Hungary Property Guide: Buying and Financing

Property purchase costs

Legal fees for an individual are 1 percent of the property price plus 20 percent local VAT (this might include the cost of applying for the permit at the land authority). For a company, lawyers usually prepare all the documents and hand them in to the Court of Registry for a fee of approximately HUF150,000. Specimens of signature cost HUF1,500 each to administer, with four originals required. The founding capital of a limited liability company is HUF3 million. Other costs to consider are:

• VAT—Land is the only real estate that is VAT chargeable in Hungary. The current rate is 20 percent.
• Agent fees—Fees range between 3 percent to 5 percent, plus 20 percent VAT.
• Transfer duties—These are charged at the rate of 2 percent on the first HUF4 million of the property price and at 6 percent for sums above that. Storage and garages are always charged at a flat tariff of 10 percent.
• Bank charges—Are met by the purchaser and will include both the cost of setting up a mortgage (if you go for this option) and the cost of transferring funds across to pay for the purchase. The purchaser will pay the bank charges involved in the transaction up until the monies reach the vendor’s account.
• Mortgage arrangement fee—It is usual for the lender to charge a 1 percent arrangement fee, plus another 1 percent every year of the mortgage.
• Land Authority application fee—For purchase of real estate by a foreigner, this is approx €200.

![filekey=|2836| align=|left| caption=|| alt=|A line of suburban houses in Hungary|]Finding your property

There are many ways to find your ideal property, but it’s always advisable to work with a real estate agent or company that knows the market and can explain the pros and cons of each property to you. The agent can also guide you through negotiations and prepare you for the transaction. Many new developments are sold "off-plan" which means that they are currently under construction. You need to ensure that the relevant terms and conditions are included in the preliminary contract. Ask your legal advisor for assistance.

Organising legal representation

You will need to secure the services of a Hungarian lawyer in order to deal with all aspects of the purchase, including (if necessary) the formation of a company to purchase the property. To safeguard your interests, appoint an independent legal representative fluent in both Hungarian and English. Your representative must ensure that your chosen property has good title. Many title registrations are out of date—a legacy of the communist era. Particularly in the case of a new-build, your representative should ensure that the building has been constructed legally.

A buyer can grant his lawyer a Power of Attorney in order that the lawyer can carry out some of the obligations of the buyer if the buyer is unable to be present in person. Power of Attorney will enable the buyer’s lawyer to:

• Sign the preliminary sale and purchase agreement in the buyer’s name
• Sign the final sale and purchase agreement in the buyer’s name
• Arrange a mortgage on behalf of the buyer
• Open a bank account on behalf of the buyer
• Represent the buyer at the handover of your property 

To buy as a private individual you will need to:

• Appoint a Hungarian legal representative.
• Use a Notary Public to certify the buyer’s identity and to initiate the permit approval process. If the permit is refused (which is a remote possibility) establishing a company is the next suggested option—see below.
• The notarisation can be done at any Hungarian embassy or consulate but opening hours vary, and the price abroad for this service is much higher than doing it locally. The costs associated with the procedure are approximately €250.
• The buy-sell agreement can be taken care of in your home country if time is an issue. In this event the agreement is signed by you (the buyer) and then mailed to your local legal representative in Hungary.

![filekey=|2839| align=|right| caption=|| alt=|Overhead view of houses and streets in Budapest|]Pros of buying as an individual

• No set-up time
• Involves less administration
• Don’t have to open a special bank account
• Easier to exit the investment.

Cons of buying as an individual

• Limited expenses are recognized
• No expenses deductible when calculating income tax on rental income
• Receiving a permit may take up to 60 days.

To buy through a company you will need to:

• Establish a company in Hungary. The documents will give the name of the company, its address, the scope of its activities, Articles of Association, etc. Have the Articles of Association notarized and register the company at the Court of Registry.
• Once the company is certified as “under registration”, a tax number will be issued and the company is now allowed to operate. A few months later, notice of the full registration will arrive, and the company details will be published in a formal public record.
• Open a company bank account.
• Appoint an accountant to be entrusted with the books of the company.

Pros of buying through a company

• Expenses are recognized (flights, accommodation, legal and agency fees, stamp duty, renovation costs, furniture, utilities and all associated services, including the interest on the owner’s loan).
• There is an option for selling the company, along with the property, later on.
• As a Hungarian legal entity, a company does not require a permit to purchase.

Cons of buying through a company

• Company needs to submit annual reports.
• Company set up takes longer to complete.
• Company set up is more expensive.
• Need to set up a company bank account with HUF3 million.
• In order to withdraw the money from the company, dividend tax has to be paid.

