* Home prices grew 10 pct in Jan-June, 20-30 pct in Budapest
* Upturn spurring construction, may help fuel GDP growth
* Property bubble unlikely due to controls on lending -analyst
By Marton Dunai
BUDAPEST, July 14 (Reuters) - Hungarian residential property prices rose rapidly in the first half of 2015, reviving a long-dormant sector as low interest rates and a stabilising banking environment lure buyers and investors, realtors told Reuters.
This activity could help sustain Hungarian economic growth, which has outstripped expectations in the past two years but had previously struggled to recover from the 2008 economic crisis.
With interest rates at a record low of 1.5 percent, property prices grew by more than 10 percent since the fourth quarter of 2014 and are at 95 percent of pre-crisis levels, according to a fresh survey of Duna House, a leading real estate agency.
In Budapest, where buoyant tourism has spurred demand, residential property prices have added 20-30 percent since 2014, Duna House said.
“An investment craze began when the central bank cut interest rates and other investment became less attractive,” Duna House chief analyst Gabor Rutai told Reuters.
“People are returning to the market,” he added. “They put off 3-400,000 transactions since 2008, building up demand.”
Last year the government forced banks to convert toxic foreign currency loans into forints and to refund clients for past charges it deemed unfair - benefiting real estate.
“The trust factor has begun to return,” said Attila Dery, chief analyst of Otthon Centrum, another major real estate agency. “Many people want in at once, and this speculative demand has fuelled the price increase.”
An annual 5-10 percent gain is possible for the next three years, he said, followed by a more subdued growth.
Budapest is still very cheap in Europe, making it an attractive target for foreign real estate investors as well.
One concern may be that, like in Scandinavia, low interest rates lead the property market to heat up, giving central bankers a headache as they try to find the right level for interest rates.
But Otthon Centrum’s Dery said central bank brakes on mortgage lending should prevent a property bubble.
The upturn in the real estate market is also fuelling construction work, with new permits up by 300 percent from last year. That could help the country sustain growth even after European Union development funds temporarily ebb next year.
K&H Bank analyst David Nemeth said Hungarians have saved up in recent years and they will probably not consume more but seek investments such as real estate.
“Economic growth in the next three years depends on households as foreign direct investment is not especially big,” Nemeth said. “It will have a big role in how much the economy slows from its current growth pace in 2016 through 2018.” (Reporting by Marton Dunai; Editing by Hugh Lawson)