and expat professionals here so there is a steady supply of renters - once again for the right type of property in the right location.

Cheaper credit would be great, but I don't imagine this will happen in the next five years. Unemployment is slowly increasing but there are lots of jobs here for educated professionals. There was no sudden increase in unemployment like in Ireland. Yes, HUF is undervalued but I believe it will stay so for the next couple of years at least. As you say, exports and tourism are interesting areas and are doing quite well. I agree with your other points too.

The 'business people' market is virtually non-existent in Budapest. Students and tourist rental are substantial markets. Your strategy of 10 months to students and 2 to tourists is ideal and is what some owners do already in Bp.

For the most part, I wouldn't buy in VII, VIII, IX or XIII unless it was a particularly good apartment. These districts are also difficult for the new investor as only very small sections of each are desirable to live in. V is much more predictable but difficult to find good properties here at realistic prices. There are lots of undesirable pockets in V also.

Interesting article on CEE Economic Growth Potential:
http://www.portfolio.hu/en/economy/the_crisis_is_over_hungarian_fairy_tale_will_blossom_in_one_year_matolcsy.24363.html
 

FinOR

Registered User
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8
Hello and thank you for your post Budapest!

I just came back from Budapest now, and have made first investment. Its a 70square meter apartment that is 5 years old, with garage in same building. Price was a bit more than 300k forint per square meter in district 6 close to Andrassy street in southern Kiraly street. This seems to be a nice deal. Can probably rent it out with approx 9 % yield.

I learned that the Budapest market i completely broken. Market doesnt work at all. Most apartments on the market is way overpriced compared to realistic levels. Id say that this is going more down for old and non modern apartments, while new and modern apartments will start to rise.

Im therefor going for modern apartments or those that can be renovated into being modern. The rental market is also broken with many people trying to rent out low standard apartments for a dime due to not being able to sell for much more than its worth.

Today I think district 6 has a lot of potential. Same with some areas of 7. District 8 also, but Im staying away from the new builds there. Those apartments are keeping its price due to no one selling, and its being rented out to mostly students. When students find out they get ripped off I think rental prices will start to fall.

What surprised me at first is that you can get same price in district 6 in good areas that you can get in 7 and 8. The reason for this however is most likely that people who sell in district 6 doesnt have that much emotional attachment to their apartment.

Im not buying to get higher value on the apartment. Because Im not going to get much of that for a few years. I feel a Berlin syndrome can be used for Budapest, but that means very good yields on attractive objects. If you want rising prices I feel other places is much better suited. You might get 5-10 % in total for the next 3-5 years on new and modern apartments, but non modern will continue to fall.

My strategy have changed a bit now. Im going to have a lot slower progression, and let the real estate agents work for their money. They are mostly really good at what they do, and understand the situation, so this is no problem.

Are you buying in current market? You mention district 5. Ive been a bit reluctant in that, but maybe I should change that view.
 

budapest

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Hi FinOR!

I have been living in Budapest for eight years, with four or five more years' awareness before then. For the most part, I would not buy a property that has been built since 1989 because the quality tends to be low. District VI doesn't mean better than VII or VIII. I would much prefer to live close to Mikszath Ter in VIII than in the outer VI district (apart from embassy district). 9% yield is quite easy in Bp but you have to be careful where you buy. I would not buy a new property in Bp for various reasons and I don't fully understand your logic. I would only buy in specific parts of V. or close to V. and focus on a combination of rental yield/local knowledge.

Budapest.
 

FinOR

Registered User
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8
I went to see quite a lot of apartments during my BP stay. When I say newly built I mean from beginning of 2000 until 2006. Lots of those after seem to be poor, but of those built 2011/2012 it seem to be some good also.

My impression of the newly built apartments in good locations are a bit different than yours. When we spoke to agents and a neutral expert they were quite clear that the modern apartments is what sells at the moment. Sure some newly builds were difficult due to problems or being in bad location, but if it is in good location it sells well. We tried to fish some with some modern apartments, and that was not successful at all. Actually they were able to sell them while we were down there.

Modern people want modern standard. Some of the old apartments are almost impossible to bring up to modern standards. Im not going to buy any apartment where that is not the case. It needs to be heating efficient, be able to put in climate, not too big rooms etc.

One more question for you! Ive seen very high yield potential in really bad conditioned apartments. You doing any of that, and have you succeeded with it if so?
 
