deciding which kind of property

So Mrs X. started to look in magazines and databases to find out what she was looking for. Since she loves flowers she knew that she definitely wanted a balcony for them. And with a balcony she prefered some of the top floors in the building. She is going to live there alone, but maybe bring her friends sometimes, so a big one-room apartment with a galeria would be idealic.
"And nothing that needs renovation", said Mrs X. "I wouldn't have time for that!"
Mrs X was surprised how many free apartments like this there were in Budapest. After seeing mnay that she liked she decided to go to the bank and later get in contact with an agent to help her further.
-Tomorrow I'll go to the bank and see how much money they will let me loan. And then I'll contact an agent and start this property search for real, said Mrs X.

How do I know...?

Mrs. X started looking for articles on the internet about people who had already made an investment in a budapest property. On Central Home's website she found one about a Norweigan couple:

"A month ago Helge Halvorsen and his wife Turid Fjeld bought an apartment in Budapest. The Norwegian couple lives and works in Norway but have spent their last 20 years of summer vacation in Eastern Europe. “We love this region, explains Mr. Halvorsen, and most of all we love Hungary and the people here. Now we look forward to have a base in Budapest where we can spend as much of our free time as possible. This is the most beautiful city in Europe and it’s a Mecca for us who love opera and concerts.”

When the couple decided to start looking for an apartment in Budapest, they got to know about Central Home Hungary from their Norwegian bank, which they intended to use to finance the purchase. “By sheer luck we got in contact with Frode Nilsen, a Norwegian guy who works for Central Home in Budapest,” recalls Mr. Halvorsen. “We started an e-mail conversation and he sent us lots of apartments to look at over Internet which were all matching our criteria. We also scanned their database to see if we could find any more of interest.”"

-Hmm...thought Mrs. X. "But how do I know which kind of apartment I'm looking for? What are the price differences? In which district? It is still a little bit too soon for me to contact an agent...But tomorrow I'll look through the database and find out what kind of apartment I'm interested in."

This is Mrs.X.
She is a 43 years old woman, living in a small village outside Brighton, where she has her own flower shop.
3 years ago, Mrs X and her friend went on a short holiday to Budapest. Mrs. X immediately fell in love with the city and now, 3 years later, she decided to find information about investing in a Budapest property.

Mrs. X buying a property

Next week you can follow Mrs. X on her way of buying a property in Budapest through Central Home.
Mrs. X is a lady in her 40s without any experience of investing in properties so she will need a lot of guidence in her way of finding the property for her.

It will be a made up story, but will explain the whole process from the first search in our database, to the contact with our agents and finally signing the contract.

Hope to see you next week!

FAQ about investing in a Budapest property

Invest in Budapest

Q: In Budapest, what are the best areas to invest in?

A: To answer this question we are assuming that you are looking for a rent income as well as for capital gains. The best areas are the 5th, 6th, 7th, 9th and 13th districts.

Q: What are the average prices of properties per square meter in Budapest?

A: There are many parameters to take into account in order to define the price per square meter, but in general we can say:

• 5th district 1200-1500€ per sqm.
• 6th district 1100-1300€ per sqm.
• 7th district 1000-1200€ per sqm.
• 9th district 1000-1300€ per sqm.
• 13th district 1100-1500€ per sqm.

Q: What capital gains can I get from renting the property?

A: 5 to 7% a year in most of the properties.

Q: Where and for what kind of flats is the highest demand of rentals?

A: In the 5th and 6th districts, 60-80 sqm, nicely renovated and fully furnished flats.

Q: Who are the tenants?

A: mainly foreign students and business people.

Q: What is the tax on rent?

A: If the apartment is owned privately (not by a company), then the tax is 20% of the rental income when renting a residential property to an individual or a business. Foreigners must apply for a tax I.D and issue an invoice to the tenant. Companies only pay the 18% corporate tax on profits - in case a profit does exists.

Q: Do I have to pay an income tax when selling the property?

A: Yes. Depending on the way you made the purchase (as private 20%, or as a company 18% on the registered profit +20% dividends) and the tax plan back at your home country.

Q: Can a foreigner get mortgage to purchase a property in Hungary?

A: No, not yet.

Your stay in Budapest

Q: How long does one need to spend in Budapest?

A: It is possible to purchase a property without even coming to Budapest! From our experience, three to four days are enough to get all the information on the real-estate market of Budapest and be able to choose the right property.

Q: What do we need to bring with us to Hungary?

A: Not much: a passport, 1000 €, and a good mood.

Administrative and legal aspects

Q: Can foreigners buy a property in Budapest?

A: Yes, a foreigner can buy a property in Budapest.

There are two ways to do it:

As a private person you need to apply for a permit. But you might be denied the permit, which delays the purchase and leaves the buyer in a state of uncertainty for approximately 2-3 months. It is recommanded only if you don't want to use the second way (detailed below). In most cases the permits for private persons tend to be denied only if one already owns a property in the same district, as it is considered as a speculative purchase, or if the process was not accepted.

