“When Airbnb burst onto the scene in the early 2010s, there was simply no better deal,” says Mária from Budapest, who now rents out three apartments for short stays in Budapest and two holiday homes in the countryside.

She was able to take out a loan in 2012 to buy a small apartment in the city centre by covering the repayment with three days’ rent. Every other day she rented out her apartment, she made almost pure profit.

This unprecedented opportunity was seen by many. Between 2010 and 2019, the number of Airbnbs in Budapest increased 10-fold: in a decade, the stock of short-term rentals increased from 1059 to 10,801. This has since fallen to around 7400, presumably due to Covid. And the upward effect of this trend on rents was clearly visible when these apartments flowed back into the long-term rental market at the time of the Covid closures.

The rich reallocate assets

“What characterised the Hungarian real estate market in recent years until the Covid crisis was that it was a potential investment alternative in an environment where it offered high returns compared to other investment alternatives and was not that difficult to exit, so the market was well-rotated and liquid,” says economist Ferenc Büttl.

József Hegedüs, head of Metropolitan Research Institute in Budapest, says there was a noticeable portfolio shift by the upper middle class from mutual funds to housing around 2016.

According to the Hungarian National Bank’s (MNB) household wealth survey, between 2014 and 2020, households’ non-residential real estate assets increased by 90%, while their financial assets increased by only 73%.

The MNB is currently running a project looking at the impact of investment purchases on house prices. When asked, they preliminarily reported that the rate of growth is higher where there are more investors. This mainly concerns economically well-performing county towns, the area around Lake Balaton and the central districts of Budapest.

That there is also investor behaviour behind the price increases is not disputed. “We don’t really see any other reason, there is no demographic reason of any kind. Behind the boom there is also the financial behaviour of a relatively small group of people,” says Hegedüs.

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Zoltán Ladányi, director of KPMG Hungary’s real estate advisory business, adds: “In Budapest, a significant proportion of apartments have been explicitly priced as investment assets in recent years, and this has pushed up prices very markedly.”

The investor approach is also evident in the data from Duna House real estate agency. In 2018, every second home in Budapest was bought for investment purposes, and since 2014, investment has always been the top reason for buying a home.

From 2010 to 2021, house prices in Hungary have increased by 120% and rents by 50%.

The Airbnb effect

Speaking to several Airbnb owners in Budapest, they all said that while there are tax avoiders in short-term rentals, it is well worth doing it legally and tax-wise, even if it is a lot of tedious administration. ”It is virtually risk-free to Airbnb with unofficial accommodation,” explains Gergely, another Airbnb host. ”Local authorities have no legal or operational means to take action against them.”

Airbnbs in Hungary benefit from soft-touch tax policies and operate with virtually no restrictions. An apartment, if in a good location, can easily generate 1 million forints (around €2,500) a month in Budapest, and the tax burden is among the lowest in Europe. The largest part can be paid in a flat-rate flat tax: 38,400 forints (€92) per room per year.

The government has left it to the local authorities to regulate, but essentially there are no obstacles in the way of Airbnbs – unlike places like Barcelona, Berlin and Lisbon where various short-term rental regulations are now in place. At most, individual owners are asked for a parking space, and condominiums can decide whether or not to allow the conversion of an additional dwelling into an Airbnb.

“What public policy common sense dictates, regardless of party affiliation, from Berlin to New York – that there should be an evident need to restrict Airbnbs – is not thought to be the case in Budapest,” says Bálint Misetics, a senior advisor for housing and social policy to the Budapest Mayor. “It would be strange if everyone were wrong about that.”

The state looks the other way

The high returns offered by Airbnb can only partly be explained by the favourable tax environment. Because the tax burden on long-term spending is even lower in reality. However, tourists renting apartments on Airbnb are much more solvent than Hungarians, which is why rental apartments are disappearing from the long-term market.

In the former socialist countries, the proportion of owner-occupiers is very high, which is why it is not worthwhile for large investors to enter the Hungarian rental market. Even if in Budapest the renters share has risen from 7.3% to almost 10% in the last 10 years. The other reason is that private landlords have a very high level of tax avoidance.

Economist Ferenc Büttl estimates that about one in 10 landlords pay the otherwise standard 15% tax on rentals. However, companies can’t get away with this, and they are also liable for VAT.

“This kind of grey income or black income may sound strange, but it is compensation for the middle class. In Hungary you don’t earn as much as an Austrian doctor or an Irish university professor,” Büttl says. “But if you have a flat inherited from your grandmother or you’ve got two or three flats from somewhere, you can rent it out and the authorities look the other way. No government has dared to touch that.”