The price of building materials is unlikely to drop further in Hungary

To understand expectations for this year, it is worth taking a moment to look back to 2023. Last November, the order book for the building materials trade sector showed a significant drop compared to the same period in 2022.

The number of issued building permits and simple notifications dropped to less than 20,000 from 35,000, while state and municipal orders have fallen drastically, said Attila Juhász, chairman of the board of Újház Zrt. and President of the Hungarian Building Materials Trade Section of ÉVOSZ. Against this background, the outlook for 2024 is not good, but

there is still hope for a positive turnaround in the second half of the year.

His positive stance is rooted in several factors. The interest rate environment is improving steadily, with the base rate expected to fall to around 6% by the end of the year, making market credit conditions increasingly favourable, which will help to finance construction renovation projects.

Central bank (MNB) Deputy Governor Barnabás Virág has just said the market expectation that the base rate will be lowered to between 6% and 7% by the middle of the year from the current 10.75% is realistic.

Construction material prices have hit rock bottom. According to data from building materials trading network Újház Zrt., the overall price of building materials has fallen by 4.7% since January, but within that, masonry materials have fallen by nearly 14%, building wood by 19% and foam insulation by 21%.

The expert believes that in such circumstances, real estate could once again become a realistic investment target, as yields on alternative options, including government bonds, will fall. However, until this happens, the population will typically not touch their savings, added Attila Vitális, CEO of building material merchant Alföld Tüzép Hálózat.

The deadline for the preferential VAT rate for housing construction has been extended until 2028, but in view of the long construction times, it is already worth considering for those who want to take advantage of it.

According to Attila Juhász, the CSOK Plus, with its 3% discount interest rate, can be a good complement to the improving market loans, and the government has also announced new forms of support (e.g. solar panel systems), and plans to introduce others, such as energy efficiency support.

In Attila Vitális's opinion, if the retail lending rate approaches the psychological limit, i.e. falls to around 4-5%, it could be attractive and promote new construction and renovation. The refurbishment market could be the segment that generates the most significant growth in turnover for building materials retailers, with a significant drop in turnover in 2023 being the biggest concern. This was true for both the public and residential sectors.

Even so, the members of the trade section expect further turnover in the first two thirds of 2024. This is estimated to be between 10 and 15%.

Prices for construction materials are unlikely to go down,

and there will be some products that will rise because of fuel prices, rising freight rates and the tax burden on the industry in the mid-2023.

In addition to the rise in fuel prices, additional burdens from the beginning of the year, such as tolls and wage increases, will have an impact already in the first half of the year. Roland Parrag, CEO of Duna Hungária Zrt, projects that price competition in the market will be difficult to follow. On an annual basis, the company expects a price increase of 7-8%.

Sándor Kis, Managing Director of the Hufbau Group, cited a major change in the product mix of demand for building materials, caused primarily by a dramatic drop in the number of new constructions. The year 2023 has seen a fluctuation in prices, in many cases a sharp fall and in others a moderate rise.

In addition to the changes in the regulatory environment, the year will be even more of a year of uncertainty due to the state of the works that were completed by the end of last year and to be finished in the first part of this year.

With pronounced changes variations in transport charges and constantly rising fixed costs, it is essential that the prices of building materials rise at both producer and retailer level. The impact of this price increase will force the sector to take further steps to operate more efficiently and, in some cases, even to survive.

If we consider that the capacity of construction companies has also become more available on the market, we can safely say that the first months of 2024 are a good entry point for those who are thinking about construction or renovation, concluded Attila Juhász.

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