BUYING PROPERTY IN HUNGARY

Since the collapse of communism Hungary has made the transition from a communist party state one-party state to a modern democracy and market economy. Successive Hungarian Governments have pursued a policy of privatisation and deep reconstructing of traditional industries, with the result that over 80% of the economy is now privately owned.

Since 1996 the Hungarian economy has staged an impressive upturn and benefited from increasing foreign investment, The surge in interest by British investors during the 1990s reflected both the strength of the Hungarian economy and the prospect of Hungary's early entry into the EU.

In 1999 the Hungarian economy grew by 4.5% GDP and 5.2% in 2000. These growth levels have continued and most forecasters predict that this will be sustained over the coming years.

DYNAMIC ECONOMIC GROWTH

Hungary has proved to be the most economically dynamic of the 10 new members of the EU. Since Hungary 1989, those quick to invest in Hungarian property have benefited from unprecedented price rises.

During 1999-2003 the Hungarian Central Statistical Office stated that there were increases of 63% in Hungarian property prices. In the capital Budapest alone property rose by 60% during the same period.

Between 2003-05 this growth rate has since steadied to a very respectable 15-20% with rental income continuing to boast a minimum yield of 6% rising to around 15%. This is providing property investors with a combination of good capital growth and steady rental yields. Hungary has one of the wealthiest and most stable economies in Eastern Europe but you can still buy a brand new luxury apartment for less than £28,000.

Continuing Growth Expected

There are a number of solid reasons why Hungary’s economy should continue at its current pace and for property investors to feel secure that there is still more to gain from buying property here. A glance at a few facts shows how Hungary has become one of the most progressive and developed financial systems in Central and Eastern Europe.

• In less than 16 years, the government has managed to reduce inflation from 17% in 1989 to 3.2% in 2005
• The Hungarian economy has achieved a steady annual growth of 3-4% from 2001 onwards
• Productivity has riden by an average of 13% every year
• $24 billion has been invested by foreign investers – the highest amount per capita in the whole of the Eastern and Central Europe.

Blue Chip Investment

General Electric, Coca-Cola, Citibank, Ernst & Young, Siemens and IBM - in the past decade, a myriad more blue chip firms have set up factories and headquarters here, lured by a combination of incentives. Low operating costs, low corporate tax, a well-educated population, a progressive government and an ideal central European location have all contributed to make Hungary one of the most appealing countries to do business in.

Low Cost Flights

With flights from the UK as little as £18, low cost airlines such as Wizz Air and Easyjet have made it accessible and affordable for both businesses and tourists. In 2004, over 2.3 million tourists visited Budapest, 16% more than the year before, a figure that is set to rise in 2005. Budapest has also become a hugely popular place for conventions, welcoming over 150 large-scale congresses and conferences annually.

Over 70% of all foreign direct investment ends up in the capital, yet Budapest only accounts for about 20% of the country’s 10 million strong population. With over 60% of all commercial activity taking place in Budapest there is a high demand for residential property that co-exists alongside healthy employment levels, which has been a determining factor in the city’s property boom.

Government incentives for the Property Market

One of the government’s smart incentives to encourage investment in the capital. If foreign buyers purchase property through a company, they can take advantage of the attractive corporate tax rate, which is currently only 16% on net profits in 2004. This figure will be reduced to 12% by 2006 in annual 2% reductions.

Even more appealing is the company tax rate on capital gains, which is just 2% when a property is sold through a company. Having a Hungarian company also avoids the need to obtain a residency permit which private individuals are required to do and can take around six months.

The company route is essential for investors who want to buy more than one property as Hungarian authorities routinely deny residency permits for individuals applying for the acquisition of more than two apartments.

Foreign buyers can choose to take out a mortgage in three currencies. A mortgage in euros is the most cost effective, at around 4.6% against an interest rate of 7-8% for Sterling and 12-13% for Hungarian Forints.

Hungarian Property

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