Blog articles #Estate

The Housing and Real Estate Market Advisory Board (LITT), established in 2019 at the initiative of the National Bank of Hungary (MNB), published its forecasts and recommendations on the residential and commercial real estate market in January 2020. Their study identifies four key objectives for the direction of development. 

The first is to increase the number of newly built dwellings, the second is to ensure affordable housing for all through the development of a business rental sector, the third is to reduce the administrative burden on the commercial property market and to stimulate more effectively the construction industry and the domestic production of building materials. In this blog article, we look at ideas for the re-regulation of tenancies for housing.

LITT also pointed out that the market price of Hungarian apartments has risen significantly in recent years, partly due to Hungarian and foreign buyers buying these properties for investment rather than for housing. In contrast, the number of new dwellings has not increased sufficiently. The rise in residential property prices has also brought with it a rise in rents, making it significantly more difficult for many individuals who do not own their own property to secure their housing. Therefore, LITT considers it very important to increase the number of rental homes in the country and to promote the regularisation and promotion of tenancy.

This could be done by providing a reduced VAT rate for long-term rentals, which could boost business renting. The possibility of tax relief for tenants below a certain income or for employers who support letting was also highlighted. A sensitive issue in tenancies is the system of security deposit transfers, which could be ensured by setting up a "Good Tenant List" or by establishing a public guarantee scheme.

In our view, the security of tenancies can be strengthened not only by re-regulating the financial aspect and introducing discounts, but also by ensuring that properties are in an acceptable technical condition for human habitation in all respects and that they are monitored. Examples from abroad show in many places that state regulation and control are present at a much higher level in the rental market, forcing landlords to act properly towards tenants when concluding contracts and checking the technological suitability of properties.

It would be useful and provide greater security for tenants if they could obtain an independent person's certificate on the technical adequacy of the property and the reliable and safe functioning of the utilities and systems in the property before the tenancy starts, similar to the energy performance certificate check.

It would also be worthwhile to re-examine the legal regulation of tenancies and to adapt the provisions on typical problems that can be identified in current practice in the course of disputes in a way that is acceptable to the parties.

A new approach to the regulation of tenancies, from a legal, technical and financial point of view, could provide a more secure solution for housing for a large section of society.

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu

Hungary, with its rich history, vibrant culture, and strategic location in Central Europe, has become an increasingly attractive destination for real estate investors. Whether you are looking for a cozy apartment in Budapest, a picturesque countryside home, or a commercial property, the Hungarian real estate market offers diverse opportunities. This guide will walk you through the essential steps and considerations for purchasing real estate in Hungary.

Understanding the Market 

Before diving into the buying process, it's crucial to understand the Hungarian real estate market. Budapest, the capital, is the most popular area for property investment due to its economic significance and cultural appeal. Other regions, such as the Balaton Lake area and cities like Debrecen and Szeged, also offer promising investment opportunities. 

Legal Regulations for Foreign Ownership 

Foreigners can purchase real estate in Hungary, but there are some restrictions. Non-EU citizens need to obtain a permit from the local government office, which usually takes a few weeks. EU citizens face fewer restrictions and can buy property under similar conditions as Hungarian citizens. You can also buy property via a Hungarian company. Purchasing arable land for a foreigner citizen is strictly limited in several cases and a complicated procedure is required. 

Property Ownership

Hungary recognizes various forms of property ownership, including exclusive, common ownership and condominiums as a mixed type. Exclusive ownership is the most common and provides the buyer with complete ownership of the property and the land it stands on. 

Finding a Property

Several online listings and property portals provide advertisements for real estates in Hungary. Websites like ingatlan.com, otpotthon.hu, realtorlawyers.hu and realestatehungary.hu are popular and provide extensive listings of residential and commercial properties. 

Legal Due Diligence, Technical Property Inspection

Before making an offer, it’s essential to inspect the property thoroughly. Ensure that the property has a clear title and is free from any encumbrances. This step typically involves checking the Land Registry and obtaining a certificate of ownership. It is crucial to engage a real estate lawyer who can check the legal background of the real property and ensure all legal aspects are covered, and represent you in the complete procedure. Make sure to choose an lawyer who is fluent in your in English. Also consider hiring a professional surveyor and architect to assess the property's condition and identify any potential issues. 

