I received an email earlier today from a Propertastic! visitor asking for some more information on the current state of the property market in Budapest as he is thinking of buying there. I thought that I would post it here in case anyone else is wondering whether now is a good or bad time for buying there.
This is what he wrote:
I'm an italian man who wants to buy an apartment in Budapest to rent it. I'd like to know the tax I have to pay to buy a property in Hungary (the different tax of Italy) and the prices of some apartments. May I have some information about agencies (web sites) which sell properties ? Is it convenient buying an apartment and renting it ? Can I rent it all year long (12 months) ? Hungary entered in EU some times ago, is it convenient again to buy something in Budapest ?
Best Regards
Loris Terzi
And this is my reply to him:
Hi Loris,
Thank you for your email. It is nice to hear from you.
Let me start with your last question first: Is it a good time to buy in Budapest?
This very much depends upon whether you are looking for a short-term or long-term strategy and your attitude to risk.
If you don't like taking risks and are looking for long-term growth rather than to make some quick money over the next one to three years, then perhaps Budapest is the right market for you.
The history of Budapest's property market is something like this:
Of all of the cities in Eastern Europe, Budapest was the first to see large price increases as a result of foreign investors and speculators entering the market. Budapest was especially popular with buyers from Ireland, the UK and Germany.
The result was very fast appreciating prices in the 12 months before and after Hungary joined the EU on 1 May, 2004.
However, since that time, growth in property prices started to slow as the market became saturated and supply of new properties coming onto the market started to exceed supply. In addition, the Hungarian economy, the most robust of all the Eastern European countries during the 1990's, started to run into some problems, leading to a cooling of the economy. The result was that, during much of 2006, prices were actually dropping slightly, although the year did finish up with a slight gain.
The current situation is that the market in Budapest is quite static - prices aren't going down, but they aren't really going up either.
This doesn't sound very promising, does it?
However, the fact that prices have been so static over the past few years means that prices in Budapest now seem very low compared to other major Eastern European properties.
If you look at our Key Statistics page of the site, you will see that currently prime Budapest property costs around EUR2250/m2. This definitely looks cheap when compared with Warsaw at EUR3500/m2, Prague at EUR3000/m2 or Ljubljana at EUR3250/m2.
The chances are that, at some point, the Hungarian property market should take off again and prices will rise to join those of its Eastern European neighbours. However, it is anyone's guess as to when this will happen. If you are looking to remain in the market for at least five years, then I am pretty sure that you will catch the 'next wave' of Budapest property increases, but you might have to sit back and watch your property's value remain the same for the next two or three years. The likelihood that prices will go down much further though is quite low - Hungary is, after all, a very stable country (even if it is not going through the best of times at the moment).
You can read more of our thoughts on the stats of the market in Hungary in our Hungary -Overview section.
If you are still undecided about Hungary and are looking to see the vale of your property increase faster, then maybe it is worth looking around 120km north-west of Budapest to the Slovakian capital of Bratislava.
Currently Bratislava is our top tip as the prices are still low (EUR1750-2000/m2) yet are increasing fast - showing 20% growth in the first half of 2007 alone.
If you want to know more about the reasons why we think Bratislava is so interesting a market, you should read our Slovakia - Overview section or a recent entry about Bratislava's potential that I posted to this blog.
Moving on to your other questions now about taxation:
You can read all about the different stages that you will need to pass through in order to complete purchase of an apartment in Budapest in our Hungary - Buyer's Guide section:
The tax system in Hungary is rather complicated compared to many of the other Eastern European countries and it is highly recommended that you speak with a qualified Hungarian accountant in order to advise you as to what would be the best way to buy a property. The main ways are to either buy as a person, or to establish a Hungarian company and to buy the property in the company's name.
The disadvantage of buying a property through a Hungarian company is that it takes an investment in both time and money in order to register it and keep it running. However, the costs should be more than made up for by the tax savings that you will receive over the duration of the time you keep your property.
Here are the main taxes and how they vary according to the different types of ownership:
Tax on rental income:
Personal: 20%
Corporate: 18%
Deductions for expenses:
Personal: Not allowed
Corporate: Allowed together with 5% depreciation on property and furniture, etc.
Capital Gains Tax:
Personal: 20% (but lower if you hold the property for at least six years)
Corporate: 10% (but you can reduce this to 5% if you sell the company and not just the property)
VAT:
Personal: 25%
Corporate: 25% (but you can reclaim the VAT on all purchases that you make through the company including the property itself)
Hungary has a Double Taxation Agreement with all EU countries and so you will only be charged once on your income - not in Italy as well.
Next question: What are the prices of property in Budapest?
As has been previously mentioned, prices for high quality apartments in areas where there will be good demand from people looking to rent is around EUR2250/m2 - so around EUR135,000 for a 60m2 apartment.
Obviously there is a huge difference in the prices depending on where you are looking to buy and the condition of the apartment. Cheaper apartments could be 50% cheaper, but there is the risk that no one will want to rent them from you. Super-luxury apartments could be 50% more expensive, but will attract premium rental prices.
Information on web sites with properties for sale:
You can find links to all of the companies you will need to deal with in order to buy a property in Budapest in the Hungary - Directory section of the site.
Not only will you find details of real estate agents in Budapest, but also other companies that you will need to deal with such as lawyers, accountants and letting agents.
It's also worth checking out some of the ads on the same page as well which advertise Hungarian property.
What is the rental market like?
Propertastic! usually recommends investing in capital cities rather than coastal holiday resorts because there are more options when it comes to renting out the property. With cheap flights to Budapest, the city has a tourist market year-round, so you aren't just dependent upon a few months in the summer to make all your income.
But where capital cities really score over holiday resorts is that there is a good market for long-term rentals - either to ex-pats or to wealthy Hungarians. Although the price per week is lower for long-term rentals, there is a lot less hassle involved and there are likely to be only short periods when the property lies empty.
The occupancy rate that you get on your property is very much dependent upon the property's location and condition. We recommend getting the best apartment that you can within your budget as, the more centrally located and the better condition a property is in, the more you can charge in rental fees and the more bookings you will get.
Rental yields in Budapest are currently quite good at around 6% net. This means that, on a EUR135,000 property, you should be looking at generating an income of around EUR8,100 per year, or EUR675 per month.
Hopefully this answers all your questions. It is advisable, however, to speak to as many people as you can regarding possibilities for purchasing property in Budapest in order to get as clear a picture as possible as to the potential of the market.
Good luck!
Kind regards,
Nick
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Have you got any burning questions about Central & Eastern European real estate that you would like an answer to? Then just drop me a line at nick@propertastic.com and I'll be happy to answer you.
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