Frequently Asked Questions about the Hungarian Property Market

1. As a private investor
A private investor can apply for a permit to purchase property. All non-Hungarian citizens who which to purchase property must apply for a permit from the local municipality (district council). Before a permit is granted in Budapest the Administrative Office of the Capital City (AOB) must grant their approval.

A limitation was placed at the beginning of 2000 by the AOB on the number of apartments purchased by foreigners within the city limits. The situation has improved somewhat since the introduction of the new government in 2002. With the new regulations most foreigners can expect to receive a permit within 2 – 3 months.

Legally, the only grounds for denial of a permit are if it is viewed that the interests of the community would be compromised. Speculative purchasing of property is not encouraged and therefore a person who already owns property in that district is normally refused a second permit. The head of the AOB has the authority to deny permits. If this occurs then as an avenue of recourse you may file a lawsuit against him. Normally the courts rule in the buyer’s favour, instructing the AOB to review its decision. However, if they deny it again then it is not possible to launch a second appeal. Already this has become a routine procedure within the courts.

What if my permit is denied?
If the permit is denied there are 3 possible avenues of recourse
· Purchase the property using the name of a relative or friend
· File a lawsuit against the Administration office of the capital city and then re-apply for a permit. It is important to realise that in any case you must sign a new contract with the seller as the original contract is no longer valid.
· Establish a company

2. As a company
The individual could establish a Hungarian registered company. On average it would cost approximately 6 to 8 hundred euro to set up and a further 500 euro a year to run the company.

What are the advantages of purchasing property through a Hungarian registered company?
· Predominately this is the fastest way to purchase property due to the short registration process and no limitation on properties purchased with Hungary once the company has been fully registered
· When selling your property in the future you may be able to plan and reduce your tax liabilities
· Monies spent relating to the property i.e. flight, accommodation, legal fee’s, utilities etc are considered expenses
· VAT is not charged when renting residential property or selling a ‘second-hand’ apartment
· There is the possibility of selling the company along with the property in which case no purchase duty would have to be paid making your property more attractive to future buyers
· The purchase duty can be reduced to 2% instead of the usual approx 6% if the intention is to sell the property within 2 years of purchase and a declaration is made to this effect.

Is it complicated to set up a company?
Not very – it is a routine procedure which should only take a day, although you will need to be in Hungary to open your bank account.
Generally investors set up a BT (simple partnership) rather than a KFT (limited liability company), due to the fact that the BT costs less to run even though they operate in the same way. Also, within a KFT all owners have equal rights and in a BT there is only one principle owner.
You will need a lawyer, accountant and property management agency that will look after all the formalities. Your lawyer will need the company name, its seat and details of the owners of the shares. Next the Articles of Association must be prepared, specimen signatures signed in front of a public notary followed by a bank account being opened. After this has occurred all the documents etc must be forwarded to the accountant who will look after the admin and prepare regular reports. Ensure that all invoices carry the name and address of your company otherwise they cannot be counted as expenses.

Is it necessary for me to register for Hungarian social security if I am the managing director of a Hungarian company?
No, as a company does not need to have employees. This is because it can operate totally through subcontractors who will invoice the company for their services

What are the additional expenses incurred when buying an apartment?
You would expect to pay a solicitors fee of 1.5% and a 4% estate agents commission and purchase tax. However, there is no estate agents commission if you purchase from the Princess commission. If you purchase as a private person you would pay 2% on the 1st 4,000,000 of the apartment purchase price and 6% for the remainder

Taxation
A double taxation agreement exists between Hungary and England and Ireland.

How much should I expect to pay a solicitor for preparing a contract of sale?
Usually 1.5% of the sales price

Which are the best areas to invest in right now?
The 5th, 6th and 7th districts of Pest.

What level of capital gains could be reasonably expected in a year?
In the afore mentioned locations predictions vary between 15 and 25%

Which are the most rentable properties?
Typically, highly renovated, fully furnished apartments in key locations are the easiest to rent. We have found that the higher the standard of renovation, the more it appeals to the western tenant who is ideally a business man, diplomat or foreign student

How much can I expect in rental income?
The average rent is between 5 and 7% per year of the value of the apartment although this will obviously depend on the location and condition of the property.

Will I have to pay tax on the rent income?
Private owners have to pay 20% of the rental income in tax when renting to an individual or business. As a foreign national you must apply for a tax ID and issue invoices to the tenant. However, companies only pay 18% corporate tax on profits and this is only if a profit exists.

How much should I pay in management fees for a rented apartment?
Usually it is between 10 & 15% of the monthly rent.

What is the usual commission charged when renting an apartment through an agency?
Generally, it is one months rent plus 25% VAT which is paid when the contract is signed in case the apartment is rented for a year. If the apartment is rented for less that a year 10% of the total rental fees are charged.

What is the down payment expected when securing an apartment to purchase?
It is usually a 20,000 euro draft made payable to our solicitors

Is it possible to get a mortgage in Ireland or England to buy a property in Budapest?
It is possible to raise a mortgage up to 70% in Hungary. However 50% is a more normal level of Mortgage offered.
However many people choose to use equity release secured it on existing property in Ireland or England. If you are living in Ireland, we are able to put you in touch with our associates ‘The Penco Group’ who specialise in Irish people purchasing overseas property. If you live in the U.K. we can put you in contact with a broker experianced in raising finance for people buying in Hungary.

In the future can I purchase the property from my company?
Yes but you would incur a 6% purchase duty as well as legal fees

How would I close my company?
Closing a company takes several months and usually costs as much as founding one. It is not uncommon for people to sell companies instead of closing them. If you sell the company along with the apartment the buyer should not have to pay any purchase duty

Disclaimer:

No information herein constitutes the basis for a purchase/sale contract.

The information provided on budapestinvest.com is not intended to be legal advice, or tax advice but merely conveys general information related to legal and taxation issues commonly encountered.

As with all property purchasing decisions you should seek professional independent legal, financial and taxation advice.