To Establish a hungarian legal identity (to register a company) owned by the foreign investor himself. The cost of this action is approximately 2000 € to set up the company and 400 € per year to run the company.

Q: What happens if the request to purchase as a private person is denied?

A: When the permit is denied for a private person, then you have three options:

1. Establish a company within a very short time
2. Find a friend or relative who can purchase the property without permission (unlikely in most cases)
3. Abandon the idea of purchasing a property in Budapest (receiving back the deposit).

Q: How are most of the properties bought?

A: Most of the investors choose to establish the hungarian legal identity (company) for the following reasons:

1. It\'s the fastest and easiest way to purchase a property.
2. The registration process is short (less than a day)
3. Once the company is established there is no limitation whatsoever on purchasing one or more properties in Hungary.
4. With the right tax planning you can reduce your tax liabilities when selling the property later on, or on your renting income.

Q: How difficult is it to establish a company in Hungary?

A: It is not difficult. We organize in order for you to be escorted by our agent through all the process. There are three steps to be followed to establish a company:

1. The lawyer will have all the paperwork made upfront
2. Make a specimen of signature at the notary.
3. Open a bank account.

Purchase and additionnal costs

Q: What is the time needed to conclude a purchase?

A: 4 to 8 weeks

Q: What is the registration form of the properties?

A: there is a land registry office that keeps all the data computerized, and to which we can ask for an ownership form (property page) whenever needed.

Q: How much is the down payment when securing a property?

A: 10-20% of the purchase price is the amount of the deposit needed to be paid (to the lawyer's trust account).

Q: What are the additional expenses when buying an apartment?

A: In general you should calculate 7.5% of the purchase price (1.5% solicitor's fee, the purchase tax is 2% for the first 4.000.000 HUF of the purchase amount and 6% for the rest of the amount, 1000 € for the company - or 250 € if you buy as private - and 200€ for other fees.)

Q: What are the fees for finding a tenant?

A: One month rent plus 25% VAT paid upon signing the contract in case the apartment is rented for a year, 10% of the total rental fee when the apartment is rented for less than a year.

Q: What are the fees for property management services?

A: 8-10% of the monthly rent.

The rental market in Budapest, in every buyers interest

Even though Budapest is a capital with more than 2 milion people it is fairly easy to find a flat to rent or to buy. Buying an apartment seemes, in a long term, to be a really good investment and it is fairly cheap comparing to other capitals in Europe. But it is still a big investment to make. There are two main types of investments: those aiming the highest possible capital gains and those focusing on a rental income as high as possible. Most people would like to combine these two types.

But since there are so many free apartments to let, how can you be sure to not buy a property that will be left empty? Looking at the different types of tenants and what they are looking for, you know where it is safest to invest and how to easiest attract people to rent your apartment. Who wants to rent an aparment in Budapest? Where do these people want to live? What standard are they looking for? These are some questions you have to know have answer to, if you want to buy a property easy to let.

tenants
There are a lot of properties for rent in Budapest today, so you might think that the concurrance of the tenants is hard. But if you look at what most of the tenats are looking for, you'll see that there are not to many properties of interest.
The most common tenants are businessman, students from Norway, Sweden and Germany studying medicin and veterinary. There are also students from Ireland, Turkey, Austria, Greece all again studying Medicine, Veterinary and Pharmacy and their requirements are usually very similar.
They are looking for practical, clean apartments in a good, safe, central location (for students: nearby the universities) well connected to public transport.

Prices today
A classic apartment today costs from 300-500 euro a month to rent, for a one bed room, 500-700 euro for a two bed room and 750 euro and up for a three bed room or more. If it is a new apartment the prices are a bit higher, approximately 100 euro more a month.
Like I said earlier, most tenants are students and businessman and usually they require a quit high standard of living. They are often far away from home and need to work/study a lot and to go home to a safe environment is important, and to get a feeling of really beeing home, they rather pay a little bit extra to getthat feeling of a real home.

Investors
Most of the real-estate investors from abroad here in Hungary come from Ireland and the UK. Increasingly more and more people from Norway are also starting to invest in properties here in Budapest. Generally people have an interest in investing in properties in their home country, but some simply can't afford the property they are looking for, and some just wish to spread their investment overseas where they hope for better returns in the long term. In the UK many people invest in properties overseas because of the new Self Invested Personal Pension (SIPP) fund. The new pension rules will allow a personal contribution of 100% of your earnings in any tax year, considerably more than the present system.

The investors are a mix of private individuals and married couples and people also set up Hungarian companies and many satisfied investors often buy more than one property.

