Stable property market outlook with a price bubble about to burst

The GKI real estate indices for Budapest and Hungary stood at -1 and 0 points in October 2017, respectively. Compared to the previous quarter, the index in the capital has dropped by 2 points but the index for the whole country has not changed. The Budapest index has decreased by 4 points over a year and the country index has increased by 2 points. The peak of the property market outlook is over for about a year but the present outlook is still positive.

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Trends are favourable in the short term

Trends in the Hungarian economy of the first half of the year have continued in the past few months, and no substantial changes can be expected until mid-2018. Owing to the surge of EU transfers and their budgetary advance payments as well as the pre-election demand boost, the economic growth rate reached 3.8 per cent, which is above the EU average but it is among the lowest in the CEE region. Although GDP growth is driven by investments, consumption is also rising fast. Although external and internal equilibria deteriorate slightly, and inflation accelerates, this is not a problem for the time being. The trends are favourable in the short term; however, long-term solutions are still missing.

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Forecast for 2017-2018

Following the continuous spectacular expansion in investments in the second quarter of 2017, GKI raised its GDP forecast for 2017 from 3.5 per cent to 3.8 per cent, and it expects a similar growth rate for 2018 as well. This is a significant acceleration compared to the 2 per cent rate in 2016, driven by the renewed inflow of EU transfers and the pre-election demand boost. At the same time, although the Hungarian growth rate is far above the EU average, it is only very modest in the CEE region. The close to 4 per cent GDP growth, the around 3.5 per cent consumption and the 20 per cent and 9 per cent growth rates of investments in 2017 and 2018 are very favourable indicators in themselves; however, they are unsustainable in the Hungarian model without EU transfers. The government will soon have to decide on the revision of its European policy, including its accession to the euro area, providing that it does not want to end up on the EU’s periphery, on a disadvantageous economic trajectory leaving to relative decline.

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Spectacular expansion of investments continued

The growth rate of the Hungarian economy was noticeably lower in the second quarter of 2017 than in the first one, and it was one of the lowest in the CEE region. However, it still exceeded the EU average. The spectacular expansion of investments continued, and on this basis, GKI raised its GDP forecast for 2017 to 3.8 per cent. The trends are favourable in the short term; however, long-term solutions are still missing.

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Property market outlook is over its peak

In July, the GKI real estate indices for Budapest and Hungary stood at 1 and 0 points respectively. Both figures dropped slightly by 1 point, compared to the previous survey. Both indices went up 2 points, compared to the survey made one year earlier. The property market outlook improved only in the office space market, from the previous quarter. On the other hand, no significant change occurred in the other three segments. Generally, the property market outlook is slightly over its peak but it is still on the sunny side.

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You can download the index values from here.