Financing the Purchase

Both Hungarian and international banks offer mortgages to foreign buyers. The terms and conditions vary, so it's advisable to compare different offers. Non-residents may face stricter lending criteria and higher interest rates. 

Currency Considerations

Since Hungary uses the Hungarian Forint (HUF), currency exchange rates can impact the purchase cost. It’s wise to monitor exchange rates and consider using a foreign exchange service to lock in favourable rates. 

The Buying Process Once you find a suitable property, you can make an offer. If the seller accepts, a preliminary agreement is signed, and a deposit (usually 10% of the purchase price) is paid when you signed at least a preliminary contract. 

Be careful with the realtors!

  Be aware of signing any documents offered by realtors, they are not entitled to formulate legal documents. Numerous legal cases generated by their false, incorrect or invalid documentation prepared without legal education and right to practice law. Also, realtors’ agreement are often very tricky in Hungary, they often use conditions advantages just for themself and the state attorney office challenges continuously such invalid, abusive realtor engagement agreements in the representation of the public. The big realtor networks are not exceptions, their franchise members are usual defendants in such litigations. 

Instead, contact your lawyer as a first step, they are legally educated and allowed to elaborate legal documents, and it is advised to check with them the realtor’s contract. 

Signing the Contract

The final purchase contract is drafted and countersigned by a lawyer. This contract outlines all terms of the sale, including the purchase price, payment schedule, and transfer date. 

Registration

After signing the contract, the property must be registered with the Land Registry with the assistance of a lawyer. This step officially transfers ownership to the buyer and typically takes a few weeks. 

Costs and Taxes

In addition to the property price, buyers should budget for additional costs, including: - Legal fees: 1-2% of the purchase price - Registration fees: Approximately HUF 6,600 (from the end of July 2024 it is HUF 10,600) - Real estate agent fees: 2-5% of the purchase price  

Duties, taxes

The basic transactional duty associated with real property purchase is 4% of the market value.  The tax authority may alter from the purchase price if it considers it less that the real market value. There may also be other local taxes and fees. 

Renovations and Maintenance If the property requires renovations, hiring local contractors and obtaining necessary permits will be essential. Regular maintenance is also crucial to preserve the property's value. 

Property Management

For investors who do not plan to reside in Hungary, hiring a property management company can be beneficial. These companies handle tenant issues, maintenance, and ensure the property is well-kept. 

Conclusion

Buying real estate in Hungary can be a rewarding investment, offering opportunities in a diverse and growing market. By understanding the local market, navigating the legal landscape, and conducting thorough due diligence, you can make a successful and informed purchase. Whether you're seeking a permanent residence, a vacation home, or an investment property, Hungary's real estate market has something to offer. 

If you plan to purchase a real estate in Hungary, contact Dr György Zalavári, lawyerand partner of Ecovis Zalavári Legal  Hungary. 

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
 Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu

Much debate has focused on the legal classification of the "purchase security" used by Hungarian real estate agents and whether it is legal for real estate agents to handle money in this way. In the following I will try to answer these questions.

Since the Hungarian legal system does not regulate this type of "purchase security", it is necessary to examine its characteristics and to identify the known legal relationships on the basis of these characteristics.

How does a purchase security work?

One typical practice is that, when a potential buyer wishes to make an offer to buy a property, the real estate agent will in many cases inform the buyer that the offer can only be made to the seller if the buyer, in order to prove the seriousness of his intention, hands over a certain amount of money, typically hundreds of thousands or even millions of forints, in cash. 

There is then no agreement between the seller and the buyer as to the purchase security and the real estate agent is not an agent of the property owner in the context of the handling of the money. The manner in which the purchase security is to be disposed of is not usually set out in a written contract, but is accompanied by the explanation that its fate depends on the buyer ultimately purchasing the property.

If the seller accepts the buyer's offer, the real estate agent will hand it over to the seller at the time of the contract and the parties agree that it forms part of the purchase price. In some cases, the estate agent returns it to the buyer at the time of the sale and the buyer pays it to the seller. If the seller rejects the purchase offer, the estate agent returns this amount to the buyer.

The interesting case is if the buyer withdraws after the seller has accepted the purchase offer, the buyer's deposit is not returned by the estate agent,

it is either retained as a commission (which is incomprehensible because there is no agency or other legal relationship between the buyer and the real estate agent, so the real estate agent cannot be entitled to any amount from the buyer),

possibly a part of it to the seller (this is also incomprehensible because there is no agreement between the buyer and the seller which determines the amount of the purchase security or gives the seller the right to receive it, especially as this amount is not a deposit or a contingency). This amount is certainly not a deposit or a contingency, as there is no agreement between the seller and the buyer to pay it.

