Hungary - Real Estate Market on the Brink of Disaster

Hungary on the brink of a real estate crisis due to new restrictions

The Hungarian real estate market is undergoing significant changes. The government is considering introducing restrictions on the purchase of housing by foreigners due to a sharp rise in prices and growing discontent among local residents. This initiative is due to a number of factors, including the economic and social problems the country is facing.

Prerequisites for the upcoming changes

• In recent years, Hungary has faced a serious problem: real estate prices in major cities, especially Budapest, have risen sharply. This has led to many Hungarians being unable to afford housing in their own city. The situation is aggravated by the fact that a significant portion of new apartments and houses are purchased by foreign investors, which further increases the shortage of affordable housing for the local population.
• Emigration and depopulation — emigration of Hungarians in search of better working conditions and higher salaries. For example, in December 2024, more than 120,000 Hungarians were officially working in neighboring Austria. This outflow of population is leaving some villages and towns empty, creating an imbalance in the real estate market.
• Influx of foreigners and rising prices — Some towns and suburbs are experiencing an influx of both Hungarians and foreigners looking for work. The increase in demand is causing real estate prices to skyrocket, making them unaffordable for many locals. In addition, in some suburban areas, infrastructure such as water networks is struggling to cope with the needs of the growing population.

New constitutional amendment — a solution

In his speech on February 22, 2025, Prime Minister Viktor Orbán emphasized the need for «self-protection» of Hungarian settlements. This statement served as the basis for the drafting of a new constitutional amendment that could significantly limit the ability of foreigners to purchase real estate in Hungary.

Key provisions of the amendment:

1. Local councils will be given the right to limit the influx of non-residents and foreigners.
2. Possibility of a ban on the purchase of real estate or the construction of new houses in suburban areas of large cities.
3. The regulation will be optional, allowing localities to decide for themselves whether to impose restrictions

If the amendment is adopted, it could have serious consequences for the Hungarian real estate market:

1. Restriction of foreign investment — a decrease in the number of foreign buyers could lead to lower property prices and a slowdown in the construction of new properties.
2. Regional differences — the restrictions are expected to primarily affect suburban areas around Budapest, Győr and Debrecen. This could lead to uneven development of the real estate market in different parts of the country.
3. Potential reduction in economic growth — restriction of foreign investment could negatively affect the country's economy, as the construction sector and related industries are important engines of economic growth.
4. Improved housing affordability for locals — on the other hand, reduced competition from foreign buyers could make real estate more affordable for Hungarians, especially in large cities and their suburbs.

Current situation on the Hungarian real estate market

Despite the planned restrictions, Hungary is still an attractive place for real estate investment:

1. Price growth — over the past seven years, the average price of a 100 m² apartment has increased from €111,000 to €260,000. This indicates significant potential for investment and profit.
2. Steady growth — residential property prices grow by an average of 3.4% every quarter. Such stability can attract investors looking for reliable and predictable investment opportunities.
3. Attractiveness for investors — Hungary offers a good balance between quality, value and profitability of real estate. This makes the country competitive in the international real estate investment market.

One of the factors contributing to Hungary's attractiveness to foreign investors is the residence permit program for investments, launched in 2024:

1. Minimum investment amount — to participate in the program, you must invest at least €500,000 in residential real estate.
2. Residence permit validity — the residence permit obtained is valid for 10 years with the possibility of extension.
3. Benefits — program participants do not need to permanently reside in Hungary to maintain their residence permit status.

When purchasing real estate in Hungary, there are a number of taxes and fees to consider:

1. VAT on new buildings — when purchasing new real estate, a value added tax of 27% is levied.
2. Property transfer tax — when purchasing secondary real estate, the buyer is obliged to pay a tax of 4% of the value of the property.
3. Annual property tax — this tax is levied only in tourist areas, and its rate is 5-7 € per square meter.
4. Rental income tax — if the property is rented out, the owner is obliged to pay a tax of 15% of the income received.
5. Capital gains tax on sale — when selling real estate, a tax of 15% is levied on the difference between the sale and purchase price. However, the taxable base can be reduced depending on the period of ownership of the property.

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Prospects for the development of the Hungarian real estate market

Despite potential restrictions for foreign buyers, the Hungarian real estate market still has good prospects for development:

1. Increased tourism — Hungary is a popular tourist destination, and tourism is expected to gradually recover after the COVID-19 pandemic. This may lead to increased demand for real estate, especially in popular tourist cities and regions.
2. Infrastructure development — the Hungarian government is actively investing in the development of transport and utility infrastructure, which makes the country more attractive to investors and real estate buyers.
3. Economic growth — Despite temporary difficulties related to the pandemic, the Hungarian economy is showing signs of recovery. The country's GDP is expected to grow in the coming years, which will have a positive impact on the real estate market.

Tips for potential buyers and investors

If you are considering buying real estate in Hungary, here are some tips to help you make an informed decision:

1. Research the local market — Before making a purchase decision, carefully study the real estate market situation in the region you are interested in. Pay attention to price dynamics, supply and demand, and potential restrictions for foreign buyers.
2. Consult professionals — working with experienced real estate agents, lawyers, and tax consultants will help you avoid potential risks and make an informed decision.
3. Consider your options — Hungary offers a wide range of real estate, from apartments in the center of Budapest to villas on Lake Balaton. Consider the various options and choose the one that best suits your needs and budget.
4. Consider the long term — investing in real estate should be viewed as a long-term investment. Consider potential changes in the market, such as the introduction of new restrictions or fluctuations in demand, and be prepared to adapt to them.

Alternative Investment Opportunities

If new restrictions on foreign property purchases are implemented, investors may want to consider alternative investment options in Hungary:

1. Commercial Property — Office buildings, shopping malls and logistics facilities may be attractive alternatives to residential property, especially if the restrictions do not apply to the commercial sector.
2. Renovation and Development — Investors may want to consider participating in renovation and development projects of existing properties, which may be less affected by the new restrictions.
3. Business Investment — Hungary offers a favorable business environment, including relatively low taxes and a skilled workforce. Investing in existing companies or starting new businesses may be a profitable alternative to investing in real estate.

To summarize:

• The planned changes to Hungarian legislation reflect a growing trend in many countries to protect the interests of local residents in the real estate market. While these measures may limit opportunities for foreign investors, they are aimed at addressing serious socio-economic problems facing the country. Potential buyers and investors should closely monitor the situation and carefully consider all factors before deciding to purchase real estate in Hungary. Despite possible restrictions, the country still offers attractive investment opportunities in both residential and commercial real estate.
• It is important to remember that the real estate market is subject to many factors, and what seems like a good investment today may be less so tomorrow. Therefore, investors need to carefully analyze the market, consider the long-term outlook, and be prepared to adapt to changing conditions. Ultimately, the success of real estate investments in Hungary will depend on the ability of investors to make informed decisions based on a thorough understanding of the local market and the regulatory framework. With the right approach and due diligence, investing in Hungarian real estate can remain an attractive opportunity despite potential restrictions.