About Buying Property in Hungary

Buy an investment property at the beautiful Lake Balaton. Take advantage of amazing low prices in Hungary. The undiscovered jewel within the European Community.

Example

Purpose built apartment on the banks of Lake Balaton. Built 2004 - 68 sq. yards, 2 Bedrooms, Balcony - 100 yards from lake Excellent amenities close by - Price £ 35,000. Expected Rental yield of 6% pa. - Excellent potential for capital growth. We can arrange the letting and management of your property

BUYING IN HUNGARY – THE FACTS

Currency

  • The Hungary currency is the Forint (abbreviated to HUF)
  • At the time of publication £1.00 is equivalent to 350 HUF approx. (Nov. 2005). This rate is subject to market fluctuation as with all currencies
  • The Hungarian legal system is very different from the English system
  • Is the process of buying a property in Hungary similar to the process in England? No, the Hungarian legal system is very different from the English. Generally speaking, however, provided the necessary checks and enquiries are made, there is hardly any more need to worry about buying a house in Hungary.
  • Can you make all the same checks that you would make in Britain? – No. As the systems are very different you can only do what is normal in the country where you are buying the property. In just the same way, you would follow a totally different procedure if you were buying a house in Scotland from the procedure that you would follow if you were buying a house in England.

Buying as an investment in Hungary

Many people are buying for investment purposes. Some want a holiday home that will also make money and cover all or part of its running costs.

What should I bear in mind when looking for a property?

  • The first point to bear in mind is that Hungary is a 'new' country as far as the overseas property market is concerned and will continue to evolve as it emerges as a fully free market and member of the European Union (which it joined in May 2004).
  • Buying a property in an emerging market country such as Hungary is pretty well the same as buying a property in, say, Spain or France. It is perfectly possible to buy property with its history properly and legally recorded. You just need to be particularly careful and get good legal advice before you commit yourself to a purchase. GLM will assist you throughout the purchase process.

What is the process of buying a property?

  • Once the reservation contract has been signed there is usually a period of two to four weeks to carry out checks on the property before you sign the main ('Preliminary') contract.
  • Provided checks are satisfactory you then sign the Preliminary Contract and, usually, pay over a deposit of 10% of the price on a resale property and a down payment of, perhaps, 30% on a new or 'off-plan', there then usually follow a series of stage payments as the construction process progresses.
  • Once the property has been finished (or, in the case of a resale property, as soon as everyone is ready to proceed) the Final Contract is signed. This is the document transferring the right to ownership to you.You then pay your various fees and taxes and this is then registered at the Land Registry.
  • Legal fees are normally a flat fee of £1,000 which includes all searches and disbursements

Loans & Mortgages

  • Financing the purchase of the property may take several forms depending on the circumstances. For example: 1. A first (or second) mortgage on your existing UK property 2. A mortgage on the Hungarian property from a Hungarian lender
  • Hungarian mortgages do not follow the same pattern as UK mortgages secured on UK properties. The loan is usually limited to 70% of the assessed value of the property – our experience is that it is usually nearer 50% of the true value – and by the ability of the borrower to repay the loan, all strictly calculated in accordance with Hungarian rules that are very different from our own. Standard repayment mortgages (where you repay both capital and interest) are the norm, though interest-only mortgages are available from some sources. The term is usually shorter than an UK mortgage – typically 15 years.

Do I need permission to buy?

  • In general, foreign individuals can purchase and own real estate in Hungary provided that they obtain official permission from the municipal authorities. The buyer's lawyer will apply for this permission.
  • Once the municipality issues its approval the buyer can register the real estate in his name in the Land Registry. This is the ultimate evidence of his title to that specific property. For EU citizens it is likely that the need for permission will be abandoned in the fairly near future, though st this is not guaranteed. Since 1 May 2004, EU citizens who have been continuously living in Hungary for at least four years, may purchase residential property in Hungary WITHOUT special permission.
  • Properties in certain protected areas e.g. National Parks may be off limits for overseas investors. The Tihany peninsula adjacent to Lake Balaton is an example

What happens if either I or my co-owner dies?

  • Jointly owned property does not automatically pass to the survivor. It will (subject to the limitation imposed by Hungarian law) be dealt with according to any instructions which you leave in your Will (either English or Hungarian) or, if you do not leave a Will, under the rules relating to intestacy.
  • Hungarian law imposes restrictions on the freedom of a Hungarian person to leave their assets as they please on their death but does NOT insist that foreigners abide by those restrictions. It is generally, much cheaper and simpler to deal with your affairs in Hungary if you have made a Hungarian Will.
  • Rental income - The shores of Lake Balaton will attract a rental income during July and August of anything up to £200 per week. A property in rural locations would be less attractive as a rental property. We can assist with the provision of cleaners

Special points for new properties

From 1 January 2005 new purchases of new property at less than 15,000,000 Forint (about £43,000) can be bought free of property transfer tax, which is currently 6%.