A purchase security is a sum of money held by the real estate agent without a valid contract to this effect, and paid or taken over by one or other party, subject to the failure or fulfilment of certain conditions, which are not usually set out in writing. It may also be recorded that he carries out this activity regularly in the course of his business, with a view to obtaining a profit or income, and that it is therefore commercial conduct on his part.

On the basis of these criteria, we cannot identify any legal title in the legal relationships that have been established which would enable the buyer to retain it or the amount to be transferred from the buyer to the property agent or retained by the property owner by virtue of any title whatsoever.

If we are considering whether the amount might have to be repaid to the buyer or transferred to the seller, we can apply the rules of the escrow agreement governed by Act V of 2013 on the Civil Code (Civil Code Act) to the assessment of the purchase security.

The Civil Code. 6:360 of the Civil Code, the depositary is obliged to keep the movable property specified in the contract and to return it upon termination of the contract, and to pay a fee to the depositor. Ptk. 6:364 (2) of the Civil Code, there is also a deposit whereby the depositor is obliged to release the deposited object to a third person specified in the contract upon the occurrence of the conditions specified in the contract or upon termination of the contract.

The commentary to the Civil Code points out that further detailed rules on the deposit of money are laid down in other specific legislation.

Pursuant to Article 2 (1) (c) of Act CCXXXVII of 2013 on Credit Institutions and Financial Undertakings (Act on Credit Institutions and Financial Undertakings), the Act does not apply to the management of cash deposits if its business is regulated by law.

Since there is no statutory provision for the commercial management of funds by real estate brokers (as opposed to notaries, courts and lawyers), the Hpt. applies to them, i.e. it is on the basis of this Act that it can be assessed whether real estate brokers are entitled to manage funds on a commercial basis.

Pursuant to Article 3(1)(l) of the Hpt, the commercial provision of deposit services in forint, foreign currency or foreign exchange is a financial service.

Pursuant to Article 6(1)(79) of the Hpt, a deposit service is defined as the deposit and management of funds on behalf of a client in a separate deposit account, with or without interest, under conditions laid down by law.

A cash deposit service is a special case of a civil law (movable) deposit regulated by the Civil Code, where a financial institution deposits and manages funds on behalf of a client in a separate deposit account, with or without interest, in accordance with the terms and conditions laid down by law and the deposit contract concluded for this purpose.

The management of the escrow account is also necessary to qualify as a deposit service under the Hpt.

We have to analyse the report on the commercial nature of the activity, as this is the basis for the qualification of the activity as a financial service subject to authorisation pursuant to Article 3(1) of the Hpt.

Pursuant to Article 6(1)(116) of the Hpt, the following elements must be examined in relation to the commercial character of the activity:

-for consideration, for the purpose of acquiring property,

-for the purpose of concluding transactions not specifically defined in advance,

-it is carried out on a regular basis.

Commerciality is when the service is provided for a fee or other economic benefit. In my view, commerciality can also be established if the activity is carried out in order to increase the efficiency, profitability, level of income and return on the main activity carried out in a commercial manner. In the above case, if the real estate agents are entitled to a share of the "commission on the purchase", this condition is fulfilled.

Pursuant to Article 7(2) of the Hpt, only financial institutions may provide financial services, unless otherwise provided by law.

It should be stressed that in cases of regulated commercial deposit of funds (by notaries, courts and lawyers), the legislation contains a number of provisions which provide for the depositing of funds and protect the financial interests of the depositor. Thus, regulated trusts are subject to liability insurance, chamber supervision, a deposit insurance fund and a compulsory registration process for state asset liability, ensuring that the depositor is covered for the payment of the deposit in case of error, mistake or possible misuse of the funds. However, these guarantees are absent in cases of non-statutory management of the funds.

An analysis of the above legislation indicates, in my opinion, that real estate agents are not authorised to handle funds on a commercial basis in the absence of a specific legal authorisation. In view of this, I interpret the legal provisions to mean that real estate agents may not, in the course of their business, accept deposits of money known as "purchase security" or manage such deposits.