Sustainable Recovery? Deciphering Hungary’s Residential Property Market before the Pandemic
Introduction:
The decade between the global financial crisis and the Covid-19 pandemic was a period of recovery for the Hungarian economy. Aggregate figures for indicators such as GDP growth, employment development, investment volume, the real wage level, and borrowing attested to overall encouraging development.
The trend in the residential real estate market was also dynamic: the number of building permits and handovers, and the volume of housing credits increased, and the activity of the construction industry developed positively. One of the causes of this trend according to the ‘Housing Market Report of the Central Bank of Hungary’ has been the favourable macroeconomic environment in Hungary.
Political preconditions and general objectives:
The government that took office in 2010 not only had to take on the legacy of public mismanagement of the economy, it also had to deal with the consequences of the global financial crisis. Both considerably influenced the housing policy in place at the time. However, policy was never all of one piece. What can also be observed during this period, unsurprisingly, is a transition from a stage of ‘putting out fires’ to one of consolidation. The commitment to a social market economy and the demand for a ‘sustainable economic policy’ emerged as important aspects of the political response.
Policies benefitting households and the construction industry:
A support policy publicly tailored to serve small and medium-sized families reflected the commitment to a social market economy and thus to an economic policy geared towards social balance. In accordance with the priorities outlined above, the incumbent government implemented several structural changes relating to family support expenditures, which grew by 37% between 2010 and 2018. Cash contributions remained constant, so the focus shifted to reducing the taxation and social security costs of parents instead, which financially benefitted the middle and higher classes.
Untangling the dynamics:
Shifting motives: from home ownership to investment for Sustainable Recovery:
Let us first look at the group of private, individual actors and relate the period in focus to developments in the decade before the global financial crisis. We use data from the Hungarian Central Statistical Office in our analysis. The number of real estate transactions between individuals between 2010 and 2019 did not change much. On average, 122,135 housing transactions were carried out per year in that decade. After 2015, the number of transactions again hovered around the long-term average. However, the motives for these transactions changed. For example, the share of homes bought for investment purposes increased. This trend acquired particular significance in the capital for Sustainable Recovery.
Shifting actor groups: private individuals and companies:
The shift in motives alone – away from the focus on owner-occupied homes and towards investment in residential property – does not sufficiently explain the growth of the overall volume of real estate transactions. It is therefore expedient to take a closer look at how the relationship between the shares of residential property handed over to private individuals or companies developed. To this end, we focus on the number of transactions documented by the Hungarian Central Statistical Office and include the decade before the crisis.
A shift in sources: domestic and foreign investors:
The data currently available provide only limited insight, as the official statistics show the origin of investment flows on the real estate market, but do not differentiate between specific forms of investment – for example, in a flat, office building, or industrial plant. In any case, the trend in the volume of investment over the observed period suggests that foreign investments also played a role in the dynamics that unfolded, especially in the second half of the observed period. Foreign investment increased from 2013 on. FDI by both EU and non-EU investors tripled in the span of five years.
Conclusion:
Do the behavioral patterns evolving in the real estate market reflect the instrument role or objectives that has been assigned to the market/housing? Our observations lead us to the preliminary conclusion that the developments observed on the residential real estate market do not correspond to the pragmatic goals formulated ten years ago. The dynamism of the development in the market during the observed period comes from the growing importance of investment motives for real estate purchases, which is evidenced on the actor side by the growing relative share of companies operating on the market for sustainable recovery.
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