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budapest

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I agree with most of what you say and yes, modern apartments are what sell at the moment. I tend to renovate classic apartments from the inside out - moving walls, new everything to bring up to modern standard and furnish better than the competition. Tenants are much more impressed by these than standard new-builds. I continue to think that anything built 2000-2006 is still overpriced. Interesting that you mention Kiraly utca, as the Autoker developments around there are exceptions and I agree that they are of a good standard and should give a good return, assuming that you buy at a price which is much lower than the original price. I don't agree with your statement of "You might get 5-10 % in total for the next 3-5 years on new and modern apartments, but non modern will continue to fall." All new builds have fallen in price drastically over the past few years as I assumed they would, while good classic apartments have remained flat/fallen slightly. This will continue. However, you seem to have researched the market very well and you know what you're doing, which is great. You've noticed too how difficult the market can be and how a lot of it doesn't make sense. Supply and demand are not matched and because so many inherited rather than purchased their apartment, few are forced to sell at prices which reflect reality. This situation has existed for as long as I can remember and there are few very attractive apartments either for rent or for sale at the moment at realistic prices.

I wouldn't rent any apartments in bad condition as they would be more hassle than they are worth. It's quite easy to get high yields in Budapest if you offer something better than the competition. It takes some effort but renting a very nicely renovated classic apartment that appeals to tourists during the Summer months and students during the rest of the year can generate a 12-15% yield.
 

FinOR

Registered User
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8
Another question for you..... It seem some apartments are owned by the government but still sold out for lifelong leases. Do you have any understanding and/or experience with such apartments?

I have seen what the competition calls "good condition", which really isnt very good. Some that is called "luxury" is not either luxury! So it should be doable to compete with this.

Autoker is the developer of the apartment we have bought. It was sold much lower than the original price. Hence the price at just over 300k HUF per square meter. Not much to buy for that standard. 2 bathrooms and 2 bedrooms with security. Its perfect for both students and tourists.

I see we think very much alike. The next move Ill do now is to buy a couple of cheap flats that need renovation. Will look at 5, 6 and some places in 7.

One more thing..... We are still considering forming a company in Hungary to own the apartments. But this will be a bit more expensive, and give slightly more tax I think. You got to pay both the company tax and dividend tax. You get to deduct 5 % yearly from value, and you can deduct expenses, but still it seem more expensive. Just a question about the health tax. We are not subject to this are we since we are foreigners? We read that all tax from 2012 or 2013 will be flat at 16 % also for individuals. Is this correct by your opinion?
 
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budapest

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936
Government-owned apartments exist in HU but they are a small part of the market and not really relevant to the typical non-Hungarian investor.

I agree, Hungarians tend to have much lower standards in terms of what they term 'good condition' or 'luxury'. I always assume that I will have to replace everything in classic apartments, even if they list it as 'excellent condition'. The standard is just not good enough.

300k HUF/sqm is a good price for a new build but I assume at that price it is likely to be on the first floor with a potential noise or light issue? Tourists really prefer nicely renovated classic properties as opposed to new-builds too.

Most investors who buy a few flats form a company as you suggest. The health tax is not payable by foreigners despite what some accountants will tell you. There is already relatively low tax in Budapest so that won't change much. The big issue for locals is the extremely high PRSI equivalent, for which you don't get a lot. When mortgage rates decline, there should be a major surge in prices here, but that could be 10/15 years away still.
 

Ember

Registered User
Messages
18
One more thing..... We are still considering forming a company in Hungary to own the apartments. But this will be a bit more expensive, and give slightly more tax I think. You got to pay both the company tax and dividend tax. You get to deduct 5 % yearly from value, and you can deduct expenses, but still it seem more expensive.


Hi FinOr,
Congratulations on your purchase, I think that you have made a good choice. I have just read your posts and I was impressed by your research and analysis of the Budapest local market.
You have asked the question about whether or not to setup a company. I presume that you have a plan for your project, then simply calculate the effect of running your plan to completion using a company versus using personal ownership and select the most beneficial. An accountant might be useful if you are not sure of all of the differences. I determined that a company would be far more advantageous for my plan, but it really does depend on a lot of variables and everyone is different.
I also agree that in Budapest yields are high and renting is quite profitable, but can I ask why you selected Budapest, was it purely a commercial decision?
 

FinOR

Registered User
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8
The apartment I bought was on 6th floor with street view. It isnt noisy at all really. Which is why we are a bit surprised to get it so cheap. The owner wanted to get rid of it as fast as possible so I guess that is the reason. We are going to try and rent it out now during the season. This is going to be a gamebreaker for us. If we manage to get what we want for it then we are going to buy more fast.

The main reason why we bought a "new" apartment now to start with is so we can rent it out during the "season". If we had bought a renovation one we would not be able to rent it out this year. If we are successful with this then we are going to also buy in older buildings. We have one close to parliament. If we get that to the price we want we can maybe get 10 % yield on it as it is perfect location for both tourists and students.

To Ember: We have decided not to set up a company to own the apartments. We will rather set up a company to rent them out. This seem to be the setup our accountant advice us to.

As to why Budapest... It is a purely commercial decition. If we look 20 year down the timeline I am quite sure we have done a good investment. Budapest is central Europe with close connection to all of Europe. People are well educated and the city is beutiful and fun for all age groups (except maybe the youngest children and their parents).

