In the following, we will take a look at the aspects that are worth keeping in mind when foreigners come to Hungary from abroad to acquire real estate. A reliable real estate lawyer is the key element of the process. What might be obvious to us here in Hungary, may need some explanation to a native of a foreign country. The following points have been compiled in this spirit.
Choosing a real estate lawyer
Step 1 to buy a real property is always to hire a real estate lawyer! Unfortunately, it is common practice in Hungary for a buyer to first contact a lawyer only after finding the property, agreeing with the buyer and paying a deposit. This also means that the buyer is already committed to the most important aspects of the real estate sales contract, without having any insight into the legal aspects of the issues. No decision should be taken regarding the provisions of the real esetate sales contract without consulting a lawyer. A few examples of such provisions:
- the purchase price instalments
- the procedure for the clearance of the property
- the penalties for breach of contract.
But the list is endless.
In view of the above concerns, the first thought when thinking about buying a property should be to consult a Hungarian real estate lawyer, especially if the property is being purchased by foreigners. Based on general market practice, the consultation will be free of charge, so go ahead and find a lawyer!
It is important that the buyer hires an independent real estate lawyer. So the buyer’s attorney should not be a buddy of the realtor or the seller. As a foreigner, it is easiest to look for an attorney online. Many Hungarian law firms offer their services in English. It is also important to make sure that the real estate lawyer you choose has a good command of English.
The fees for a bilingual lawyer are usually between 0.5% and 1.5% of the value of the property. In any case, the lawyer’s fee will be higher than for a standard Hungarian contract. The lawyer’s fees are usually borne by the buyer.
If you are interested in the specific remuneration of our office, feel free to contact us!
Searching the property
Once you have a real estate lawyer, the property search can begin. A real estate agency can help you with this. Always seek the advice of a lawyer, as there are undoubted benefits of hiring a real estate agent but also risks involved to do so.
The realtor’s commission fee is paid by the seller, the buyer usually has nothing to do with this, but it is also worth asking about it. Once the property has been selected, the buyer will only be able to proceed if he or she pays a deposit with the real estate agent, set at a percentage of the purchase price. It is in the buyer’s interest to transfer as little amount as possible to minimize the risks of the transaction.
It is important that the process is supervised by a lawyer, otherwise the buyer may lose the amount transferred, especially if the buyer is unfamiliar with Hungarian circumstances.
Check the abstract of title
Data on real estate in Hungary are stored by the Land Registry. Anyone can request an extract of this publicly available data by requesting the abstract of title. The democratic access to data is ensured by the fact that the abstract of title can also be downloaded electronically via the Hungarian client portal. In addition, private individuals can currently obtain two title deeds per year free of charge. As of 1 January, only authentic title deeds can now be requested for a fee of HUF 3.000,- per request.
The abstract of title consists of three parts, which are indicated by Roman numerals I to III on the title deed. The first part contains the details of the property, the second part contains the rights registered on the property, while the third part is the so-called burden sheet, which records the encumbrances registered on the property.
Obtaining the abstract of title is the first, essential step in the process of finding a real-property. In the absence of this step, it is premature to make any commitment in respect of the contract for the sale of the real-property.
Purchase price of real property
Remember that in Hungary, the purchase price of real estate is negotiable. As all sellers know this, the advertised price is usually 2-10% higher than what the seller wants to get for it. Don’t be shy, bargain bravely!
Preparation of a sales contract
Once the offer has been accepted, the contract can be prepared. The documentation is drafted by a lawyer. Although it may be cheaper to draft the contract in Hungarian only, this is not an acceptable solution for a foreign buyer if the buyer does not speak Hungarian.
Ask for a quotation for bilingual legal services, this should not be skimped on. It is not sufficient to have an interpreter or a relative translate and explain the text of the contract. It is a complex legal document where every comma has a meaning.
