Hungary - The Do's and Don'ts of Buying in this Money-Making Country

I've just bought my first apartment in Hungary. It's taken my nearly 11 months to do so. It was hard work but should prove rewarding. Here's my know-how so that you can succeed without wasting time or money...     

Know why Hungary is a best-buy investment

The big attraction (as with many of the emerging markets) is that property is relatively cheap compared to the UK. A city centre apartment in Budapest costs about £60,000 upwards. There is also considerable profit potential from the current short-supply, rising-demand scenario. Demand is being driven in many places by foreign investors. Supply is not (yet) keeping pace.

Typically, most investors are buying into city centre apartments (as many UK investors are inclined to do). Budapest, the capital, has considerable appeal.  GE, Microsoft and IBM have major offices here. There are various international universities here as well. Demand for rental accommodation is strong with most tenants staying for several years. Rental returns are at 10%+ per annum.

As with any international property investment, you need to do your due diligence. Remember your supply-demand-price relationship. Look to future capital appreciation and rental returns, not to what has been achieved (capital appreciation is slowing, yields are rising as an example).   

Understand the do's of buying in Hungary

The classic con of buying overseas can be seen clearly in Hungary - it's two-tier pricing, where foreign buyers are charged more than the nationals. You need to go direct if you have the experience; hardly anyone does, so I would suggest you employ a local agent to act on your behalf.

Bear in mind that the buying process in Hungary is not the same as it is in the UK. For example, in Hungary, you tend to sign a reservation contract followed by the main contract some 14 to 28 days; try to make the period longer rather than shorter so your lawyer has time to check everything.

Obviously, it's up to your lawyer to do the necessaries, but there are some questions I'd ask. Can I buy it? (Foreigners can't buy some types of land such as farmland). Is the title okay? (Many aren't). Has the building been constructed legally? (Some conversions have not). Are there any disputes or debts regarding the land or property? (Watch that government).
     
Beware of the biggest dangers and how to avoid them

Hungary is a new and emerging property market. The biggest problem I found was with title registration. Land records have traditionally been paper-based, incomplete and much neglected over many decades. It is quite possible that your property will not have any title deeds. (Two of three properties I looked at had incomplete records). Don't take anything the developer says at face value.

Another danger comes with off-plan developments. In most countries, developers must have a bank guarantee. This isn't so in Hungary, so be warned. To make matters even worse, it is only been over the past 18 months or so that foreigners have begun buying property in Hungary. Many of the officials there have no experience of dealing with outsiders. Many won't speak English. You may find (as I did) that some are not helpful to foreigners. The key is to use an experienced lawyer who will check everything before you sign it.

Recognise the don't's of purchasing in Hungary

As in the UK, don't expect to get independent advice from an estate agent, nor the lawyer of the developer's or the seller's agent. Try to finance your purchase from the equity in your UK property. Hungarian mortgages aren't that attractive (nor that easy to get). They tend to be straight repayments, LTV is about 60% tops, the repayment term is traditionally 15 years and the lending criteria are strict; self-employed need not apply in my experience!

Don't expect the purchase to unfold quickly. Foreigners can buy and own real estate but they need to get official permission from the mayor of the local municipality and the county Administration Office. This seems to be a rubber-stamping exercise but you are dealing with bureaucracy which takes (in my experience) close to three months. Only then can you register with the Land Registry. An alternative route is to register a company in Hungary and buy through the company. This is considered a Hungarian legal entity and can have real estate ownership rights without restriction or permissions

Know what to do next if this opportunity appeals to you

Do I have any other tips? Of course, there are many and your lawyer will advise. There are one or two things I should mention though that occur to me from my own experiences. In many countries, a notary plays a key role in property transactions. In Hungary, they simply record the fact that the title deed was signed in their presence. Don't expect anything else of them. They're not there to advise or caution you, as examples.

Jointly owned property does not automatically pass to the survivor. Leave instructions in your will. It will be easier to resolve your Hungarian affairs if you have made a Hungarian will.

In terms of where next, start online with some general reading at www.hungarytourism.hu and www.virtualhungary.com. You can work through these sites' links to generate all sorts of leads for properties and agents as I did. Go to www.europelaw.com for details of lawyers etc who will help you in Hungary. Go to www.blevinsfranks.com for other professional services and advice.