Investing in Budapest District XIII

Hi, I'm interested in investing up to €10K per annum for the next 10 years (unfortunately I don't have the €100K to invest straight off), and I was considering a property in Budapest. I have put down a deposit on an apartment in Béke Ligit in District XIII (€78K new, not ready till Q2 2007) but the time has now arrived to decide whether to go ahead with this or not. This forum seems to indicate that all is not that great in Budapest and that there is a massive oversupply. This is a relatively long term investment (10 - 15 years) so from that perspective, what would be your advice on this venture? Should I bear with it, consider an alternative property in a more rentable location or consider a different investment opportunity entirely?

YellowBelly,

If it were my money, I wouldn't buy in this part of District XIII. Although the area close to Duna Plaza is being touted as the 'new city centre' or something to that effect, it is actually not very close to the centre of the city, nor is it an attractive area. In addition, Beke Liget is not a particularly convenient location in terms of public transport. The central business district is in District V. The area around Vaci ut in District XIII is another quite substantial business location. There are many different developments being constructed around there at the minute and I can't see how they will all do well.

If you're unsure about this particular apartment, then don't feel pressured into it. The market is not going to shoot up, especially in this part of the city, where buyers have so much choice available to them. There are many options available and you'll have time to consider them. (This is just my opinion though. Some people I've been talking to over here believe that this area will do well.)

Best of luck!
Budapest

Hi YellowBelly,

I would concur with Budapest comments. There is no need to rush at all with purchasing in District XIII.

I personally would only consider Apartments in Districks V,VI and VII. Other areas may be up and coming and do very well for you, but do you want to take the risk?

A friend of mine has managed to rent his new build Apartments in District VII without any problems. The good central areas should rent well but who knows how outlining districts will do?

If you want value for money in Budapest then you are probably better off looking at classical apartments.

Have prices moved up since you put your deposit on the appartment? If they have, then could you sell your 'option' to buy that appartment? I know this has happened in other countries.

Depending on the area I understand that property has gone up approx. 10% per annum. So even if I could get 20% above what I paid for and after CGT and selling fees there wouldn't be much money left. The 10% per annum is probably for new builds rather than 2nd hand apartmenst like mine.

I doubt I would be able to sell the properties at a profit locally. I would need to sell them on the "Paddy" market.(which probably wouldn't be too difficult!)

I'm in Budapest for the long haul, 10years+, so I'm not looking at selling soon. Ideally I'd like to see the market in Budapest downturn a bit and put off foreign investors so that I can build a Hungarian property portfolio gradually over the next number of years at local reasonable prices rather than the inflated western or God forbid the "Paddy" prices!

Sorry buyingabroad, I realise now you were addressing the question to the OP.

I would be very doubtful that he could sell on his "option to buy" the property at a profit.

Hi guys,

Have been busy the past few months, so only now getting back to seeing 'whos saying what' on Budapest.

Heres the text of a post I put here
http://www.askaboutmoney.com/showthread.php?t=21006&highlight=budapest

The thread is 10 pages long, but always worth a read, esp from those with experience (I know DonKing and Budapest are well informed on all these things, among others)

-------------

"heres my snapshot of the Budapest market, as an owner:

- Buy small, and buy central. I bought a 1-bed in dis. 6. Stay in 5, 6 or 7. I paid €1,500 per sq.m; and I 'think' it could have been over the odds. That said, all the agents here in lreland are up about 1900-2200 sq.m for district 6 at the moment!!!)

- DON'T BELIEVE A W O R D THAT AGENTS TELL YOU:

- rents rarely go over €5-600, even for a 3 bed. Only expats and foreign students rent apmts in Budapest. Why would any of them need a 3-bed??! hence buy small if you expect to rent long term

- Even for a 1-bed, don't expect the rent to cover any repayments you may have. I have a 55k mortgage on my place, with repayments for 300 pm. Remeber that if i rent for 300 pm, I will have to pay 20-25% in tax, and 10%+ in management fee's; so you are 35% down straight away; before the money reaches your a/c.

- Look at the Hungarian rental sites, for good indications of rent. Just like you would look at daft.ie for Irish rental prices. (towerbudapest.com, budapestrent.hu, ingalatan.com)

- also look at the english versions of the hungarian newspapers. they keep easily searchable archives of all articles. (budapest Sun, Budapest Times, Budapest Business Journal, etc).

- Capital Appreciation is NOT 15-25% in Budapest. 10% sounds about right, but some say its more like 5% (2% above inflation).

- Budapest is a 10-year purchase at the moment, with the big appreciation move expected to come when Hungary join the EURO. This enables Hungarians to take out mortages in euro currency, at euro interest rates. European banks will also enter the hungarian market.

- The agents say Hungary will join the euro in 2010. This is now almost certainly off the mark. Looks more like 2012 at earliest, but more like 2013.

- Guaranteed rents are always a scam, in any country. The 3 years of rent they promise you are top-loaded into the price of the apartment; so you are in effect paying your own rent )

- Don't let these things scare you off though, just be aware of them, so you can avoid being shafted. Budapest is a gorgeous city, and as long as you are in it for the long term; you will own a bit of a city that is going to be on the move for the foreseeable future. Budapest looks to be the economic center of eastern europe, possibly more so that Prague and Warsaw, as Budapest was always very progressive, and not quite as attached to Mother Russia as the other countries in the bloc. Also, the legal system is VERY similar to the Irish system - solicitor gets 1%, agent gets 3%, they have land registry, deeds etc ........

- I'm very happy with my purchase, but to be honest, 18 months on, I haven't a clue what its worth, i.e whats its appreciated (or depreciated! remember I bought into the hype from 18months ago, only now realising the truth).

