A Guide to buy real estate in Hungary

One of the qualifying requirements for the application under the new scheme will be that the Guest Investor has to buy residential property in Hungary in the minimum value of EUR 500,000. That property may be sold after 5 years.

The person obtaining the status of Guest Investor, would not have to stay full time in Hungary, and the extension of the resident permit could be granted even if the person stays less than 90 days within any 6 months period during the validity of his initial resident permit.

Needless to state the obvious: in an era when the hunt for alternative resident permits is constant, this proposition by an EU member country is hard to beat. So let`s look into the process of purchasing real estate in Hungary.

There is no restriction for foreigners to purchase property in Hungary, except for agricultural land and monuments. Residential real estate may be bought by EEA and Swiss citizens under the same conditions as by Hungarians. Third country citizens need to receive an authorisation from the local government of the area where the property is located.

When the application for the authorisation has been submitted, the local government contacts the mayor of the municipality, the Immigration Department and the National Police Headquarters in order to find out if the applicant has ever been found to violate public interest, if he or she is under any ban to enter or stay in the country, whether the acquisition of the property harms the interests of the municipality etc.

The decision on authorisation is made by relevant local authority. The deadline for passing this decision is 15 days which can be once extended by another 15 days.

In practice the authorisation always takes about a month to receive, and except extreme cases, it is a mere formality, but the time element should be noted.

In many European countries the participation of a real estate agent in the process of purchasing a property cannot be avoided. In Hungary, legally, a real estate agent has no role to play.

If you believe that you need help identifying the ideal object to purchase, you may find a trusted one who will choose potential properties, arranges viewings, does first round of negotiations with owners.

Customarily, it is the seller of the property who instructs a realtor to sell his property. Fees can very between 2-4% of the purchase price, plus VAT. If a buyer has very specific requests and engages a realtor to look for a property for her or him, the buyer may also expect to be charged for these services. Fees are subject to agreement between the parties.

What kind of property may you buy in Hungary? It highly depends on your budget and the location. Majority of investors choose to purchase in Budapest.

Prices of real estate in the capital vary greatly depending on the area and the age of the building you are looking at. The price of a square meter in Budapest can be anywhere between EUR2,000 up to even EUR8-9,000. This a wide bracket, most applicants will pay around the EUR3-4,000 per square meter mark.

The most desirable locations are downtown Budapest, the 5th, 6th, 7th district, or the central residential parts of Buda side of the city, the 1st, 2nd, 12th districts. In these areas the EUR500,000 budget may buy a 100-120 square meter apartment in an older building, or 70-80 square meters in a newly built block or off plan. Naturally, prices vary based on the condition of the building, parking arrangements, availability of storage facilities and so on.

A home is always an investment, but an investment is not always a home. When choosing the right object, one has to take in mind the way the property will be used in the future.

If our client is planning to move in, part time or full time, to the new acquisition, we look with different eyes for a property, identifying nearby schools, routes to shopping facilities, gyms, downtown, airport etc, depending on the lifestyle and family of the person.

Different set of priorities are taken into consideration if the property is to be rented out. Hence it is vital at the outset to discuss personal circumstances and goals with our clients. Full scope of services of property management may be agreed upon with us, taking into account all your needs and objectives.

The participation of a lawyer in a real estate transaction is compulsory in Hungary. It is not considered a conflict of interest for both parties, the seller and the buyer to be represented by the same lawyer, and it is usually the case. If the parties wish to do so, they may, naturally, appoint separate attorneys. Even in such an instance, however, the lawyer of the seller will only take part in the negotiations of the terms of the sale purchase agreement.

The final signing of the document takes place before the attorney of the buyer. Customarily, it is the attorney of the buyer who proposes the first draft of the sale purchase agreement and pays the fees of this attorney. The seller may choose to engage his own lawyer, or not. Once the final terms and text of the agreement is agreed, the parties appear at the same time before the buyer’s attorney and sign the sale purchase agreement in his or her presence.

