Hungary abolishes HUF band

BudaRich, I find it very unlikely that the Hungary economic outlook will change within the coming year. It will take until at least the end of 2009, if not longer, before anything happens.

Locals just don't have cash at the minute. Salaries are too low. Inflation and taxes are high. The economy is still in the middle of a very painful restructuring program and positive attitudes are at a low. Some investors may see this as an opportunity, but Hungary is still only in the early stages of recovery. I don't see any evidence whatsoever of the 'flow of big money', potential 'snowball effect', etc.
 
As the value of the HUF increases imports will become more affordable and thus retail sector should recover and taxes will fall.
 
There are major problems with this analysis though. The main one is that the HUF won't necessarily increase in value. Secondly, imports won't necessarily be priced lower, even if it is cheaper for HU retailers to buy them (the Hungarian retail sector is not as open as in other countries and what amounts to price-fixing exists in much of the retail industry).

One major issue, which will hopefully change things in relation to the local property market is if HU banks stop running what is effectively a cartel, whereby they charge incredibly high fees and make exorbitant profits. With the eventual introduction of the Euro, such practices should become more blatant and banks may be forced to standarise their fee structures with the rest of the Eurozone.

The second important change is for the black economy to be eradicated as much as possible/taxes to be reduced. Primarily due to the current financial problems, the government doesn't have the courage to tackle this problem head-on and locals are forced to pay incredibly high taxes, to make up for the numerous evaders.
 
There is nothing certain about the future .. but it is a good chance that the HUF will keep strengthening. It is one reason I invested in Budapest, since it was firstly the most inexpensive place to buy and the currency was hugely undervalued if compared to the currencies of countries surrounding Hungary. In a time where there is going to be massive inflation elsewhere - where the shock of high interest rates has yet to bite it is reassuring that you can invest in a place now over the worst.

We all know property markets across the world follow a cycle up then down .... Hungarys cycle is currently at the bottom - as dictated to us by the rock bottom consumer confidence. Only one way to go from here UP! The Hungary is at the starting line - ready to sprint.

All other stats are just smoke and mirrors - bar a few, interest rates, inflation, tax structure and Euro zone entry targets. Everything else will come into place when those key things are set.

Even with the HUF strengthening property is still the cheapest in EU.

Yet it has the potential to eventually have the most expensive.
 
BudaRich said:
In a time where there is going to be massive inflation elsewhere - where the shock of high interest rates has yet to bite
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This is the reason the HUF is due for a fall. Either that or the Hungarian central bank will have to raise rates even higher. Neither is good for genuine inward investment or the property market -
- higher Hungarian rates = higher rates for those on Forint mortgages
- HUF falling = more expensive mortgages for those on CHF mortgages

And there is always the possibility the Swiss Central Bank will raise rate too.
 
My point was that Hungarians have being living with high interest rates for a long time, and this is exactly why there are so many foreign currency loans and mortgages - because they were / are deemed to be far cheaper due to lower interest rates. Another point rise will not break the bank when talking HUF loans, especially considering most mortgages are now have foreign currency loans.

It is the foreign currency loans that are the problem which is why the Hungarian Gov wants to increase the HUF strength. It is the whole reason they abandoned the Euro peg - the only way they could fight inflation without causing massive default on foreign currency loans was to incease the HUF value so Hungarians could still afford to repay their foreign loans.

The HUF will strengthen alot more over the coming months, simply because it must be so. There is NO alternative.

The HUF has strengthened by 18% since I purchased ...... id say my track record speaks for itself ....... only time will tell if the trend will continue, but for me I certain of the outcome - crystal clear, and every country heading to EMU 2 is experiencing a currency strengthening. The only thing that could reverse this is the failure of the Euro entirely - the scrapping of the Euro.

Why is Hungary such a good bet?

Simple ....... because the US housing market is 12 - 18 months ahead of the UK in terms of the property crash, thus the US $ will recover long before the £ hits bottom and since the $ will be recover against all currencies the £ will look to fall even further. By the time the £ is recovering the Euro will be falling (so obvious - Euro sooo overvalued).

Dont you get it! Sigh ........ the HUF won't need to strengthen much further (tho it will strengthen still further) because the EURO will FALL vs HUF / $ / GBP and any other currency you care to mention.

I see Hungary as the eye of a big storm, chaos all around but Hungary will remain on recovery autopilot with HUF steadily increasing.
 
Consider also the cost of construction - property prices will not fall since they are so comparitively low as it is, with the cost of construction increasing yr on yr.

