In general, domestic citizens and companies with foreign owners are allowed to purchase and sale real estates in Hungary. Additionally, the following entities are also entitled to own real estate with the same conditions as domestic citizens:
- Citizens, business associations and other organizations of European Union member states
- Citizens, business associations and other organizations of the members states of European Economic Area Agreement
- Citizens of Switzerland
- Dual citizens, if one of the citizenship is domestic or European Union / European Economic Area Agreement member state;
- Domestic branch of a non-European Economic Area Agreement member company entitled to purchase real property which is required for the business activities
Find out all you need to know about: formal requirements of real estate purchase contracts, compulsory elements of contract of sale, what is considered as a contract of sale, payment of the purchase price, usual scenario of the real estate transaction and fees, limitations over the acquisition of the real estate, real estate transfer taxation and much more.
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General information about Real Estate transfer process
Formal requirements of real estate purchase contracts
The most important formal requirements of property (building site, apartment, house, agricultural land etc) sales:
- The contract of sale shall be valid only if it is concluded in writing; and
- It shall be drafted and countersigned by a Hungarian attorney, counsel or public notary.
Compulsory elements of contract of sale
To register the ownership, the contract of sale must include the following, amongst other things:
- Personal data of the parties
– Private persons: full name, date of birth, name of mother, postal address, personal ID number
– Organizations: name, seat, statistical number, Court registration number, tax number
- Clear identification of the concerned property (name of town, plot number) as well as the proportion of the ownership interest to be transferred;
- Statement on the nationality of the contracting parties
- Unconditioned and irrevocable statement of the registered owner on the consent to the transfer of his title
- Place and date
- In case of a multiple-page document, the signature of the contracting parties, the contract maker and the counter signers on every page
What is considered as a contract of sale?
The court can consider an agreement with a minimum content as a contract of sale, if it includes the following elements, what are the mandatory elements of the valid sale contracts:
- Contracting parties
- Expression of their will on the transfer of the ownership of the real estate
- Indicating the real estate and the exact compensation
Payment of the purchase price
A typical real estate deal would be sealed with the payment of earnest money (in Hungarian: ‘foglaló’) which is a special form of advance payment and usually amounts to 10% of the total purchase price. This money serves as a guarantee for the parties and is paid (typically in cash) to the seller at signing. If the deal is closed, the earnest money will be deemed as advance payment. If the dissolution of the deal is not attributable to any party, the earnest money shall be repaid in full. If the dissolution is attributable to the buyer, the seller shall keep the earnest money. If the seller is liable for the dissolution, he shall pay twice the earnest money to the buyer. A critical point of negotiations is therefore, who is liable for a dissolution caused by a third party (e.g. the bank rejects to provide the loan)?
In case the purchase price is paid in two or more instalments, there are two typical scenarios regarding the transfer of title. The first option is when the parties submit the request to registration but the seller places his consent to the transfer of title in the escrow of the representing attorney and they request the suspension of the process (in Hungarian: ‘függőben tartás’) immediately. The attorney will submit the consent of the seller to the land registry only once he has seen evidence of the payment of the total purchase price. This option is preferred usually by banks because the buyer will acquire the property in a legal status on the day of the submission, thus, any burden that would be registered after the date of the first submission, will be disregarded. However, the process may be suspended up to 6 months only, so the deal shall be finished within such period.
The other option is the sale of the property under applying a retention of title clause. This means that the land registry will finish its process and register the buyer but will also register that the title will be transferred only upon full payment of the purchase price. Unlike when the procedure is suspended, the land registry will confirm upon submission that the documents are lawful and complete. Therefore, the transfer of title (and so the payment of the full purchase price) can be postponed to a date later than 6 months, which is a favourable option in case of bigger projects. However, there is a risk on the buyer’s side that the property will be encumbered during such long period.
Usual scenario of the Real Estate transaction and fees
According to the Hungarian Civil Code and in line with the established practice:
- The seller bears the costs related to the transfer of possession and the expenses related to the correction of the status recorded in the land-register
- The buyer shall pay the cost of the takeover of the real estate and the registration of the change in ownership.
The parties can differ from the above mentioned cost bearing rules and can agree on that one of the parties will pay the lawyer (in particular, if that party insists on the personage of the lawyer), but it is important to highlight, that the seller cannot be compelled to pay the lawyer fees, while the buyer cannot be compelled to let the contract prepared by a lawyer appointed by the seller. No matter who pays the lawyer, he/she shall advise and represent both parties and explain the details of the transaction to them both.
