CURRENCY

BUYERS GUIDE

• The Hungarian legal system is very different from the English system
• Is the process of buying a property in Hungary similar to the process in England? No, the Hungarian legal system is very different from the English. Generally speaking, however, provided the necessary checks and enquiries are made, there is hardly any more need to worry about buying a house in Hungary.
• Can you make all the same checks that you would make in Britain? – No. As the systems are very different you can only do what is normal in the country where you are buying the property. In just the same way, you would follow a totally different procedure if you were buying a house in Scotland from the procedure that you would follow if you were buying a house in England.

The Role of the Estate Agent

• Most Estate Agents are not able to give you independent legal advice. Be very careful before using the services of the agent’s “own” lawyer. Is he or she looking after your interests or the interests of the agent who is providing all his or her work?

Buying as an investment in Hungary

• Many are buying for investment. Some want a holiday home that will also make a bit of money and cover all or part of its running costs. Others may never visit the property and are buying purely as an investment. Buying as an investment is a business decision. You should only buy AFTER you have investigated the market. Think about:

1. The current opportunities in the market
2. Historic performance in terms of both capital growth and rental yields
3. The best ways of buying your chosen property at rock bottom prices. In most markets you will buy far better if a local person is negotiating on your behalf. There is still, very often, a two-tier pricing system, with foreign buyers being charged a substantial supplement. You need independent advice from people experienced in the market.

What should I bear in mind when looking for a property?

• The first point to bear in mind is that Hungary is a ‘new’ country as far as the overseas property market is concerned and will continue to evolve as it emerges as a fully free market and member of the European Union (which it joined in May 2004). In 1992, when effectively the Hungarian Real Estate market started, it became apparent that the one of the biggest administrative barriers could be title registration. As a result of the neglected title registration system during 50 years of socialism, land records are often out of date. Some of them are missing completely and this, combined with a mostly non-computerised system, can create a very confusing picture.
• Buying a property in an emerging market country such as Hungary is not the same as buying a property in, say, Spain or France. There, million foreigners have already bought homes. As a result everybody knows what to do. This is not so in Hungary. You could be the first foreigner this official has ever dealt with. It is perfectly possible to buy property with its history properly and legally recorded. You just need to be particularly careful and get good legal advice before you commit yourself to a purchase.

What are the main dangers when buying property in Hungary?

• There are some dangers applicable in every country. For example:-

1. Does the property have good title?
2. Is it affected by debts?
3. Has the building been constructed legally?
4. Does the property suffer from any defects?
5. Is what the seller and the agent have told me true? In addition, there are issues that need special attention in Hungary. In particular:-
   a) Is the property subject to any court or family dispute?
   b) If the property has been converted (for example, from an attic, a factory or a stable), was it done legally?
   c) Is the seller asking for illegal “black money”?
   d) Does the property belong to the government? If so, special procedures apply
   e) How are any communal areas managed – and at what cost?
   f) Are there any rights of pre-emption? Some people may enjoy the right to buy the property in preference to you
   g) Is this land of a type that a foreigner can buy? For example, foreigners can’t own farmland in their own name

What is the process of buying a property?

• Once the reservation contract has been signed there is usually a period of two to four weeks to carry out checks on the property before you sign the main (‘Preliminary’) contract.
• Provided checks are satisfactory you then sign the Preliminary Contract and, usually, pay over a deposit of 10% of the price on a resale property and a down payment of, perhaps, 30% on a new or ‘off-plan’, there then usually follow a series of stage payments as the construction process progresses.
• Once the property has been finished (or, in the case of a resale property, as soon as everyone is ready to proceed) the Final Contract is signed. This is the document transferring the right to ownership to you. You then pay your various fees and taxes and this is then registered at the Land Registry.

Loans & Mortgages

• Financing the purchase of the property may take several forms depending on the circumstances. For example:

1. A first (or second) mortgage on your existing UK property
2. A mortgage on the Hungarian property from a Hungarian lender

• Hungarian mortgages do not follow the same pattern as UK mortgages secured on UK properties. The loan is usually limited to 70% of the assessed value of the property – our experience is that it is usually nearer 50% of the true value – and by the capacity of the borrower to repay the loan, strictly calculated in accordance with Hungarian rules that are very different from our own. Standard repayment mortgages (where you repay both capital and interest) are the norm, though interest-only mortgages are available from some sources. The term is usually shorter than an UK mortgage – typically 15 years.

Do I need permission to buy?

• In general, foreign individuals can purchase and own real estate in Hungary provided that they obtain official permission from the municipal authorities.
• Once a property is selected, the buyer’s lawyer applies for approval, first from the mayor of the local municipality, then from the county Administration Office. If these two bureaucratic organizations accept 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. Whilst this permission can theoretically be refused, it is usually granted within three months.
• Only after the municipality issues its approval can the buyer register the real estate in his name in the Land Registry. This is the ultimate evidence of his title to that specific property. This permission is still needed, even by EU citizens. For EU citizens it is likely to be abandoned in the fairly near future, though this is not guaranteed. Since 1st May 2004, EU citizens who have been continuously living in Hungary for at least four years, may purchase residential property in Hungary WITHOUT special permission. This can all be avoided by the foreign individual registering a company in Hungary and buying the property through that company. A company owned by a foreign person in Hungary is considered to be a Hungarian legal entity and, as such, may acquire real estate ownership rights without any restriction or the need for permission – whether the real estate is acquired for business or for some other purposes. The company may need a Hungarian partner and will need to appoint a local manager. All the necessary procedures for establishing the company can be completed within approximately one month.
• Both ways of buying property in Hungary have advantages and disadvantages. The trouble is, it is not obvious which is the right choice! You need, in every case, to take advice. You need to understand, in detail, what you are letting yourself in for when you buy in Hungary. In particular, you need to understand the tax implications or the choice you are making. There are potentially serious UK tax consequences of buying a holiday home in the name of a company.

