The real estate market in Budapest has transitioned from a period of stagnation during the COVID-19 pandemic to a phase of rapid price appreciation. This shift is driven by global inflation, which has pushed investors to seek tangible assets, and a significant increase in demand within both the long-term and short-term rental markets.
Rental Market Dynamics
The rental landscape in Budapest is currently influenced by two primary factors:
- Reduced Supply: The number of units available for short-term rental has decreased by more than 50% compared to pre-pandemic levels, dropping from over 10,000 to between 4,000 and 5,000 units.
- Increased Demand: The influx of refugees from Ukraine has intensified competition for both long-term and short-term housing.
As a result, nightly rates for short-term rentals are rising. Investors are also finding opportunities to increase long-term rents, with some reporting the ability to raise rents by 15% to 30% upon lease renewal to return to pre-pandemic levels.
Investment Strategy: Subdivision
A common strategy to achieve higher yields in Budapest—where standard long-term gross yields typically range from 3% to 5%—is the purchase of large, unrenovated apartments for subdivision into smaller studio units.
Project Example: In the Buda district, a 90-square-meter apartment can be subdivided into five small studios for short-term rental.
- Costs: Purchase prices in this prestigious area are approximately €2,400 per square meter. Renovation costs, driven by rising material prices, are currently around €850 per square meter.
- Income: A project of this type can generate a gross monthly income of approximately €4,000. After deducting management expenses—which are significantly higher for short-term rentals—the net yield can reach roughly 8.6% before local income tax.
Risks and Considerations
While subdivision strategies can produce high rental yields, they involve specific risks and trade-offs:
- Liquidity: Subdivided projects, especially those designed as a single entity with five small units, can be difficult to resell. They are niche investments intended for passive recurring revenue rather than quick capital appreciation.
- Flexibility: Larger units that are divided into two or three completely separate, self-contained apartments may offer better liquidity than those with shared common areas, as they can potentially be sold individually.
- Rising Costs: Inflation in building materials is a significant factor, with prices increasing rapidly. Renovation budgets must be updated frequently to reflect current market conditions.
- Contingency Planning: Investors are advised to have a “Plan B.” Because small studio units are not always suitable for long-term living, investors must ensure that even in a worst-case scenario (such as a future pandemic or market downturn), the property can cover its own expenses if switched to a long-term rental model.
