The Buying Process: Hungary
Author Leaonne Hall is an expert on the overseas property market and has written extensively for a number of newsstand titles. She previously produced three editions of the Red Guide to Buying Property in Eastern Europe, and has been writing in detail on the individual markets since 2003.
THE BUYING PROCESS
Despite the fact that the conveyancing and land registry system in Hungary are well organised and established, there are still many questions marks over some building planning and property titles. It is therefore essential that you secure good and experienced legal representation in order to avoid any problems.
Stage 1: Restrictions of foreign buyers
As an EU citizen you will be faced with no restrictions on purchasing a property in Hungary and can purchase any type and number of houses you want to with the exception of agricultural land and protected natural territories. However, there is a rule that any non-resident Hungarian cannot purchase more than two properties as an individual, and so the best course of action should you decide to buy more than two houses is to set up a company. However, if you are looking to purchase only one or two properties, it is possible to do so as an individual. There are drawbacks to this method though, as the current law states that any non-Hungarian must apply for a permit to purchase property in Hungary, and this also applies to EU residents. This law will stay in effect for the next one to two years.
Stage 2: Financing your purchase
You can secure a mortgage with a Hungarian bank in either euros, pounds sterling or forints, but they will only offer an LTV of 70% of the value of the property over a period of 20 years. The number of Hungarian lenders is expected to rise and this will undoubtedly result in a drop in rates as competition becomes fiercer.
There are a number of UK firms that will offer mortgages on a Hungarian property, although terms will be similar to the Hungarian companies, with a 70% loan which needs to be repaid over 25 years. In both cases, loans of up to 80% are becoming increasing available, although these tend to be repayable over 15 years. While rates do vary and buyers should shop around, as you would in the UK, generally you can borrow approximately 40% of the purchase price at a 3.8% to 7.2% interest rate, depending on the currency in which the mortgage is given. Euro mortgages offer the best value, with a rate of 4.8%, compared with 7–8% for pound sterling and 12–13% for the forint.
Be aware that when buying through a company, it can be more difficult to secure a mortgage unless you have been operating for more than one year.
Stage 3: Background checks and surveys
As Hungary was once a communist country, there have been issues over property titles, with paperwork out of date or incomplete, so it’s essential that you get your legal representative to dig around and ensure the title is clean. This is important as you need to ensure you are purchasing from the title holder and that there are no outstanding fees on the title.
It is important to get a survey carried out, especially if you are buying a resale or renovation property. Always ensure the survey is carried out before you sign the purchase contract, and if you intend to renovate, try to get as accurate a picture as possible of the potential cost of the renovations. A Hungarian chartered surveyor will be able to carry out the survey for you.
Stage 4: The contract
Once you have reserved your property, checked the title and carried out a survey, the next stage is to sign the preliminary or pre-purchase contract. Having already paid a reservation deposit of between £1,000 and £2,000, once you have signed the preliminary contract, you will be liable to pay the remainder of the 10% deposit within 7 to 10 days. The outstanding balance will be required 30 to 45 days later. Off-plan properties have an extended payment period that can include up to six payments; ensure the details are covered in the contract. Should the seller pull out of the sale then the payment of your initial deposit will be doubled and refunded.
Before signing the contract, you need to ensure it includes details on payment terms, the size, location and land registry details, the purchase price of the property, the completion date if a newly-built apartment, any consequences to be imposed on late payments, as well as floor plans and timetabling for the construction of a new property.
Following the signing of the contract, it is sent to the land registry in order for the title to be transferred to the buyer. This is a process that can take up to six months. During this time the final sale is completed with the signing of the final contract and the outstanding price of the property is paid. However, you will not become the official owner until the registration process is completed.
Purchasing as a company
Setting up a Hungarian company is a routine procedure that will cost you roughly €850 (£577) and comes with many benefits to the owner. The advantage of buying property through a company is that all expenses can be written off, such as legal and estate agents’ fees, stamp duty, renovation costs, furniture, utilities and all other associated expenditure.
Corporation tax is incredibly low at 12% on net profits, as opposed to capital gains tax rates of 25%, while if you own a Hungarian company there is no need to obtain a residency permit, which can be a lengthy process. It also makes the property more attractive on resale as you can sell the company with the property and the buyer will avoid stamp duty charges. One disadvantage is the need to submit annual reports and accounts, which will require you to employ an accountant.
In order to set up a company you will need to do the following:
- 1.Sign the company’s Articles of Association in the presence of a lawyer. The lawyer will need to be given details about the company, including its name and the directors’ names.
- 2.The founding capital of the company must be ft3 million or £8,140 and this amount can be applied to the purchase of the property.
- 3.Proof of identity must be supplied. This is generally in the form of a passport that has been notarised either by a local notary or at the local Hungarian Embassy, e.g. in London.
- 4.After the Articles of Association have been prepared, specimens of signature need to be signed in front of a public notary, then a bank account must be opened.
- 5.All the paperwork – documents, forms, authorisations and invoices–must go to an accountant, preferably Hungarian, who will take care of all the administration and prepare the required reports.
Although you will need to be in Hungary to open a bank account, the process can take just a couple of days, as opposed to many months if buying as an individual.
Purchasing as an individual
In order to apply for a permit to purchase a property in Hungary you will need to visit the public notary and get certification of your identity in order to initiate the process of permit approval via the local authorities. A public notary can be found at any Hungarian embassy or consulate and the cost is approximately €250 (£170), with the approval process taking up to three months. Prior to applying for a permit, you will need to have found a property and paid your reservation fee.
Stage 5: Additional costs
Generally speaking, you should allow for between 8–10% of the price of the property for costs such as stamp duty, agents’ fees, notary costs and taxes. Typically, costs are as follows:
- Legal fees: 1.5% of the purchase price.
- Purchase permit: £175.
- Cost of setting up a company: €850 (£576).
- Stamp duty
More than Ft4,000,000 (£11,043) = 6% of purchase
Less than Ft4,000,000 (£11,043) = 2% of purchase price
More than Ft30,000,000 (£82,885) = 6% of purchase price
Less than Ft30,000,000 (£82,885) = none
Garage: 10% of the purchase price.
- Notary fees: 2% of the purchase price.
- Estate agents’ fees: 3–5% on average.
- All fees are subject to 25% VAT.
- Property tax is levied at ft900 (£2.50) per square metre or 1.5% of the purchase price for buildings, and at ft200 (50p) per square metre for land (1.5% of the market price).