“I can’t see why the market couldn’t peak for 2-3 years” published a summary of a property development conference held last week. It looks like a huge sell signal if there ever was one. 

“I can’t see why we couldn’t stay on the peak of the market for 2-3 years”

The participants of the Vienna conference evaluated the Hungarian market when the above sentence was uttered. And even though their words were upbeat and bullish, the subtext was not.

First of all, when a developer says there is oomph in the market, he also means extraneous factors, such as Russian, Chinese, South African, South Korea, and Saudi money hitting the market and buying up new developments. That is not good news for the average aspiring property owner, nor the scores of tenants looking to spend less than their whole salary on rent. Calling foreign money “fundamental” on a local property market is misleading. But that doesn’t mean that the speaker can’t be right from his own perspective. They might be able to sell whatever they build – even if locals all become homeless and the economy tanks. (These remarks were made not on residential but on commercial developments, but the situation is similar.)

The reason this bullishness sounds a bit unconvincing has more to do with the weakness of extraneous growth factors, such as the approaching end of the easy money era. While small savers’ savings were wiped out by low interests and unofficial inflation (such as the hike in housing costs that the headline inflation measurement simply ignores), big developments have been running on the flammable mix of easy credit, Chinese and Russian money, and legal privileges. Hungary has not been the driver behind these things – although Orbán’s personal central bank president was also very keen to deliver on the government’s wishes for easy money, low interest rates and government debt gobbled up by local banks – financed by the central bank. But Hungary will also feel it when it happens. (The government will blame Soros, migrants and possibly even Martians, but political blamestorming has nothing to do with reality.)

The Budapest property market has been walking on water for years. When a leading player asks the question out loud why the market couldn’t peak for years to come, he acknowledges that 1) it has peaked, but also that 2) a downturn has to happen. And it gives you the sneaking suspicion that the speakers have all gone short by now.

But of course, you can never tell what the incentives behind anyone’s words are.

Something that may also give you a moment of pause is a short remark, mentioning the 60 thousand construction workers missing from the Hungarian market. Massive state developments (sport-related developments, the uninterrupted constructions of the failed Olympic bid, huge, new stadiums, etc.) lock down 30-40% of capacity in things like the production of cement, not to mention the workforce. Even Fidesz-favored construction companies and tender winners struggle to deliver on time (or ever) – and not just because of corruption and mismanagement. There are simply no people to work on these public tenders.

Labor shortage pushes up prices and extends deadlines – not to mention the lowering quality, as it weren’t the worst workers who left the country. Someone can no doubt make money on that, but it won’t bring any fundamental benefit.

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Featured image: Paul Bonhomme (GBR) – Action

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