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Renting or buying: What’s the better choice for students in Hungary?
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In a recent episode of a podcast by Pénzcentrum, experts delved into the age-old question of renting or buying a home that many students and their families face. This dilemma becomes particularly pressing after university admission results are released, as students need to secure housing, often far from home.
Renting vs. buying: The debate
With high rental prices across Hungary, particularly in major cities like Budapest, the question of whether to rent or buy is crucial. Although renting may seem cheaper initially, Palkó István, a credit market expert, suggests that buying might be more beneficial in the long run—even if it involves taking out a mortgage, Pénzcentrum writes.
Current market conditions
Rental prices vary widely across different areas. In smaller university towns like Szeged, Veszprém, and Pécs, and in some of the cheaper districts of Budapest, monthly rents for a 50-60 square meter apartment range from HUF 150,000 to 160,000. In contrast, in the more expensive districts, especially in Buda, rents can reach HUF 250,000 to 280,000 or more.
Cost of buying
Currently, a small one-bedroom apartment in Budapest costs around HUF 40 million. With a 20% down payment, the monthly mortgage payment would be approximately HUF 240,000 to 260,000. While this is higher than some rental prices, the potential long-term benefits could outweigh these initial costs.
Calculations and future projections
A detailed analysis compared the costs of renting versus buying over a five-year period. Starting with a monthly rent of HUF 166,667 and a mortgage payment of HUF 242,017, the analysis assumed a 20% down payment. It noted that students typically lack sufficient income to qualify for a mortgage themselves, so the loans are usually taken out by parents.
How many students are in a position to buy a property, most having never done a day of work in their lives? A lucky handful will have rich parents that see a purchase as a better deal than rental, that isn’t the case for the vast majority. The calculations are based on continual, steady value appreciation of property. Not only does property seldom appreciate in such a linear way, it doesn’t account for a potential market decline during the period of ownership. Property in Hungarian cities represent a property bubble ripe to burst in my opinion.
Careful of this advice, any local or international student is best to rent a larger place in suburbs and share.
Further, if buying, the property may not retain value i.e. needs to at least double in hard currency prices every ten years, based on the 7% test; accounting for inflation, costs and the ‘time value of money’.