Real Estate Market 2024, Real Estate Market Turbulence – Second Half of 2024
Real Estate Market 2024 – The real estate market is a dynamic segment of the economy influenced by various factors. In the second half of the year, particularly exciting changes are expected in the Hungarian real estate market, which will be significant for both the public and investors. The reduction of the central bank base rate, the inflow of funds from the European Union, and the residence bond program are all factors that could fundamentally shape the future of the market. These measures can impact not only the demand and supply sides of the real estate market but also have a significant effect on economic stability and social inequalities.
Reduction of the Central Bank Base Rate
The reduction of the base rate is generally aimed at stimulating economic growth, encouraging borrowing, and managing inflation. In the second half of 2024, the Hungarian National Bank (MNB) decided to lower the base rate to support economic revitalization.
Positive Effects on the Real Estate Market
Increase in Borrowing Interest: Due to the lower base rate, banks can provide funds at a lower cost, leading to a decrease in the interest rates on residential and corporate loans. This creates more favorable conditions for taking out mortgages, increasing demand in the real estate market. More people can afford to buy a home, boosting real estate transactions.
Revitalization of Real Estate Demand: Lower loan rates make home purchases more affordable, which is particularly important for first-time buyers. The increase in demand for real estate can result in higher prices and quicker sales, positively impacting real estate developers and the construction industry.
Negative Effects
Increase in Credit Risks: The more favorable borrowing conditions may lead to more people taking out loans, but this also increases credit risks. If the economic situation does not improve as expected, the ratio of non-performing loans may rise, which could pose a problem for financial institutions.
Increased Inflationary Pressure: Lower interest rates can stimulate consumption and investments, leading to higher inflation. The rapid increase in real estate prices can exert inflationary pressure on the entire economy, posing long-term challenges for the MNB.
Expected Inflow of EU Funds
Significant inflows of EU funds are expected in the second half of 2024, which could also impact the real estate market.
Positive Effects on the Real Estate Market
Infrastructure Development: EU-funded infrastructure development projects – such as roads, utilities, and transport networks – directly contribute to the increase in real estate value. New infrastructure improves the accessibility and attractiveness of regions, increasing property values and investment interest.
Increase in Investment Projects: EU funds can finance numerous real estate development projects, including residential complexes, office buildings, and industrial facilities. This boosts the construction industry, creates jobs, and contributes to economic growth. The expansion of real estate supply can also moderate price increases.
Decrease in Unemployment, Increase in Incomes: The projects generated by EU support create jobs, reducing unemployment. With rising incomes, a larger portion of the population can afford to buy homes or renovate properties, increasing demand in the real estate market.
Negative Effects
Risk of Market Overheating: The rapid growth in the real estate market due to the inflow of EU funds and the ensuing development projects could lead to market overheating, which may not be sustainable in the long run, potentially causing a bubble in real estate prices.
The expected inflow of EU funds will have a significant impact on the Hungarian real estate market in the second half of 2024. Infrastructure development, the increase in investment projects, and the reduction of unemployment will all contribute to market revitalization and economic growth. However, attention must be paid to the risk of market overheating.
Residence Bond Program
The residence bond program is one of Hungary’s initiatives offering residence permits to foreign citizens in exchange for investments. The program aims to make Hungary attractive to foreign investors, promoting economic growth and capital inflow. As part of the program, investors purchase a predetermined amount of government bonds, in return for which they receive a residence permit.
Positive Effects on the Real Estate Market
Increase in Foreign Investors’ Interest: The residence bond program makes Hungary attractive to foreign investors. Those seeking a residence permit often show interest in purchasing real estate to provide housing for themselves and their families. This increases demand in the real estate market, particularly in the premium and luxury segments.
Rising Demand for Luxury and Premium Properties: Foreign investors often seek higher-priced properties, stimulating the luxury and premium real estate market. This segment can benefit from the residence bond program, as investors often invest in higher-value properties, raising property prices and increasing development projects.
