Summary
You can buy a property in Hungary either as a individual or a company. It will take 6-8 weeks to buy the property. The total additional costs for the purchase process is in the order of 10% of the price. The process is very safe.
Buying a Property in Budapest – In this page we explain the process and our understanding of the law regarding buying and owning property in Hungary. Your solicitor will provide you with your specific situation. Buying and owning a property is a relatively simple process but like buying a property in any country failure to meet legal requirements creates challenges. This is the reason we have partner with a number of solicitors firms in the Budapest from local specialists to global firms.
Who can buy (with the advantages and disadvantages of each option)
All foreigners and expatriate investors who wish to purchase real estate can buy residential and commercial property in Hungary, this is a very straight forward process, not dissimilar to the process in the UK. You can choose to buy as an individual, with cash or a mortgage, or you can buy the property through your own company either with cash or using a commercial loan/ mortgage.
Buying as an individual
To buy as an individual you will need to apply for permission to buy (this is applicable until 2011/2012 when an EU citizen may buy property freely). The application should be made with your lawyer. The fee for this work is normally 55 000 Forints (€200 Euro). This fee would be payable for each property you buy through this route. This fee will go to the municipality of Budapest for the right to buy, but it is a request and not automatic (although rejections are unheard of), approval is given in writing in 60 days. All properties in the city of Budapest are freehold and are registered by title which is maintained by the local council. There are no ongoing costs involved with buying as an individual.
Buying as a company
The second route to buying a property in Hungary is by setting up a limited liability company and buying the property through the company. Establishing a company is fairly simple with standard pro-formas available for the establishment, which is executed through an Articles of Association. Your lawyer will take you through the process, if you are unable to sign the company incorporation papers in Hungary you may do so at the Hungarian Embassy in your country. Your passport will need to be “notorised” to establish the company and your lawyer will manage this process for you. Upon completion of the Articles of Association you will need to deposit 3,000,000 Forint (€12,000) into the Company’s Bank account. You will need to open a bank account in Hungary, we have partnered with a number of banks who will provide this service, in your language. Most forms are bi-lingual but the Hungarian version is considered the only legal version. The 3,000,000 HUF can be used as part payment for buying the property. Finally, you should note that your company will need to file tax returns on a quarterly basis. We have chosen a number of accountants who can do this for you, and they charge according to the number of invoices that you process monthly . The costs of establishing the company are in the region of €1000. The process takes about 6 weeks but is effectively completed by a single visit to your lawyer, rejections by the authorities are extremely rare
Buying as a Company versus as an Individual
Application rejections from the local Budapest council for individuals are rare (less than 1%), whereas no application is required from a company to buy a property. The principal reasons to decide on whether to buy as a company or as an individual relate to property usage and taxation. If you plan to buy a property to live in or as a second/ holiday home, buying as an individual is the best way to own a property. If you intend to use the property as an investment you should speak to your local tax advisor, specifically relating to tax treatment of loan interest, withholding tax on rentals (if you are non-resident), or for a company; rental income, dividend treatments and capital gains. Our specialists in the office can give you an indication of the pro’s and cons’s of each option but we would suggest that a short meeting with a local accountant who is familiar with the new dual taxation treaties would be beneficial.
Buying Process
Once you have selected the property you would like to buy, you should make an offer through your real estate agent. Once the offer is accepted by the seller you will sign either a pre-contract or a contract. A pre-contract is a legal document which commits both sides to the transaction by a stated date. There are penalities if either sides reneges on their commitments. Otherwise you may move straight to a contract which defines the timing and mechanisms of payments and property handover. At the time of signing the pre-contract or the contract a deposit in the order of 10% is payable. The lawyer should check that title is valid, that there are no outstanding charges on the property, that all utility bills are paid and finally that there are no other debts owing to local authorities, utilities etc. The entire process should take 6-8 weeks which can be in parallel with either requesting permission or setting up the company.
Stamp duty.
In addition to the legal fees and purchase price a Stamp duty has to be paid, this is calculated at 2% of the purchase price for first 4 million HUF , and 6% thereafter. This a property bought for 26 Million HUF, would be liable to 2% of 4,000000 ie 80,000 HUF plus 6% of 22,000,000 ie 1,320,000 HUF for a total of 1, 400,000 HUF or about €5,600 (£3900). However, if you are buying a company that owns the property then there is no Stamp Duty to pay. It should be noted that if you are buying a commercial property that the prevailing rate is 10%.
Legal System
The legal system in Hungary is independent of the executive and is generally considered fair and impartial. Lawyers belong to a trade association similar to tle Law Society in the UK, and redress is available through this society or through the court system. We believe that the lawyer should be your advisor in all legal matters and have carefully selected a range of lawyers who can advise you. Our selected lawyers are all fully independent of our company and range from local specialists to global firms. All of our selected lawyers have English speaking professionals.
Raising Finance
There are a number of options to raising finance for buying/ renovating property.
- If you own a property elsewhere with equity in it, you will be able to re-mortgage your property to use as a source of capital you’re your new investment.You do have more than one option for raising finances.
- Mortgages are also available in Budapest through a number of financial institutions. These mortgages are subject to status approval by the institution. Mortgages are commonly available in Hungary in Forint, Euro and Swiss France, but all major currencies are available
- As a company you may also take out either a commercial mortgage or commercial loan to provide finance for your acquisition and comparable rates to individual mortgages.