Property Taxes and More: Your Guide to Buying Real Estate in Hungary

Buying Property in Hungary: A Step-by-Step Guide

Based on our extensive experience assisting clients with real estate transactions, here's a clear overview of the property buying process in Hungary:

1. Explore the Market: Begin your search on reputable platforms like https://ingatlan.com/ (use Google Chrome's translation feature if needed).
2. Engage a Real Estate Lawyer: A qualified real estate lawyer is crucial. They'll protect your interests, ensure legal compliance, and guide you through the entire process.
3. Negotiate: After identifying a suitable property, you and the seller will negotiate the price and terms of the sale. Your lawyer can help you a great deal.
4. Due Diligence: Your lawyer will meticulously examine the property's title deed to uncover any potential issues like mortgages or liens. These must be resolved before proceeding.
5. Draft the Sales and Purchase Agreement: Your lawyer will prepare the Sales and Purchase Agreement, a legally binding document outlining the transaction's specifics.
6. Sign the Agreement: Both you and the seller will sign the agreement, with your lawyer present or through a secure video call for added convenience.
7. Pay the Purchase Price: The final step before taking possession is to pay the agreed-upon purchase price. This is typically done through a bank transfer to the seller's account. Your lawyer will oversee this process to ensure it's secure and compliant.
8. Take Possession of the Property: Once the purchase price is paid, you can take possession of the property. Remember to transfer utilities into your name.
9. Complete Land Registration: Your lawyer will handle the property registration process, transferring ownership to your name. This can take up to 60 days.
10. Seller Pays Personal Income Taxes: The seller is responsible for paying a 15% personal income tax on the sale proceeds.
11. Buyer Pays Transfer Duty: As the buyer, you’ll be responsible for a 4% property acquisition tax (duty). The tax authority (NAV) will send you an official decision by mail, detailing the exact amount you need to pay and the payment instructions.

Understanding the Costs of Buying Real Estate in Hungary

Purchasing property involves more than just the sale price. Here's a breakdown of the typical expenses you'll encounter when buying real estate in Hungary:

• Legal Fees
  • General Legal Fees: 0.3% to 1% of the purchase price, plus VAT if applicable.
  • Bilingual Legal Fees: Typically around 1% or slightly higher.
• Purchase Tax (Transfer Tax)
  • General Rate: 4% of the property's market value.
  • Properties Up to 1 Billion HUF: 4% (e.g., 4.8 million HUF on a 120 million HUF property).
  • Properties Above 1 Billion HUF: 2% on the amount exceeding 1 billion HUF (maximum tax of 200 million HUF).
• Realtor's Commission: Usually ranges from 1.5% to 5% of the purchase price, plus VAT.
• Land Registry Fees:
  • Standard Registration: 10,600 HUF per property.
  • Expedited Registration: An additional 16,000 HUF per property.
• Property Acquisition Permit (for Non-EU citizens): 50,000 HUF per property.

Note: It's always recommended to consult with a legal professional to ensure you have the most up-to-date and accurate information regarding property purchase expenses in Hungary.

Purchase Permit in Hungary?

If you're a foreigner, particularly from outside the EU/EEA/Switzerland, buying property in Hungary comes with a few extra steps. You'll need a special permit, there are rules to follow, and you might have some restrictions. We strongly recommend working with a local lawyer to guide you through the process.

The permit usually takes up to 45 days and costs 50,000 HUF per property. The application is handled by the government office where the property is located. In some cases, the fee might be lower (10,000 HUF).

Real estate purchase tax (duty)

When you buy property in Hungary, you'll need to pay a tax known as the real estate transfer duty. This duty is calculated based on the property's market value.

• General Rate: The standard rate is 4% of the property's market value.
• Properties Up to HUF 1 Billion: For properties valued up to 1 billion forints, the duty remains at 4%.
• Properties Over HUF 1 Billion: If the property's value exceeds 1 billion forints, the duty on the amount exceeding 1 billion is 2%. However, the total duty you'll pay is capped at 200 million forints.

If someone acquires only a part of the property, the 1 billion forint threshold and the 200 million forint maximum duty are applied in proportion to the acquired share of ownership.

Who Pays?

The person buying the property or the right to use it has to pay this duty.

When is it Due?

You need to pay this duty when you sign the contract for the used property. But you don't have to pay it right away. The rules explain the exact process for paying later on.

Tax on residential properties a.k.a. building tax

Building tax is a municipal tax applied to all properties within a municipality, irrespective of their residential use. The local council determines the tax amount, typically based on the property's usable area in square meters. The maximum rate is 1,100 HUF per square meter, adjusted annually for inflation. In some cases, municipalities may calculate the tax based on 3.6% of the property’s adjusted market value.

The property owner as of January 1st each year is liable for the tax, even if ownership changes later in the year. Multiple owners share the tax proportionally. The tax is paid in two equal installments due on March 15th and September 15th each year.

In most municipalities, properties used solely for residential purposes are exempt from this tax. However, registering a business at your residential address generally triggers the building tax, even if you continue living there. If you fail to declare building tax due to a registered business, the local authority can impose it retroactively for up to five years, along with accrued interest. As company registration details are publicly accessible, authorities can easily identify undeclared liabilities.

Hidden Costs of Hungarian Holiday Homes: A Lawyer's Perspective

Buying a charming Balaton holiday home under 30 million forints can be tempting. However, based on our experience in civil litigation, it's vital to understand the potential hidden costs.

Many older homes require significant renovations to meet modern expectations for comfort and convenience. Think fast internet, not chopping wood for warmth. We strongly advise checking the available utilities on the e-utility website before buying.

Also, don't hesitate to seek professional guidance. A local real estate appraiser, structural engineer, and especially a lawyer can help you navigate potential pitfalls and warranty issues. Be prepared, renovations can easily cost several million forints.

Why is a Registered Lawyer Essential for Hungarian Property Transactions?

Hungarian law mandates that all real estate transactions be formalized in writing, typically through a sale and purchase agreement. Although the parties involved can draft and sign this contract themselves, the transfer of property ownership cannot be completed without a lawyer or civil law notary. This is because only these legal professionals are authorized to initiate the property registration process with the land registry.

The involvement of a lawyer or notary is not just a legal necessity. Their expertise ensures a smooth and secure transaction, guiding you through the complexities of the real estate process.

Conclusion

Buying property in Hungary involves various costs beyond the purchase price. Understanding these expenses and seeking professional guidance will help you make informed decisions.

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For personalized advice and assistance with your property investment in Hungary, contact our legal team today!