Buying property in Hungary
How difficult is the property purchase process in Hungary? Why should you buy property in Hungary?
What is the basic need-to-know information? Where should you look to buy property? What are the utilities costs in Hungary?
First of all you should know that special conditions apply to foreigners. To purchase any type of land except arable land, a private person needs a permit from the district council of the local municipality, and in Budapest any purchase of property is subject to the approval of the Administrative Office (AOB). No restrictions apply to ownership of property by Hungarian legal entities. Hungarian law requires that real estate purchases shall be concluded through private contract (purchase agreement) countersigned by a lawyer. Non-Hungarian citizens are further obliged to gain the approval of the relevant Administrative Office (Közigazgatási Hivatal) in order to purchase property as a private person. Only foreigners who have already been living in Hungary for several years are subject to separate treatment. According to regulations most foreigners should receive a permit within 2-3 months.
According to the law, a permit for the sale or purchase of property by a foreign citizen can be issued when:
- The transaction is not against the public interest
- It involves the foreigner selling one property in order to buy another (inland) property
- EU citizens can buy a property with the same conditions as a Hungarian. If it is a secondary place of living then the foreign citizen has to have been a resident in Hungary for at least 5 years
- The property acquisition is needed for the entrepreneur's business
The application form must be submitted to the Administrative Authority Office (Közigazgatási Hivatal) and the following documents must be presented:
- Completed application form.
- Certified copy of your passport (you will need to get a notary public in Hungary to make this certification) and the passport itself.
- Sale or purchase contract.
- Original copy of the title deeds (tulajdoni lap) issued less than 30 days before the date of application.
- The official fees for the processing of these applications may be around 50,000 HUF. This does not include fees you may have to pay to a lawyer to handle the application or notary fees for the execution or certification of documentation.
You will need to allow up to 30 days for each of these offices to process the application and issue a permit. In advance of completing a property purchase the seller must be informed of the fact that this process will need to take place. The Administrative Authority has the right to reject the application if the home country of the foreign citizen does not guarantee an equal treatment of Hungarian citizens. Purchase by EU nationals Since joining the EU in 2004, other EU citizens are no longer considered foreigners; therefore the purchase of property is legally possible. Nevertheless, Hungary is being granted a transition period to fully implement EU law during which special conditions are applied to property purchase by an EU national. These are:
- Reciprocity: Hungarians have to be given the right to purchase property in the home country of the buyer.
- A permit that authorises the purchase has to be issued by the Administrative Authority Office (Közigazgatási Hivatal)
Most lawyers advise foreign nationals to set up a company registered in Hungary in order to purchase property. In this case, no permit is needed. This is a fairly swift and easy procedure (taking 1-2 days), and all expenses can be written off.
The steps to purchasing
- Once a property has been chosen, negotiate (agents usually over-value their listings).
- It is highly recommended that a lawyer/solicitor be employed for the conveyance. Note that this lawyer does not represent only the buyer but also the seller, though the former pays for his services. Title searches are usually included in the services lawyers offer, so check. A structural and/or architectural survey of the apartment and building are recommended.
- When an agreement is reached between the buyer and the seller, the lawyer will start the process of securing local government approval of the purchase (unless the buyer is setting up a company).
- Title search and property valuations are then set in motion.
- When the title has been declared clear from encumbrances, the purchase agreement is drafted by the lawyer. This written contract, countersigned by the lawyer, is necessary to validate the transfer of property.
- A meeting between the seller, buyer, and lawyer is then arranged, at which the contract is signed in the presence of the parties and a representative of the real estate office. Now the buyer is expected to hand over 10% of the agreed price as down payment (deposit).
- After signing the contract, the buyer has to pay the lawyer’s and the agent’s fees. The purchase agreement has to be submitted to the competent land registry office within 30 days of signing.
- Because of the permission process, closing usually takes place 60-90 days after initially signing the Purchase Contract. The buyer must notify the seller immediately after receiving the purchase-permission from the Administration Office. Closing usually takes place within a week. The most important step is when the buyer and seller sign the Closing Statement, which is a declaration that the purchase price has been paid in full and possession transferred. The buyer then takes possession. The final registration of ownership rights takes about six months.
- Transfer Tax Generally, real estate transfers are subject to a 4% transfer tax. For apartments and houses, transfer tax is levied at progressive rates, from 2% to 4%.
- Value-Added Tax: For residential property, only the first sale is subject to 27% Value Added Tax (VAT). The sale of land is also VAT-chargeable.
- Legal Fees: Legal fees for the preparation of the sales contract are negotiable. In practice, it ranges from 1% to 3% of property value, plus 27% VAT. Legal fees are generally around 1% of the property value.
- Real Estate Agent´s Fee: Real estate agent´s fee ranges between 3% to 5%, plus 27% VAT. In private ads, it is still common to see provisions emphatically excluding the participation of real estate agencies in the transaction. Most sellers are reluctant to pay high brokerage fees. Gross rental yields are now moderate in Budapest
- The average prices per square metre (sq. m.) of apartments in Buda, the greener side of Budapest, range from EUR 1,400 to EUR 2,000. In Pest, the business and commercial centre of Budapest, average prices per sq. m. of apartments range from EUR 1,500 to EUR 2,500.
- Smaller apartments tend to be cheaper (on a per square metre basis) both in Buda and in Pest.
- Rents per sq. m. in Buda range from around EUR 6 to EUR 10 per month, whereas in Pest, monthly rents per sq. m. range from around EUR 7 to EUR 12.
- Gross rental yields, i.e., the gross return on investment in an apartment if fully rented out, ranges from 4.58% to 5.58% in Buda, whereas in Pest, rental yields are higher, ranging from 5.38% to 6.47%.
What are the costs of running a property in Hungary?
If you have a mortgage, you will be required to insure the property. If you do not have a mortgage, it is not compulsory to insure a property. Nevertheless, accidents do happen so we recommend home insurance as a sensible precaution against financial loss in the case of a fire, robbery or natural disaster such as flooding or wind damage.
The figures here are approximate guides; obviously, the actual amount you will need to pay will depend on your consumption, type of property and sometimes in what area it is located:
- Gas: 24,000 HUF/month (approx. €94)
- Electricity (e.g. In a 3-roomed flat): 10-15,000 HUF/month (approx. €39-60)
- Water (with water rates): 8,000 HUF/month (approx. €32)
- Telephone and Internet: the price varies by package from approx. 8,000 HUF/month (approx. €32)
- Waste collection: the common cost includes this. It costs approximately 5,000-15,000 HUF/month (approx. €20-60) depending on the size of the property and the area.
- Caretaking, cleaning: 1,000 Ft/hour ( approx. € 4)
- Rental Agents: if you are renting your property out, an agent will normally take 20% of the annual gross income.