Effects of the first wave of COVID-19 on the Hungarian real estate market

The coronavirus pandemic has an unprecedented effect on economy on a global level. Similarly to central European countries, the special situation caused by COVID-19 had an adverse effect on the performance of most branches of the national economy in Hungary as well. The Hungarian GDP declined with a historical 13.6% in the third quarter of 2020 compared to the same period of 2019.

The industry and service sectors are both in recession, and even though the construction industry was said to be performing well, there was a 13% decline overall in this field this year. The main reason behind this statistic is the fact that state investments declined by 10%, partly due to the fewer amount of EU funded projects and partly due to the pandemic itself. The lower activity among private investments was caused mainly by the unfavourable economic environment, however, to a lesser extent than in the public sector.

The market of turnkey housing projects also show a 20% decline, mainly due to the increase of the value added tax, but also due to increased material prices and labour costs. In general, it can be concluded that the prices of these investment became around 20% more expensive. As a result of the higher prices, the level of construction requested by customers has also changed fundamentally: while last year 90% of the demand was for turnkey buildings, this year only one in three or four buyers require an almost complete house. This decline is seen almost exclusively in the lower-middle price category, the much smaller premium segment appears to be unaffected.

With fewer construction projects taking place, the amount of construction materials purchased decreased by around 10% compared to the figures of 2019. Building materials related to the construction of new residential projects, such as structural elements like bricks and other masonry items, among façade fenestration elements show a 20% decline in sales. Surprisingly, the demand of décor products such as interior design related items and paving stones increased. This phenomenon can be accredited to the fact that people required to stay at home felt the need to tidy up their living environments during the lockdown period, and decided to do it themselves since they had the free capacity on their hands.

Another interesting fact is that regardless of the decreased volume of construction materials sold, the market of house remodelling, refurbishing and their sales is said to be unaffected, which trend comes together nicely with the downfall of turnkey projects and the increase of home refurbishment demand. According to industry data, 16% of family houses and 8% of condominiums made from precast concrete were affected by some sort of refurbishment or remodelling. The majority of these projects are located in central and western Hungary, however, with the pandemic situation intensifying again, 13% of the entire residential edifices are expected to be affected, meaning around 500,000 homes in total all around Hungary.