Published on 18 January 2006 at 12:53 pm
Filed under: Europe:- Hungary Property Guides » Hungary Property Buying Process
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 limited 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.
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