Budapest is among the prettiest cities in Europe, but is it a good real estate investment destination? It’s a market I know well, having done deals there for a number of years. We’ll have a look at the following:

  • The economic outlook in Hungary
  • The real estate investment market in Budapest, Hungary
  • Which neighbourhoods to focus on
  • Concrete examples of apartments and their precise yield calculations
  • Taxes and legal aspects
  • *June 2021 Budapest market update

Hungary has had a spectacular run on the economic front

The Hungarian economy crashed hard in 2009. Its GDP fell over 6% and it required a bail-out from the EU and the IMF. This was due to two factors:

  • Economic and social policies by the socialist government at the time. The economy has not been reformed to the same extent as in other Central European countries. Hungary had a massive, creaking bureaucracy and expensive, outdated social policies.
  • A debt binge by the government, companies, and households. Over 60% of household debt at the time was denominated in foreign currency, primarily the Swiss Franc. So when the economy tanked, along with the Hungarian Forint (HUF), people could not pay their mortgages back. This led to a spectacular real estate crash.

In 2010, the opposition led by Victor Orban came to power. He was elected on a free-market and populist platform. He has a notoriously bad reputation in international circles and in the Western press for his anti-immigration stance, but he enacted economic reforms into place that boosted the economy.

On the back of economic reforms and (free) money from European Union cohesion funds, Hungary boomed between 2014 and 2019, and became one of the top performing economies in Europe. Its real GDP growth was almost 5% in both 2018 and 2019, which is reminiscent of booming South East Asian economies.

The European Union (EU) played a large role

It’s all too easy to give Orban full credit for the economic boom. While you can’t deny that he played a significant role, the flow of free EU money cannot be underestimated.

In 2018, Hungary contributed €1.1 billion to the EU budget (0.7% of Hungarian GDP), but received a cool €6.3 billion from the EU (5% of Hungarian GDP).

When you drive around Hungary and marvel at all the new highways, stadiums, hospitals, schools, and great infrastructure, rest assured that it is not because Hungarians are so productive, but rather because their populist politicians are very good at leeching off of the EU. In fact, German, Austrian, Dutch, and Scandinavian taxpayers have played a disproportionate role in the rebuilding of Hungary.

Nationalistic Hungarians claim it as their own work and proof of their genius. European liberals claim it as a demonstration of their solidarity and moral superiority. In reality, the small business owners of Utrecht and Stuttgart contributed more than their fair share to rebuilding Hungary.

The outlook for the Hungarian economy is negative

Sure, the outlook for all of Europe is negative. On the one hand:

On the other hand:

  • Tourism is dead. Hungary implemented the harshest Covid border policy in the EU, effectively banning tourism. This is a very hard hit for an industry that accounted for 8.5% of GDP. I am writing this research report from Budapest; the tourist areas have been obliterated. Restaurants, bars, clubs, and many storefronts are now boarded up. This has also had a big impact on real estate, which we will discuss further in this article.
  • Hungary is very dependent on industrial exports to Germany and Austria. For instance, exports of vehicles represent 18% of goods exported in 2018. European car-makers are not doing well these days. This reliance on car exports is a key risk, though it isn’t as bad as in Slovakia, an extreme case (32% of its exports are cars).

Your biggest risk when making a real estate investment in Budapest, Hungary, is the Hungarian Forint.

Even during the boom years the Hungarian Forint kept dropping.


And this is in spite of improving fundamentals.

Source: Hungarian Central Bank

The reality is simply that the government and central bank are very happy to let the currency devaluate. It’s an easy way for the export and tourism dependent economy to remain competitive, while allowing substantial nominal wage increases, which voters love.

The external shock that is the virus hit two key forex earners – tourism and car manufacturing. This will increase pressure on the HUF. Expect the HUF to continue its downward slide, with volatility. A key question for any astute real estate investment in Budapest Hungary, is therefore “will the HUF depreciate faster than my investment increases in nominal value?”

The price history of the Budapest real estate market

The real estate investment market in Budapest, Hungary, absolutely boomed from 2015 to 2019 before stagnating.