Signing of the sales contract
Once the draft text has been agreed by the parties, the contract can be signed. This is usually done at the buyer’s lawyer’s office. Avoid signing the contract in an off-site location, such as the real estate agent’s office or the property to be purchased, as the buyer’s lawyer is the main person who can guarantee professional conditions.
Permission for foreigners to acquire real estate
Apart from the exceptions specified in the law, a foreign individual can only acquire the right to own property in Hungary with a government office permit.
A foreign individual does not need to obtain a government permit in the following cases:
- citizens of a Member State of the European Union
- nationals of Switzerland, Norway, Liechtenstein and Iceland
- dual nationals, one of whose nationality is Hungarian
- in case of inheritance
To obtain a government office permit, you must submit the following:
- application form
- an original copy of the sales contract
- HUF 50.000 duty fee
- authentic abstract of title
- notarised copy of passport
- certificate of good conduct
In the majority of cases, the application for a permit from a government office is a formality. When granting a permit for the acquisition of real estate by a foreigner, the Government Office examines the following circumstances.
- Whether the acquisition of property by the foreigner is contrary to the public interest;
- Whether the foreign acquirer is not banned from the territory of Hungary;
- The foreign acquirer is not wanted.
The administrative deadline is 45 days, which the authority may extend. The deadline does not, of course, include the time needed to supplement missing documents. For our part, we usually recommend a 90-day deadline for foreigners to obtain a permit, so that the buyer does not get into trouble because the deadline is too short. If we happen to get the permit before then, we are happy.
Registration of the buyer’s title at the Land Registry
Once the purchase price has been paid in full, the lawyer starts the procedure for registering the buyer’s ownership. The deadline is 60 days, but the process can be accelerated for HUF 10,000. In the latter case, the legal deadline is reduced to 30 days. In practice, once the HUF 10 000 is paid, the “doors open” for the client and, with a little nudging, the registration of title can take place in a matter of days.
Transfer tax on the acquisition of real estate
Tax is payable on the property purchased. This tax is called transfer tax. It is not included in the purchase price. The property transfer tax is levied on the buyer by the tax authorities in a separate procedure after the sale and purchase contract has been concluded. This can be expected 1-2 months after the full purchase price has been paid. In this regard the same rules shall be applied to forigners as to Hungarian citizens.
The documents are forwarded to the NAV by the Land Registry Office, so there is nothing further for the buyer to do.
The rate of the transfer tax is 4% of the market value of the property. In practical terms, the market value is in most cases the same as the purchase price of the property. This means that for a purchase price of HUF 100 million, the buyer pays HUF 4 million in duty.
Calculators are available online to make it easier to calculate the tax:
Exemption from, or reduction of, duty for foreigners
There are some typical cases where the legislation provides for a reduction or exemption from the amount of duty. These rules also apply to the acquisition of real estate by foreigners. Your lawyer will be able to give you precise information about these exemptions.
For example, the buyer is exempt from paying duty in the following cases:
- For sales contract between direct relatives or spouses.
- When buying a building plot, if the buyer undertakes to build on the property within 4 years.
- In the case of a transfer of real estate between affiliated companies.
The buyer is entitled to the reduction of the transfer tax, for example, he has sold another dwelling within 3 years before the purchase or within 1 year afterwards.
Otherwise, in the case of foreigners acquiring real estate, there is no difference in the range of admissible exemptions and discounts, with the exception of the tax exemption in case of applying for the CSOK, to which only Hungarian citizens are eligible.
Other taxes payable on the acquisition of real estate
In addition to the property transfer tax, the acquisition of real estate may give rise to less well-known payment obligations. Local authorities are responsible for determining and levying the rates of building tax and land tax.
Personal income tax is payable on income derived from the use of real estate, and profit tax is payable on profits made by business entities.
An important issue is clarifying the VAT payment obligation if the seller is subject to the VAT Act. In view of the complexity of the regulations, in such cases it is necessary to involve a specialist consultant. Clarifying the issue of VAT is essential not only from the point of view of the seller, but also of the buyer, including the special legal provisions regarding the payment of reverse VAT.
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