EU
Hungary entering the EU has effected the market in many kinds of ways. It makes it easier for companies to establish here, students can get an EU recognised degree, some students can go to schools here for free and it is also easier to get a scholarship for studying abroad. That means more people who are used to a higher standard come here and are looking for a high standard homes. There are more and more students and businessman moving to Budapest for a short or a long term, and they all make a contribution to increase the prices in the rental market.

There are a lot of properties for rent and those that are not in good locations or are in poor condition will probably still increase in process but potentially much more slowly than the apartments in good locations and in high standard. Even though the Euro is far away, prices will probably be rounded up and prices will generally go up in both property prices and rental prices.

Summary

So to be aiming the highest possible capital gains in your property, is to buy one in a good location, either in a good allready high standard apartment or renovate an old one, and to rent it out for a reasonable price to someone who requires just that kind of flat. It is easy to make your apartment the most attractive one, and if it is, you will easily let it out and don't have to worry that it will be empty and you without income. And in the mean time, the value of your property will increase and give you an even bigger income the day you decide to sell.

How to invest

There are two main routes how to invest.

The first one is to buy a new property off-plan. There are really a lot of new projects with thousands of new properties being built in the inner city, and the standard is the kind that most foreign tenants are looking for. “Because of all the foreign students in Budapest, it is easy to find tenants looking for the high standard apartments the foreign investors offer”, says Itsik Ben Ezra, manager of the real estate company Central Home.

The second way to invest, and likely the most profitable option, is to invest in a property in low condition that you renovate. A lot of properties in Budapest are old and in bad condition, but with wonderful high ceilings, decorative, big windows and great opportunities to become irresistibly beautiful apartments. With more than 800 000 old Budapest apartments, 20 per cent of them still in need of renovation, there is plenty of choice to pick your dream home in the right location. “We usually recommend our clients to invest in a property that needs renovation, continues Ben Ezra, because the over all investment is lower by about 10% for the same rent income.”

One of many people who has fallen in love with the city and came back to invest in a property here, is Irish Geoff Hill, from Belfast. “From the word go, the people at Central Home could not have been more honest, decent, straight, efficient, knowledgeable and helpful well above and beyond the call of duty”, he says. And one of the things that makes Budapest such a popular target for foreign investors is, not only the good prices and the really center locations, it is also how easy it is to actually find a property and then go through with the procedure of buying and, if you want, renting it out. “They made the entire experience of buying and renting in Budapest as simple as going to the shops”, Geoff Hill continues.

Tenants
There are a lot of apartments for rent in Budapest, but only a few of them keep the standard that most foreign tenants are looking for. There are many businessmen and students of different kind that are looking for apartments and most of them require the same high standard. The location is also important, a property in the down-town and close to the big universities are always hot-spots for tenants in this category.

New projects makes Budapest more attractive
There are many big changes going on in Budapest to higher the standard of the city and make it more attractive and easy to navigate in. One big project going on is the extension of the new metro line, the M4. It will make it easier for people to go from the Pest side to parts of the Buda that was hard to reach before, without a car. This will definitely make new parts of Budapest more attractive and probably create a modernization of these parts with all what it means with new restaurants, offices, shops, popular cafés and not at least, many new jobs.

Another big project in the city is the new M0 road. It will ease the access to the city completing the section from Mill Hill to the city center.

Governmental project
A huge amount of money has been put in a new project to create new governmental buildings in the 6^th district behind the famous shopping center West-End. A team of local and Japanese architects has won the contract to design the new Government Quarter and will definitely effect the whole area. The plan is to make new modern buildings and also to create a big green park, something that has really been missing in this part of town. This green concept not just in terms of hanging gardens and leafy courtyards, will also make the value of the properties around it raise sharply. The Pest side of Budapest is famous for its beautiful building rather than green areas, it is simply more profitable building houses than parks, so a project like this is really rare. People that will definitely make a profit when it comes to real-estate are the ones investing in properties, and then especially roof-top properties, around what will become Budapest most modern park. The location of these properties is already excellent and with a green area like this as a neighbor, every property will be unique.

Property boom
Low operating costs, low corporate tax, a well-educated population and an ideal central European location have all contributed to make Hungary one of the most appealing countries to do business in. The fact that you are not only able to buy a brand new home, or renovate an old picturesque apartment whatever your demand is, in the optimal location for you, but also for a good price makes Budapest attractive as few of the other big capitals in Europe. Many foreign investors come back to buy even one or two more apartments, because they have realized all the advantages in investing in here. Cheap flights with low-cost airlines have made the access to Hungary easier and the numbers of tourists visiting the city has increased enormously the last few years. Since more and more people start to realize how easy it is, and all the benefits with investing in Budapest properties, prices will increase. But the real estate market in Budapest is, even though it is such an investment-friendly place, still fairly obscure, to many people, and today is a good time to make a good investment here for the future.

Rebecka Sternberg, Central Home