These numbers are in HUF, so in real terms they are less dramatic as the HUF depreciated by 15% between 2015 and 2020.

The signs of market overheating were already quite present. Since late 2018, nearly half of all dwellings sold in Budapest were for investment purposes.

Prices started dropping pre-pandemic in Q4 2019. As of Q1 2020, the average price per m2 of housing in Budapest was HUF 623,000 (roughly €1,712 at an exchange rate of 364 HUF/EUR). Bear in mind that this figure is median, not average, and includes all the Soviet-type apartment blocks in the far flung outer districts. Prices have since then dropped. In absolute value terms, this is extremely cheap by European Union standards for a capital city.

Though affordable in absolute terms, prices were disconnected from the local market

This wave of speculation led to prices that though cheap in absolute terms, became a bit disconnected from the local purchasing power.

The price to income ratio of Budapest was in the top quadrant within this selection of EU capitals. In many ways this was due to investors front-running the booming economy and benefiting from low taxation on investing in real estate in Budapest, Hungary. For example, Brussels real estate might be cheap compared to income, but taxes and and tenant laws make investing there prohibitive.

The biggest red flag was the rental prices which were unaffordable for locals

This wave of speculation, primarily in the Airbnb market, led to thousands of apartments being taken off the long term market and instead being put to work in the short term rental market to accommodate booming tourist arrivals. This resulted in one of the most expensive rent to income ratios in Europe.

The reality is that Budapest lacked adequate hotel capacity to satisfy mounting international arrivals, so the government let the Airbnb boom take place. However, as capacity increased, and as the unaffordability issue became untenable, it became politically wise to implement Airbnb restrictions. Anti-Airbnb laws are in the process of being enacted and implemented, but had already started to some degree last year in indirect ways such as new Airbnb lets requiring the approval of all owners in a building.

Airbnbs in the Jewish district

Both the populist national government of Orban and the liberal opposition government of Budapest support these measures.

The great rental price crash

Closed borders, zero tourists, and Airbnb restrictions have resulted in thousands of apartments appearing on the long-term rental market. Rental prices have dropped between 10-30% depending on the type of property and location. Small, dark, ground-floor apartments which were good enough for Airbnb are getting crushed in the long-term market.

Rental prices have gone down faster than prices, so yields have been squeezed.

In which districts should you make a real estate investment in Budapest, Hungary?

If you were to make a real estate investment in Budapest, Hungary, it is important to have an understanding of the overall dynamics.

real estate investment budapest hungary

The Danube divides the city into two – Buda on the left and Pest on the right.

  • “Magyar”: This is where Hungarians aspire to live. Proportionately less foreigners live on this side of the Danube though this is where international schools are located. Overall, you’d tap into the local market here. It’s a good thing if you are bullish on Hungary in the long run. However, the Corona crisis has not impacted this area as much as there were few short term lets and it was not dependent on foreigners. Prices have stagnated rather than dropped, and rents have fallen much less than on the Pest side.
  • “Core center”: I am referring to the 5th, 6th, and 7th districts within the ring road. This is where you’ll find the Parliament, the Basilica, all the shopping areas, bars, clubs, Opera, Synagogues etc. It’s generally where tourists spend most of their time sightseeing, eating, and drinking. This is the area that has the highest concentration of Airbnb lets and of foreigners living there to study, work and play. This is the area that has seen the biggest hit and price drops. I firmly believe that this is where the best opportunities are to be found. Also, the area has seen a large influx of Hungarians moving in now that rental prices have dropped. It’s a very desirable area to reside.

A warning about the 8th district

  • “Be very careful”: The 8th district is controversial and hugely speculative. To be fair, it’s a speculation I missed out on. Had I invested there when I took my first positions in Budapest, I would have made an absolute killing. It’s known locally as the “dangerous” area mostly due to a high concentration of the Roma minority which has a track record of higher crime statistics. Various government initiatives were put into place to “renovate” and “gentrify” the area. Parks and roads were rebuilt, street lighting was improved, cameras installed, etc. The area became nicer, and students from universities in the nearby districts moved in. Prices doubled and even tripled after a few years. Prices and rents have since dropped as much as in the “Core city” area. HOWEVER, I believe there is less upside here than in the “Core city” area because of recent developments. The 8th district is now the landing spot for immigrants from Africa, the Middle East and South Asia. Immigration from these countries is fast accelerating, albeit from a low base. Their numbers have been increasing lately, in spite of official government policy against immigration. In reality, there are probably backroom deals with the EU for refugee intake. Looking back, if you take the example of Western European capital cities, would you have wanted to invest in the beautiful core center districts 20 years ago, or in the districts that would become the first base for refugees and developing world immigration?