Obtaining purchase permission

Hungarian law states that a non-European citizen must apply for a permission from local authorities in order to purchase property in Hungary. Once a property is selected, the buyer’s lawyer applies for the approval first from the mayor of the Local Government (Önkormányzat), then from the Administration Office (Közigazgatási Hivatal) in the area. If these two bureaucratic organizations assert that the purchase “does not interfere with any municipal or other public interests”, a permit is granted. Only then is the new owner registered in the Land Registry, and only then does the actual purchase contract come into effect. 

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![filekey=|2838| align=|left| caption=|| alt=|Rooftops of houses in the prsitine town of Eger in Hungary|]Each of these two offices may take as long as 30 days to issue the permission. Because of the time factor, the seller must be informed of the process before the purchase agreement is signed, and the seller will maintain ownership of the property until the contract is closed. If the buyer is a non-Hungarian citizen, the validity of the contract is conditional upon the Administrative Office’s permission for the purchase of the property.

Under normal circumstances (if you are not an internationally wanted criminal!), the permission is always granted to Western citizens. The following are needed for the permission process:

• Permit application
• Certified copy of your passport (you must have the copy notarized)
• One original copy of the signed and countersigned purchase contract;
• One original copy of the Title (tulajdoni lap) of the property, issued in the previous 30 days

Approximately HUF60,000 for different official duty stamps for documents submitted for you in the process (this is not the fee of the real estate lawyer) NB. Since May 1, 2004, EU citizens who have been continuously living in Hungary for at least four years have been able purchase residential property in Hungary WITHOUT special permission. Opening a bank account It is advisable to open a Hungarian bank account in order to facilitate the purchase. The process is relatively simple, with only a passport and a spare 30 minutes required. Choosing a bank which offers English language telephone and Internet banking facilities is advisable so that you can manage your account from your home country.

Organising a survey

Although a survey is not a compulsory part of the purchase process in Hungary, it is nonetheless advisable for your own peace of mind as well as giving you an idea of what to budget for in terms of renovation and repairs. A survey is particularly advisable if you are buying a property without a builder’s warranty. A full structural survey will usually cover all the main issues. Important things to check include:

• The plan of the land at the Land Registry and the plan of the building which should be included with the property details.
• The land boundaries and whether there is any construction work planned on the land neighbouring the property
• Don’t just believe what it says on the plan or in the details. Check for yourself, as any discrepancy could work to your advantage in any negotiations over price.

Making an offer

In Hungary, the offer is given verbally, usually through your legal representative. If the seller accepts, the parties agree on the details and go to a lawyer together to draw up and sign the purchase contract. The purchase contract In Hungary, a contract for the sale or lease of real estate must be in writing to be enforceable in court. A purchase contract must be signed by the parties in the presence of a lawyer and must also be countersigned by the lawyer.

If you have a Buyer’s Agent representing you, he will monitor the content of the purchase contract and the purchase process on your behalf. Prior to signing the contract, your Buyer’s Agent will also check if the title is clear and work together with the lawyer on the preparation of the purchase agreement. Since there is no written offer prior to the legally binding purchase contract in Hungary, it is very important that the issues that all possible eventualities are addressed in the contract. There is a lot more in the contract than price and it is very important to cover small details such as:

• A detailed description of the property including address, title details, condition etc.
• The actual price to be paid to the seller for the property
• Seller’s bank account details
• Payment terms and conditions
• A statement emphasising that the seller and the buyer will pay their own tax liabilities
• The fees and commissions to be paid to the solicitor or agent
• Conditions for refund of the payment price, should the situation arise
• Force Majeure conditions, to protect against major unseen obstacles
• Whether parties can pull out of the sale/purchase
• Detailed permanent contact information of the signature holders
• Legal jurisdiction details (for clarity over the resolution of future disputes)
• Details of all rights and responsibilities
• The registry number of the solicitor
• The trade registry number of the real estate company.
• What will stay in the house and what will go
• When the buyer will take possession of the property
• How long the seller should wait for the buyer to get purchase permission?
• Whether the seller will handle repairs before possession
• The value of the deposit
• What should be done if there are problems on the seller’s end, for example the title isn’t clear

Paying the deposit

![filekey=|2840| align=|right| caption=|| alt=|A cottage in rural Hungary|]On the day of signing the purchase contract, the buyer pays a significant amount (usually 10 percent of the purchase price) as a deposit to the seller. The full balance of the purchase price cannot be paid until the buyer has obtained permission to purchase. The lawyer’s and buyer agent’s fees (if applicable) are also due on that day. The seller will pay the seller’s agent (if a seller’s or listing agent participated in the process) at the same time. If the buyer is a non-Hungarian citizen, the purchase contract will stipulate that the seller maintains ownership until the contract is completed.

