'Superbond' cools the world's hottest real estate market

Budapest

DUBBED the "superbond", an initiative by Hungary's government is taking the edge off the world's hottest property market.

The state-backed debt instrument, officially called MAP+, pays out an average of almost 5 per cent a year and was rolled out to trim a reliance on foreign creditors, who have exacerbated past crises by fleeing at the first sign of economic strife.

With real interest rates stuck below zero, uptake in MAP+ - sold exclusively to households and exempt from tax - has been strong: the equivalent of US$10.5 billion has been invested since its launch last June.

That diverted cash from real estate at a time when prices on Budapest's residential market were, according to Knight Frank, surging more than anywhere else on the planet.

"MAP+ has had a big impact on the housing market," said Karoly Benedikt, head of research at Duna House, one of Hungary's biggest realtors. "Before MAP+, there was simply no alternative to real-estate investment."

It was not long before the bond's effect was felt. Retail-property transactions plunged 56 per cent in the third quarter of 2019 - the first period when Hungarians could invest in MAP+. The country's housing-price index posted its first quarterly drop since at least 2015 in that same period.

Some may welcome the cooling. Hungarian property prices have jumped 60 per cent in the past four years, the most in the European Union.

Hungary's finance minister Mihaly Varga described a "bubble-like" market, while central-bank governor Gyorgy Matolcsy has urged a rethink of what he calls a failed national housing policy.

It is not just the "superbond" at work, said Mr Benedikt, who points to a slower-than-expected uptake of state subsidies and predicts the market will stagnate in 2020. There is also plenty to suggest real estate will take off again. BLOOMBERG