With housing prices at rock-bottom, you may be able to find good deals in Hungary.

Article: You are unlikely to get financing from domestic banks for financing real estate in Hungary.

The government of Hungary has not succeeded in finalizing an external finance agreement with the IMF and the European Union. However, the outlook for the medium-term remains one of cautious optimism and 2013 should see an improved pipeline of real-estate projects and developments.  The construction sector will inevitably register a further contraction as a result of the poor economic conditions.

Like most of the world, the global financial crisis inflicted considerable damage on the property market in Hungary.  Only a broad economic recovery can stimulate the demand for office and retail space as well as other industrial property.  However, the economy continues to be in trouble as a result of the slow recovery in the Euro zone and the domestic financial problems.

Hungarian investment property market analysis

Real-estate market activity in Hungary

Foreign investment in Hungarian real estate ground to a virtual halt after the global financial crisis – declining sales, an all-time low in construction activity and the disappearance of activity in the mortgage market.

• However, some recent purchases by foreign investors suggest that the market for residential property is reviving on the back of foreclosure sales.  Apparently, some investors are seeing the current low valuations as a good entry point into the market.
• Home prices have dropped some 30% in the downturn and some decent bargains are available.
• The area around Lake Balaton has been a prime location for the locals and is now being discovered by foreign investors.
• Other than Budapest, the housing market has remained largely stagnant but there have been sales in towns that are home to several universities in the Lake Balaton region.  Here demand is at its strongest for high-end apartments and houses on the northern shore of the lake.
• A large apartment costs at least USD $500,000 and the most expensive houses can cost USD $3 million.
• The southern shore is more affordable and a large home with a good view can be picked up for around USD $400,000.

The buyers in Hungary

• European buyers, particularly from Ireland, were interested in Budapest before the global financial crisis.
• Retired locals and affluent Hungarians seeking a holiday home were and are interested in Lake Balaton property.
• Retirees and holidaymakers from Germany, who have business and family ties in Hungary (especially people from the erstwhile East Germany who grew up vacationing here), also buy in this area.
• In recent years, Russian buyers have shown a preference for the city of Heviz and it’s hot springs with their therapeutic qualities.
• There are no buying restrictions on citizens of the European Union.  Buyers from other countries must obtain a permit but the process is straightforward and the permit is almost always granted.

The outlook for 2013

• Real estate investment transactions totaled around EUR €120 million in 2012 and the supply of commercial real estate for 2013 and 2014 is expected to be down up to 75% from historic levels.
• There has been a sharp correction in the oversupply of commercial space and the availability of domestic bank financing is minimal.
• Clearly, the large portfolios of foreclosed property accumulated by the local banks have caused them to categorize real estate financing as high risk.

The bottom line

With property prices at rock bottom, many investors believe that there are good deals to be had.  However, if you are looking at an investment, arrange your financing outside Hungary because you are unlikely to have any luck with the domestic banking system.