If you are offended by this analysis, then go ahead and invest in the 8th district. I’m just looking at facts and trends.

With that said, I must add that some specific streets in the 8th district are fine to invest in. But you really need local, unbiased insight to play this game, which you won’t get from a normal real estate agent in Budapest.

Case study: An example of a real estate investment in Budapest, Hungary

This apartment is located on Paulay Ede utca in the Jewish quarter, close to the Opera, and one street behind Andrassy ut, the Champs-Elysees of Budapest. It is a 74m2 two-bedroom apartment, on the first floor (not ground floor) of a gorgeous historical building.

The price is HUF 69.5 million (~ €189,000) including furniture. Full disclosure: my friend is selling it. If you get in touch with me, you get a 2.5% discount as he’ll remove the agency commission.

In January, initial list prices on properties declined by 4% on average. This property was initially listed at HUF 74 million, thus it already saw a list price drop of 6% due to the pandemic. Typically, people bargain an additional 4% or so off the list price.

In this case, let’s assume 5% off due to the situation, which would mean a price of HUF 66 million. Remove 2.5% as you would be avoiding agency fees, and you can get this apartment for HUF 64.4 million (~€177,100 / €2,393 per m2).

The apartment is currently tenanted for €765 per month + utilities and common charges until end December 2021. Tenants pay the common charges of HUF 17,500 per month (~€48) which include water. They also pay gas, internet, and electricity. The owner is liable for a yearly property tax of HUF 111,000 (~€305).

Here’s the breakdown of the yield calculation.

Rent of €765 x 12€9180
Gross yield INCLUDING buying costs (4% stamp duty +1.2% legal fees)4.9%
Vacancy of 5%€459
Management + finders fees 15%€1377
Maintenance 10%€918
Property tax€305
Income tax of 15%€918
Net, net income€5203
Net, net yield on purchase price of €177,100 +5.2% buying costs (€186,300)2.8%

A net, net yield of 2.8% for core property in a European capital city is actually a good yield these days.

Don’t trust agents promising you net yields of 6-7%

Once you take into account ALL real costs (maintenance, taxes, vacancy, etc) as well as the REAL purchasing costs (with taxes, legal fees, stamp duty, etc) the real returns on your investment are lower.

Video case study: An example of a real estate investment in Budapest, Hungary

What are the catalysts for price increases in the Budapest real estate investment market?

First of all, let me say that I am bearish short term as there is too much supply, decreasing yields, and very few foreigners are coming in to buy real estate because of the travel restrictions. Additionally, local buyers have not been forced to sell due to government moratoria on mortgage repayments until the end of 2020. Many of these provisions were recently extended until end June 2021.

  1. The market is being artificially supported by these moratoria. If it wasn’t for them more inventory would be on the market, putting even more pressure on prices.
  2. It might not matter that much IF these get extended until the following catalyst below kick in.

Which catalyst am I referring to? The local mortgage market.

The residential mortgage market has a lot of scope to grow

For years the government increasingly pushed for higher home ownership rates through the use of mortgage subsidies. The graph below demonstrates the huge jump in subsidies. A full 35% of household loans were subsidized at of Q1 2020.

As mentioned before, all these loans (including consumer loans) are now subject to payment moratoria. Since then, the government has been introducing extra subsidies for new loans to counter tightening lending conditions. This is due to banks shoring up their balance sheets in the wake of Covid.

The reality is that the real estate market in Hungary is still underlevered compared to its peers in Europe.

