Budapest homes slightly overvalued?

Hungary’s home market hasn’t overheated yet for the country as a whole, but prices in Budapest “slightly exceed” the level justified by economic fundamentals, the National Bank of Hungary said in a biannual report on Friday.

“On a national average, housing prices are still below the level justified by the economic fundamentals, while prices in Budapest have slightly exceeded that level,” the NBH said in the report.

As regards house prices, no overheating can be observed for the time being, but due to the high price level in Budapest and the rapid increase in lending, the market must be closely monitored,” it added.

The NBH noted a shift in housing market turnover from Budapest to other cities and towns.

The rate of home price growth in the capital is on the decline, falling to 13.3 percent at the end of 2017 from around 18 percent at the end of 2016, it added.

On the national level, home price growth slowed to 13.8 percent last year from 15.4 percent in 2016. The NBH projected prices would rise a further 13.9 percent in 2018.

Interviews the NBH conducted with developers, contractors and real estate brokers revealed that developers are “not keen” on planning from 2020, when the preferential 5 percent VAT rate on home construction is set to be phased out; there is a shortage of almost 40,000 skilled labourers in the construction sector; and commercial property and state investments are siphoning off significant capacities to the detriment of housing developments. Tight capacity has forced developers to postpone the anticipated completion date in the case of around 63 percent of homes under construction in Budapest, the NBH learnt.