News Article Duna House Hungary interview Poland residential
by Property Forum | Interview

There are several factors which put a break on the revival of the housing markets. Property Forum asked Guy Dymschiz, Co-Founder and Co-CEO of Duna House Group, active in Hungary and Poland, about the necessary steps from the states and the developers to overcome the mounting difficulties.


What are the major challenges facing residential markets across Central Europe this year?

Actors in the real estate market, not only in the region but also across the European continent, must now prepare for changing and slowing market trends. I think the biggest challenge for companies in both the brokerage and property development sectors will be to adapt to these changes as quickly and effectively as possible. Even though the extent of change may vary in some markets or indeed across regions, overall we expect to see similar trends in all countries.

After the soaring first quarter of 2022, we soon realised that humanity and Hungary had barely recovered from the losses of the pandemic, the Russian-Ukrainian war and its economic consequences, coupled with the energy crisis, will put Europe to the test again and will also affect the real estate market.

Duna House expects to have just over 125,000 sales transactions in Hungary, a 22% drop in volume compared to the previous year. The last time there were fewer transactions than this was in 2014, when the total volume was 113,000 deals, according to figures published by the Hungarian Central Statistical Office. The market is not expected to strengthen in 2023 either, with our experts’ annual forecast putting the projected volume at between 90,000 and 110,000 sales contracts for this year.

The performance of the real estate market in 2023 will largely depend on changes in the economic situation and the development of the credit market. The extended state subsidies announced at the end of the year could offer a lifeline to Hungarian families preparing to buy a home. The significant fall in demand that started last year is thus expected to moderate, but the trend from a supply-led to a demand-led market is not expected to reverse for the time being.

Market players will have to adapt to the new situation, and both buyers and sellers will increasingly appreciate the value of expert assistance that is needed to ensure smooth property transactions. High-interests adversely affect the condition of the mortgage loan sector. Expensive and hard-to-reach loans are at the root of the slowdown in the housing market in Poland. The market is expecting government aid programs on the one hand, which will facilitate access to mortgage loans, and also an improvement in the economic situation on the other, which will result in the
stabilization of interest rates at acceptable levels.

Another major challenge is the activation of the development industry, which is increasingly limiting production in response to the current situation. Market stability understood as a balanced supply-demand ratio, is crucial for real estate players.

Guy Dymschiz

Guy Dymschiz

Co-Founder and Co-CEO
Duna House Group

Guy Dymschiz is the Co-Founder and Co-CEO of the Duna House company group operating since 1998. He studied law at Tel-Aviv University and obtained an LL.B. degree. He later specialized in corporate law, mergers, buy-outs, syndicates and investment agreements in the capital markets. He founded the Duna House company group together with Doron Dymschiz in 1998. He was born in Germany and lives in Budapest with his wife and his two children. More »

Even though these countries saw similar downward trends over the past 1-2 years, Poland seems to have reached the lowest point earlier than the rest of the region. Is this correct?

Yes, this is correct, Poland’s situation is unique in a way that authorities did not direct the loan market into fixed-interest loans in the last few years. As a result, the hike in interest rates has a very strong impact on the whole previously outstanding loan portfolio, with average borrowers paying about double the monthly loan payments, that they paid in January 2022. The Polish authorities then decided to add significant restrictions to the creditworthiness of private consumers and this brought the Polish loan market and with it the Polish real estate market, close to a halt. At the moment, real estate developers, banks and the whole real estate market is waiting for Polish authorities to ease up somewhat on the creditworthiness requirements.

In Addition, the housing market in Poland has seen strong upward trends in recent years. Prices have been increasing continuously since 2016. The first price adjustments began to be visible only in the last quarter of 2022, although not everywhere yet, and these are not significant changes so far. In the case of the primary market, developers are reluctant to lower prices for the time being. Instead, they offer promotions such as a free parking space or a storage room. The argument for price stabilization as opposed to a rapid decline is the decreasing number of development projects. The effect of lower supply should be visible already in 2024 when developers’ offers will be much more limited. An improvement in the situation in the credit market may restore the increased demand for flats.

Combined with high inflation and rising development costs, there will be some pressure to raise prices. Of course, this is just one of the possible market development scenarios – a large number of various external factors do not allow us to forecast the development of market trends with full responsibility. However, it should be emphasized that there is still a high demand for housing, although this demand is currently being suppressed by the lack of financing. Houses are the less resilient sector within the residential property market. Here, we can already observe the price reductions and the offer includes houses at various stages of completion.

What about the rental market, especially in Poland where millions of Ukrainians boosted the market throughout last year?

The rental market in Poland is experiencing perhaps the most significant changes in Europe. Before the outbreak of the war in Ukraine, the home rental market was developing quite steadily. After the start of the pandemic, apartment rental prices fell slightly, as a result of the demand generated, among others, by students. However, the market was so appealing that the first PRS (Private Rental Sector) funds appeared alongside individual investors who dominate the rental market.

The war brought about significant changes. Poland has become the main direction of migration of people from Ukraine. Rental offers immediately disappeared from the market, and prices increased by 20 to 30 per cent, depending on the location and size of the apartment. Rising overhead and utility expenses also contributed to the increase in rental prices. The market of apartments for rent was not prepared for such a large number of potential tenants, therefore, apart from apartments, whole houses were also willingly rented.