The attorney countersigns their signature and places his embossed stamp on all required documents. There is an option to complete this counter signature remotely. In such case the parties would sign the agreement, send the originals to the attorney, who then would identify them and their signatures during a video call. This allows one or both of the parties to be absent on the day of execution of the sale purchase agreement.

The language of the sale purchase agreement in case of a foreign buyer is usually Hungarian (compulsory) and English, bilingual. The agreement may be also translated to Russian.

The dynamics is somewhat different if you purchase real estate directly from a property developer, whether it is off plan or ready, but not yet sold to the public. Real estate developers, depending on their size, usually have their appointed law firm which provides buyers with their agreements that will leave very little or no room for negotiations about the terms. Sizable development will not cater for individual terms of payment or guarantees that would vary between buyers. This a feature that you may like or not may influence your choice of buying this type of real estate.

As a person, likely to be in the position of the buyer, you may speed up the process of your real estate deal by taking the following preliminary steps:

1. Contact your lawyer as soon as you have taken the decision to purchase real estate in Hungary. Under the current international restrictions, lawyers will be required to carry out enhanced due diligence on their clients of Russian origins. Let the lawyer start working on his or her due diligence as early in the process as possible.
2. Discuss with your lawyer the source of funds you wish to use to purchase the real estate. Proving the source of funds of the purchase price - to the bank and the attorney of the seller – may be a trying process and require preliminary work, for example drawing up summaries of historic income, be that dividend, salary, gifts, inheritance etc. Relevant proofs may have to be translated, certified, existing documents may have to be redrafted in a format acceptable to Hungarian banks. This part of the exercise may take substantial effort, time and additional expense. You would not like to loose out on your dream property because the banks will not accept your transfer, lacking sufficient documentation of your source of funds and hence being unable to pay for it. For further details on source of income information, documentation, please read our longread in this topic here.
3. Discuss with your lawyer the options of transferring the required funds to Hungary, either prior to the purchase, or during it.
4. Discuss with your lawyer the exact steps of the deal, so that the whole procedure, which relatively simple and quick compare to many Western European countries, will hold no surprises to you.

Once the sale purchase agreement has been executed by all parties and countersigned by the attorney at law, an application for the registration of the title should be submitted to the Hungarian Land Registry Office. This will be done by the attorney.

If the real estate is free of any encumbrances, e.g. no lien is registered to secure a previous mortgage, the ownership title of the buyer is registered within the matter of a couple of weeks.

In the meantime, the Land Registry places a note on the title deed that shows that application for the registration has been submitted, preventing the property from being sold to anyone else until the registration formally takes place.

When buying property in Hungary, you should expect to incur additional costs, which amount to about 10% of the value of the object. Here are the items they consist of:

• Property transfer tax. It is equal to 4% of the value of the object if its price does not exceed €2.6 million, and 2% if the property is more expensive. This tax is paid within about 90 days after the deal, when the Tax Authority levies the tax. Sometimes this may take longer, if they are facing high number of transactions.
• VAT for buyers of new construction. It amounts to 27% and is usually already included in the price of the object.
• Administrative fees: for a permit to purchase a property, extract from the cadastral registry and fees for lawyers, realtors, and notaries usually do not exceed 5% of the value of the object.

Hungary does not levy wealth tax on property ownership. Local building tax is applies, however, to buildings for both residential and non-residential purposes located within the jurisdiction of the municipalities prescribing the tax liability.

The tax is payable by the owner of the building registered on the 1st of January of the given year. The tax rate is the maximum of EUR2.85/m2, or the maximum of 3.6% of the adjusted market value of the property.

Local governments may decide not to levy this building tax at all, and the majority of them do. The municipalities that decide to collect building tax usually use the first calculation method (based on m2).

The annual building tax is due in two installments: on 15th March and 15th September each year.

Buying property in Hungary can be a good investment, particularly if you choose the right location and property type. Key factors contributing to Hungary’s appeal as an investment destination include:

However, as with any investment, it’s essential to conduct thorough research, assess your financial situation, and consider your long-term goals before buying property in Hungary. Our local experts would be of assistance with all aspects of your property purchase, please contact our colleagues in Moscow for further details.