Do the research.

Don't forget the amount you have lost on the fall of the Forint against the Euro

[broken link removed]

It's not necessarily true that investors will have lost money because of the currency movements in recent months. Although prices are officially in HUF, they can move up or down, depending on the Euro value. In addition, the forint is now getting stronger and has more than likely reached its lowest level about a month ago.

I think you're right though to mention currency fluctuations as another thing to consider before investing in any non-Euro country, but in my experience, most people take this into account before investing.

budapest said:

It's not necessarily true that investors will have lost money because of the currency movements in recent months. Although prices are officially in HUF, they can move up or down, depending on the Euro value.

Click to expand...

I don't quite understand your reasoning. The forint has lost about 15% of its value versus the euro. You will have needed to get over 15% appreciation to have cancelled out the currency drop, otherwise you will have lost money in euro terms.

Hi Hmmm,

The forint is currently around 8% less than the previous standard of 250FT=1Euro and on the way back up again, but my point is that even though prices are officially in forint over here, the asking price (in HUF) can often fluctuate depending on the Euro value.

I don't understand this, in relation to local currency fluctuations. You pay in euros, your property is valued in euros, most business is done (I would assume in Hungary moreso than Croatia or Montenegro) in euros. The kuna, Croatia's currency, has strengthened greatly against the euro, in the past 12months going from 7.4HRK to 7.18/9 against the euro. What needs to be explained (as well as national economy) are need and supply, and their relation to rent and appreciation.

I agree with you, almo. In Hungary, although all prices are officially in forints, the reality is that many of these prices are determined with the Euro value in mind.

I think that currency fluctuations are inevitable and should be considered as an issue when investing abroad, but in my experience, (particularly in European countries where the Euro is inevitable) it's one of the less important considerations.

Yellowbelly, did you end up making a decision about the Beke Liget apartment?

IF a local bought in florints and is selling in florints he could then undercut you after a devaluation if you were both selling at same time, I think its rather naive to assume that regardless of currency movements the price in euro will remain unaffected! If local currency halved overnight and you tried to sell at previous days euro price you would be quickly undercut by locals happy to sell in local currency as devaluation hasnt affected their investment. Small movements may not have much effect in short term but those in for the long haul should finance in local currency for majority of duration of investment,especially if you are renting to locals. Other local investors will undercut any foreign landlord looking for higher euro rents due to a weaker local currency.

Saying that prices of property remain the same in euros irrespective of local currency fluctuations would only make sense if property values were dictated by euro buyers only and not by the local market. Effectively you're saying that it doesn't matter to local Hungarians what the forint is doing, they will stil pay the same price in euros.

That makes very little sense to me. Maybe in certain areas with vast amounts of overseas property investors it may hold true (may, but I'm doubtful), but I can't see how the Hungarian market is propped up entirely by overseas investment.

In Budapest, almost all rents to both the expat student and professional markets are set in Euro and then recalculated in forints.

Similarily, in the property sales market, it has become much more common for prices to be set in Euro and then recalculated in forints, depending on the strength of the currency at any given time.

hmmm said:

Don't forget the amount you have lost on the fall of the Forint against the Euro

[broken link removed]

Click to expand...

Hi Hmmm,

I purchased in Florint, so I actually gained about 8-10% on the exchange, mainly by pure luck, as I happened to be paying for the bulk of another apartment on the same week that the Florint reached 285 against the euro. It was 245 the day I signed about 15 months previous.
All that said, the person who I partner with for all this kinda 'stuff' works on the exchange in London, so he gave the heads up to purchase in Florint.

I also gained on the Forint going down in value, not by quite as much as paddyd but still by a few grand....it covered my legal expenses etc.

If you have visited the city much, you will see that most hotels, rentals, menu's etc are quoted in Euro.

I don't think that anyone expects that the rental market will be Hungarian & I also assume that not many people would have looked for a Hungarian mortgage. Interest rates were around 9 - 10% when I last looked.

You can keep in control though by taking your money out of the country at the right time.

I think everyone expects the Forint will rally again.....hopefully in time for Euro adaption

Like Yellowbelly, I also recently invested in Dis.X111 (Prestige Towers development beside Duna Plaza).
My preliminary contract is now approaching its end date whereby I will soon have to sign the full contract by which time I will also be required to pay the stamp duty and also start to make arrangements for financing.
Initially my intention was to invest for the long haul (10 - 15 years) but having read the recent reports about Budapest oversupply, I am now considering "flipping" the apartment and selling on before I have to pay the stamp duty.
I am still somwhat reluctant to sell as these particular apartments are being marketed as "luxury" apartments aimed at the corporate client and my understanding is that such apartments are/will be in short supply in the future.
Any advice on what I should do?

Hi PAB,

Does the apartment have a view of the Danube? This is one of the best developments in District XIII and will probably appeal to renters in the luxury market. Foreign companies continue to move to Budapest (Morgan Stanley are the latest big name) and their employees will need high end flats to rent.

At the minute, there is a lack of these type of apartments, but it's difficult to estimate if this will continue. Recently, the 'City Home' development in District VI has been constructed and further conversions of old buildings to new luxury apartments have begun on Andrassy ut at 'Andrassy Palace Gardens' and 'Avenue Gardens'. The latter two developments are very prestigious.

Don't believe any of the hype about the area around Prestige Towers being the new docklands and those pictures of a group of yachts gathering outside the development don't even make sense. Why would businessmen who live in Hungary for only a couple of years buy a yacht?

If the figures add up and the project feels right for you, then maybe you should stay in for the long term. It's a good development and will probably rent well.

Best of luck,
Budapest