PROPERTY AND INVESTMENT
Property is good investment, so goes the commonplace, and it holds true, especially in the case of new-build property. For those looking to purchase new-build property to invest, we are providing concrete evidence substantiating why they should turn to us. Return on property is usually composed of two components. One is the increase in property prices, which can only be realized when selling the property. The other component is the continuous profits from capitalizing on, renting out the property. One of the advantages of investing in property is the absence of risks arising out of currency exchange rate fluctuations, unless one finances the purchase from a loan denominated in foreign exchange. There is no inflationary risk either (the property will not lose value), legal or material risks are minimal (property cannot be lost or destroyed, will not go bankrupt, cannot be stolen, etc.). And finally, yet another quality that not too many other forms of investment have: it has real, practical use for the owner, or anyone else.
Looking at the stability of the value and the anticipated increase in value of property, we can see that it is one of the safest forms of investment. If regular maintenance and upkeep are ensured, the value of property will surely increase in the medium and long run, while volatility (price fluctuations) remain very moderate. In the past 30 years, Hungary has seen no price decrease in the property market except for one brief period between 2009 and 2012, and even this temporary drop was soon compensated by the market. Even during times of recession, the rate of value increase usually only decelerates or, in the worst case, prices stagnate, only to be followed by rapid hike once the economy starts growing again.
In the long run, property prices generally grow according to the growth of the economy, at a rate bit above that. New-build property has additional advantages over old property. When buying old property, there always is a certain amount of uncertainty regarding the technical conditions of the apartment, potential hidden defects affecting the value of the property later. In addition to financing an all-out renovation, which may cost 25-40% of the purchase price, the building, the condominium may also carry risks of costly traps.
We have renovated an apartment to no avail if a bad resident community just leaves the building to decay and therefore the value of our property is also negatively affected, even if it is in good condition. Metrodom’s apartments and buildings on the other hand can keep their like-new condition for decades, and this is reflected in their market value.
The other main component of return on property is the revenue generated by rent. Since there is a shortage of rentable apartments in Budapest, and many of those that do exist are only rented out for short-term (airbnb), new build apartments are the top of the offer and finding tenants for them is never a challenge. Property prices have sharply increased in the past years and so have rents, and as we many of our clients are property management companies involved in renting and managing apartments, we have firsthand experience on the rental fees and returns on our apartments. Tax regulations also favor investing on property as the tax levied on income from rent is only 15%, and no additional taxes or contributions apply. Furthermore, the amount of tax can further decrease as costs associated with the apartment (renovation, furnishing, renting) are deductible from the tax base, which is the rental fee.
As no separate, disaggregated statistics is made on the rental fee of new-build apartments, the above figures show the average rental fee of used apartments in Budapest, rental fee of new-build property is typically 20-30% higher.