Budapest XVIII

Hello I'm new to the forum and I am buying a second property because I am 35 years old and do not have a pension. I have been a UK homeowner for 10 years and so have reasonable equity available to invest.

I have recently committed myself to an off plan apartment development in District XVIII (i.e. 2K deposit).The asking price is EUR 83,990 + additional EUR 10,000 for a basement parking space.

www.elephant.hu

1st question, does this apartment seem overpriced for its location, or is this the 'going rate' for something of this quality?

I liked the idea of owning a property near to the city airport, so 2nd question - near an airport good or bad? I also heard that the airport is undergoing considerable investment and the whole area is itself earmarked for considerable investment (new blue chip business parks, etc - AIG being one).

Anyone have an idea what are the short term (<3years), medium term (<10years) and long term (<25 years) prospects for the Hungarian economy and also my property.

Since joining the EU in 2004, are there any signs that the economy is moving as predicted. I note that the 2006 average earnings in Hungary are around £5,000 GBP. Maybe the economics don't stack up on buying an apartment of value approx. 12 times average annual earnings?

I'm showing my inexperience here, but any kind of gut feelings on investment in Budapest would be much appreciated before I commit to the 25% first payment. Hopefully the outlook is better than a UK pension plan.

many thanks.

Well, the hungarian economy is pretty screwed up, and the prospects for next few years are not good at all. Do some research online, google, rating agencies, Eurostat, etc.

As far as letting, unless your property is located in top central areas I don't think you have much chance to find a tenant. There are thousands of vacant new build flats in Budapest bought by foreign investors who can't let them.

Hi CTD013,

What size is the apartment you're interested in? The price you quoted seems very high. District XVIII is, as you say, nowhere near the city centre, so I wonder who will rent in a development like this? (Zaragoza Kert, I presume.) Would people working in airport business parks want to rent so far away from the city?

The rental market in the city centre is strong but outside of this, there are apartments lying empty. Also bear in mind that developers are currently having difficulty selling outlying apartment schemes, which will probably have an impact on future resale values. I advise everyone to buy as central as possible. There is quite a large number of expat students and professionals here, which is likely to increase in years to come. It's still difficult to find good apartments in District V and its surroundings, both to buy and to rent. There is very much an undersupply of these kind of apartments and they can command quite high rents, but there is an oversupply of the type of apartments such as the one you mentioned.

The Hungarian economy is not in a good state at the minute, but it was always going to be tough for Hungary and most of the other accession countries after EU entry. The recent tough financial policies of the Gyurcsany government have not been well received but they are likely to help in the overall improvement of the economy in the long term by reducing the budget deficit and laying the way for Euro adoption in the next five years or so.

In my opinion, long term prospects are good. Budapest continues to attract huge foreign investment. Standards of education are very high. Wages are increasing (although still too low) and Euro adoption will bring cheaper credit. The city is one of the most beautiful, well organised and structurally developed in Europe and it continues to improve on a daily basis.

Best of luck with investing here, but before you commit to buying in any development on the outskirts of the city, try to find out exactly who your target rental market will be.

Budapest

Hi Budapest

I have decided to buy in Gozsdu -court (Madach Gardens).The apartment is costing HUF 27,000.000. I am in the process of transfering 70% of this. however I am finding a considerable disparity between the HUF prices I'm quoted online and those I'm getting in the bank. Any advice on what is the most economical way to conduct the transfer? I can tranfsfer in Euro or HUF.

Also can you recommend a letting agent for this area?

Many thanks

Hi Budapest

Many thanks for your reply and your comments, they are much appreciated I can assure you !

The size of the apartment currently under consideration is 1 Bed & around 50m2 as layout below. It includes a decent size terrace area and also includes 55,2 of garden ( i really like the idea of including a garden, maybe I'm deluded that this holds some worth in the rental market?)
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I am not going to be wholly dependent on rental income in the short term, my plan is generally as follows :-

2K deposit
16K (25%) payment

balance upon completion (Dec '07) - all but 20K of this will be paid by releasing about 50% of the equity in my current home in the Manchester Uk area without over stretching myself. My salary is £39K P/A and I'm comfortable I can take a period of non-rental so I guess I'm in this for the 5-10 year period and more interested in capital gains over this period of time, by which time the intention is the property will be paid off and ready to sell if appropriate.

I'm happy enough to invest in Budapest, but now I'm worried that investing out of City Centre is not such a good idea? For example looking at that other development, gut feeling this one (i.e city centre) is a better prospect short term, but then again I look at the UK market and properties in suburban manchester (near airport) very well sought after - its all dependant on location. Any advice on District XVIII please. IS this a leafy suburb or mundane backwater?

Confused Confused. I've invested 2K already, I'm happy to take a chance on Budapest - but I am worried now that this development the wrong option. Any advice on better developments would be massively appreciated, please pm me if you know of any!!

Well, it looks like you've decided you want it. In that case, go for it. I certainly would not. Budapest is not London. In all Central European countries the highest capital growth is in the city centre, and so is rental demand. Also, locals in these countries don't like commuting, even of it's just 20 minutes, and the central areas will always be much easier to sell and more sought-after. The further away from centre the worse. Ultimately, it's your decision though.

a 1-bed for €1660 sq.m in that district seems very very excessive (Paddy-price even?). I paid 1500 in district 6 about 18months ago, and still reckon i may have over paid!

