What happened in Prague and what does it have to do with Budapest?

The development of Budapest and Prague since the end of communism in both countries shows some similarities and differences. Here are some aspects that connect them:

1. communist past

Both cities were part of the Eastern Bloc and experienced political, social and economic changes during the communist era. In Prague, the Communist Party of Czechoslovakia (KSČ) carried out a coup d’état in 1948 and established a communist government that lasted for more than four decades. Budapest was also part of the Eastern Bloc and was under the influence of the Soviet Union. The communist era in Hungary lasted until the political change in 1989.

2. velvet revolution and democratization

Both cities witnessed the so-called “Velvet Revolution”. In Prague, mass demonstrations and pressure from the population led to the removal of the communist government and the restoration of democracy.

Similar events took place in Budapest, and Hungary also opened up to political reform and democratization.

3. tourism and modernization:

Since the political change, both Budapest and Prague have developed into modern metropolises. Although Prague is the better known of the two cities worldwide, the two cities are now roughly on a par in terms of overnight stays(Budapest, 11.7 million overnight stays, Prague: 13.8 million overnight stays), with Budapest as the larger city (1.7 vs. 1.2 million inhabitants) possibly having the greater potential for growth. Many travelers to Prague report overcrowded streets (“overtourism”), which is something you don’t hear about Budapest.

3. architecture and urban reconstruction

Prague has preserved and modernized its historic architecture. The Old Town, Lesser Town and Hradčany are popular districts for tourists and locals alike. Budapest has also undergone impressive urban reconstruction in the last 20 years, including the renovation of the State Opera House. The Hauszmann project currently stands out in particular.

The National Hauszmann Program (Hungarian: Nemzeti Hauszmann terv) provides for the renovation and reconstruction of buildings in Budapest’s castle district. It is named after the Austro-Hungarian architect Alajos Hauszmann, who worked for a decade and a half as architectural director for the extension work on the Royal Castle and shaped its current neo-baroque appearance.

The program was launched by the Hungarian government in 2014 with the aim of faithfully rebuilding the buildings that were destroyed either during the Second World War or during the communist era. Some of the main objectives of the Hauszmann program are:

• Reconstruction of historical buildings: The program focuses on the reconstruction of buildings in Budapest’s Castle District that are historically and culturally significant. These include the riding hall, the palace of Archduke Josef, St. Stephen’s Hall, the Ybl staircase and the former headquarters of the Red Cross.
• Reconstruction and restoration: In addition to the reconstruction, reconstruction and restoration work is also being carried out. This includes the renovation of the Weissenburg traffic circle and the surrounding gardens as well as the restoration of the equestrian monument by Artúr Görgey and the Matthias Fountain.

The Hauszmann program helps to preserve Budapest’s historical heritage and increase the attractiveness of the castle district. The faithful restoration of the buildings gives the city a cultural and architectural jewel.

4. scarcity as a price driver: buildings in the historic center are limited

Both cities have a relatively limited city center, and due to the low building height (usually a maximum of 4 stories) this leads to a manageable number of properties and apartments. Investors, who represent almost half of the buyers in the inner-city area, clearly prefer properties with a historical background.

While in Budapest the dilapidated condition of some of these buildings is still holding back value growth in many places, the refurbishment of buildings in cities such as Prague and Vienna appears to be almost complete. With increasing refurbishment activity, it can be assumed that Budapest will close this gap sooner or later.

Why many Budapest residents do not sell their apartments

There are a considerable number of vacant apartments in the city center that are not being used by their owners, but at the same time are not being rented or sold. The reasons for this are obvious:

• Despite the global financial and real estate crisis, the pandemic, supply bottlenecks and the war in Ukraine, value growth between 2010 and 2021 was already over 100% – on average. A sale without necessity therefore seems absurd, because the property is not only a store of value, but obviously brings a high return, without any action on your part.
• However, a look at Prague, where prices 10 years ago were roughly at today’s Budapest level, should also provide sufficient reasons for the wait-and-see attitude. Anyone who sells now must fear that they have given up their family treasure far too early.
• Asian buyer groups had practically disappeared completely since 2020 due to the Covid restrictions, but have been returning with a lot of capital since 2023 and are continuing to fuel demand.
• The relatively low level of new construction activity in recent years is likely to further exacerbate the shortage of existing properties, at least for those who want to live centrally.
• Budapest is one of the few capital cities where Airbnb is still relatively easy to find. This leads to high rental yields, which will still be able to cope with some price increases. Even in the long-term rental segment, there is a lot of demand from foreign tenants (expats and location-independent freelancers) who are prepared to pay significantly higher rents.

So you don’t need too much imagination to bet on rising prices in Budapest at the moment.

Sources:

• Berlin: Berliner Sparkasse – McMakler
• Paris: McMakler
• Warsaw: Realting.com
• Prague: ImmoMagazine – numbeo.com – Radio Prague International
  per sqm, in the city center: 170,888.94 Kč (approx. 6,600.00 € – 8,800.00 €)
  per sqm, outside the city center: 120,606.06 Kč (approx. 4,700.00 € – 7,000.00 €)
• Budapest: DunaHouse