The Hungarian real estate market

Zoltan Szekeres
Hungarian Real Estate Association

Under the centralised economy, the Hungarian real estate market was almost dead. Truly free market transactions took place in only a limited and government controlled area (residential properties). For this reason, a relatively high percentage (around 65 per cent) of homes were owned privately. Private ownership of other types of property was almost non-existent.

As the reforms began, however, the real estate market suddenly woke up from its decades-long sleep and began a frantic series of real estate transactions. Due to the privatisation process, the fastest movement was seen in the residential sector, and in office and retail property sales. As a consequence, supply and demand in these fields is now almost balanced. Even in the field of residential properties the privatisation process was 'too fast' and the result is, in fact, too good. More than 90 per cent of residential property (4 million homes) is now privately owned, resulting in a lack of homes available for rent. In addition, new owners must face new property obligations, not to mention the burden of maintaining old and long-neglected buildings.

In the residential real estate market, the next few years will probably see a great demand for repairing old and constructing new homes. (The number of newly constructed homes has dropped from a 100,000 peak in the 1970s and 1980s to a current 20-25,000 a year.)

The office market is the other sector of the industry where similar rapid change and growth has taken place over the past five years. The most significant developments have been seen in Budapest. The Class A office market has grown yearly by an average of 50,000 sq m. The total area of this category is now 350,000-400,000 sq m, most of it occupied by foreign companies. The whole office market area in Budapest is estimated at 2-2.5 million sq m. Rent peaked in 1991-92 at DM50-55/sq m/month, and is now some 25 per cent lower. A new wave of demand in the office market can be expected only after the smaller and medium-sized Hungarian companies stabilise and become stronger, which will probably occur in the next couple of years.

Movement in the retail market was not so spectacular, but was still significant. The overwhelming majority of shops and small outlets passed into private hands. In the past two or three years, shopping centres and chain stores have sprung up. In the industrial and warehousing market there are many old establishments on offer, but these generally do not meet present requirements, so there is a large demand for modern outlets.

The legal framework of the real estate market in Hungary is secure. Ownership, user, rental and handling rights are defined by the constitution and civil code. The constitution affords equal protection for private and public property. Title transfer must take place in writing, the signatories must be certified by a notary, or the contract countersigned by a lawyer, and the transfer of title must be registered with the Land Registration Office. Foreigners in possession of a permit can acquire the ownership rights to real estate, except arable land or land in protected areas. The acquisition of real estate is allowed if it does not interfere with municipal or other public interests. Companies (with foreign participation, or fully foreign-owned) registered in Hungary may acquire without any special permission the ownership rights to real estate necessary to operate their businesses. The opportunity for mortgage financing exists. The corresponding legal framework has been set up, though it must be improved. Real estate brokerage and appraisal activity is licenced. Appraisal education is in place at university level in the form of a postgraduate two-year course in the English language.

The Hungarian Real Estate Association

The Hungarian Real Estate Association was established by 21 real estate companies on 21 January 1991. In the past few years an increasing number of companies engaged in the real estate profession have recognised and continue to recognise day by day the necessity of an association which defends their interests. As a consequence, the number of Association members has grown to 102, all of them global operators. Almost all of members are engaged in trading, selling, buying and renting real estate properties, in their brokerage and in the property evaluation connected with such activities. As for legal status, the majority of members operate in the form of a limited company. The majority of the most important domestic real estate firms are members of the Association. Most members have five to ten permanent employees, though one member company employs 200 people and others employ only two or three.

Members' activities are also wide-ranging. Besides residential properties, every other kind of real estate is represented, from agricultural areas through castles, hotels and office buildings to the most complex industrial premises. Most members are based in Budapest, though their activity extends to almost the whole country, and members also have extensive connections abroad. The Association mediates between members engaged in real estate trade and represents their professional and economic interests. This in turn strengthens the good name of the profession and keeps track of, expresses opinions on and participates in legislative work affecting members. The Association has connections with state administration organisations. It assists in the development of its members' foreign relations, business activities and professional standards. The Association also acts as a professional PR organisation.

The Association provides a library, a monthly newsletter (informing members of the activities of the Association and its professional and business news), publishes an annual members' directory in Hungarian, English and German and organises training courses and various other activities. The Association is a member of the Association of Hungarian Employers (the successor to the Hungarian Chamber of Commerce) and the League of Real Estate Associations. The League's chief aims lie in the strengthening of professional representation, and within this context, participation in the creation of laws affecting the real estate market, keeping contact with the organisations of state administration and state executive power, the elaboration of common professional standards, mutual information, the creation of a database and the preservation of the good name of the profession.

The Hungarian Real Estate Association has a collaborative agreement with the Eastern European Property Foundation, financed by USAID, and is a member of the six-nation Central European Real Estate Network (CEREAN). CEREAN publishes a quarterly bulletin of articles related to the real estate markets of member countries, and also organises annual conferences, exchanges information and maintains workshops.

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