Rent or buy: an analysis reveals the best solutions for flat seekers in Hungary
There is a question everyone who has moved to a big city or is planning to do so must consider: is it better to rent a flat or to buy one? It is a complicated question with no straightforward answer, but using Bankmonitor‘s calculations, HVG has made an analysis to provide some guidelines concerning the situation in Hungary.
Bankmonitor used Hungarian real estate sales website ingatlan.com to get a sample of real estate market prices and rental prices for a flat of 35 sqm. Average prices were calculated based on the real estate supply in Budapest’s District 13 and in the cities of Szeged and Győr where flats are usually in high demand for the universities there.
| Market price (HUF) |
Rental price (HUF, per month) |
|
| Budapest | 29,330,000 | 120,000 |
| Győr | 19,355,000 | 100,000 |
| Szeged | 18,760,000 | 100,000 |
Source: hvg.hu
When applying for a housing loan in Hungary, the current schemes require at least a 30% financial contribution, and this was the ratio Bankmonitor (which also has a calculator to help you find the best conditions) used for the analysis. A scheme with a duration of 20 years was selected with a 10-year interest period, with a fixed interest rate of 3.52%. The applicant’s monthly revenue was set to HUF 400,000.
For the analysis, yields were calculated for a period of 5 years: the amount of time the real estate will be used by the person renting or making the purchase. In the case of students, this could equal the length of a Master’s course, for example.
The results have shown that in Szeged and Győr, purchasing a flat can save us up to HUF 1 million, unlike in Budapest where it is a rental that pays off better (HUF 65,000) after a 5-year period.
Alternatives and factors of uncertainty
Of course, one can choose to spend that 30% contribution on other forms of investment instead. For example, if the yields of a low-risk government bond are higher than the value of the real estate at the end of year five (a potential scenario is selling the real estate when the period expires), the government bond appears to be a better option — it all depends on how real estate prices change over the years. But the analysis has revealed that even without a price increase on the real estate market, purchasing a flat could still pay off. What is more, housing conditions in Győr and Szeged even allow for a decrease of 10% in prices. This was compared against a government bond called Magyar Állampapír Plusz, which has an annual yield of 4.95%.
As written above, the most important factor is perhaps how real estate prices change over time. Bankmonitor has found that during the 2009 crisis, prices dropped by 20% but did recover after 10 years — this means that a 5-year investment might not be profitable, but a 10-year one (which is the length of the chosen interest period) most likely is.
Rental prices are volatile, too. According to HVG, the current situation has shown that the lack of tourism and the uncertainty surrounding Airbnbs can both have a major effect on rent. And if you are planning to pay your housing loan back by offering your place for rent, low rental prices can be a deterrent factor.
And these are not the only aspects to consider: these can include other loan schemes, the actual supply in the area, maintenance costs, or a potential support scheme from the government. Flat seekers are definitely in a very uncertain situation now, and the best they can do is gather as much information as possible.
Photo: www.facebook.com/ZoltanGaborPhotography
Source: hvg.hu
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8 Comments
Buyers and Renters NEVER win if banks are involved. Real estate is way overpriced in 2020. There will soon be a economic reset when the global economy implodes. Soon a 30 Million Ft Budapest flat will cost 10 million forints if your lucky enough to have money to pay cash. NEVER, EVER borrow money to buy housing from banks. for more than 24 months. Housing cost are way to high due to real estate speculators.
Only fools pay these outrageous prices. Soon prices will drop to 10% of 2020 current prices due to a global financial bust.
The property market in developed countries always goes through boom and bust cycles. It can be profitable to ‘flip’ a property at a certain point in the cycle ie to buy and then quickly sell but in general the biggest profits are to be made by holding on to property for at least 10-15 years. During a price crash, people are reluctant to sell due to possibly being in negative equity. This reduces the supply of properties coming on to the market. Further, developers di not begin new developments, further reducing the supply of units on the market. This reduction if properties available has the effect of pushing up prices. The two commentators above clearly do not understand how the property market works.
Paulus, We are on the leading edge of a Greater Depression than the world has ever seen before. It will make 1929 and the Great Depression look like a speed bump. People who outright own a property may be okay if they don’t get into other financial difficulty. There is going to be a global reset and it could well lead to a greater than 80% unemployment rate. All the banks will likely collapse, many governments will also collapse or be forced to raise taxes so high that people cannot pay them and add new taxes.
You also fail to understand how property markets work when almost no one has employment. Many property’s will be repossessed by the lenders and they will remain vacant for many years or overun by homeless people unless governments seize these properties and turn them into public housing.
This is not a recession and I am serious that we are on the leading edge of a Greater Depression. It will almost certainly only end after another world war. Prices in many places that are artificially high due to speculators and property flippers may not return for 50 years to pre collapse prices in many regions.
Anonymous: I was unfortunate to have a large mortgage when Black Wednesday struck in September 1992 in the UK. Interest rates on mortgages rocketed (mine doubled and consumed almost my entire salary), property prices crashed, many could not sell due to negative equity and unemployment went sky high as firms went bust because of high interest rates. So I have seen it all before. Recovery began in c 1996 and by 1980 the property market was buoyant again. I am not a doomsday believer nor do I subscribe to conspiracy nonsense, so I do not share your apocalyptic vision of the global economy.
Oops, not 1980!!! 2000! Typo!
I would like to quote this famous saying here : Buy fear and sell greed.
The speed of increase in real estate price has been a lot faster than the speed of increase in income.
You could have bought a house back if u worked hard back in 1970~80 but now we came to a point that it is quite impossible to buy a house with the income the younger generation get.
Paper: one solution to the problem of unaffordability of property in high cost areas in the UK has been ‘Shared Ownership’ which is a popular route for those wishing to get on the property ladder. People can buy 25% or more of a proprty, the remainder owned by a Housing Assiociation. The proportion that is not owned by the buyer has a rent element attached but buyers can continue to buy increments of the property as their income improves, if they so wish, until they own 100%. The UK government also has numerous schemes to help first time buyers.