Why investing in property is the best way to go?
The size and scale of the real estate market makes it an attractive and lucrative sector for many, and quite recently not just investors. There are various factors that influence the property market, so the broker team of At Home Budapest decided to outline the key indicators that affect the property market, prices and growth in our latest article.
A key factor that affects the value of real estate is the overall health of the economy, generally measured by the GDP, since this figure really speaks to the overall health of the economic system that supports the real estate market. In healthy GDP times, such as growth above 3% annually, it is rare to see significant real estate weaknesses.
The population statistics are an often overlooked but significant factor that affects how real estate is priced and what types of properties are in demand. Major shifts in the demographics like population growth, domestic migration, or notable expat population of an area can have a large impact on real estate trends for several decades.
Supply and Demand
Supply and demand are substantial drivers in the property market. It involves the number of people needing a place to live in a location and the amount of properties available.
Interest rates also have a major impact on the real estate markets. The lower interest rates go, the lower the cost to obtain a mortgage to buy a home will be, which creates a higher demand for real estate, which eventually will push the prices up.
In summary, the key factors that can influence real estate market are:
- Supply and Demand
- Interest Rates
Before buying a property, it’s worth assessing the above factors! Is it the right time to sell? It might be the best time to buy!
The Bottom Line
Current macro-economic factors affect property prices, both up and down. Increased interest rates, fuel prices, water and electricity always tighten household budgets and owners may have to sell due to affordability. The counterpart here is that this creates opportunities for cash flush buyers to invest in and the affected sellers have to sell their properties to downscale to more affordable homes or rent generating a demand of properties as well. As of the report of Portfolio Property Magazine the estimated growth of real estate prices of this year will be up to 10% compared to the last year’s in Budapest and 5-10% overall in Hungary.
The opportunity for above-average rates seems greater in real estate than in other financial segments since there are fewer eyes looking at non-homogenous units, and knowing the local market produces investment advantage.
A long-term or buy-and-hold strategy is better if you have ample capital and limited opportunities, while a short-term or flipping strategy would make more sense if you have tremendous insight into the sweet spots and limited capital.
Property prices will invariably change with inflation over the years, particularly if the property is in an area or suburb that is sought-after. It is essential to research your area of choice properly before you invest in a home, and not just because it appeals to you. Aspects to consider include the general investment growth in an area, proximity to commercial offices, proposed new developments, schools, and also the general state of the neighborhood. It is also a known fact that the more popular suburbs appreciate at a higher rate than the rest, so your investigation will highlight this fact. The annual appreciation of a property is therefore affected by the inflation rate, general demand and also the infrastructure of the area. Together these factors can ensure property appreciation in Budapest up to 7-8 % per year at the moment - compared to 2,5-3,5% of Vienna - which is much higher than any fixed deposit investment.
Yield environment and investing in Hungary (Budapest)?
The housing crisis created an appealing environment for investors with an appetite for residential real estate. The increased volume of foreclosures and short sales provided both domestic and foreign investors with the opportunity to snatch up inexpensive properties to either rent out or renovate and resell at a profit. The key factor so far is the continuous growth of the property prices in the last 3-4 years that tend to keep.
The favorable economic situation with an expected 3%+ increase per annum, and the growing sense of financial security promises further rise of the property prices. Meanwhile the environment is positive for the investments, as interest rates are down, the prices are considered moderate than in comparable CEE markets, and the perspectives on returns seem promising as well.
There are different options for buyers to consider when looking at a property purchase, either as a primary residence, or in a buy-to-let scenario. Both scenarios create different opportunities:
- A rental property producing a good yield (as an income generating property) will bring in the necessary monthly rental which if managed wisely, can generate enough profit to buy yet an additional property to rent out. This process can be until the investor has a portfolio of rental properties paying for themselves.
- They could choose to stay in a rental property costing less per month than their own home (and which they rent out), and very likely result in a saving from the rental income, because their rent could be lower than their home monthly bond payments.
All together property still stays an excellent investment option. There is a constant growth in the requirement for accommodation, so a sound property investment will be a guaranteed asset for ever and possibly the start of their property portfolio. Therefore now is a good time to buy, especially after the recent and favorable bank loan conditions as the interests have actually been reduced like never before.
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