Hungary for affordable accommodation?
Over the past five years foreign interest in Hungary, and in particular its capital city Budapest, has been high. Many invested, both privately and commercially, in new build city centre developments pre EU accession to capitalise on the demand for high quality rental accommodation sought by the employees of large multinational companies such as Siemens and Hewlett Packard who were opening up offices in the country. However over the last few years since obtaining full EU membership Hungary’s property market has moved into a new phase. Central Budapest has seen property prices rise beyond the means of most Budapestians and in its place a new opportunity has risen – affordable suburban living in Budapest’s outer districts to the south and east. Budapest is a vilagvaros (world class city) that spans the magnificent river Danube. It strives to retain its Hungarian culture through preserving traditional architecture, spas and cuisine yet also embraces its western European neighbours. Home to 1.7 million people, Budapest accounts for over 60 per cent of the country's commercial activity much of which has been bolstered by the influx of foreign companies attracted by the low operating costs, a relatively low cost of living and a well-educated population.
The “Pearl of the Danube”, is made up of 23 municipalities, but geographically divided by the mighty river into 2 regions, Buda and Pest. Pest is the city's financial, administrative, commercial and retail core whilst Buda is favored for residential living. Tourism has boomed in recent years with the advent of budget flights direct from the UK (Wizz Air, Ryan Air, Easyjet and Jet2) and Budapest airport alone served 8.3 million foreign visitors in 2006.
As Caroline Hollingworth, of UK-based overseas property specialists, Hollingworth & Associates, comments, “Budapest is an ideal city break. There’s history, culture, great shopping and buzzing nightlife. One of the main attractions for culture vultures is Budapest’s State Opera House, which dates back to 1884 or for those in search of a bit of rejuvenation, one of Budapest’s highlights is indulging in one of its many thermal spas such as the Gellert baths.”
This influx of tourism and foreign nationals has meant that Hungary has experienced unprecedented growth in property demand and hence values in recent years. Typical levels of appreciation for properties in well-located areas have seen increases of 10-15% per annum, coupled with an average rental yield of 6-8% for apartments. Central Budapest saw the highest increases of 50% between 2004 and 2005 in some parts however this has not proved to be sustainable.
As Caroline comments, “The areas now flourishing are Budapest’s suburbs. As various stretches of the city’s equivalent of the M25, the new M0 are completed, accessibility into central Budapest for districts slightly outside of the main city has become a whole lot easier, generating greater demand and pushing up property prices. Districts such as 16,18 and 21 offer young families and couples affordable, modern accommodation in quieter locations away from the hubbub of city life but close enough to central business districts to make commuting convenient and budget-friendly.”
Developments such as Holmi Residence are proving extremely popular. Recent new employment opportunities in District 18 as a result of a government regeneration and investment programme, as well as €261m expansion of Budapest’s main international airport have created high demand from an ever-growing local marketplace.
The developers behind Holmi Residence have therefore designed a development to cater specifically for the local population and their requirements. Mediterranean style studio, 1, 2 and 3 bed apartments and penthouses are located just 1km from the M0 and 5 minutes from the International airport in District 18. Catering for the aspirant middle-market in today’s Budapest, 1 bedroom apartments average at £55,000 / €81,540 and up to 85% LTV finance is available. The 18th District is the fourth largest of 23 city districts in Budapest and is a leader in terms of growth, development and investment. It hosts the only international airport in Hungary, the Budapest Ferihegy International Airport, and with Budapest's current levels of increase in business and tourism, the 18th District is undergoing record economic growth, and sharply increasing real estate demand.
Recognising the demand and the opportunity for EU funding, the 18th District local government has drafted its strategy for the future development of the Airport District including the rehabilitation of the buildings in the main artery between Ferihegy Airport and Ülloi út and in Endrõdi S. utca.
Investors have the choice of ‘flipping’ apartments at Holmi Residence (purchasing off-plan now and selling on or before completion in 2009) or buying to let. Due to its location there is expected to be high rental demand from the employees and individuals associated with the expanding International Airport and its developments, the surrounding Airport Business Park and Logistics Parks and major multinational offices, car dealerships and software houses and District 18’s local population who live in poor quality socialist era housing and want to move up to a more modern, higher quality living environment. Expected rental yields are approximately 6%+ per annum.
In addition to the family-friendly homes in the eastern districts, residential developments are springing up in the southern district of Csepel to support the growing business community. Situated neither in Buda nor Pest, district 21, Csepel, is located on the tip of Csepel (Chapel) Island and is home to 85,000 people. Previously an area renowned for its manufacturing, Csepel is now expected to be the new business and development centre of Budapest. Dubbed the Canary Wharf of Budapest, Csepel takes advantage of its strong rail and road connection to the city centre and is looking to the future with skyscrapers and a 13 billion HUF (Hungarian Forint) ‘docklands style’ development planned.
Ibiza Gardens is an innovative residential development of 181 high quality apartments located in a beautiful riverside setting, overlooking the River Danube, minutes from Budapest’s most explosive commercial and retail developmental area, Csepel Island. Property prices are up to 50% cheaper than comparable marina developments in northern Budapest with one and two bedroom apartments starting from under £40,930 / €60,000 and up to 80% LTV mortgages available.
Politically and economically, Hungary is light years away from its former Communist doctrines. It is a stable and transparent system that moves in line with EU policy. The government is committed to a cost efficient state, credibility, predictability and transparency, which are all vital signs of stability for investors. Determined to maintain its number one position in Central Europe, the government introduced the National Development Plan, a new medium-term economic policy program aiming to boost the economy by providing about €4 billion between 2004 and 2006 for the development of economic competitiveness, human resources, environmental protection and infrastructure, agriculture and countryside.
“Through these attitudes and actions I believe that Hungary will remain an attractive target for foreign investors. The Budapest suburban market has a long way to go yet as infrastructure develops,” Caroline comments.
Caroline Hollingworth is the managing director of UK-based property consultancy and overseas property specialists, Hollingworth & Associates, which specialises in sourcing residential and commercial property investment opportunities in the emerging markets of Europe. For more information, visit hollingworthandassociates.com.
