Hungary: Overview

RENTAL YIELDS

Last Updated: Jul 10, 2008

Yields are moderate to good
for Buda houses and apartments

Rental yields for Pest apartments are at an average of 5.6% while its Buda counterpart tails slightly behind at an average of 5.57%. The former remains to be the location for the city’s financial and commercial centres. Prices range from €82,240 on 40 sq.m. apartments to €613,395 for 215 sq.m apartments. The Buda side of city is becoming a favorite area amongst longer-term investors.

Figures for Buda houses are higher than the average yields of apartments on both sides of the river at 6.64%. Property sizes vary from 150 sq.m. to 600 sq.m.

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TAXES AND COSTS

Last Updated: May 16, 2007

Hungarian taxes are moderate to high

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	18.7%	29.6%	32.8%
Click here to see a worked example
Source:			Disclaimer

Rental Income: Net rental income is taxed at a progressive rate from 0% to 36%, depending on the tax base. Net rental income is computed by deducting expenses incurred and documented in the renting process.

Capital Gains: Net capital gains are taxed at a flat rate of 25% in Hungary.

Inheritance: Inheritance tax is imposed at progressive rates from 2.5 to 21%.

Residents: Residents are taxed based on progressive rates on their worldwide income.

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BUYING GUIDE

Last Updated: Apr 10, 2007

Buying costs for is low to moderate in Hungary

Roundtrip transaction costs are around 6% to 14% of the property value. The purchase tax for residential properties below €15,000 is around 2% the property value, above that, purchase tax is 6%. Real estate agent’s fee is around 3% to 5% plus 20% VAT. First transfer of property is subject to 20% VAT.

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LANDLORD AND TENANT

Last Updated: Jun 05, 2006

Unregulated rental
market in Hungary is pro-landlord

Hungary’s rental market is generally pro-landlord. New tenancies in Hungary are generally unregulated, with the exception of state and municipal property.

Rents: The parties are free to negotiate rents, and to negotiate the method of any increase in rent that they may wish to devise. The deposit, its rate and other conditions can be freely agreed by the contracting parties.

Tenant Security: The tenancy agreement may be concluded for a definite term, or an indefinite term, or until the occurrence of a certain condition defined in the agreement. The landlord must give a termination notice to the tenant prior to the expiration date of the contract.

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ECONOMIC GROWTH

Last Updated: May 11, 2009

Economic recession worsens

Landlocked in central Europe, Hungary has successfully made the transition from a centrally planned economy to a market economy. It has a population of 10 million and GDP/capita of US$15,542 in 2008.

Hungarian governments have adopted a highly open approach to foreign direct investment (FDI), and attracted more FDI per capita than any other Central and East European country.

Hungary has increasingly affluent consumers, and a constantly improving logistics infrastructure linking it to seven neighbouring European markets, and a population in excess of 100 million.

Hungary’s economic growth helped it to attain full accession to the European Union in 2004. The economy grew an average of 4.38% per year from 2000 to 2006.

Aiming to adopt the euro as official currency, the government now needs to trim the budget deficit, as required by the Maastricht Treaty. The deficit reached a ten-year high in 2006, at 9.3% of GDP. The government has cut back on spending and frontloaded tax increases.

Yet the reduction of the deficit to 5.5% of GDP in 2007, and 3.4% in 2008, has come at a huge cost to the economy. Economic growth was a mere 1.3% in 2007, and slowed further to 0.5% in 2008.

After entering recession in Q3 2008, economic contraction is expected to worsen to -6% in 2009.

Unlike other developed countries, no recovery is expected in 2010. Instead, the economy may even sink by as much as 1%.

The government has no plans to pump-prime the economy. Instead, more tax hikes and budget cuts are planned in 2009. The main goal is to keep the budget deficit below 3% of GDP from 2009-2010.

Some measures the government wants to implement:
   • raising Value Added Tax, from 20% to 25%
   • lower payroll taxes
   • temporarily eliminating extra pension payments and automatic annual bonuses    to government employees
   • reducing expenditures on state-owned media
   • freezing certain social welfare payments
   • reforming and reducing agricultural subsidies

Measures directed to the real estate industry, include the elimination of energy subsidies for homeowners, and additional real estate taxes on more expensive properties.