What will the real estate market look like in 2022?
Before we get to the state of the real estate market in 2022, let’s take a look at what happened last year. Last year was a great year for sellers, but not for buyers. In 2021, real estate prices rose sharply and the number of homes for sale fell, so the average person’s chances of getting a home have deteriorated significantly. In the capital city, it took 5 years more average income to buy a typical apartment in 2021 than in 2013.
The combined effect of state subsidies for new apartments, and real estate construction, the reintroduction of the 5% real estate tax (0% for CSOK purchases) and the spectacular increase in demand generated by the Green Home Programme available from October, the continued rise in the price of construction materials and the increasingly widespread shortage of skilled labour, led to a sharp rise in apartment prices last year.
Many of us are wondering whether the real estate market will change by 2022 or whether current trends will continue. How much further prices can rise will depend largely on the performance of the Hungarian and global economies, whether inflation will continue to rise or fall, and whether real incomes continue to rise.
In the following post, we have compiled a list of the factors that will have the most impact on the real estate market in 2022.
Market effects that may cause apartment prices to fall:
Photo by Carlos Muza on Unsplash
Impact of real estate loan interest rates, factors affecting the real estate market in 2022
The rise in interest rates due to the acceleration of inflation has already started to push up the cost of various loans, including real estate loans. While in 2021 it was possible to obtain a market-based – i.e. not state-subsidised – real estate loan at an interest rate of around 4%, in 2022 it is more likely to be around 6-8%. In simple terms, the monthly repayment of an average real estate loan will be around HUF 10,000 more expensive.
With the Hungarian National Bank estimating that 60 % of property purchases are partly financed by loans, higher credit costs may even curb housing demand this year.
Real estate investment returns
Residential property will remain a sound investment in the future and, if inflation does not fall, the number of investment buyers is likely to continue to rise. However, rental growth has not closely followed house price growth, so the ‘yield’ on housing is likely to fall in 2022.
According to the ingatlan.com database, a one-bedroom city centre apartment of around HUF 30 million can be rented for an average of HUF 120,000, which means a pre-tax yield is roughly 4 %.
When calculating the return on investment, it is therefore worth thinking in the long term and focusing on the expected increase in the value of the property in addition to the rental yield.
Evolution of the number of jobs
The evolution of the number of jobs is one of the most important local impacts. It is related to local real estate prices, to the level of occupancy of rented accommodation and to rents. Unfortunately, the global economic slowdown caused by the virus has not been good for jobs, if we only look at tourism and other related industries.
The latest forecasts suggest that the situation will certainly persist into 2022, so this will undoubtedly dampen demand.
The rental market is slowly recovering
On the rental front, the MNB found that rental prices in the capital have started to rise again, but are still below their pre-pandemic levels: in Budapest, rental prices were 7.8% lower in September 2021 than in January 2020, while the national average was 3.3% lower.
With the fall in tourism, short-term rentals have tightened considerably, with the resulting vacancies boosting the supply side of long-term rentals. In turn, the growing supply inevitably portends a slower pace of rental growth, or even a temporary decline.
Market effects that could cause house prices to rise further
The impact of real estate subsidies on house prices
Although the government’s support package is primarily targeted at families, it contains elements to boost demand for both second-hand and new property purchases or construction, as well as renovation, and can appeal to almost all potential buyers.
Real estate loan schemes, subsidised by the state or the central bank, can affect the housing market in several ways.
Firstly, the deadlines for state subsidies may create extra demand, as the village CSOK can be applied for until the middle of the year and the housing renovation subsidy and the baby loan until the end of the year.
Demand will also be boosted by the green home programme, which offers one of the most attractive home loan schemes on the market.
Number of new builds
From 1st of January 2021, the VAT on newly-build homes will be reduced again to 5%, applicable to projects that have planning permission by 31 December 2022, if the homes are sold by the end of 2026. As a result, following a sharp drop in 2020, the number of building permits issued has increased significantly this year.
The number of new homes delivered will certainly rise later this year and 2022 could easily be the year of new home construction. Increasing supply is likely to stimulate demand, which together with more expensive materials and labour could push prices up.
The impact of inflation on the housing market in 2022
Increasing fears of inflation could be a further incentive to buy a home, which could attract significant savings to the housing market even as prices and interest rates rise. (the evolution of inflation – KSH)
What the real estate market will hold in 2022?
As you can see, there are many market and non-market influences on real estate prices, so it is impossible to predict exactly what the future holds for apartment prices.
As in 2021, the potential for another wave or waves of the coronavirus pandemic remains an unpredictable factor in 2022, as well as the possibility of a change in the subsidy system currently available after the upcoming elections.
In any case, if current effects are taken into account, it seems that, although the pace of growth may slow significantly, it is unlikely to decline permanently, so the real estate market is unlikely to hold any major surprises in 2022. In other words, price growth will be slow but steady! 🏡
Are you thinking of buying or selling your apartment? Contact our colleagues and find the best property in 2022 together.