Letting of Airbnb apartments in Hungary – New regulation expected for spring 2021

Airbnb, Inc. is a US-based company that is well known around the world for helping people book and rent other people’s homes online. The company started its business in Hungary in 2010, and at present it offers more than ten thousand listings for guests visiting Budapest or other locations in Hungary.

The business model of renting out apartments to short-term users, typically tourists, instead of long-term, local tenants has become very popular in recent years. This phenomenon has greatly influenced the real estate market and also affected (i.e. changed) tourism. The Airbnb segment of the tourism sector is still not fully regulated due to the blurry line between private residential accommodation and tourist accommodation, which poses a number of socio-economic problems (rising rent levels, losses by the hotel industry, tax optimization, conflicts between apartment owners and condominiums, etc.).

Hotels vs. Airbnb apartments

There are currently twenty thousand hotel beds in Budapest, and about ten to twelve thousand apartments for rent. So at the moment, private Airbnb apartments can accommodate almost the same number of guests in Budapest as hotels can. Meanwhile, regulations concerning each of the two types of accommodation differ on many points, such as fire prevention, health and safety regulations, and taxation. Additionally, hotels are also inspected much more frequently than Airbnb apartments. It has got to the point that renting an apartment in downtown Budapest costs as much as renting one in Vienna.

The municipal government considers the situation unsustainable, and therefore it also supported a restriction on short-term lets. According to the municipal government, the main problem is that the Airbnb-phenomenon reduces the supply of long-term rental properties in “peaceful”, pandemic-free conditions, which is why average rents are rising.

Expected changes in the real estate market due to government regulations

After ten years, the national government has decided to regulate the Airbnb segment more strictly, which could force the hand of many investors and the owners of apartments purchased with the Airbnb model in mind (e.g. compel them to sell their properties). After several rounds of public discussions, the government has enacted a law to hand over the right to regulate Airbnb to municipalities. Under the new legislation [Act CLXIV of 2005 Section 12 (5a)], local authorities and municipalities are entitled to determine the number of days a property can be rented and offered as an Airbnb apartment. (Previously the maximum number of days was not specified or limited in any way, i.e. it was 365 days.)

This means that local municipalities have the power to regulate (and even ban) Airbnb; i.e. whether Airbnb apartments can be rented in a certain district or town, and if so, for how many days in a given year. However, local ordinances have yet to be adopted. According to the original plans, the necessary local regulations would already have been introduced in the autumn of 2020, but due to the pandemic this has not happened so far.

Stricter regulation is almost inevitable in some municipalities, and the restrictive new rules might appear just when the tourism sector is hitting new lows.

On the other hand, the downturn in tourism caused by the coronavirus pandemic is also having an impact on the real estate market. According to the analysis of the leading Hungarian real estate advertisement website, the average rent of apartments in Budapest was down 10 percent at the end of June 2020 compared to the same pre-pandemic period, and there are places where the decrease reached as high as 20 percent. In contrast to the normal situation, the supply of apartments for long-term rent is also expanding due to the lack of demand for Airbnb apartments. As the pandemic spreads, the numbers will only get “worse”.

Future decisions

At present, the ball is in the court of the district governments of Budapest and other municipalities, but of course they are now more focused on fighting the pandemic. At the same time, it is probably inevitable that these rules will be introduced before the spring of 2021 as the tourism sector will start to bounce back again and market demand will also increase.

So, once the new rules are in place, investors will have a decision to make as to what the best use of their properties is.