Overview of investing in Hungary

Looking for a stable, secure investment environment, with good-quality properties at affordable prices? Interested in a place where a dynamic economy, served by a rapidly-emerging local middle class, means an ever-expanding market for buy-to-let real estate? If so, Hungary is undoubtedly for you.

A booming economy
Hungary was always one of the most advanced of the former eastern bloc countries. Even under the old communist regime, tentative steps were made to liberalise the economy, stimulate private enterprise and establish more secure property rights. This meant that in 1990, when communism finally collapsed, Hungary already had a head start over most of its neighbours.

This early promise has been more than fulfilled. Over the last decade, Hungary has consistently achieved economic growth of more than 4% a year. This has been underpinned by the country’s stable democratic system, with parties of all stripes committed to a market economy, and to attracting inward investment. Given this background, it’s no surprise that foreign companies (Coca-Cola, IBM, Ernst and Young, Citibank, etc.) have been scrambling to set up Hungarian subsidiaries. Among other attractions, foreign businessmen are drawn to a well-educated labour force, for whom English – especially among the under-35s – is more and more widely spoken. Since 1990, foreign investors have opened around 35,000 new companies in Hungary. And of course, property rights in the country are rock solid. If you own real estate in Hungary, your title is just as safe as if you owned it in Britain.

Not only Budapest
So far, Budapest has led the way in foreign property investment. Houses and apartments are about 25% cheaper than similar properties in, say, Prague. Given that Budapest’s cultural and business attractions are just as great as those of the Czech capital, this is a real bargain. The dominance of Budapest is understandable, as about 60% of Hungary’s business activity takes place there. The population is also growing fast, as workers flow in from the country’s other regions. This factor, as much as anything, explains why property prices in many parts of the city have been growing by a whopping 16% p.a.

But even if Budapest is at the forefront, Hungary’s other major cities are also a juicy investment prospect. The transport infrastructure, road and rail, is excellent, so getting from one part of the country to another is no problem. (Those of us used to negotiating British roads will relish the lack of gridlock on Hungary’s well-maintained motorways.) Budget airlines, such as Easyjet, run frequent flights to the country, and air fares, particularly off season, can be absurdly cheap.

Massive demand
Demand for accommodation, especially at the better-quality level, is well in excess of supply. Local people, enjoying new and better-paid jobs, now expect a better class of home. Of the existing rental apartment stock, around 30% is in need of major renovation, so apartments in new developments tend to be snapped up fast. Hardly surprising that 6-9% rental returns are easily achievable. As their wealth increases, Hungarians are also showing more interests in buying homes outright. This means that, when you finally decide to sell your investment, you should have no trouble finding a buyer – whether it be a local resident or simply another foreign investor.

Two ways to buy
Whether you opt for beautiful Bucharest, or prefer to go a bit further afield, the process of buying property is safe and secure, and there are two main ways this can be done.

If you feel that one property will be enough for you, at least for now, you can simply buy as an individual. Just as in England, you’ll need a good solicitor to do a title search. (And yes, we can help you to find one.) As a foreign non-resident, once you’ve identified the property you want, you need to obtain permission to buy from the local mayor’s office and the local county administration. It’s important to stress that this is nearly always a formality. It takes a few weeks for this to come through, so it’s normal to pay a deposit of 10% of the purchase price, and the property is then reserved for you.

The ‘company’ route
If you want to avoid the process of getting permission to buy, and certainly if you’re interested in more than one property, you should set up a Hungarian company. (For now, non-resident foreigners can only own one house or apartment.) This sounds daunting, but is in fact cheap and easy. To establish your identity, simply take your passport to your nearest Hungarian embassy or consulate. A bank account must be opened, and specimen signatures supplied. The whole process of establishing your ‘company’ can be handled by your Hungarian solicitor or estate agent, and takes about two days. You need to supply founding capital for your company of at least 12,000 euros – but of course, this can then be applied directly to the purchase of your property.

From a tax point of view, going via the company route is probably also better for the investor. But Hungarian taxes are low anyway, both for individuals and companies, and set to get even lower. (The individual tax rate is 20%, company tax 12%.) To cover the whole cost of purchasing a property, such as stamp duty, fees, etc., the investor should allow about 10% of the total purchase price. But when you can buy a top-quality apartment, in the centre of Budapest, for as little as £50,000, we don’t think that’s an unreasonable level.