What happens if either I or my co-owner dies?

• Jointly owned property does not automatically pass to the survivor. It will (subject to the limitation imposed by Hungarian law) be dealt with according to any instructions which you leave in your Will (either English or Hungarian) or, if you do not leave a Will, under the rules relating to intestacy.
• Hungarian law imposes restrictions on the freedom of a Hungarian person to leave their assets as they please on their death but does NOT insist that foreigners abide by those restrictions. It is generally, much cheaper and simpler to deal with your affairs in Hungary if you have made a Hungarian Will.

Special points for new properties

• In many countries, by law, where you pay all or part of the price before the property has been fully built, the property must have the benefit of a bank guarantee to ensure that, if the developer goes bust before he or she completed the building work, you do not lose your money. This is not the case in Hungary and such guarantees are seldom provided. This is, in part, because the banking system is still immature and, for most companies, getting these guarantees is either impossible or very expensive.
• In the absence of a bank guarantee there are other steps that can be taken to protect your position – wholly or in part – if the development cannot finish the project.
• You must also make sure that the property specification is agreed in detail with the builder and that the property will be delivered to you complete with the necessary licence to occupy as a home.
• Ideally you should not pay the final installment of the price until this is produced but, because of bureaucratic delay it is common for the deeds transferring ownership to you to be signed – and the price paid – several months before this paperwork is issued by the local authorities.
• Finally, you must make sure that you are clear about what ‘common parts’ – general facilities to be shared by all the owners in your complex – are included in the price and what the arrangements will be for the management and control of those facilities. From 1 January 2005 new purchases of new property at less than 15,000,000 Forint (about £43,000) can be bought free of property transfer tax, which is currently 6%.

The Role of the Notary

• In most countries, except the UK and other ‘common law’ jurisdictions, the Notary plays a major part in the process of buying and selling real estate.
• The Notary is a public official who is there simply to put on the public record the fact that the title deed recording the sale / purchase has been signed in his or her presence and understood by the parties concerned.
• If the Notary makes any checks as to the status of the property these are usually very limited. The use of the Notary is no substitute for proper, independent, legal advice.

What about a survey?

• As is the case with the purchase of a property anywhere, it is often prudent to have the property you intend to buy surveyed. We strongly recommend a survey, particularly in the case of older or unusual properties. We can, if you wish, make arrangements for such a survey and will be pleased to advise about the merits, timing and cost of doing so.

Where should the money be paid?

• When the Full Contract / Deed of Sale is signed either the purchase price is handed over to the person selling the house or the Seller confirms that the money has already been handed over.
• Usually the price may be paid wherever in the world the parties agree.

Do I have to be in Hungary to complete the transaction?

• The seller and the people buying the house are usually required to attend in person to sign the documentation. However, if this is inconvenient, arrangements can be made for a Power of Attorney to be granted enabling another person to attend on their behalf. This must be in Hungarian form and signed in front of a Notary.

Is there a Land Registry system in Hungary?

• Yes. After the Full Contract / Deed of Sale has been signed it will be registered at the appropriate Land Registry and for the payment of any Land Registry fees.

In whose name should you purchase the property?

• There are many ways of purchasing the property. Even if you need to buy the property in the name of a limited company you will need to think about who should be the owner of the shares in the company.
• The options available to you include:-

1. In your own name
2. In the joint names of you and your husband / wife or co-purchaser(s)
3. In your children’s names or in the name of somebody who will eventually inherit the property from you
4. In the name of a limited company, whether English, Hungarian or ‘off shore’.

• The decision as to who would be the legal owner of the property is, probably, the most important decision you have to make. Getting it wrong can cost you tens of thousands of pounds of unnecessary fees and taxes, during your lifetime and on your death. Each method has its own advantages and disadvantages. Everything depends on your own personal circumstances.

What happens if I decide to live and / or work in Hungary?

• As part of our service was can put you in touch with advisers about work permits and licences and permits in connection with the opening of new businesses. They can advise on the importation of cars, furniture and pets into Hungary, obtaining payment of your pension in Hungary, healthcare issues, planning your tax affairs, National Insurance and other related matters. Please ask for details.

Are there any other things I should do at the same time as I buy a property?

• We believe that it saves a great deal of time, effort and money later on if you now review your English Will and make a separate Hungarian Will. For most people the cost of this is fairly small.
• It is highly advisable for any person who has a property in Hungary but does not live there all the time to nominate a ‘fiscal representative’. This is a person to whom the tax authorities can send all correspondence relating to your affairs in Hungary, secure in the knowledge that it will arrive.
• The fiscal representative must be resident in Hungary, but it is for you to choose whom to appoint. It can either be a friend, a neighbour, a lawyer, or your tax adviser. If you wish to know more about this, please ask.
• You will wish to insure your property and its contents. Once again we can assist you in doing this. You will wish to have the electricity, water and rubbish collection charges transferred to your name. You will need to notify the Town Hall that you own the property and register for local rates, open bank accounts and register with the Hungarian authorities for tax and other purposes. If you do not speak Hungarian we would recommend that you use the services of a local person to do these things for you. If you prefer we can arrange this for you. You should register as the owner with the Community of Owners if you live in an apartment block or an estate with shared facilities.

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