The Budapest residential property market will slow significantly - in that there will be less transactions - fewer sales, but prices will not fall on the new build market because last years price is this years construction cost.

There will always be a market for new build. The natural order of things - developers can no longer sell so many new build units to international investors ...... thus they stop building them = reduction of supply which will prevent prices reducing - maintaining ratio of demand and supply.

Hopefully the strengthening of the HUF (another 10% strengthening) will offset the lower capital appreciation in HUF( just 6% predicted). A few interest rate hikes will ensure this - that must happen to keep a lid on inflation.

The secondary market is a different matter entirely, prices will likely be static or fall for the rest of 2008 (considering purchasing a top quality refurb then), but the prices will bounce back quickly since the economy will recover nicely in 2009.

I'll put my crystal ball away now.
 
BudaRich said:
The HUF has strengthened by 18% since I purchased
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More accurately, the GBP has fallen 18% since you purchased. The EUR/HUF exchange rate is now more or less the same as it has been for the past five years.

What you say about the supply of new-build properties is incorrect. There are currently too many and developers continue to build, albeit at a lower rate than before. Over the last few years, Hungarians have preferred new apartments as they are easier to finance (up to 100% mortgages), lower hassle, etc. However, I've noticed a major change in opinion over the last year or two. Locals are starting to view some new developments as being similar to the hugely unpopular panel apartments, built during communism. Supply greatly exceeds demand in several districts of the city and build-quality tends to be low to average. I would be very careful investing in a new-build project at the minute, although rental returns continue to be good for the right new-build properties, so long term prospects would appear to be okay.

Meanwhile, non-problematic classic apartments continue to be extremely popular, but are not easy to find. I think your chances of finding a 'top quality refurb' at the end of 2008 are low. In fact, realistically-priced, top-quality refurbished apartments don't exist unless you buy and renovate. It is also incorrect to say that prices in the secondary market are falling in 2008. Once again, non-problematic apartments have increased in value since 2006. This article is in Hungarian, but suggests that increases in specific sectors of the classic market have been up to 30-40% over the last year:
[broken link removed]

Overall statistics will hide this important fact as the vast majority of classic stock is problematic and in most cases, prices are stable/falling.
 
BudaRich said:
The HUF has strengthened by 18% since I purchased
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budapest said:
More accurately, the GBP has fallen 18% since you purchased. The EUR/HUF exchange rate is now more or less the same as it has been for the past five years.
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I know a few Brits that are not so happy with the current £ prestation

If I was a UK investor, I would rather look to my own market. I'm sure that in these times of a credit crunch & weak GBP, there must be some good bargains.

And I would certainly not buy off-plan in Budapest at the moment. In most new developments, 40-70% of the flats will remain unsold at time of hand-over. So plenty of time to pick a good one out (and this is much easier when the flat is completely finished - considering the sometimes crappy finishes).
 
As a UK investor in the UK market though, the weak GBP won't really make a difference. Also, this market is definitely more volatile at the minute, than the Hungarian market.

I agree that I wouldn't buy off-plan in Budapest either. I don't know of any current new-build projects, which aren't either expensive, poorly-located or have some other major problem associated with them. If I were to purchase a new property, I'd look at some higher-end, recently-completed projects in or close to the city centre.
 
budapest said:
I don't know of any current new-build projects, which aren't either expensive, poorly-located or have some other major problem associated with them.
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It's the least you can say!

It's quite ironic that many of these new developments are called Park or Gardens: Dandar Park, Orange Park, City Center Park, Park Residences, Karolyi Gardens, Pearl Gardens, ... while the only thing you see in a mile is concrete, commieblocks and abandoned industry sites. Some buyers see the 3D mock-ups and actually seem to believe that because the developer will plant a strip of grass and some trees, that these grey neighbourhoods will suddenly transform into a green paradise

On top of this, different of these projects are in pretty dangerous neighbourhoods. But this of course not something you can see on a 3D render, and would not expect with a name as Park or Gardens.

Back on topic: http://www.portfolio.hu/en/cikkek.tdp?k=2&i=15078
 
BudaRich said:
Hopefully the strengthening of the HUF (another 10% strengthening) will offset the lower capital appreciation in HUF( just 6% predicted). A few interest rate hikes will ensure this - that must happen to keep a lid on inflation.
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Really? Fluctuations in asset value due to currency movements are a permanent increase in the asset value? That's a new one on me.

What happens when interest rates go down in a few years time?
 
Not sure why the euro will fall? Given that the nice Mr. Trichet is probably going to increase interest rates at least once this year and maybe twice.

