Property Buyers Guide - in depth look into the buying procedures for Hungary

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Detailed Guide to Buying Property in Hungary

The process of buying a resale property is different from purchasing a newly built one. Therefore the two processes are explained separately.

The procedures with resale properties:

  • Viewing properties
  • Negotiating
  • Signing pre-contract, and paying the booking deposit
  • Opening bank account
  • Lawyer
  • Traveling back home and sending the earnest money
  • Signing the final contract and the payment of earnest money
  • Transferring the balance to the lawyer's trust account
  • Taking possession, paying off the balance and transferring of ownership

1.Viewing properties

With your personal English speaking agent, it is recommended to view a few (three to four) properties, then stop, make a review, summarize and continue. Usually in one full day about eight properties can be visited. After one to two days of viewing properties you should choose the most suitable apartment/s and with your agent's assistance make an offer to the seller. The agent will set up a meeting in which the negotiation will take place.

2. Negotiating

Your agent will try to negotiate on your behalf. Don't expect a price cut of 10%! Most of the apartments in our data base are market priced, so usually there is very little to negotiate, unless the owner needs to sell the apartment very fast for some reason. Your agent can, and will, do their best so you can enjoy the cheapest possible buy.

3. Booking deposit, signing the pre-contract

To reserve the apartment you need to have around EUR2,000. If you do not have it with you in cash : a). Withdraw with your credit card (please note that there is a limit of around EUR 600/day) b). Withdraw from any bank

Banks in Hungary normally close at 4pm, but on Fridays they close at 3pm.

The pre-contract is in English and Hungarian. All the amounts and due dates (when the remaining amount needs to be paid and the date of taking possession etc) are mentioned.

4. Opening a bank account

It is recommended to have a Hungarian bank account. Your agent will advice you which bank suits your needs. We usually recommend a bank that has internet access in English and an international withdrawal card.

5. Lawyer

You will need to secure the services of a Hungarian lawyer in order to deal with all aspects of the purchase, including, if necessary, the formation of a company to purchase the property. We can recommend a number of reliable law firms who can do this work for you, or you can use your own Hungarian lawyer if you have one.

6. Travelling back home and transferring the earnest money

As soon as you arrive home it is important to transfer the earnest money to the lawyer's trust account. The earnest money is usually 10-20% of the property's price. This amount is used to secure the deal. According to Hungarian law, the money is not refunded if the buyer fails to complete the deal. It will be paid back double if the seller fails to complete.

Please note: late payments are also considered to be a completion failure.

7. Signing the final contract and the payment of earnest money

After the earnest money has arrived at the lawyer's trust account, a final purchase contract will be signed. This contract will be deposited at the land registry office and you will get a "side note" on the property. The earnest money will be transferred to the seller after the side note is registered.

8. Transfer of the balance to the lawyer's trust account

In the precontract as well as in the final contract the date of taking possession is stipulated. This date is the deadline for the balance. It is important to note that this date relates to the date the seller receives the money and not the sending date. Usually it takes seven to 12 working days to send money from abroad. Failing to transfer the money on time may result in loosing the deal and the earnest money. According to Hungarian law, if the buyer fails to complete, the seller may step out of the contract and withhold the earnest money.

9. Taking possession, payment of the balance and transfer of ownership

As soon as the balance arrives at the lawyer's trust account, the taking possession can take place. At this stage three things happen simultaneously: the payment of the balance to the seller, taking possession of the property including checking the utility meters, and receiving a statement from the seller which states that he received all the money and he transfers the ownership rights to the buyer. The lawyer will then deposit this statement at the land registry office. The property will be handled from that point on by a management company.

The procedure with new builds:

  • Viewing the site with your personal English speaking agent
  • Choosing the right apartment with the use of layout plans
  • Booking the apartment with a deposit
  • Lawyer
  • Opening a bank account
  • Paying: stage payments
  • Precontract, final contract
  • Taking Possession

1.Viewing the site with your personal English speaking agent

Usually only the site exists, or it is under construction.

2. Choosing the right apartment with the use of layout plans

Your agent will show you all the drawings and layouts so you can choose what is most suitable.

3. Book the apartment with a deposit

In order to reserve the chosen apartment, you will have to book it and pay a deposit. This is a non-refundable deposit and will not be paid back in any case. This amount will be part of the first installment. The amount of the booking deposit varies with each project.

4. Lawyer

The developer has his lawyer and a standard contract. We recommend getting the services of a Hungarian lawyer who can follow the procedures and prevent the occurrence of any unnecessary risks. The lawyer also obtains the buying permit and, where needed, forms a company to allow you to purchase more than one property.

5. Opening a bank account "New builds" are usually finished in a one to two year period, so it is better not to maintain a bank account since all the payments are transferred to the lawyer's trust account. We recommend opening it after building is finished and your apartment is ready to lease out (in order to open a bank account you need to be here personally).

6. Paying: stage payments

Every development has a different stage payment schedule. Your developer and your lawyer will notify you when each payment is due.

7. Pre-contract, Final-contract

In "new builds" a final contract cannot be signed before the building permit is granted. If the development is sold before the building permit is issued, (usually in very large projects and/or in prime locations) a precontract is signed. Only after obtaining the building permit can the final contract be signed.

Note: a pre-contract cannot be submitted to the land registry office.

Money security in Hungary is a little different to what you may be accustomed to in England or Ireland. There are no bank guarantees in new developments. Instead, buyers are protected in the following ways: Funds are deposited into "Closed Accounts" at the financing bank. The purchase price is made in stage payments. The buyer is registered on the property sheet of the lot and becomes a co-owner.