Completion

Because of the permission process, closing usually takes place 60 to 90 days after initially signing the purchase contract. At the closing stage, the balance of the purchase price is paid. Before closing, the seller can still use the property, but has no right to sell it to others. The buyer is obligated to notify the seller immediately on receiving the purchase-permission from the Administration Office, and following notification, must also transfer the balance of the purchase price. Closing usually takes place within a week after receiving the purchase permit. The buyer and seller will sign the closing statement, which is a declaration that the purchase price is paid in full and possession is transferred. Utility meters will be read and recorded, and the buyer is now ready to have all utilities signed under his name.

Special situations and exceptions

When purchasing off-plan property, in most cases you will first need to sign a preliminary sale and purchase agreement, and then, at a later stage—typically three to six months prior to handover—a final sale and purchase agreement. Should you purchase only a few months before your property is due for completion, you will only sign a “final” sale and purchase agreement.

Registration of title

The buyer obtains full title when the property is entered onto the land register. The registration procedure takes one to six months from the time of filing the necessary documents at the Land Registry office. A year after your purchase is completed it is advisable to check if your name appears on the Hungarian equivalent of the title deed (tulajdoni lap). The administration of real estate registers falls within the jurisdiction of the regional land title (Land Registry) office of the area where the property in is located, and of the Land Title Office of the Districts of Budapest in Budapest. In the event of a dispute, real estate registration records are considered as authentic proof of registered rights and recorded facts.

Rights to be recorded in the real estate register

The following property-related rights may be recorded in the real estate register:

• Ownership rights, and, in respect of state-owned real estate, the organization exercising the state’s ownership rights and asset management rights
• Permanent right of use for members of housing cooperatives
• Land use on the basis of agreement or court decision
• Usufruct and the right of use
• Easement rights
• Permanent geodetic markings, land survey pilot areas, right of use for the placement of power supply equipment, furthermore, cable rights, water line and mining easement rights
• Right of first refusal and right of repurchase and purchase
• Right of support and life annuity
• Mortgage (independent lien)
• Right of execution

![filekey=|2837| align=|center| caption=|| alt=|Historic apartment properties in Budapest|]

Mortgage Finance

Mortgages in Hungary are typically taken out in Swiss Francs, but there are mortgages in Forints and other currencies available. Interest rates on Swiss Franc mortgages have tended to be cheaper than for other currencies in the past few years. The typical loan-to-value (LTV) is 70 percent for resale property and 80 percent for new-build, though there are 100 percent mortgages on offer in some circumstances. In general, loans are cheaper to individuals than they are to limited companies (see Forms of ownership) and can be paid back over longer periods e.g. 20 years for individuals compared with 10 years for companies. The mortgage fee is typically 1 percent of the mortgage amount, payable on completion, and an additional 1 percent each year, which will be added to the interest rate. Lenders require proof of income in all cases.

There are some self-certification mortgage products available to buyers in Hungary. Mortgages for individuals The typical limitations for mortgages to individuals for property in Hungary are as follows: What is covered? Purchase of houses, apartments and freehold land are available for individuals.

Type of loans available

• Capital repayment mortgage
• Interest-only mortgages available for 3 or 5 years.

Maximum LTV (loan-to-value ratio)

• New-build and off-plan: 70 percent to 80 percent (depending on the development)
• Re-sale: 70 percent
• Self-certification: 50 percent
• Re-mortgage: 60 percent 100 percent mortgage products are sometimes available in the Hungarian market.

Maximum loan amount: €500,000 or equivalent in other currency

Interest rates: Rates vary, but Euro mortgages are typically at a lower rate than Forint mortgages, and Swiss Franc mortgages (by far the most popular mortgage currency in Hungary) are at a lower rate than Euro mortgages.

Maximum term and age limit: 20 years maximum term (and not more than 68 years old at maturity)

Currencies available: Forint, Euro, Swiss Franc, U.S. Dollar

Mortgages for companies: Hungarian companies can get limited finance subject to the following conditions:

• The company has been trading for at least one year.
• The company has complete balances signed by an auditor.
• The company has a proof of income.
• The loan will not exceed 50 percent of the LTV for a maximum period of 10 years.

Other Hungary property guides: