Currency Opportunity
Here are two exceptional opportunities you may wish to consider regarding property in Hungary.
Currency Opportunity
The mid-rate of the forint as published by the Hungarian National Bank (http://english.mnb.hu/) today is 309.48 HUF to 1 EUR. Last Friday it was 316. (1 GBP is 361.04 HUF and 1 USD currently stands at 231.91 HUF). For long years the exchange rate was around 270 to the euro. People in Hungary are just now starting to realize that the rate is not likely to get better, it is here to stay, or may even get worse. The weak forint is a hot topic in the media, along with hiked up fuel prices and the rest of the gloomy news about the European economy and the instability of the euro.
However, there is another side to the coin. From a Eurozone or Sterling (USD even more) perspective, the price of Hungarian property, goods, and services actually went down. Besides the general pressure on prices due to decreasing demand and increasing competition, there is a cumulative effect of the currency devaluation, which is especially favorable for most apartment owners. The idea is that your costs are denominated in forints while your rental income is in euros. This is why I recommend you fix your rent in euros where possible.
There is an exodus from neighboring Slovakia to Hungarian shopping malls, for example, prices have become so attractive. Hungarian repairmen, professional service providers are also in greater demand for businesses more connected with the euro economies.
For those wishing to sell their property this is not good news, unless you want to leave your income in Hungarian forints and not take it out of the country. Here is another opportunity for those reinvesting (to buy something more valuable), namely that the price of what you would buy also went down. The price of larger properties has seen a larger proportional decrease than smaller properties. While the formerly 380,000 euro flats went down to 230,000 euros, the formerly 100,000 euro flats only went down to 80,000 euros. Because of the cumulative effect mentioned above, owners of larger properties are often more motivated to sell, so there are great opportunities for those who can put together the capital.
For example here is an apartment which two years would have sold for for 100,000 EUR. The current price is 70,000 EUR. 1150 EUR/m2 including garage. Rental yield is 6.7-7%, depending on the exchange rate.
Here I would like to take the opportunity to recommend getting rid of your old dysfunctional property which is not producing a profit. Especially apartments which have structural faults or impossible neighbors, are in a bad neighborhood, or there is some never-ending legal challenge. As long as you can trade it in for a much greater deal, in the long run you will be far better off. Now is the opportunity. If you sell below market value and “lose” 8000 euros, you will “gain” more than 8000 euros in the next purchase. It is worth a try. The key is to take advantage of the low prices and offer it really low as long as you can buy something else really low. My colleagues will assist you in pairing up properties on the market this way. Look for properties selling in HUF, not EUR. Just write to info@ceinvestgroup.com
Financing is available for private individuals at roughly 60-65% LTV and interest rates around 8-10% for HUF loans and 6-9% for EUR loans. Currently our experience shows that companies cannot get mortgage-based loans to purchase property in Hungary.
CHF and EUR Loan Repayment
Much of the Hungarian population has Swiss franc or euro based mortgage loans on their homes. At the time (5-10 years ago) these loans seemed to be the most favorable, their interest rates much lower than the Hungarian forint loans. There was no government regulation in place to guard against runaway currency exchange rates in the future, so businesses as well as households were exposed to this risk, effectively doubling monthly repayments in many cases.
The Hungarian government passed a very controversial law on September 19, 2011, which makes it possible to repay CHF loans at a fixed rate of 180 HUF to 1 CHF (current rate is 251.26). This only applies to clients who had an equal or lower rate of exchange when they received the loan and their loan contract was not terminated before June 30, 2011. No further interest, administrative costs, taxes or fees may be charged to client. In case of euro loans, the fixed repayment rate is 250 EUR. The law forced the banks to accept the exchange rate difference, causing outrage in the financial sector. Altogether about 66,000 people took advantage of the opportunity so far, until the end of October, causing a total of HUF 104 billion (EUR 340 million) loss to the banks. Originally the expected number of households was 150,000.
Fitch, along with S&P and Moody’s, recently downgraded Hungary as a result of this move. “… various fiscal policy measures and the scheme to allow the repayment of household foreign currency mortgages at below market exchange rates have dented foreign investor confidence, on which medium-term growth prospects depend,” said Matteo Napolitano, Director in Fitch’s Sovereign Group.
The deadline for the decision to repay the full outstanding capital is Dec 30, 2011, deadline for payment of the full amount is Feb 28, 2012.
This law also applies to foreign owners of property in Hungary. Have you considered taking advantage of this opportunity? Let us know if we can be of any assistance.
Of course the gain compared to the euro is not that great, however the implications of buying property from a motivated seller are enormous. A person who owes say 16 million HUF (52,000 EUR) to the bank can now suddenly repay 13 million HUF and walk off with the difference of 9700 EUR. Imagine the person who owes 50 million (160,000 EUR). Now they can get away with paying merely 40 million. The difference is 32,000 EUR. How much would they lower the price of their property in order to get rid of the increasing burden of the installments? We are expecting to see further radical price drops until the end of the year because of this phenomenon.
Sincerely,
Andras Patkai
