In the first part of the article, we reported on the fluctuation of housing prices in the past 15 years, and in continuation, you can read about what exactly affect these prices, if the rises can be stopped in Hungary, and why and how current demands can be continued.
What determines the price of housing?
Several factors influence it and also the housing market itself, such as the state of the economy, credits and loans, the levels of interest, changes in the income of families as well as state-based incentives – the current prospects are positive regarding all of these. The economy is growing, banks have begun to issue credits more willingly after a long, idle period, while the base rate is at a historic low, which keeps loan interests also considerably low. The population’s income is also growing, which is a favourable condition regarding real estate purchases. The growing demands are further escalated by the fact that numerous investors chose and are still choosing the housing market (either because of low interest rates or the earlier broker scandals) to invest their capital in. The state measures that involve the housing market and were introduced at the end of last year have led to many others stepping on the market as well, as buyers.
These favourable conditions are expected to persist in the future, as lending isn’t expected to cease, while interest rates aren’t expected to become larger either. The effects of state-based incentives have just begun to show, and are primarily affecting the market of newly constructed housing – they’ll have a less immediate influence on the market of previously used properties. More demand will possibly emerge, but the amount of growth isn’t going to be nearly as large as it was in the past two years. The rise so far required the participation of investors, who, looking for a way to invest their money in, practically flooded the housing market. Meaning that the first notable group of buyers were in fact investors, and the general population only began to buy housing after seeing the first noticeable rises in price. The number of investors among buyers is still high, however.
The possibility of further demands is demonstrated by the fact that during the years of the recession, several hundred thousand purchases were postponed or missed – only those bought housing who absolutely needed it. While the majority of the missed transactions probably hasn’t been realised to this day, the number of transactions has risen, but it still hasn’t reached the figures before the recession.
How much more can prices rise?
It’s difficult to say how much more expensive housing can become, especially because the new home allowance program has a different effect on newly constructed and previously owned properties. The amount of growth is expected to slow down on the pre-owned market, which was already apparent at the end of last year. Those who decide on buying a new property have to part from their previous one, which will lead to an increase in the number of housing for sale, while part of the demand will leave the pre-owned market and plans to look for a new home amongst newly completed housing. However, because of the continuous demands, a decrease in prices is not expected yet.
The situation is a tad different with regards to newly constructed properties. Developers were able to increase their prices despite recent tax reductions, because there’s a lack of supply compared to the enormous demand. On the other hand, the picture can significantly change once these developments are completed. As tax reductions are effective until a specific date, the end of 2019, developers are probably planning to complete and sell their projects until then, even if they have to carry out the developments at a faster pace.
Buyers can also bring their purchases forward – it’s an important question to find out how these two notions will affect the prices. The exact number of flats set to be built between 2016-2019 is still unclear, but if their number happens to exceed the amount of demand, a decrease in prices could take place. However, if CSOK-qualified buyers enter the market en masse, looking for housing that already have occupancy permits (CSOK can only be applied for with respect to properties that have existing permits), further increases can happen.
The reason for further increases
Wages and housing prices fluctuated in synch between 2000-2005, after which wages continued to grow, while housing first became moderately more expensive, then its prices started to fall. Once again, they started to grow because of the increase in wages, so salaries and housing costs started to get closer and closer, but the gap is still somewhat large between them. This difference is a reason for further price rises to be expected, as housing needs to become even pricier and more expensive to keep up with the escalated wages of the past few years.
As gross wages and incomes have nearly tripled between 2000 and 2015 (increased to 2.8 times as much), while the prices of housing haven’t even doubled in the same timeframe (they increased by 90%), meaning that they’d have to increase by 50% of the 2015 total to equal the growth that happened in wages. It is important to add, however, that the suppression of the black market and progress in the economy have also contributed to the significantly higher salaries, making actual wage fluctuation a tad smaller, which means housing prices will probably be able to keep up with them.
(Source: http://www.portfolio.hu/ingatlan/lakas/meddig_tarthat_ez_az_orulet_a_lakaspiacon.1.233784.html)