It is of course a risk involved in this investment, but no pain no gain :)!
 

budapest

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Best of luck, FinOR! Sounds like you know what you're doing.

Some Irish investors didn't do a great job in Budapest and a minority are choosing to sell at a loss. Most purchased either the wrong apartment or at the wrong price - or a combination of both. However, Budapest is a decent city for making good rental returns with high potential for the (long-term) future if you know what you are doing and are willing to put the effort in.
 

jwf

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25
Still happy :)

Still happy with Student flat in District 7 (Dohany) and Business tenant in District 1 (since 2005/6).

Dohany in particular has seen great improvement since the New York Boscolo Hotel renovation at the top end which seemed like the catalyst for other new builds like Hotel Continental Zara, Soho boutique hotel and renovations nearby.

Great to see Budapest threads breathing again!
Off to Veszprem in a few days :)

JohnF (Belfast)
 

murphaph

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1,136
Is the Hungarian economy and political institutions fundamentally sound? They elected Victor Urban which suggests to me that all is not well in Hungary, deep down. Budapest is nice, but is just one city. Much of Hungary is very poor, with people in rural Hungary moving to Bp looking for non-existant work (I know people in this boat, living with relatives in small flats in Bp hoping to find a job, any job)

My GF is half Hungarian and I'd have spent a bit of time with Hungarians staying in their homes, both in Bp and out in the country. It doesn't strike me as a country on the up I have to say. I think some of the other former communist states have made a better fist of capitalism (Czech Republic, for example) than Hungary.

I like the people and wish HU all the best and find it a bit sad that it has lost much of its former glory (HU was once a much bigger country, until WWI) and I don't really see any direction there.
 

budapest

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You're right about Hungary not adjusting well to capitalism. I don't think the Czech Republic or Poland are much better though. The hangover of communism will last for generations to come. Mindsets are utterly different here than in Ireland or the UK. There is no shortage of jobs for those who want to work and who speak another language. Lots of multinationals here. Of course there are those too (as you mention) who don't have the skills required to get such jobs.

Budapest is totally different to the rest of the country. This is true of most CEE countries, where the capital has developed at a much faster pace than the rest. Economically, Budapest is doing okay but experiencing the same difficulties as everywhere else. Politically, things are bad, with a destructive government in place, which was only elected because the previous one was worse. Few voted for LMP (more forward-thinking alternative party) in the last election and far too many voted for the extreme right (Jobbik). This is to be expected in turbulent times. On the plus side, the country is well-positioned to benefit from any global economic change, which will happen eventually.

From a property perspective, things are good if you know what you're doing but there are lots of pitfalls. Tourist rental income in particular gives a very healthy ROI.
 

murphaph

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Thanks Bp, nice to read your thoughts. I can only agree with what you say: the people I know trying to eek out an existance in Bp are unskilled and have no foreign language skills. The people they live with both speak German (and the wife speaks English) and both have work. Interesting stuff.
 

FinOR

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If there is one lesson I have learned in life... Never buy when everyone else does. Buy when you are the only one who wants it.

That is when you can dictate price
That is when you can assume at least the bottom is near

The bottom have been hit now in parts of Budapest. Much faster than I believed it would. It might be you get a fiscal shock that brings markets a bit more down, but looking long term this is when you want to start to look at things.

Hungary, and many other eastern european countries, are one generation behind western Europe. Next generation are well educated and skilled. This is when things will start to happen. I am at least very happy with business in Budapest so far. If you buy now either speculate in a bad area to get it very cheap, or buy something that a professional, foreign student, or tourist, want to rent. Do not buy something new and expensive in a bad location. Keep inside the 5th or parts of 6th/7th if you buy something newer. At least that is my experience so far. Some in 8th and 9th and bad locations in 6th and 7th are overpriced.
 
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budapest

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Do not buy something new and expensive in a bad location. Keep inside the 5th or parts of 6th/7th if you buy something newer. At least that is my experience so far.
I agree. Sounds like the advice I posted here around seven years ago :)
 

contact23

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the best advice is to stay away from budapest and foreign investment where you are lining yourself up for a big fall as you have so little power in these places , the previous posters are simply bigging up budapest for their own ends, if its not entirely obvious to all.
my experience with Hungary is its a bitter place and i am glad to be out of there never to touch even its soil again, gangsters to a man , and woman! the ones wearing the suits at any rate...
 

budapest

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Don't know what my own ends would be. Like FinOR (I imagine), we're only interested in investing well and generating decent returns. Very possible in Budapest with the right property, as I and many others have found out.

Unfortunately lots of Irish people have had bad experiences with property in CEE, but that's a different issue. Several poor companies around. Several great professionals too. Hungary has an excellent legal system and you have as much 'power' here as in Ireland.
 
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