Negative Effects
Further Increase in Housing Prices: The increased demand from foreign investors in the real estate market can lead to further price increases. This can pose a problem, particularly in the capital and large cities, where prices are already high. For average homebuyers, this can make it more difficult to access real estate, exacerbating housing problems.
Risk of a Real Estate Bubble: The residence bond program can generate excessive demand that may not necessarily reflect economic fundamentals. If investors suddenly withdraw from the market, or if the program ends, the real estate bubble could burst, leading to significant price drops and market instability.
The residence bond program can have a significant impact on the Hungarian real estate market, especially in the premium and luxury segments. It is important to monitor the long-term effects of the program, as excessive demand and rapid price increases could lead to the formation of a real estate bubble.
Combined Effects of the Above Measures
Positive Outcomes in the Real Estate Market
Increase in Real Estate Transactions: The reduction of the central bank base rate, the inflow of EU funds, and the residence bond program together are expected to significantly boost the real estate market. Lower loan interest rates encourage household borrowing, while developments funded by EU resources and the arrival of foreign investors increase demand for real estate. This can increase the number of real estate transactions, generating positive effects in other sectors of the economy.
Economic Revitalization: The increase in real estate transactions indirectly contributes to economic growth. The boom in the construction industry and real estate development creates jobs and raises incomes. Infrastructure developments and new investment projects also support the diversification and growth of the economy, reducing regional inequalities and improving overall quality of life.
Negative Outcomes
Formation of a Real Estate Bubble: The rapid increase in demand can lead to rising real estate prices, resulting in excessive optimism and speculation in the market. If prices detach too much from economic fundamentals, a bubble can form that could burst in the event of a sudden drop in demand. This could lead to significant price drops and financial instability, negatively impacting both investors and the general public.
Increase in Social Inequalities: The rise in real estate prices, particularly in large cities and popular regions, can make it difficult for average-income households to purchase homes. Market overheating and the influx of foreign capital from the residence bond program can lead to rising prices, potentially pushing local residents out of the market. This can lead to social tensions and a worsening housing crisis.
Potential Problems and Challenges
Housing Crisis: The increase in real estate prices and market overheating may make it increasingly difficult to ensure affordable housing, especially for young people and low-income groups. Lower base rates and increased demand from foreign investors can further drive up prices, exacerbating the housing crisis. The rapid increase in prices may also lead to rising rental costs, placing additional burdens on tenants.
Credit Risk: Lowering the base rate encourages borrowing but also increases credit risks. If borrowers’ repayment capacity deteriorates – for example, in the event of an unexpected economic downturn – the ratio of non-performing loans may rise. This could pose a serious challenge for financial institutions, potentially jeopardizing credit market stability. Excessive borrowing and high debt burdens could lead to a financial crisis in the long run.
Market Instability: The risk of forming a real estate bubble is a real problem. Rapid price increases and excessive demand can lead to speculative investments, distorting the market. If demand suddenly falls – for example, due to changes in the residence bond program or an economic shock – drastic price drops could cause market instability. This could be particularly problematic for investors and borrowers, who may suffer significant losses.
Social Inequalities: Real estate market changes and price increases can widen social inequalities. Those who cannot keep up with rising prices may be pushed out of the market, exacerbating housing difficulties. EU support and the residence bond program may primarily benefit higher-income groups, further widening the gap between different social groups.
Final Thoughts
Overall, addressing the challenges and leveraging the opportunities facing the Hungarian real estate market requires careful and thoughtful strategies. To create a sustainable and fair market, proactive regulation, mitigating social inequalities, and effective measures against corruption are essential. Only in this way can the changes expected in the second half of 2024 truly serve the long-term interests of the economy and society, benefiting everyone.
Sources: mnb.hu, europa.eu, ksh.hu, portfolio.hu, dh.hu
For real estate investment inquiries, the Kenway team is ready to provide up-to-date advice.