| The Right Property What type of residential real property is a good idea to purchase in Budapest |
Housing in Budapest We distinguish three main construction periods in Budapest: Classical: 1873-1920 - the classical old turn-of-the-century so called tenement apartments, typical Austro-Hungarian monarchy style Purist: 1920-1948 - typical 3-storey long houses Communist: 1948-1989 - the blocks of pre-fab flats of the Communist era Most of the buildings in central Budapest date from the 19th century. Unfortunately during the communist regime (between 1949 and 1989) there was almost no investment in these properties and consequently the quality of apartment buildings varies widely. Some have been reconstructed, however it is important to inspect the quality of this work as once again it can vary greatly. The layout of almost all traditional Hungarian apartments would not be up to contemporary standards. Investing in Budapest - What is Worth Buying? Location and quality are the two crucial factors. If you are buying an investment apartment in downtown Budapest, make sure that it is not on a busy street, it is bright (it should not be on the half-floor with a courtyard view for example), quiet, low common charge, located in a renovated building in a nice part of the district and priced correctly. This criteria pretty much eliminates 98% of what is available on property listings; however, if you do find a good one with all of the above criteria, small apartments in nice parts of district 5 and even 6 rent themselves. It is advisable either to purchase classic property that has been properly reconstructed to high standards or, if you plan to sell soon, to purchase an older- style classic unit, and have the work done on your behalf by a professional team of architects and building contractors. The higher end of the market is where most investors operate in Eastern Europe. The typical investor in Budapest will have around € 100k to spend and will buy a centrally-located apartment to rent out to international students and professionals. There is little point investing in property for the local market as wages are still too low and there is not a tradition of renting here. It was earlier recommended that apartments range in size from 50 to 110 square meters. Anything larger than this used be difficult to sell, and the achievable yield was lower than that of a smaller unit. This is still a safe deal for the first time investor, but lately the demand for spacious, luxury property in prestigious locations, shows a stable growth. Second Hand or New Build? Second hand, but good! 8,000+ highly priced new apartments are unsold by developers at the moment. Estate agents seem to be telling investors that it's easier to rent out new apartments than older ones, since parking space can be important and most of the older buildings in the city won't have parking. However, most people who rent in the city center don't have cars as the public transport system is great. New builds are a lot more expensive and usually not worth the extra money. Most new developments are poorly built and not particularly pleasing to the eye. Classic apartments have a much better chance of capital appreciation than most of the new builds. Also, old buildings are being renovated anyway and with government aid, so will in time look every bit as good as the new ones. Prices of quality second hand apartments have risen by around 8-10% per year over the last three years. Large or medium sized 2 bedroom apartments can be found in the downtown area for around € 80,000-100,000. These are likely to become more popular as more and more older buildings are renovated. There is still approx 40% difference between the cost of a new or second hand apartment located side by side on the same street. If it was my money, I would buy a sunny, quiet, upper-floor, renovated, medium to large size second hand property on the best street that I could afford, probably close to Andrassy or in District V. If you take your time and look around, you can find quality investments that won't even cost any more than a newly built, unattractive and poorly located apartment. How about reselling? Most of the used apartments for sale on the Budapest market are of poor quality or have some major problem such as noise, lack of light, position in building, position on street, or, they are merely overpriced. Problematic or overpriced properties take forever to sell... why would anyone want them? Less than 10 per cent of second hand properties are worth buying, and your pick must be among these, if you want to call your purchase an investment. Properly priced quality apartments sell quickly, sometimes in a matter of weeks. Buyers need to really research this market, but this narrow segment is where excellent value can be found. Ways to Invest There is a lack of medium to large sized, centrally located, high quality, nicely furnished luxury apartments in refurbished classic buildings. Your tenants will be expatriates: businessmen, or foreign students who prefer highly renovated apartments in central areas. I would definitely furnish as you will find it very hard to rent otherwise. 90% of people who rent in the city center are expatriates, with no furniture of their own. (Do not furnish family homes rented for long term by expatriate families in green areas, as they tend to prefer their own furniture.) The higher the standard of renovation and furnishing, the more it appeals to the western tenant. Be very careful about believing all that estate agents tell you about potential rents or projected capital appreciation. Prices are not rising rapidly at the minute and probably won't move much for a few years, while rents are low as there are a lot of apartments available and not enough potential tenants. I would recommend furnishing your apartment nicely and renting out at a lower sum to increase your chances. The Hungarian real-estate market currently is a 'buyer's market', which serves best the interests of those who plan not to sell in the next 4-5 years. For longer term (5 -10 years), it is a good idea to purchase and rent out good quality or even luxury flats or houses, in prestigious locations of the green residential Buda Hills, near international schools (in parts of districts 2, 3 and 12 and a small selection of Buda Suburbs), or, completely refurbished flats in classical buildings closer to the city center on the Buda side (in parts of districts 1, 2 and 11) or on the Pest side (in districts 5, 6, and parts of district 13, 9 and 7). See our expatriate housing section for more specific ideas. Holiday let is also real possibility in Budapest and there is a lack of medium sized centrally located apartments. Obviously, the management of something like this is more hassle but financially speaking, you might do better. You can get in the region of 40 - 75 euro per night for a two bed apartment during Summer months. Maybe it is something you could look into as a Plan B, if you don't get your apartment rented long term. Holiday makers often prefer to stay in classic buildings With proper, unbiased and independent information and assistance, you can overcome the main hurdles confronting an overseas investor in the Hungarian (or any foreign) market: language, getting reliable information, property law and title, and ongoing management of the property. Research the market, get to know the location and the property, come and see the neighborhood yourself; don't rely entirely on the seller's agents and investment advisors. |
| Why Second Hand? 1. Design and build quality are streets ahead of the new builds. Most of the new apartments are plain ugly and seem to use the cheapest materials available. 2. Location tends to be better with older properties. 3. Price is 30-40% cheaper. 4. Second hand apartments can be easier to rent out as they are much more desirable to live in. 5. It is true that overall building refurbishment will need to be paid for at some stage if you buy an older property. However, this is almost always paid for by a condominium fund that residents have been paying into for almost two decades. When enough money is available, the entire building is refurbished. E.g. the cost of refurbishment of a five storey building in the worst possible condition is going to be 100,000 Euro divided among 20 apartments, so even if all owners had to pay by cash (which is not the norm) then the cost would only be 5,000 Euro each. This is much less than the current price difference between a second hand and a new build apartment. 6. In ten years time, which will be a more desirable purchase - a ten year old poorly designed apartment built quickly and cheaply, or a flat in a one hundred year old restored classical building on the same street? 7. Lack of parking is an issue with second hand downtown properties, but at the minute, the rental market in the city center almost totally consists of expats, who rarely have cars. Getting around by public transportation is also faster than by car in those locations. There are too many new builds in the city for the number of potential tenants available, so competition will be tough in the next few years. |
| Apartment refurbishing Although every project has its own demands and requirements, in general a typical apartment requires some version of the following works to bring it to quality level:
For a typical sized apartment of 70 to 120 m2, works with a good general contractor will take on average from six to eight weeks to complete the project. Apartments renovation project managers usually charge 5 % + VAT of the complete renovation cost. Basic furnishing of a studio apartment costs approximately € 2800. Furnishing a 1 or 2 bedroom apartment should cost you € 5-6k (IKEA would be my top recommendation). Management fee is 10 % + VAT of the complete furnishing cost. |
Examples of refurbished + furnished apartments in Budapest:
For more ideas and examples of Budapest interiors, study the pictures on lakaskultura.hu
Can you see yours?
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