Analysis

Renting in Budapest

Apart from the latest property craze – where every last forint of savings can be bet on the property market through property funds selling tickets for as little as 200 euros – the state of the rental market has also contributed to people’s drive to buy instead of renting.

pereszlenyi-erika3

Photo: Pereszlényi Erika

According to informed estimates by the biggest property agent website, ingatlan.com, there can be 100-200 thousand properties on the residential rental market in Hungary. It is hard to get any better data from official stataistics, due to the huge share of the black market rentals, avoiding taxes and not registering tenants to avoid legal consequences. Countrywide, the average price is around 100 thousand forints (300 euros), while it is around 140-160 thousand forints (500 euros) in Budapest – without bills. The size of the residential rental market as of 2016 is estimated at around 144-240 billion forints – most of it on the black market. According to the latest census, there are 383 thousand empty properties in the country, but mostly in areas where economic opportunities are scarce, rendering these properties largely unmarketable.

Supply and demand of rental properties have both grown in 2015. According to ingatlan.com, 170 thousand private individuals were looking for tenants in 2015 – and that is not the complete number. In 2016, the market has grown even further, with 20-75% more advertisements for homes for rent posted compared to the same months the previous year.

There are no reliable official statistics neither on residential, nor on touristic rental in Hungary. The existing numbers are based on self-reporting – and that is not incentivized. Not even the tax authority has an estimate about the size of the market – only estimates by property agencies. The National Office of Statistics knows only about a tiny percentage of rental properties in Hungary and 88% of the population supposedly lives in an owner-occupied property. That’s not a realistic assumption. At this moment as many as 10 thousand properties are listed for rent in Budapest on the biggest Hungarian real estate portal, ingatlan.com – and the actual size of the market must be multiple times this number.

The black market in property rental has a historic and an economic reason. Keeping it between the landlord and tenant saves paying taxes for the landlord – which would mean extra rent for the already squeezed tenant. The bureaucratic framework of renting out an apartment is not only clunky, but subject to unpredictable changes – often politically motivated. But once a property is registered as commercial, the enduring attention of the taxman is all but guaranteed. (And more often than not, even his retroactive attention.)

In the absence of regulation of residential rentals, the rights and responsibilities of tenants and landlords are vague and regulated only by the civil code. That may often give more rights to tenants – provided the case goes through a lengthy court process – but no one is quite sure.

It is compounded by urban legends about landlords being stuck with long-gone tenants’ name in the property register as their legal address, caught by tax authorities or blocked from evicting tenants due to (again, anecdotal) tenants’ rights. (There is literally zero search result on Google for “tenants’ rights” or “tenants’ alliance” in Hungarian.)

As a consequence, many are not only outpriced from buying a property, but even find it impossible to rent. Not to mention tenants with children who are avoided by landlords due to similar concerns about their rights. On the administrative side, there is a farcical situation where tenants have registered legal residence somewhere else, typically with their parents – often hundreds of kilometers away. The quickest way to becoming legally homeless is not having a friend or family member that allows one to be registered at their address – while living in a rental home.

Unlike Airbnb, a typical rental contracts are still virtually unenforceable in Hungary. Tenant rights are scarce and in the absence of a regulation. Contracts are unenforceable because they are usually hidden from authorities. Landlords avoid registering their tenants and no one has a clear idea about rights and responsibilities.

But it is ultimately an untenable situation with massive social impact. The uncertainty of those, who cannot afford to buy not only drives the quality of the housing stock down – it impacts the life choices of entire generations. In the absence of a rental code or any association of tenants, renting with a child or even a pet is a challenge – even when the couple can afford the asking price.

The solution to this status quo might have come from an unlikely source: Airbnb. Tax men have never shown a propensity for investigating the tax status of Budapest’s rental market. With the appearance of the sharing economy and with the government’s appetite for a cut of the profits that might change. In the sort run that whitening of the market will hurt tenants by increasing the prices even further. But the unintended, long term consequence of this may be a more transparent rental market with more defined tenants’ rights – and that would be a major step forward.

In the long run landlords who are forced to whiten their business will end up on the commercial property register – and with a habit of complying with the law. In combination with tenants’ rights that may consolidate the Budapest housing and rental market.

But it doesn’t seem to be happening. The priorities of the government are clearly to get a cut from Airbnb income – not to protect tenants from anything. 

The government’s answer to the entire Airbnb-triggered controversy so far was – more taxes and more enforcement. They approached the problem from that of tourism – as opposed to that or residential rentals – which is completely misguided and aims to take a cut from the profits, rather than easing the pain of long-term tenants.

The government’s plan is to introduce an extra tax on 1500 forints (5 euros) per square meter for rental apartments – that is targeted at Airbnb profits. With the average rent in Budapest that comes to about a 10% of rental income – on top of the usual taxes. Tenants’ rights may or may not be in the making, but the government made sure to take a cut of Airbnb income.

All this made Hungarians dreaming of getting their own place – and very receptive to the government’s loan-for-children populism.  

The first part of the analysis about the extent of the boom can be found here. The second about the driving factors. More about the government’s ill-conceived homebuyers’ loan policy coming soon.

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