Hungary Real Estate
Investing in Real Estates in Hungary

Budapest Real Estate, A gem for Israeli Investors

Letting property

The real estate market in Hungary and Budapest in particular, currently offers significant capital appreciation, and looks set to do so for the foreseeable future

Traditional, classic, turn-of-the-century flats in Budapest have been appreciating at 20 per cent to 35 per cent per annum and more for the past several years. Additionally, a buyer can expect approximately six per cent rental income on a good property in a good location, especially if it's well maintained. A furnished flat will usually let more quickly and may fetch even greater rental income.

Recent developments

Hungary emerged from the post- Soviet era in better financial condition than its neighbouring countries, and this economic advantage has increased over the years. The EU Spring Economic Report estimates that Hungary 's GDP will exceed the overall EU average by approximately 50% over the next two years. Direct Foreign Investment increased 20 per cent from 2003 and many major multi-national companies have made significant capital investments in Hungary . Budapest has been the prime beneficiary of the increase in foreign investment, and as a result has seen phenomenal growth in real estate investment. Budapest is a centrally located, gateway capital city. It is strategically positioned to serve as a commercial crossroad from west to east and north to south, with one of Europe's most important waterways, the Danube , coursing through its heart. With a rich history and culture, Budapest boasts a highly educated and motivated work force and these are just some of the reasons why major corporations house key personnel here. For example, General Electric recently declared Budapest to be its European, Indian, African and the Middle Eastern headquarters for their 26,000 person low-voltage production division. This contributes some $ 1.5 billion to GE's bottom line. Companies such as Audi, Electrolux, and Samsung have made investments in Hungary or are significantly increasing their investment here. These developments are major factors in the robust housing market that exists. Add to this the forecast that over the next ten to fifteen years, an estimated thirty to forty million people will migrate to more affordable locales and the outlook for Budapest real estate gets even brighter.

An attractive investment?

There are other factors that make buying to let attractive here. Capital gains taxes have been steadily declining and are forecast to move even lower; the rate presently stands at 16 per cent. Also, if a foreigner purchases property as a corporation, which is the recommended and most popular way, many tax benefits accrue to the buyer. For instance, you can deduct a great deal of expenditure, such as repairs, renovations, insurance, mortgage interest, travel and other items. Most expenditure also serves to raise the cost basis of the property, thus lowering the tax bill upon sale. If you were to purchase as an individual then no deductions are allowed to be made. In addition, the corporation, which can be as few as two persons and costs only 600 euros plus 25 per cent VAT, can take a depreciation allowance of between two and five per cent each year. An individual cannot begin to take depreciation until after the sixth year. Also, an individual purchaser must pay tax on rental income at a rate of 20 per cent per annum, whereas a corporation does not.

The corporation accrues the rental income, after deductions, which is added to the value of the corporation and is taxed as part of the 16 per cent capital gain. The taxation issues are the same for short- term and long-term rentals, though the fee structure for obtaining a tenant will differ. Whether you're buying as a corporation or an individual, a stamp duty of two per cent to 5.7 per cent must be paid. On new construction there is no stamp duty on properties under 120 000 euros although the government is lowering the limit to properties priced 60 000 euros and less from January 1, 2005. However, new construction duty could be as high as 10 per cent for some projects.

Letting and the law

The laws in Hungary heavily favour the landlord and evictions are swift. Also, the tenant pays for utilities and contributes to the house fund for maintaining common areas, some of which goes into a general fund for building renovations. In some cases, the municipality will contribute to such improvements, while a municipality or district ( Budapest has 23) may even pay for an entire exterior renovation to a landmark building. The advantage of a short- term let is that it enables the owner to enjoy it for personal use or for the use of relatives and friends for some of the year. Also, the owner may choose to make modest enhancements, such as painting, if so inclined thereby saving money on labour. A long- term rental precludes this, but the owner would receive more income and not have to continually look for a desirable tenant. When looking for tenants, websites can be a hit or miss proposition. Newspapers and magazines are a better bet but can be expensive and time-consuming, requiring the owner to be present to constantly show the flat or house.

Strong demand from Irish for residential property in Budapest, Hungary
By Shirley Busteed

It is reported, that among the purchasers of property in Budapest, Hungary, Irish investors purchase approximately 40-60 flats each week. Stan Ward, from a Hungarian-based property firm, said the greatest demand for property in Budapest, Hungary, is from Irish people, most of whom just want to invest their money while a tiny percentage actually live in the city. Investing in Budapest, Hungary is not a recent phenomenon: foreigners have been buying property there for the past few years and undoubtedly, those that invested at the initial stages of growth, will certainly be rewarded in terms of property appreciation within that period. However, Stan claims that annual appreciation of up to 30 % in addition to an average rental return of 6-8 % can still be achieved in Budapest, Hungary.

Hungary is the fastest growing of all the 10 countries that are set to officially join the EU in May. The increase in the number of direct flights to 19 a week by British Airways is testimony to this. Budapest today is like Dublin 10 years ago before the onset of the celtic tiger. The strong growth in property development and the attractive prices in the past have been an incentive for foreign investment. The movement of major companies such as Electrolux and Nokia to Budapest, Hungary have created a strong demand in the residential rental market. The monthly rent for a typical two-bedroom flat is €750.

Currently, the euro is approximately 20 % stronger than the Hungarian „forint”, which makes the driving seat more comfortable for most Western Europeans, especially in terms of purchasing power.

When purchasing, Stan said that the smart money is in the older well-established neighbourhoods, where residential accommodation is appreciating by 25-30 % per annum. A modest renovation to a building will immediately add another price appreciation of 20 %: this is why some investors opt to refurbish and renovate older buildings themselves. Newer buildings are appreciating at a rate of 15-20 % annually.

When buying a property, it is recommended to form a limited company, between, for example, a husband and a wife. This legal document is called a „Bt”, and can be completed within a day at a cost of €600. One of the favourable aspects of a Bt is the lower tax rate that has to be paid when an investor sells her/his property (similar to capital gains here). A company pays a tax rate of 16 % after selling a property, compared to 20 % when a private individual sells a property. In addition, before buying, a private individual has to be granted permission from the Hungarian land registry, which can take up to a month to get a reply. One extremely important aspect when buying any sort of property is to ensure the authenticity of the title and deeds. It is imperative that all the legalities are above board.

A1 Real Estate provides a service that helps a potential investor to seek the preferred type of property, to organise the formation of a „Bt” and ensure that all legal documents are genuine. This particular company charge a fee of 3% of the purchase price. If the investor opts to rent out his/her newly acquired flat or house. A1 Real Estate will assist in this process for the year at a cost of one month's rent. When buying property, a 10 % deposit is required initially while the remaining 90 % has to be paid within 21 days.

Property prices start at €75 000 for two-bedroom flats. In past, investors from Ireland include a range of profession from teachers and doctors to lawyers.