Anyway, assuming you are correct and the HUF steadily increases forever, or for the next few years anyway. What's that going to do for Hungarian balance of payments? Wages (given cost-competitive pressures)? Employment rates? Foreign investment?
 
Why will the Euro fall?

Because the Euro zone economy is fundementally weak, with the French, Italian, Spanish economies in the toilet and with a fast slowing Germany ..... what else of note is there to underpin the strong valuation of the Euro?

The deeper effects of the credit crunch will appear later and cause the eurozone economy to weaken, the Euro will fall since global demand will fall thus inflation will fall with it. Probably another 6 months away yet.

"What happens when interest rates go down in a few years time?"

The answer to that one is obvious .... the Currency strength will be underpinned by the Hungarian Economic recovery and thus will continue to converge with the Czech Republic and Poland vs Euro, even when interest rates are reduced.

 
BudaRich said:
"What happens when interest rates go down in a few years time?"
The answer to that one is obvious ....
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Jean-Claude Trichet is obviously not the competent leader some people expect him to be. BudaRich for ECB President!
 
"And I would certainly not buy off-plan in Budapest at the moment. In most new developments, 40-70% of the flats will remain unsold at time of hand-over. So plenty of time to pick a good one out (and this is much easier when the flat is completely finished - considering the sometimes crappy finishes)."

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LOL

Some would say this is THE perfect time to buy - if you can find a good quality off-plan project. Buy at the bottom!
It all depends what you believe is going to happen over the next few years, it is all about self believe in your knowledge.
Most people sit on the fence waiting for things to happen, - I dont, if I see an opportunity I go for it and it has worked for me nicely so far.

Budapest .....

The reason why the secondary market will stagnate is because the energy costs will rise by 40% - an effect that is not yet being fully passed on to the population. The older developments are very bad in terms of energy efficiency - in general terms and the classical apartments have drafty windows and very high ceilings, they just wern't designed to retain heat. You can only do so much to save energy in an shared old drafty building where the energy costs are not split fairly between apartments, ok - you might be able to improve the windows, and upgrade the boiler but you cant reduce the height of the ceilings! Your refurbs might help a little but in reality new builds will always be massively more energy efficient - even at current building standards / techniques. The other thing that will always ensure newbuild stays on top is parking since Budapest has a huge shortage of parking spaces.

Obviously some locations classical apartments will rule - but not because of their classical status, but because of their location - with the exception of the very rich of course, - those who dont care about energy efficiency and those who have the luxuary to purchase for the romantic image that the classical apartments retain.

There are always exceptions to the rule Budapest ..... but in general terms new build will continue to appreciate nicely because there has been a huge decrease in building permits for this year and next, far fewer new builds will come onto the market place in a central area over the next few years and yet there is currently an investment resurgence within Hungary - a trend that will continue, kickstarting growth in the fourth quater of this year, bringing international workers to the area, all of whom need somewhere to rent with a parking space.

Just watch new news, the perception of a resurging Hungarian economy will attract more investment - a big magnet for international companies, attracted by not only the low wages, but also the location and the long list of other attributes Hungary has going for it.

And just watch the HUF power ahead.
 
The market is a lot more complicated than you suggest. If you consider what is in demand at the minute, it is specific 40-100sqm, realistically-priced, street-facing/bright apartments in perfect buildings in premier locations of the city. Some new developments are selling well, but now that the number of international buyers investing in off-plan apartments has declined so much, the coming few years don't look so rosy, with potential for a huge number of unsold properties clogging up the market, a situation which is already happening in some districts.

BudaRich said:
in reality new builds will always be massively more energy efficient - even at current building standards / techniques. The other thing that will always ensure newbuild stays on top is parking since Budapest has a huge shortage of parking spaces.
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This is also a bit of a stretch. The thick walls of older properties are also beneficial in keeping a property cool during the Summer, reducing the need for expensive air-conditioning or sometimes eliminating the need for it at all. In any case, I don't think perceived energy-efficiency is a major issue for buyers, particularly when you consider the huge difference in purchase cost of standard new-build vs. premier classic property. Do you think owners of property on Merrion Square, Pembroke Road, etc. considered energy-efficiency when making their purchase?

Parking is a problem in some parts of Budapest, but even in quieter parts of V and VI, it's possible to get free parking for residents at any time of day. As the city-centre is primarily for younger people without children and foreigners, most will not have cars anyway. Families with cars prefer to live in the suburbs.
 
I hope you have been reading Portfolio.hu recently ..... seems my Florint predictions are kicking off nicely.
 
Today, the HUF broke the vital 240 barrier and is currently at 238.92. Good news for those who have already invested here.
 
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