State aids can boost the housing and renovation sector

The set of measures of housing and renovation announced in order to support the government’s demographic program and put the construction industry in position is expected to significantly boost the housing construction and renovation market – shows the joint research of GKI and Masterplast. In the former case, the governments support package could bring an up to 20-percent increase in the next two years, and a 50-percent increase in the latter case.

The governmental aid policy determined every segment of the housing sector in the recent years. The housing aids, came into force in 2016, triggered an upswing in the housing construction, and this trend was felt even in the first half of this year. At the same time, as a result of the termination of the reduced VAT rate, far fewer new projects have been launched than before. Housing renovations have also been incited by the available government aid (especially for condominiums and detached houses) and the favorable financing conditions (i.e., the pre-natal loan or the Hungarian National Bank’s zero-percent energy efficiency loan). Although there has been a slight decrease in the number of housing renovations in 2019, this was mainly caused by supply problems (the booming housing construction drained some of the construction capacity from the renovations). This year however, despite of the pandemic, the renovation and modernization activity did not decrease at all.

Partly to alleviate the economic downturn caused by the epidemic, and partly to support the government’s demographic program, several new support measures for the housing sector were announced in October, 2020. From January 1 2021, the VAT on newly built flats were reduced to 5% again (in case of the condominiums smaller than 150 square meters and the detached houses smaller than 300 square meters). Those taking out the family allocation are also entitled to reclaim the amount 5-percent VAT, and are also exempted from the property tax (this latter will also be available in case of buying used dwellings). The government also supports the construction of multi-general households, therefore, from January 1, the family allocation may be taken out for loft installation, even with the maximum amount (HUF 10 million). The state has also announced its Dwelling Renovation Program. Within this framework, the government assumes half of the housing renovation and modernization costs of families raising at least one child (under 25 years of age) up to a limit of HUF 3 million. The announced measures go hand in hand with the government’s strategy so far, i.e., to gradually broaden the access to state aids. A new element, however, is the recognition of the importance of housing renovations and modernizations, as well as the substantive and direct support of these activities.

The reintroduction of the reduced VAT rate on new dwellings is expected to bring new energy to the construction companies. Although the economic environment is in a much worse situation now, this measure should be enough the alleviate the expected downturn of constructions. Previously, GKI expected that 12-14 thousand dwellings will be built in 2021 and 15-17 thousand more in 2022. According to the forecast modified after the measure, 15-17 thousand dwellings may be built next year, and 18-20 thousand more in 2022.

The termination of property tax will alleviate the financial burden of the families concerned, although the tax had to be paid only by buyers of condominiums. Therefore, the possibility to reclaim VAT also decreases the costs of the persons concerned. These two measurements however only moderately and indirectly serves the expansion of consumption.

Supporting the loft installation is a huge gift with low importance. In the first half of 2020, only 0.5% of the taken-out housing loans were spent on expanding housing – based on this, the demand of households is not very high, in the next two years up to 3-5 thousand applications are expected.

The effect of the Dwelling Renovation Program is significant. The aid is considerable, as the total amount of the own contribution and the aid can be up to HUF 6 million – from this, meaningful renovation can be carried out both in case of a flat or a detached house. The lack of own contribution can hindrance the process, and according to the banks, half to two-thirds of these subsidies can be supplemented with some kind of loan. GKI expects that in 2021 and 2022 up to 120-150 thousand families can claim for this aid (in 2019 almost 150 thousand flats were renovated). The increase of potential price caused by the aid (which in most cases remains below 10% per year) and the scarcity of construction capacity are considered as risk factors.