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VAT on land, financing and a brief market
report
Parliament has passed new tax laws, which means 25% VAT will have to be
paid when buying a plot of land next year, in the framework of EU
harmonization. This new regulation could bring a significant price
increase in the market. There will be a rush at the end of the year to
sell newly-built apartments.
Today in
Hungary Hungarian citizens are entitled to a government-subsidized
mortgage loan with a 3-4% interest rate up to 15 million HUF. 70% of the
liquid value of the property is given in loan.
Apartments between 10-12 million HUF are the most wanted in Pest.
Interestingly in the past two months there has been less demand for studio
apartments on both sides of the Danube, while one-bedroom apartments are
becoming more popular.
Contrary to general opinion, representatives of
the real estate trade expect the domestic demand to increase
instead of the international investments after Hungary joins the
EU on May 1, 2004. They say accession will have an effect on the
prices only years from now, which will affect the various segments
of the market differently.
Economic analysts predict that the
frontrunners of the accession will be the construction and real
estate industries. However, Peter Mehrli, President of the
National Real Estate Association, says that the EU will not bring
more income with less effort, or the multitudes of wealthy Western
European buyers.
...
It is worth considering that Vienna, with a
smaller population and land area, has seven times as much office
space as Budapest. The land area of Budapest is 525 square
kilometers, with a population of 1.8 million, while Vienna is
situated on 414.5 square kilometers, with 1.6 million people.
The past
few newsletters have dealt with a general overview of the property
market and average prices. I have been asked by several buyers to
give specific examples of what is available on the market. This
week I would like to present the Hungarian property market through
a collection of specific offers, all available at our company.
There are companies looking for quality rental property for business use,
for example nice gentry apartments in the downtown. Sometimes they have a
certain location, even a specific apartment in mind, and are looking for
an investor who would purchase it and then they would rent it long term.
Such investors are lined up at property agencies, on the lookout for AAA
tenants.
Real estate listed by banks for foreclosure, where borrowers could not
repay the mortgage loan and lender forces the sale of the property to
recover the amount of the loan.
Marketing teams of developers constantly seek
target groups, but it turns out that buyers tend to make
emotional, not rational choices. Whatever they like, they will
buy, and then find arguments to support their decision.
Unfortunately they do not get such arguments from the seller.
A
property developer is satisfied once he has sold a third of his
apartments before beginning construction. The marketing team shows
a spectacular computer animation to the potential buyers in a
presentation about the new residential project. One of the selling
points is that besides apartments, everything from sports
facilities to shopping options can be found in one place.
Because of the nature of the
government-subsidized mortgage loans, Hungarians are buying small
50 sqm apartments. Buyers often cannot afford to pay for the
garage, which the developer was required to provide. This makes it
difficult for the developers of new residential projects to sell.
50 km around Budapest an average 80-100 sqm
ground-floor (single-storey) light structure house costs around 20
million HUF (80,000 EUR) to build on a plot which costs a further
5-10 million HUF (20-40,000 EUR).
According to a study made by GKI and Wallis
Real Estate, there was a slight stir in the apartment market in
Budapest in the second quarter of 2003. There is still a
considerable oversupply in the office market while retail property
prices stagnated.
GKI and Wallis Real
Estate project a 10% increase in the price of construction plots
in Budapest in the next 12 months. The price of retail space,
storage facilities, and factory halls is expected to rise by 5%.
How do you go about obtaining a permit to purchase property in
Budapest?
REAL ESTATE PURCHASE OF FOREIGNERS IN HUNGARY
A legal perspective
Prepared by Dr. Csaba
Oros, Attorney
1.
According to the relevant rules of law the intention of purchasing
a real estate in Hungary shall be
included in an official deed (prepared by a public notary) or in a
private deed countersigned by an attorney – hereinafter referred
to as the Purchase Agreement.
2.For
the preparation and the effectiveness of the Purchase Agreement
the participation of a notary or an attorney is required.
The commission structures of agencies in Hungary vary largely as
there is no regulation in government or in the profession
concerning this. The advertised commission rates and anticipated
additional charges must be made clear in each case. Some companies
charge a standard fee, but most are paid for their services by an
amount determined by the sales price, usually 3-10%.
...
What advantages are there for a buyer to commit him/herself to pay
a commission? You are basically paying for a service. One you
commit yourself to pay directly, you actually become a client, you
can have demands and can hold the company accountable. You enter
into a contract obliging both parties. The agency will be
motivated to give quality service because in case of success, a
reasonable reward is guaranteed.
Always keep the purpose of your investment in
mind. Do not get carried away with interior design, for it is not
a “Beautiful Homes” magazine you are working for, but a strict
business plan where small percentages add up over the years. Have
everything planned out on paper and leave room for the unexpected.
First know who will
be your tenant. After a thorough market analysis you will have an
idea about what type of tenant your apartment will attract.
A number of clients have expressed concern
about the devaluation of the forint and possible economic
instability in Hungary. This week I wish to share with you a
relevant article from the Financial Times, as well as some
observations of the outgoing American ambassador about the
business climate of the country.
...What
started as a modest effort to nudge the forint down a little, has
finished with panic increases in interest rates to stop the
currency falling too far.
Joining
the European Union on May 1, 2004, will certainly open up the mortgage
market to foreigners. Today financing is the greatest obstacle in Hungary
in the way of thousands of investors observing the real estate market.
Every second inquiry is about financing. Unfortunately it is still not
possible for a foreign individual to obtain a mortgage loan or any kind of
loan in Hungary to purchase an apartment.
1. How has
the property market in Budapest changed over the last two years?
Why do you think this has happened?
The property market has significantly changed over the last two
years. The year 2001 saw the end of a wave of foreign investment.
The last quarter of 2001 was a period of stagnation, as all over
the world. Prices rose steadily throughout 2002...
Which areas
are better for renting property to tenants?
2. I have
secured a loan on my property in my country personally and loaning
it to the Hungarian company. The company would pay me interest on
these monies. Is this interest deductible against the Hungarian
rental income? Is there any limit on the amount of interest the
company can be charged?
Yes, the interest
paid on the owner’s loan is deductible from the income of the
company.
There is actually a lot you can do to get your
apartment rented. Here is some info which will help you find your
way in the Hungarian market. I suggest you make a checklist of the
following and either go through it yourself, or have your agent do
it for you. If this is not successful, you probably have a serious
problem with your apartment.
...
Lawyers are also a good source
of information and help. There is a list of Budapest lawyers and
legal firms at
http://ugyved.lap.hu/,
basically the entire left column. Many of their clients have asked
them to recommend a good apartment for rent.
The pros and cons of letting out apartments
furnished or unfurnished
It is sometimes a difficult dilemma whether to furnish an
apartment, or leave it without furniture. We at HungarInvest would
recommend furnishing it (beds, wardrobes, tables, chairs, couch,
bookshelves – generally things for sleeping, eating, working, and
storage) and supplying everything necessary for living (washing
machine, fridge, microwave, stove - ...
Below are
the selling prices of residential property in the 159 most
expensive streets in Budapest. The data is based on research
conducted in the first quarter of 2003.
The district of
Budapest is followed by the name of the street. The words “utca,
ut, ter, rakpart, koz, arok, lepcso, sor” are “street, road,
square, embankment, lane, vale, steps, row” respectively. These
words are never capitalized in Hungarian street names.
Investment and development is heading northward
and to the north-east from the central 5th district on
the Pest side of town. The old residential districts of the city
are being restored and a pleasant atmosphere returns to the
streets and buildings which have been neglected for so long in the
6th and 13th districts. Cafes, restaurants,
shops, pedestrian streets are all indications of this renewal. The
streets are cleaner and the population is more affluent than in
the southern districts.
The southern part of District 13, the northward continuation of
District 5, along the Danube, is called Ujlipotvaros.
The
following 9 points illustrate how buyers and sellers in Hungary are
warned about the so-called “apartment mafia”. (Source: Figyelo) Some
of this advice comes in handy for foreign buyers.
Do
not fall for the bargains of momentary acquaintances, who offer a
quick solution to ease your financial burdens through some
apartment exchange.
Have your reservations about the seemingly advantageous offer to
paint and redecorate your apartment at a low cost while
alternative accommodation is presented
There are close to 100,000 municipality-owned apartments in
Budapest, which are owned by the district municipalities. This
represents roughly 8% of all the apartments in the capital city.
The monthly rent of such apartments is very low, often compared to
the utility fees, somewhere between 30-50 euros. Although
municipalities have recently raised - even doubled - these rents,
it is considered a great benefit to rent such an apartment. The
tenants enjoy first right of purchase at a considerably lower
price than the actual market value.
There are three
important steps in a purchase. 1) The solicitor, 2) The Land
Registry document, and 3) The contract. Now I will discuss the
contract.
The contract of sale is
prepared by the solicitor, who is the solicitor of the buyer, but
is obliged to represent both sides in the purchase.
This is what the
contract should contain:
1)The details of the seller and buyer: name,
place and date of birth, mother’s name, ID number (passport
number), and tax ID. If either party is a company, then: company
name, address, registration number, tax number, and personal
details of the person representing the company. An official
company data sheet and a specimen of signature must be attached to
the contract.
It seems that
individual purchases are on the rise again. This means investors
buy property directly, as a private person, without having to
establish a company.
The reason a company
was recommended, and in many cases proved to be the only
alternative, is that foreign nationals were often denied a permit
to purchase property.
The law
Hungarian law says: “The authorization required for the
acquisition… of real estate… by foreign legal entities or natural
persons,…
It is easy to sell most
newly built apartments and detached houses in the western part of
the country, the peaking of the market is only expected a few
years from now. The market for plots of land continues to boom,
where annual increase in value often reaches 100%.
In the larger towns close to the
Austrian border – Gyor, Sopron, Mosonmagyarovar – it continues
to be a lucrative investment to build and sell new houses and
apartments.