I really wouldn't count on renting that apartment in a district SO far out of town. Stick to Dis 5, 6, some 7, some 9, some 13. No-where else. These are the only areas you will get reasonably decent rent, and will still cost about €1600-€1900 sq.m.

Thanks Paddy, REI & Budapest.

Your logic has made me see sense.

I'm gonna pull out of this deal and take the hit on the 2K - assuming the deposit is non returnable. Research is the key to it all, but you hear so many conflicting reports, etc. that its a bit of a minefield out there.

I guess what I need is a steer on what property investment is best for me and my personal circumstances as explained. I am prepared to take a well calculated gamble and hopefully get a return for me and my young family in 10 years or so. Any advice would be greatfully received.

going back to your original post you say that you are looking for a pension. i would suggest that you go back and think about what you want from this investment. pension contributions in the UK attract tax relief whereas your mortgage payments will not. buying a property in a developing economy is a relatively risky undertaking, especially when you are relying upon the income from it to fund your retirement.

consider the following

UK bank deposit with ING Direct: 5%
UK buy-to-let gross yield: 5.5%/6.5%
FTSE 100 earnings yield: 6.5%
DAX index earnings yield: 8%
Budapest rentail yield:???

I am based in the UK too and given the above I would be looking for a rental yield from a Hungarian residential property of at least 10% in order to compensate me for the risk involved.

I think you are doing the correct thing pulling out. I always judge by the price per square metre when comparing property prices. What you were being quoted was way too high.

Also I would receommend sticking to Districts V,VI and XIII since you would have the best chances of attaining some sort of rental income.

As mentioned the economy issues in Hungary are causing some problems right now. However if you are buying as a longer term > 10 year investment then this should not affect you.

Best of luck

JohnBoy said:

consider the following

UK bank deposit with ING Direct: 5%
UK buy-to-let gross yield: 5.5%/6.5%
FTSE 100 earnings yield: 6.5%
DAX index earnings yield: 8%
Budapest rentail yield:???

I am based in the UK too and given the above I would be looking for a rental yield from a Hungarian residential property of at least 10% in order to compensate me for the risk involved.

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I'm not a Financial/Investment professional so I don't really want to get into a big debate, but I think the listing above is over simplified and not very useful. It fails to take into account leveraging available on property, tax implications and possible upside on appreciation of property/stocks as well as the possible rent income/yield.

yes you are correct in that this is an overly simplified example but what I was just trying to do is point out that there is a whole world of investment options available for the original poster. in the headlong rush to buy residential property many posters on this site do not appear to have considered the many alternatives that are available. the table was just supposed to prompt some thought on risk and returns.

The earnings yield on equities does take into account the upside potential of shares because it measures the price of the stock market relative to the futures earnings growth. In the same way rental yields on property are a similarly appropiate measure. What is the property really worth to an investor but the annual cash flows that it produces? capital appreciation should not, in theory, be separate from the rental yield. if a property becomes more valuable to an investor (because incomes and rents rise or because of lack of supply etc) then the price that the investor can charge for use of that assets increases too - hence the capital value ought to increase.

going back to the OP - he (or she?) has no pension yet is considering buying a property overseas. since pension contributions attract tax relief at the OP's income tax rate then the projected return from buying an overseas property ought to be fantastic in order to forego this favourable tax treatment (worth and extra 40% on your contributions if you pay tax at the higher rate).

Hungarian Central Bank is supposedly going to raise rates by 0.5% today. Very bottom of article.

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the Hungarian economy is entering a rocky patch by all accounts. interest rates are going up to combat inflation and the government is under fire from the EU because of its budget deficit. in addition, hungarian banks have been lending too much foreign currency to both local and overseas consumers and businesses (not a great idea when the local currency is under pressure); this has prompted one of the big international rating agencies to warn that a fall in the forint could have 'severe' reprecussions for the domestic banking industry.

Howitzer said:

Hungarian Central Bank is supposedly going to raise rates by 0.5% today. Very bottom of article.

[broken link removed]

Click to expand...

yup - just gone up by 0.5% to 7.25%

Just to complicate this decision....just had an email from the agent as below. So is the decision to withdraw still a wise one?

Would I be better stumping up the 25% in the next 14 days, then trying to sell it on before December 2007? i.e. completion.

Or just forget it, take the 2K hit and move on? Guess I could wait a few days and see if this is for real, i.e prices do go up?

Anyone sold on their apartment contract before completion? Is it easily done? Been some great advice on here and sites like this invaluable to non-financial people like me (i'm an engineer!)

Cheers

Chris

Budapest Property Investment

this is just a sales pitch. how can they predict capital growth? there is no way to guarantee this return as you will not be able to sell it instantly once your deposit has been paid.the poster Budapest seems to know this market well. PM him (her?) and ask their advice though they did mention above that this development seemed relatively expensive.

Price increases are not capital gains .. and are largely irrelevant to buyers who have bought into a development at a lower price.

The key measure is not the amount the price is put up by - but rather the exit price you think can be achieved when you sell in x years minus the amount you paid!!

well if you're paying €1660 sq.m then getting another customer to pay more than that is going to be difficult in the extreme. TBH it would have to be a total rip off price.