There is significant scope for house credit expansion in the real estate market in Hungary, which could be a major catalyst. Interest rates have been decreasing, and the central bank base rate stands at 0.6%. Inflation has been increasing due to an overheating economy and a devaluing currency. However, the economy is not overheating anymore, and the main driver of inflation has become currency devaluation, which must be tempered with a deflationary environment.

So what is the outlook for the real estate investment market in Budapest, Hungary

Everything points to more credit expansion in the medium term. Near term, we are likely to see more downward pressure on prices as foreigners seek to exit the market and as few buyers come in. I wouldn’t rush to enter the market, though there are good deals to be found with some very reasonable yields by European standards.

If you are sitting on a bunch of cash in a bank and would like to increase your exposure to hard assets, making a real investment in Budapest, Hungary, is an appealing option. Though prices may very well drop short term, you would be buying core real estate in a gorgeous European city at a substantial discount to its peers in the EU. It’s good diversification at attractive valuations.

If you are less worried about keeping cash in the bank, then I believe better opportunities will present themselves in 2021. Patience will probably pay off if you are not worried about where your cash is in the meantime.

When you are ready to pull the trigger, feel free to get in touch with Benedek. He is my buyer’s agent and property manager in Budapest. He works with a number of agencies across Budapest and can help you source a property based on your requirements. It’s much easier to use him than going to different agencies who just try to sell the properties on their books.

Additionally, as his main business is property management, he knows the rental market well and won’t give you inflated numbers as ultimatelly he will be responsible for managing your investment.

You can find out more about Benedek’s services here.

Legal and Tax aspects to making a real estate investment in Budapest, Hungary

It’s important to use a good lawyer in Hungary. There can be quite a few issues with buildings, such as debt and failed rooftop projects. Also, the apartment can have a number of claims and liens against it.

The purchase contract is typically signed at a lawyer’s office, and preferably the contract should be bilingual English/Hungarian so that you are not only not clueless, but so that you have proper paperwork to present to your bank back home to make the transfer. The first step is typically to deposit 10% in an escrow account following the signature of a pre-contract, and a few weeks later to wire the final 90% once the lawyers have cleared the paperwork.

Be sure to negotiate 4-5 weeks in between payments, as sometimes your bank can cause you problems. There are many instances of banks’ compliance departments delaying the transfer, thus resulting in the 90% arriving late. Some Hungarian sellers then keep the 10% for themselves because they can (you were late contractually).

I’ve done a number of successful real estate transactions in Budapest. Feel free to get in touch with my lawyer here. He is fluent in English, and has a flawless reputation in the industry. He specializes in commercial and residential real estate transactions in Hungary.

More details on the purchasing process and purchase related taxes here.

As for ongoing taxes once you own your real estate investment in Budapest, Hungary, you’ll have to pay property taxes IF you rent the apartment out. If you live there or if the property remains empty, there is no property tax to be paid. To receive your property tax bill, you must go register the property at the local district office.

The tax rate on rental income is a flat 15%, and almost all expenses can be deducted (even your trips to Hungary!). There is also a capital gains tax of 15%, which decreases by the year. After year 5, no capital gains taxes are due.

Whether you want to buy real estate or not, go to Budapest

real estate investment budapest hungary
Happy in Budapest

Budapest has been one of my part time bases in Europe for a few years now. I absolutely love it. It’s a stunning city, it’s cheap, the beer and wine are plentiful, the weather is surprisingly good, it’s history is rich, and there are amazing bicycle trips to be done along the Danube and around Lake Balaton. I highly recommend it.

*June 2021 Budapest real estate market

Prices have taken a serious knock in Downtown Budapest. You can find the latest update here.

Available services in Hungary:

Other articles on Hungary:

If you want to read more such articles on other real estate markets in the world, go to the bottom of my International Real Estate Services page.

Subscribe to the PRIVATE LIST below to not miss out on future investment posts, and follow me on Youtube, Instagram, Twitter, and Facebook.

My favourite brokerage to invest in international stocks is Interactive Brokers. To find out more about this low-fee option with access to plenty of markets, click here.

If you want to discuss your internationalization and diversification plans, book a consulting session* or send me an email.

*a consulting session is a discussion about your portfolio and objectives. It does not constitute legal, financial, tax or investment advice.