8. Taking possession

In "new build" projects, taking possession has a more important role than in resale properties, as it is the first time the buyer (or his representative) is able to see the completed apartment. It is important to check the apartment thoroughly and to note any defect so the developer can fix it ASAP. The management company will recommend a team of professionals to check that the apartment is according to the contract and the given plans.

After taking possession, the management company will take care of the property. It will:

a) Register the name of the new owner with the utility companies such as gas, electricity etc.
b) Furnish, decorate and prepare the apartment for rent
c) Offer the property for rent and rent it out
d) Offer ongoing management of the property and rent collection
e) Act as your representative in Budapest A management company will charge 10% of the rental income and a finders fee equal to one month's rent (if the management company find the tenant).

Advantages of "new-builds":

  • Better utilization of space
  • Parking spaces
  • Facilities - security, gym etc.
  • No Stamp Duty for apartments up to Ft15m and at a reduced rate up to Ft30m.
  • Appreciation through buying "On Paper"
  • Hassle -free
  • Usually higher rents (mainly because of the parking)

Advantages of resale:

  • Unique architecture of buildings and apartments, (high ceilings, spacious rooms) Location (there are
    no new developments in District V, very few in Districts VI & I)
  • Actually seeing the apartment
  • Renting out straight away!

The above information is not intended to be specific legal, tax related or other advice. It is provided only for general informative purposes. Please consult your lawyer and your accountant before doing any business in Hungary.

Frequently Asked Questions

1. What type of property ownership is there in Hungary?

  • Hungary has a fully modernized & computerized land registry office.
  • The offered properties are Free Holds, (in the case of a new build after the handover).
  • Most buildings are Condominiums, meaning a buyer will own 100% of his apartment in addition to a
    percentage of the common areas.

2. Do I need a permit to buy property in Hungary?

  • A foreigner who wants to buy a property in Hungary needs to get permission from the authorities.
  • Permission is usually granted for two apartments per individual.
  • In case of multiple purchases, there are two options:
    To register each property under the name of a different individual (husband, wife, kids).
    - To establish a Hungarian company that can purchase an unlimited number of properties.

3. What are the advantages and disadvantage of each option?

Company Pros:

  • Expenses are recognized (flight, accommodation, legal and agency fees, stamp duty, renovation costs, furniture,
    utilities and all associated services, including the interest on the owners' loan).
  • There is an option for selling the company, along with the property, later on.
  • A company being a Hungarian legal entity does not need a permit to purchase.

Company Cons:

  • Company needs to submit annual reports.
  • Company set up takes longer to complete.
  • Company set up is more expensive.
  • Need to set up a company bank account with Ft3,000,000 ($15,000).
  • In order to withdraw the money from the company, dividend tax has to be paid.
  • The tax rate for capital gains is lower (16%)

Private Person Pros:

  • No set up time
  • Involves less administration
  • Don't have to open a special bank account
  • Easier to exit the investment, no need to close a company

Private Person Cons:

  • Limited expense recognized
  • No expenses deductible on rental-tax calculated income
  • Receiving a permit may take up to 60 days.

4. What are my guarantees for the money I pay?

  • In case of resale (second hand apartments), the signed final purchase agreement will be handed by the
    lawyer to the land registry office and the buyer will be registered with a remark on the ownership sheet of the
    property. We advise that the paid parts of the purchase price stay with the lawyer in his trust account until the
    registration of such remarks. Against the payment of the balance, the former owner will sign a statement in
    which his waves his ownership rights. The lawyer will submit that in to the land registry and the property will be
    transferred to your ownership.
  • In case of "new build":
  • There are no bank guarantees in new developments in Hungary, instead buyers are protected in the
    following ways:
  • Funds are deposited into "Closed Accounts" of the financing bank.
  • Purchase price is made in stage payments.
  • Buyer is registered on the property sheet of the lot and becomes a co-owner.

Not all projects are built with bank financing and therefore in some cases there is no "Closed Account" - we advise you to examine this issue carefully.

5. What is the rental market like?

  • Budapest has a well established rental market for quality apartments in the central location. As approx
    30,000 foreign companies have established themselves in Hungary and approx 150,000 foreigners are living in
    the city, most of the renters are foreigners.
  • In general "new builds" achieve higher rents than refurbished older buildings, especially if they have a
    parking space.
  • The achievable annual rental yields that can be expected are 4-7%.
  • Tenants typically lease for one or more years, pay the rent at the beginning of each month and leave a
    two month security deposit.
  • In Hungary, renters do not have any rent protection rights under the law, even if they rent the same apartment
    for a long period of time.

7. What kind of taxes will I have to pay in Hungary?

  • Stamp duty:
  • On second hand apartments
  • 2% up to Ft4million and 6% for any part of the purchase price above that limit.
  • On new built apartments - the same but currently there is an exemption from purchase tax if the purchase
    price is less than Ft15m. And between Ft15m and Ft30m the rate is 6% but only on the part above Ft15m. If
    the purchase price exceeds Ft30m it is treated the same as resale.
  • Tax on rental income as a private person- flat rate of 25%
  • Tax for capital gains as a private person - 25% if the sale was executed in the first five years. After five years
    the tax is reduced annually by 10%.
  • Company tax 16% (relevant for the multiple buyers)
  • Capital gains for company 16%
  • Hungary has signed a treaty for avoidance of double taxation with many European and other countries.

The above information is not intended to be legal, tax related or other advice. It is provided only for general informative purposes.Please consult your lawyer and your accountant before doing any business in Hungary.

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