These past few months the World has been facing great challenges in the fight against COVID 19. It is fair to say that we’ve been all feeling the impacts of it on different levels and in different parts of our lives. During these difficult times it is enough to handle everyday life, so if you feel a little lost at sea with what is going on with the economy and how current events impact the real estate market, we will help you.
At Matthew & Daniel’s we represent professionalism on every level. So if you’re interested in the market right now or looking for answers, we will guide you with data and local expertise.
In this article we would like to dig a little deeper and shed some light on how the current health situation impacts the Budapest Real Estate market.
Real estate transactions surge
Let’s start with a little history overview as information on economic effects of past global pandemics can help us provide perspective on what is going on right now.
Empirical research from Zillow into the 1918 Spanish flu and 2003 SARS pandemics both indicate a significant loss in output during the time of the pandemic. The effects vary by sector but since consumers wish to avoid nonessential human contact, the 2003 SARS pandemic led to a temporary fall in monthly real estate transactions from 33% to 72% vs. baseline for the duration of the epidemic, while real estate prices held steady.
Meanwhile, during the current episode in China, news reports and early data provided by Goldman Sachs (2020) indicate a near-shutdown in the volume of Chinese real estate transactions, although there is not yet a clear effect on real estate prices.
As human beings it is natural to react to sudden changes with shock and denial at first, moreover in unpredictable conditions such as this we can only calculate the future day by day. During the early stages of COVID 19 economists, scientists and business professionals were saying that this will be a rapid pandemic followed by just a modest recession. But as the number of transactions are decreasing, an economic slowdown and a bigger recession is following.
During these challenging times it is understandable that the number of transactions decreased but it is important not to confuse these measures with the number of buyers. The real estate market may be slower but at least it’s alive as transactions are still happening which means buyers are still interested. This slowdown period could last for even 2 years but some buyers are willing to wait even longer for their investment to pay off. Further market changes will mostly depend on the actions of major economic stakeholders and governmental measures.
Budapest real estate market was already in a bubble
Despite the current exceptional health situation and the foreseen economic crisis let’s not forget the characteristics and potentials in Budapest Real Estate. We’ve been analysing the market for years now mastering especially in the most popular downtown districts of Budapest. By looking back at certain patterns we can say that the Budapest market was already in a bubble.
The capital of Hungary has been ranked among the top 10 fastest growing property markets in the world since 2017 by The Guardian. Price levels in Budapest real estate are much lower than anywhere else in the region which is one of the many reasons why investors choose this city among other things. Budapest continues to be a rising real estate investment favorite, with the Telegraph recently (2019) crowning it Europe’s top place to invest in property.
Moreover, the last few months the Budapest real estate market reclaimed its title as the city with the fastest-rising house prices globally. Earning this title was the third time last year (2019) according to the Global Residential Cities Index reports by Knight Frank.
Hungary saw residential prices accelerate by 24% in the 3rd quarter of 2019 driven by low mortgage rates, strong employment and economic growth. Yields of up to 8%, low to moderate transaction costs and landlord friendly laws were the key drivers behind the market’s rapid growth. But external factors, ranging from growing tourism to urban development have also accelerated Budapest’s popularity and profitability in the property market.
Before all that’s happened, the numbers had never looked better and the euphoric housing market was reflecting it tenfold. But as the global economic boom and national GDP growth projections slowed, alert property investors and economic institutions were already becoming wary of signs the market will turn at some point. With the exception of relatively recession proof property investments, selling an investment property was a question of when, not if. Since the National Bank of Hungary issued a report in October 2018 on the risk of overheating in Budapest’s housing market, we’ve investigated the micro- and macro-economic factors affecting the market to advise investors on exit strategy.
Hungarian price listing graphs show the market was approaching the end of expansion. The average long-term length of real estate cycles since 1800 is 18 years long, with the past three measuring 6 years, 10 years and 17 years long respectively averaging out at 11 years, from recovery to recession. With exact data and a precise graph, the 11 year cycles inevitably show a long run of steady growth during the recovery and expansion phases, followed by a quick fall after the market enters hypersupply. The events of COVID 19 was only a push to what was already inevitable.
The market may be slow, but it is alive
Let’s sum up what all the above explained information means.
Whether we like it or not COVID-19 is affecting the Budapest real estate market too. Property prices are already dropping, the number of transactions decreasing and as we mentioned before selling an investment property was just a question of when, not if.
With consumers wishing to avoid nonessential human contact and governmental measures forcing entire countries towards this new way of life, an economic slowdown was inevitable from the beginning. Day by day we know more about what we can expect from the future but what is almost entirely sure now is that the real estate market may be slower, but it is alive in Budapest.
Before the outbreak alert property investors and economic institutions were already becoming wary of signs the market would turn at some point, they were waiting for the perfect moment to sell. Now selling a property may be more challenging, but definitely possible.
Ready to sell? We have buyers.
Despite real estate transactions having nearly ceased on the market because of the current exceptional health situation, Matthew and Daniel’s has a strong customer base who are interested in buying your Budapest property for cash!
Our buyers are constantly looking for great deals and we are working tirelessly to serve their needs with great care. During these difficult times we take extra measures to ensure our customers health and safety. We minimized in-personal meetings, shifted our focus to telephone and online communication and implemented sales processes to ensure safe and smooth transactions.
Navigate the Budapest real estate market with an advisor you can trust. Our agents provide a deep knowledge of the Budapest real estate market to help you find a buyer who appreciates your property as much as you do.
Start with getting a trusted valuation!