• Dearth of new homes is legacy of Swiss-franc loan defaults
  • Government intervenes by cutting tax to spur construction

Nora Kis has spent the last six months scouring Budapest for a new home to buy, only to be frustrated by the lack of properties for sale.

Her dream of having a place to call her own in the Hungarian capital has been thwarted by a slump in construction -- made worse by local banks’ reluctance to lend -- that isn’t expected to end for at least a couple of years.

"When I first heard there were almost no new apartments for sale in Budapest, I thought it must be a joke,” said Kis, a 27-year-old corporate attorney. “But after months of relentless searching, I realized it’s the truth. I still can’t buy.”

Thousands of Hungarians like Kis are feeling the squeeze of a dormant home construction market that was shaken first by the global crisis, then by a wave of defaulted Swiss-franc mortgages and a subsequent lending freeze. The number of homes built in Budapest fell by about a fifth in the first nine months, adding to upward pressure on prices as an improving economy and less restrictive loan terms encourage more people to enter the market.

Mortgage lending is rebounding as households recover from the shock of foreign-currency loan defaults in the wake of the crisis. New home-loan volumes rose 39 percent in the first nine months of 2015 from a year earlier, according to central bank data

The dearth of properties on the market is causing prices to extend gains that began last year. Home values across Hungary rose 13 percent in the first nine months, led by a 14 percent increase in Budapest, according to OTP Mortgage Bank data. That followed a 3 percent national gain in the whole of 2014, the first since 2008.

About 4,650 homes were completed through September nationwide, according to the government statistics office. That compares with 43,900 during the whole of 2004, the peak for the industry since the collapse of Hungary’s communist government in 1989.

Tax Cut

To spur construction, the government this week approved a plan to slash the value-added tax on new homes from 27 percent -- the highest in Europe -- to 5 percent. The new tax rate will apply from January 2016 through 2019.

More than 8,600 building permits were issued in the nine months through September, 24 percent more than a year earlier, indicating that developers are cranking up for another round of construction.

The government’s plan will take a while to bear fruit because of the time needed by developers to complete housing projects, according to David Valko, the head of market research at Hungary’s largest mortgage lender, OTP Mortgage Bank Zrt. “It’s normal to have a delay of almost two years” before homes start to come onto the market, he said.

Biggeorge Property Zrt. is a Budapest-based homebuilder that’s reviving projects after shelving all of its development plans in the wake of the 2008 financial crisis. The company decided to resume work on the third phase of an apartment complex in the Buda district in September. The 213-home project, initially slated to be built in 2008, is now scheduled to be completed in 2017.

Off-Plan Purchases

“If anyone wants to buy a newly built home straightaway, they can only get something off-plan,” said Petra Demetrovits, the company’s sales director.

While Kis hasn’t given up her quest for a new apartment, she doesn’t expect to be packing up boxes anytime soon. "It seems the soonest I can move will be in 2017, because most projects won’t start until next year," she said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE