The Property Banks Buyers Guide to Hungary
Because the investment real estate
market in Hungary is relatively immature and the country is
considered to be an ‘emerging market’, none of the procedures
associated with the property buying process in Hungary are
particularly well developed.
This means that an investor interested in entering the property
marketplace would do well to have the back up and assistance of a
good lawyer and real estate agent from the outset.
The property buying process is not complex, excessively expensive or
restrictive; it just involves many steps and can take time to
successfully navigate all the way to title transfer. This is our
general guide to the steps involved in buying investment property in
Hungary.
Firstly an investor needs to determine the likelihood of whether or
not they will enter into more than one property transaction - there
is a rule in Hungary that foreign ownership of real estate is
restricted to one property per non-resident purchaser, therefore
those who believe that they will wish to enter into more than one
transaction need to establish a Hungarian BT company which is
effectively a Ltd liability company.
The property purchase process differs depending on whether the
investor is buying via a company or as an individual, therefore both
processes are detailed below: -
Buying property as an individual in Hungary
According to the Hungarian Government Decree No. 7/1996 (I.18.) on
the ‘Acquisition of Real Estate by Foreigners’ an overseas purchaser
has to have the approval of the “the head of the competent
metropolitan or county administration office” before they are
permitted to buy a given piece of real estate.
Therefore it’s important to appoint a lawyer before beginning the
search for real estate in Hungary, because as soon as a property has
been identified as fulfilling all the investor’s objectives the
lawyer has to apply to the local government’s mayoral office for the
purchaser’s approval and then apply to the administration office of
the county for final approval.
Generally speaking approval is nearly always granted - however - if
approval is not given an individual can establish a Hungarian
company and then purchase the property anyway.
The vendor of the chosen investment property will need to be made
aware that permission to purchase has to be sought because it can
take up to 60 days and this obviously slows down the entire process;
this is not generally a problem though because the property market
is not so fast moving in Hungary anyway because many of the
administrative steps involved in the property buying process take
time.
It is usual to pay a deposit once a purchase price has been agreed
upon and it is clear that the investor is ready to buy. This deposit
will usually be in the region of 10% of the property’s underlying
price and it will mean that it is taken off the open market and
effectively reserved for the investor while permissions to buy are
sorted out.
For permission to be sought the buyer has to go to a notary in
Hungary or their local Hungarian embassy and have their identity
confirmed - usually by having a copy of their passport notarized.
While this is going on it’s usual for the investor’s solicitor to
begin title searches. Because Hungary was formerly a communist state
the registration of title deeds and all associated documentation and
paperwork is not always up to date and it can require a significant
effort on the lawyer’s part to determine who has the right to sell
the title, whether the title is free of mortgages and claims against
it etc., this is why it’s critical to employ a well respected lawyer
who will conduct the searches properly. When all is found to be well
with the searches and when the permission to purchase has been
agreed upon it’s usual to sign the Purchase Agreement. This is drawn
up by the solicitor and signed by the vendor and the purchaser. This
agreement is then sent to the Land Registry Office in Hungary within
a month of it being signed and the transfer registration process
begins - this can take up to six months to complete.
In the interim the sale is closed, money is transferred and the
buyer becomes the ‘owner’. But as stated the buyer has to wait for
up to six months for the transfer of the deeds into his name and for
his ownership to become official.
Buying property through a Hungarian company
If an investor wishes to avoid the long drawn out process of seeking
approval to purchase or they wish to buy more than one property the
quickest and simplest way to proceed is to establish a company
locally in Hungary.
This can be done remotely and the whole process can be completed
within a couple of days. Firstly the Articles of Association need to
be signed in front of a lawyer and the lawyer has to be given all
the details relating to the company’s directors etc. The founding
capital for the company must be a minimum of EUR 12,000 but this
figure can be directly applied to the investment property purchase
price. Proof of identity will need to be given - this can be done by
having a copy of a passport notarized at a notary’s office in
Hungary or at the buyer’s local Hungarian embassy. A bank account
should be opened, specimen signatures need to be given and then all
paperwork is submitted to an accountant in Hungary who will prepare
everything.
All estate agents and the majority of lawyers in Hungary can assist
with this entire procedure which makes it very simple for a property
investor.
Once the company is in place and a given property or parcel of land
has been identified as matching an investor’s requirements, an offer
can be made to purchase and when this is agreed upon title searches
can be carried out, a deposit can be paid and then the Purchase
Agreement will be signed and the process will carry on in the same
way as when an individual buys property in Hungary as detailed
above.
And finally, in terms of the costs associated with property
investment in Hungary a real estate investor should allow for an
additional 8 or 10% of the property’s price to cover transaction
fees, stamp duty, property taxes and lawyer’s costs.