The Role of the Notary

  • In most countries, except the UK and other 'common law' jurisdictions, the Notary plays a major part in the process of buying and selling real estate.
  • The Notary is a public official who is there simply to put on the public record the fact that the title deed recording the sale / purchase has been signed in his or her presence and understood by the parties concerned.

Do I have to be in Hungary to complete the transaction?

The seller and the people buying the house are usually required to attend in person to sign the documentation. However, if this is inconvenient, arrangements can be made for a Power of Attorney to be granted enabling another person to attend on their behalf. This must be in Hungarian form and signed in front of a Notary.

Is there a Land Registry system in Hungary?

Yes. After the Full Contract / Deed of Sale has been signed it will be registered at the appropriate Land Registry and for the payment of any Land Registry fees.

In whose name should you purchase the property?

There are many ways of purchasing the property. Even if you need to buy the property in the name of a limited company you will need to think about who should be the owner of the shares in the company.

The options available to you include:-

  1. In your own name
  2. In the joint names of you and your husband / wife or co-purchaser(s)
  3. In your children's names or in the name of somebody who will eventually inherit the property from you
  4. In the name of a limited company, whether English, Hungarian or 'off shore'.

The decision as to who would be the legal owner of the property depends on your own personal circumstances. In most cases, purchases are made in personal or joint names

What happens if I decide to live and / or work in Hungary?

As part of our service was can put you in touch with advisers about work permits and licences and permits in connection with the opening of new businesses. They can advise on the importation of cars, furniture and pets into Hungary, obtaining payment of your pension in Hungary, healthcare issues, planning your tax affairs, National Insurance and other related matters.

Can my UK state pension be paid to me in Hungary ?

Yes

Are there any other things I should do at the same time as I buy a property?

  • We believe that it saves a great deal of time, effort and money later on if you now review your English Will and make a separate Hungarian Will. For most people the cost of this is fairly small.
  • It is highly advisable for any person who has a property in Hungary but does not live there all the time to nominate a 'fiscal representative'. This is a person to whom the tax authorities can send all correspondence relating to your affairs in Hungary, secure in the knowledge that it will arrive.
  • The fiscal representative must be resident in Hungary and is usually a lawyer, or your tax adviser.
  • GLM can help with property insurance and will arrange for electricity, water and rubbish collection charges to be transferred to your name. GLM will notify the Town Hall that you own the property and register for local rates, open bank accounts and register with the Hungarian authorities for tax and other purposes.

Taxes

  • Non-residents are only taxed in Hungary on their Hungarian-sourced income and gains.
  • Personal tax rates go up to 55%, business and corporation tax is at a rate of 16%.
  • The currency is the Hungarian Forint (HUF)
  • The Hungarian tax year runs from January to December. Tax returns must be filed by 20 April following the year-end.

Rental Income

The personal rate of tax on rental income is a fixed 25% with no deductions for outgoings. A company would pay only 16% of net income.

Capital Gains

  • 25% fixed tax rate for personal gains, but some qualifying investments are exempt.
  • There is a 10% reduction in gains per year for each year of ownership after five years. Also, gains can be relieved where there is reinvestment of proceeds within four years.
  • The documented costs of acquiring and developing the property my be deducted against income from the sale e.g. travel, service fees. Hungary has a long standing double taxation treaty with many countries making this situation straight forward. Your tax advisor in the UK should be able to help
  • Capital gains of companies are taxable as normal income but with more generous deductions.

Local Tax

Similar to the UK Council – this is levied on the sq m of the property and vary according to the municipal authority. Typically £0.40 per sq m. So for a 100 sq m property this amounts to £40 / annum.

Properties designated “Ferien” ( summer or holiday homes ) local rates are double the normal rate.

Wealth Tax

  • There is no wealth tax in Hungary apart from the local annual property tax that can go up to 3%
  • This is at a rate of 900 HUF/m or 3% on buildings, and 200 HUF/m or 3% on land.
  • There are ceilings to the amount of taxation.

Property Transfer Tax

Building plot and left undeveloped > 4 yrs – 10% tax
Building plot developed within 4 yrs – no tax

Holiday Homes 10% - as a consequence many buyers do not indicate the property is for use as a holiday home

Everything else - 2% up to 4 million HUF ( around £11,700 ) and 6% anything over that.
The money is only due between 6 and 12 months after the property has been bought

So assuming you purchase a property at 10 million HUF ( £29,500 ) the acquisition tax would amount to
2% at 4 million HUF = 80,000 HUF
6% at 6 million HUF = 360,000 HUF
Total 440,000 HUF = ( £1,300 ) – approx 4.4%

As in many European countries, the price of a property is often understated in the sales contract.

Inheritance Taxes

The rate of inheritance or succession tax varies from 2.5% to 21% and is levied on Hungarians who inherit any assets and foreign citizens inheriting Hungarian assets such as Hungarian real estate.

Specialist advice

We can provide advice with regards to removal companies specialising in UK-Hungary, Satellite TV, Internet connection, setting up a bank account, the best places to buy furniture, building work, insurance, standing orders for utility bills, bringing your UK car across and low cost money transfers. After sales service is key should you invest in an overseas property