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.

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