With the announcement of Viktor Orbán, the madness in the used floors can end

In recent years, we have seen a huge rebound in the property market in Budapest, the price of new and used houses has specifically multiplied compared to the 2014 low. This spectacular increase also caused the market to reach price levels the last year that substantially reduced demand, drastically reducing the number of transactions in both segments. In addition to high house prices, other factors also played a role in this, the MÁP + introduced in the summer of 2019 had the most draining effect on investment demand affecting Budapest.

When the coronavirus unexpectedly appeared, the housing market in the capital was already characterized by a slowdown in the dynamics of price increases, a decrease in the number of transactions and an increase in average sales times. However, when the first wave of the epidemic broke out and the introduction of strict restrictive measures, many people envisioned spectacular home sales, even though this has not happened to date. Of course, swift government action, land sellers, sheltered buyers, and the extremely limited supply of high-quality new or second-hand properties all played a role in this.

The announcement by Viktor Orbán this Wednesday, according to which the VAT on housing construction will be 5% in the case of construction started on December 31, 2022, may bring a significant change in the latter.

As we already reported in our detailed analysis, this could in practice result in 100-200 thousand new homes in the next 5-10 years depending on the announced regulations and the attitudes of market participants. At the same time, this means that as a result of the change, not only may a few thousand new flats appear on offer that have already been completed or are in the process of appearing, but may also reach the market in the order of tens of thousands every year.

In my opinion, this expected volume of supply, of which obviously only a part will appear in the capital, may already be capable of causing substantial changes and improvements in the second-hand apartment market in Budapest. Provided, of course, that the 5% VAT rebate does not increase the prices of construction materials and labor costs, and that contractors do not partially absorb the effect of the VAT reduction by increasing net prices, as we have seen in previous years. If they are met, the further increase in new home prices could be wrapped up, which could also lead to higher prices for second-hand homes, especially if additional targeted government measures are used to boost demand. By the way, this can be wrapped based on the news flow in recent weeks.

Importantly, when I say that the current announcement may lead to substantial changes in the case of second-hand apartments in Budapest, I am not thinking that there will automatically be a price drop in the segment.

But that the anomaly that we have witnessed for years may finally fade into the background, or even largely disappear from the market. It should be noted that second-hand flats with less good condition stood out on the street from the constantly increasing price of new flats and renovated second-hand flats in good condition. In practice, this meant that there were often no significant differences in the prices of second-hand apartments in Budapest. During pricing, sellers did not take into account, or only to a small extent, the condition, technical equipment, layout, location or orientation of their property. In my opinion, two things played an important role in this:

On the one hand, in Hungary there is no culture of asking for the help of a specialist or appraiser before selling or buying an apartment. Most people start with the sale prices of a particular district, neighborhood or street when they advertise or buy their own property. Another problem was that commission-based real estate agents, who by the way have pricing experience in most cases, weren’t interested in setting more realistic target prices. Everything on the market is worth what they buy on the basis of hand washing and this principle has worked because of the above. Of course, the attitude of sellers also played a role in the development of the phenomenon, despite the fact that the professional appraiser or the real estate agent professionally said that the value of second-hand housing with less good facilities is realistically below the imagined target price. The owner was obviously justified in the high prices for emotional and financial reasons, and when he finally found a buyer for his property due to the unstoppable price increases, he saw his own position as justified.

On the other hand, in a constantly increasing market, in addition to the scarcity of supply, buyers were willing to accept the prices of sellers in the second-hand housing market, although in many cases there was no substantial difference between the fixing of good and worse used second-hand home prices.

New homes, which are on the market in large numbers and permanently, on the other hand, can make a difference in this regard on the market. It’s hard to imagine that with an expanding supply, buyers will be willing to pay almost as much for second-hand homes with poorer facilities as for a well-stocked second-hand home, or substantially less than for a newly built one. On the other hand, I can very easily imagine that homeowners will ultimately be unwilling to cut prices, relying partly on the experience of previous years and partly on second-hand home renovation grants that have been traded in recent years. days. In relation to the latter, of course, the question arises as to why someone would buy a dilapidated second-hand flat, unless its special location justifies it (let’s say in the city center, where no one is expected to build a substantial number of new floors) the cost of entry and the cost of renovation together exceed other alternatives available in the market.

If there is no significant change in the above anomaly, I am sure that the median time to sell will increase even more dramatically for second-hand apartments in worse condition and we will find more and more apartments stuck in the Budapest property market.

Cover image source: MTI / Balogh Zoltán