The lawyer fee shall be set by free agreement between the parties, in practice it is usually between 0,5-1,5% percent of the purchase price, although lawyers usually apply a minimum fee of HUF 50,000.
Limitations over the acquisition of the Real Estate
Non-EU/EEA citizens are completely excluded from acquiring agricultural land in Hungary. Agricultural land can be acquired generally by Hungarian or EU/EEA citizen farmers (with at least 3 years of experience) and – to certain extent – by churches, local government and credit institutions. Domestic or EU/EEA citizens who do not qualify as farmers may acquire agricultural land only if, as a result of such acquisition, the total area of agricultural land owned by them does not exceed 1 hectare.
Non-EU/EEA citizens, business associations or other organizations may buy residential real estate only upon the approval of the regional government office and by presenting inter alia a clean criminal record. Since there is no constraint applicable for EU/EEA business associations regarding residential real estate, an option for non-EU/EEA citizens is to establish a company in Hungary or in other EU/EEA countries that may buy such property.
Real Estate transfer taxation
Payable by the seller
According to the Civil Code of Hungary, the following costs will be charged to the seller:
- Transfer related fees
These may include the basic expenses, what are necessary for the legitimate selling, such as the settlement of utility bills and mortgage liabilities, or the cost of real estate agents and their intermediaries, if the transaction happened this way.
- Land register fees
The sale of a residential property is subject to the presentation of an energy certification (green card), the cost of which is typically borne by the seller. Also, it is usually the seller who pays the fees for obtaining actual title deeds and the property layouts. However, the parties can agree otherwise.
- Personal income tax
In case of selling an apartment, house or any other real estate, a personal income tax payment obligation arise on the income from the selling, regulated by Article 59-64 of Act CXVII of 1995 on Personal Income Tax. From 1 January 2016, the domestic personal income tax rate on property selling is 15%, but the amount of required tax depends on several factors:
1) After selling a property, the first thing to do is to determinate the income; what should be calculated by deducting the following expenses from the selling price (i.e. the income):
- amount of the property purchased
- value added investments (renovation, modernization)
- other transfer costs (It is important to note that only costs proven with official receipt counts as eligible cost)
2) The value observed counts as income and the taxpayers should pay their taxes after this amount, with a rate what depends on the date of purchase:
- If the selling is in the same year or the year after the buying: 100% of the calculated amount counts as income
- If the selling is two years after the buying: 90% of the calculated amount counts as income
- If the selling is three years after the buying: 60% of the calculated amount counts as income
- If the selling is four years after the buying: 30% of the calculated amount counts as income
- If the selling is five or more years after the buying: there is no PIT paying obligation
- This write-off is available for every type of property since 2017.
Payable by the buyer
In case of acquisition of real estate transfer duty should be paid. The rate of this duty is 4% up to the transaction value of max 1 billion HUF, above this threshold the duty is 2% of the exceeding part of the value (max 200 million HUF per property).
Without attempting to be comprehensive, the tax allowances in 2017 are the following:
1) Duty exemption:
- If the newly purchased property costs less than the property sold in the previous or following 1 year
- Buying/selling between spouses
- Buying/selling between direct relatives
- In case of buying a building site, if there will be a construction within 4 years after the purchase
- In case of so called beneficial merger, beneficial share deal or beneficial branch deal.
- In case of buying a new flat, if it does not exceeds the HUF 15,000,000 limit
2) Discounted duty:
- In case of buying the first own flat, 50% allowance from the duty is available if the buyer is less than 35 years old and the value of the property does not exceed HUF 15,000,000.
- In case of buying a new flat over HUF 15,000,000 but not exceeding the HUF 30,000,000 limit, then the first HUF 15,000,000 in the final price is free of duty
- In case of change of dwelling/shift (when less than one year passed between selling of the old flat and buying the new one) the margin of the two flats prices gives the basis of the duty.
In addition, it is typically the buyer who pays the registration fee (HUF 6,600), the registration fee of a mortgage (HUF 12,600) and the costs of drawing up notarial deed (required if bank loan is involved).
Act XI of 1998 on Attorneys at Law
Act V of 2013 on Civil Code
Act CXLI of 1997 on Real Estate Registration