The View 7th edition

20

10.3 EUR/hour, indicating an annual increase of 15%, well above the average minimal wage increase of 8% at a national level. Although development pipelines have been growing across various building categories, the supply side is far from overheated. The annual reproduction rate of the Hungarian housing stock stands at 0.4%, well under that of other CE countries (0.7%-1.2%) or Austria (1.4%). Moreover, the uptick in development seems to be temporary and does not signal long- term acceleration in the growth of intended completion volumes. Issued residential building permits have already started to decrease – by 6% y-o-y on a national level and by a striking 25%inBudapest. This reversal can be attributed to the prolonged VAT reduction for new-built housing until end of 2023, which helps developments with existing building permit only but does not facilitate further projects on the housing market. On the other hand, besides the increasing cost, the most serious challenge the market faces is the continuous delay in deliveries.

Keeping schedules and timelines is rarely feasible due to the lack of available capacity of constructors. CBRE calculates with an average delivery time prolongation of 10-15%. According to MNB, only 38% of all residential developments are expected to be completed on time, while 29% of the projects face a delay of more than six months. With the prolongation of the reduced VAT rate for new residential development until the end of 2023, the elevated residential development activity is expected to continue for the next four years, yet in a more reasonable and sustainable manner than before the extension was announced. Hence, the potential benefit from a slowing residential market for commercial developments remains to be seen later in the cycle, as labour will remain locked in on residential projects for the coming years and the competition for materials and equipment is unlikely to ease. Nevertheless, commercial development markets are active across CEE. The two-year office pipeline in Budapest amounts to 413,000 sq m, albeit with a risk of delays. This