The biggest problem had to be faced by people looking for apartments for rent in the largest Polish cities. Most Ukrainians chose Warsaw, Cracow or Wrocław because they had the best chance of finding a job there. In smaller places, away from the largest cities, it was not difficult to find a flat for rent. Currently, apart from people from Ukraine who still stay in Poland, an increasingly large group are citizens of Belarus.

It should still be expected that interest in the rental market will remain at a high level. This is, among others, a consequence of high interest, which limits the availability of loans. In this situation, the number of people interested in renting is growing significantly. Investors are taking advantage of the situation. We estimate that half of the transactions on the market are of an investment nature. After a purchase contract is signed, the apartments go directly to the rental market.

As prices of newly built homes continue to storm the skies, built-for-rent activity should increase across the region. Do you agree that this is a long-term option for some of the players in many countries in CEE?

Those squeezed out of the market as buyers on account of increased uncertainty and financial difficulties are now finding a home in the rental market, so demand is expected to increase in 2023, which will also affect investor appetite and rental price changes.

The Hungarian market continues to lack the larger residential property development funds and groups that are prevalent in Western Europe, which expect to benefit from the growing rental segment and the development projects that are tailored to cater for this demand. We saw some tentative interest in the domestic market, but no breakthrough has yet occurred, and it remains to be seen how much scope the deteriorating development environment will give for the mass emergence of market-based rental housing. One thing is certain: acquiring a home will become more difficult in the period ahead, so the rental market will witness some significant growth, which both private and institutional investors will need to prepare for.

Currently, PRS funds in Poland have about 8000 apartments for rent. Estimates prepared by consulting companies show that by 2028, 63,000 new apartments will appear on the rental market. Only a dozen or so months ago, cooperation with funds was not optimal for developers in economic terms. High demand generated by individual customers and high margins meant that selling their output to funds was not a popular option.

The situation has changed dramatically. High prices of flats and the inability to finance the purchase with a mortgage mean that developers are increasingly considering the possibility of cooperation with funds and building flats for rent. Such cooperation allows developers to maintain production and offers a faster return on their capital. However, in Poland, such a model of cooperation between developers and funds is at an early stage, which is why there are many different issues related to, among others, clauses in contracts (e.g. indexation clauses).

I think the model of building apartments for rent in cooperation with PRS funds will become a permanent feature of the Polish real estate market. It can be expected that more and more entities operating in this model will be involved because the shortage of flats for rent in Poland is huge. However, a certain barrier may be the reduced activity of the residential construction developers in Poland, resulting from, among others, problems with planning investment budgets.

Hungary is still struggling both in terms of transactions and loans taken out to buy homes. Is there any chance to change this trend for the better in 2023 or we will witness a longer stagnation?

Both segments experienced a significant decline in the second half of 2022, resulting in a weaker annual performance for both real estate transactions and mortgage lending. Credit market and interest rate changes go hand in hand with property market developments. The extension of existing home purchase subsidies, including the Childbirth Incentive Loan, the Family Home Allowance and the Village CSOK, will provide a major tailwind for housing demand.

For those considering having a baby, the state subsidies that will continue to be available will provide significant support in raising the self-financed part of the purchase price, while subsidised loans linked to said subsidies will also make it easier to meet the remaining monthly repayments of the purchase price than in the case of a market loan. The major players in the financial market are currently optimistic about the second half of 2023, so we are also hopeful that there will be no extended period of stagnation or decline.

The government of Hungary has just prolonged some of the incentives for buyers and property developers. Critics say these steps are far from enough. Are you one of them?

Real estate investment and development both require predictability and long-term planning, which they were completely denied in the past. In the current situation (VAT levied on new homes, state incentives) we are inching closer and closer to a market environment with a 2-3-year predictability horizon, which I consider to be the adequate minimum. Ideally, a consciously structured housing policy for the next 5-10 years along with pre-defined guidelines would greatly improve the situation for domestic real estate development projects and provide proper stability to the market. We are headed in the right direction, but we need to shift up a gear.

Financing has become even more expensive for all players, including first-time buyers. How do you assess the changes in buyers’ moods via Credipass, the financial arm of Duna House Group?

From 2022 onwards, we are part of the change in three major markets through Credipass, a single international financial brand. The situation is very different from country to country, but what is common is that the property brokerage sector is growing everywhere. Both financial institutions and clients need our assistance, which is an excellent growth driver for us. In more challenging market conditions, expert help is becoming more valuable, and we expect this trend to continue in the period ahead.

In Hungary, both the credit and property markets are undergoing a dramatic transformation. The change not only crossed the doorstep of the mortgage market but rammed through the door. Two-thirds of the extremely active market that existed earlier this year thanks to green credit schemes have melted away since early summer. Although experts had expected a turnaround, the segment had to face a more pessimistic scenario. As a result of the rising interest rates, inflation and, basically, the cost of living, many have abandoned their plans to buy a home. Lending volumes have fallen significantly, with many a potential client either foregoing borrowing altogether or only being able to take out a smaller mortgage. That said, buyers still enlist the help of financial institutions in 30-40% of all property transactions.

The changes in the mortgage market are confirmed by the data on loan transactions brokered by Credipass experts. The average loan size has fallen by 6-18% in Hungary from the beginning of the year, depending on the region, and the percentage of borrowers who applied for the state subsidies still available during the year-end rush approached the level of the second quarter. Prolonged state subsidies promise certainty and predictability for the credit market in 2023.