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MIDDLE EAST / AFRICA
|Israel Real Estate
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Budapest Real Estate
Investing in Real Estates in Budapest, Hungary
Hungary Real Estate
Budapest, Hungary remains a gem for Israeli investors
By JESSICA STEINBERG
For Hungarians, membership in the European Union has meant joining the war
in Iraq, thinking about the euro, and being scolded for rising interest
rates. But for Israelis, Hungary means one thing: Budapest real estate.
For much of the last decade, local investors and developers have been
heading to there to purchase apartments and construct offices, hostels, and
hotels. They are part of the wave of foreign investment, which attracted 756
million in direct foreign investment in the first quarter of this year.
"What brought us were opportunities and prices," said Oscar Katznelson, CEO
of Olympia Real Estate Holding, a Tel Aviv Stock Exchange-traded firm that
has been building in Budapest for the last three years. "When opportunities
narrowed in Israel, we came to Budapest and Warsaw."
Olympia recently purchased a Budapest lot zoned for 450 luxury apartments
and plans to build 60- to 90-square-meter apartments that will be sold at
$1,800 per meter. The project is Olympia's sixth in Budapest, where it has
already constructed three apartment projects.
not alone. Several other local developers and investors, including Ofer
Brothers, Engel Construction Enterprises, Profit Construction Industries,
and Bank Hapoalim, have moved into Central and Eastern Europe. The Ofer
properties include two hotels, a hostel, half a residential project, and
65,000 sq.m. of commercial space and parking lots. Profit, also a TASE-traded
company, bought two hotels in downtown Budapest in partnership with a
Hungarian company. Engel is building 5,000 housing units in Budapest, valued
at some $700 million, with an Austrian partner.
Bank Hapoalim recently opened an office in Budapest, part of its strategy to
expand its international business. Bank Leumi is also planning to open an
office in Hungary, after abruptly closing a Budapest branch in the early
1990s, when it accumulated heavy losses.
"I can't say whether it has anything to do or not to do with Israelis in
Budapest," a Poalim spokeswoman said. "It's just part of our global plan."
With the fall of communism in Hungary in 1989, and a concurrent switch from
a blue-collar industrial economy to a white-collar, foreign
investment-oriented market, the country, and specifically, Budapest, has
become a haven for foreign investors and multinational companies looking to
set up shop in the middle of Europe. It's also a high-end residential
market, given the strong emphasis on companies buying apartments for their
employees who will be living there.
With rents ranging from $1,400 to $5,000 per month - generally calculated in
euros - foreigners tend to look for the "turn-of-the-century apartments with
foot-thick walls, five-meter-high ceilings, and parquet floors" that will
draw the highest rents, said Stan Ward, a senior representative for A1 Real
Estate, a Budapest firm specializing in foreign buyers. "The buyers are
people looking for capital appreciation and rental income."
He also looks to the "Hungarian brain train" for potential buyers and
renters. With Hungarians returning from stints abroad for education and
work, they now want to rent or buy luxurious flats, creating more
opportunities for foreign buyers aiming to make a profit on their purchases.
Ward is a former New Yorker who moved to Budapest two and a half years ago
and works with foreigners investing in Budapest. The average budget of a
buyer looking to purchase an apartment is $170,000, although investments
range from $90,000 to several million dollars. People may end up buying one
apartment in a turn-of-the-century building or a floor of flats in a newer
building. What draws them is the return on their investment, ranging from 6%
to 9% on residential properties, and 10% to 15% on commercial real estate.
And as usual, location is everything.
"We're seeing the greatest appreciation of 25% and higher on the Pest side,"
Ward said. "Properties on the Pest side tend to be less expensive than on
the Buda side."
Budapest consists of three cities, Obuda, the oldest section; Buda, on the
hilly, residential western bank of the Danube River; and Pest, the flat,
industrial area on the eastern bank. The three sections were united in 1873,
forming what was initially called Pest-Buda, and the city grew as one of the
two capitals of the Austro-Hungarian Empire.
These days, there are more landmarked buildings and UNESCO protected streets
on the Buda side, leaving little room for new construction but offering a
vista of grand boulevards and neo-Baroque buildings. Buyers who are thinking
about using an apartment for themselves might look on the Buda side, because
it's quieter and has a view of the Pest side, Ward said. Then again, the
Pest side offers views of the castles in Buda.
Whatever the decision, it doesn't take much time to settle on a Budapest
property, Ward said. He generally shows six to 10 properties to a potential
buyer over the course of two days. When a buyer decides on a property, he
calls in an offer and meets with lawyers to set the terms of the purchase.
Around 95% of Hungary's foreign property buyers form a small corporation or
limited partnership when purchasing investment properties, which involves
opening a bank account in the name of the corporation to set up financing.
Most buyers arrange financing in their own country, according to Ward, and
many come with cash in hand. Mortgage rates are 10% and offer only 50%
loan-to-value, not much of a deal.
"Israelis are coming in with liquid cash, and that's true of most
foreigners," he said. "This investment makes sense for them. They're only
getting 2% interest in the bank and after taxes, there's a negative real
return on their funds."
There is also a high return buyer rate, about 15% to 20% over the last six
months, and a 50% referral rate from current clients to new clients.
"We're trying to increase the penetration of Budapest real estate among
Israelis, because the values speak for themselves," Ward said. "There were
the pre-European Union opportunities, and now it's time for the
post-European Union membership opportunities."
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