Green Homes Increasingly Important in Stagnating Housing Market

The real estate market is basically in a wait-and-see mode this year on both the supply and demand sides due to the rise in lending rates, falling real wages and the changes in the state subsidy system.

“In the absence of the previous drivers of the housing market, no significant change is expected even in 2024, but the segmented market may still see good deals and market expansion opportunities for larger investors,” says Dávid Valkó, head of real estate market research, OTP Ingatlanpont

According to preliminary data from the Central Statistical Office (KSH), last year, turnover fell by about 13% on an annual basis. According to Valkó, the decline could be 25-30% in 2023, representing a 10-year low with around 100,000 transactions.

He believes the correction in the housing market will be milder than the 2008-2013 Global Financial Crisis and Great Recession but could last for years. The market segmentation that is already evident could be further reinforced, and green considerations may, partly out of necessity, become increasingly important.

“The recent turnaround in the housing market has brought changes on both the supply and demand sides, but despite the challenges, OTP Ingatlanpont’s order book grew by 11.6% compared to December last year,” says Balázs Hartlieb, managing director of OTP Ingatlanpont.

“In the current, less predictable and uncertain market environment, it is difficult for those who are now looking for or who want to sell a home to find their way around, and, based on our experience, more people are turning to real estate agents.”

Optimistic Outlook

Hartlieb added that, despite the turnaround, he is optimistic, as OTP Ingatlanpont’s transaction volume and commission income had increased by 13% and 17%, respectively, by September compared to the beginning of the year.

According to Hartlieb, there is a high client demand for second-hand, lower-value homes that are low maintenance and can be renovated cost-effectively. These are typically one- or two-bedroom apartments with a floor area of 50 sqm. For detached houses, 70-90 sqm is the most popular size; they are not priced uniformly due to their diversity, and sellers remain more open to bargains.

Partly due to rising utility costs, energy efficiency is becoming important in the housing market, with OTP Ingatlanpont’s experience showing that newly built homes have become more prominent, as they are guaranteed to have good technical and energy ratings, meaning running costs are not as high.

Erika Kasziba, the head of the business development team responsible for OTP Bank’s housing loans, says that, due to high interest rates and the decline in customers’ income available for loan repayments, the housing lending market is also expected to decline this year, with an anticipated fall of about half from HUF 1.2 trillion in 2022.

“Modern homes not only contribute to sustainability; they also generate savings and increase property values. At the same time, the negative impact on people’s appetite for borrowing has also changed customer needs, and in this environment, it is even more important how a bank can respond to new expectations,” says Kasziba.

“The OTP Green Loan, which has been available since July this year for the purchase of new housing, construction, and modernization of existing property, provides an appropriate response to three important customer needs,” she adds.

Significant Factors

The first significant factor is the interest rate subsidy, one of the most critical issues in the current market situation for customers when taking out a home loan. The second is long-term security; in today’s yield environment, where interest rates on short-rate products change regularly, predictability is becoming essential.

Still, it also remains important to obtain a better interest rate in a favorable yield environment, which can be assured by the one-off interest rate reduction service available for OTP Bank’s “Fix Until the End” loans, for example. The third factor is getting support to manage the costs of renovation and modernization through certain OTP loan products with a grace period of one year, Kasziba argues.

A property must have an energy rating of “BB,” and its primary energy demand must not exceed 80 kWh/sqm/year to qualify for an OTP Bank Green Loan to purchase or construct a new dwelling. In the case of renovation, the investment must lead to a reduction in primary energy demand of at least 30% based on the overall energy performance of the dwelling.

The requirements for meeting the green credit target are reviewed occasionally depending on how regulators see the achievement of climate change mitigation targets. The National Bank of Hungary has already indicated that it will amend the conditions for green credit targets from November 1. The question is whether there will be enough new homes that meet the new energy criteria, at what price they will be available, and at what price the materials and specialists needed to upgrade existing homes will be available, according to Kasziba.

“When you want to make your existing or new home more energy efficient, it is important not only to consider utilizing the cheapest energy source at the moment because the value of energy can change due to a number of external factors,” notes Eszter Vései, a chartered architect and building energy specialist.

“Instead, you need to design for the lowest energy demand and the lowest carbon footprint possible because then the maintenance costs will remain low regardless of the energy source,” she says.

Vései also notes that, while changes to the energy certification are coming in November, the rules are not expected to be tightened significantly but will help customers make energy choices in a more user-friendly and transparent way.

This article was first published in the Budapest Business Journal print issue of September 22, 2023.