Costs of buying property in Hungary - property tax, legal fee and more

How to buy a property in brief

Drawing from my years of experience in guiding clients through the maze of real estate transactions, I recommend the following steps to outline the property buying process:

1. Negotiation: The seller and buyer agree on the terms of sale.
2. Engaging a Real Estate Lawyer: It's crucial for both parties to have professional legal assistance.
3. Addressing Encumbrances: This involves checking the title deed for any issues that need to be resolved.
4. Creating the Sales and Purchase Agreement: This is where the lawyer aids in further negotiations, if needed.
5. Signing the Agreement: The purchase agreement is signed and endorsed by the lawyer, which can also be done via video call for convenience.
6. Land Registration Process: This should be completed within a 60-day timeframe (maximum).
7. Property Handover: This includes the transfer of utilities to the new owner.
8. Seller's Tax Obligations: The seller is responsible for paying the applicable personal income tax (15%).
9. Buyer's Tax Duties: The NAV (National Tax and Customs Administration) will contact the new owner to settle the property acquisition tax (4%).

I always emphasize to my clients that the journey to owning real estate doesn't just begin with finding the perfect home. Recognizing and preparing for the long-term financial implications and market trends is crucial for a successful investment. In fact, it ideally starts years earlier, as this kind of investment demands thorough planning and a deep understanding of one's own needs and goals. If you're gearing up for a purchase of Hungarian real property, keep reading for more insights!

Summary of the expenses of buying real estate in Hungary

In brief, the following expenses should be considered when buying real estate in Hungary:

Legal Fees in Property Transactions

Legal fees are an essential part of property transactions. Typically, these fees are significantly lower than the European average, offering an attractive proposition for investors. In Hungary, for many years, the typical legal fee for real estate transactions ranged from 0.5% to 1% of the property's purchase price. However, as of 2024 in Budapest, a trend has emerged where numerous lawyers are offering to handle these transactions for a reduced legal fee, sometimes as low as 0.3%. It's important to note that for lawyers with high client volumes, this fee may also include value-added tax (VAT). 

These figures apply to services and contracts in Hungarian. Bilingual contracts are something fewer colleagues are able to prepare, thus they often work with significantly higher fees, around 1% or more. 

Purchase Tax and Its Implications

The real estate purchase tax in Hungary is the so called property transfer duty paid by the buyer of a property. The duty is calculated based on the property's market value and other specific factors related to the acquisition.

The General Rate is 4% of the acquired property's market value, unless otherwise specified by law.

• Up to 1 Billion HUF: If the property's market value is up to 1 billion forints, the duty rate is 4%. For example, if someone buys a property for 120 million forints, the duty will be 4%, which amounts to 4.8 million forints.
• Above 1 Billion HUF: If the property's market value exceeds 1 billion forints, the duty rate for the excess amount is 2%, but the total duty per property 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 Duty? The buyer of the property or the acquirer of the usage rights is responsible for paying this duty.

When Does the Duty Arise? The obligation to pay the duty arises on the day the contract for the used property is signed. However, the duty doesn't have to be paid immediately after signing the contract. The process for paying the duty is detailed later in the regulations.

Understanding realtors’ commission

In Hungary, it is usualy the seller who hires a real estate agent, though there are numerous transactions where agents are not involved. Buyers typically do not mandate real estate agents. Many real estate agents speak English, but it's still advisable for foreigners to have at least an interpreter.

The commission rates for real estate agents in 2024 vary significantly, typically ranging from 1.5% to 5%. This fee is substantial, especially considering it often includes VAT on top of the agent's commission. Real estate brokers have different charging methods, which can depend on whether the contract is exclusive or non-exclusive.

Here's an overview of the commission fees charged by various real estate networks:

• Duna House charges a commission fee of 3-5%, plus VAT.
• Otthon Centrum has a cap on their fee at 2.5%, plus VAT.
• OTP Ingatlanpont's fees range between 2.5% and 5%, plus VAT.
• Balla Ingatlan charges a flat rate of 2.5%, plus VAT.
• GDN Ingatlanhálózat, REMAX, Dr. Makkos, Lotus House Ingatlan, and CDC Ingatlan have not disclosed their commission fees publicly.

Land registry fee: What you need to know

The land registry fee in Hungary is a mandatory cost for registering your ownership. It's a small but vital part of the property buying process, ensuring legal recognition of your purchase.

Typically, the cost to submit a title registration application for a buyer's property is 6,600 HUF for each property. The process usually takes around 60 days to complete, beginning from the date the request is made. However, this timeframe can be substantially shortened if you opt for expedited processing. For this faster service, there is an extra fee of 10,000 HUF per property, which is charged in addition to the standard filing fee.

Additional costs to consider when buying property: Purchase Permit

The process for foreigners, especially non-EU/EEA/Swiss nationals, buying property in Hungary involves obtaining a property acquisition permit, adhering to specific regulations, and possibly facing certain restrictions. It's crucial to engage locally authorized legal professionals for guidance throughout this process.

The maximum 45 days procedure is conducted by the government office in the property's location for HUF 50,000 per property for non-residents; HUF 10,000 for certain foreign individuals.

If you are think you are affected with this regulation, read our article about property purchase permits!

Hidden costs and how to avoid them

Drawing from my extensive experience in civil litigation, I've learned to advise clients eyeing Balaton holiday homes under 15 million forints about the common need for renovations and typically limited utility services in such properties. It's a common expectation among vacationers to have modern conveniences like a fast internet connection and not to rely on old-fashioned methods like chopping wood for hot water. 

As a practical step, I recommend visiting the e-utility website to assess the available utilities at the property firsthand.

In these situations, it's wise to seek guidance from a local expert. Engaging a real estate appraiser, structural engineer, and particularly a lawyer is crucial to navigate any potential warranty issues. For the new owner, it's important to be prepared for the reality that renovations can be a significant investment, often exceeding a few million forints.

Furthermore, ongoing costs such as property taxes must not be overlooked. Property taxes are a recurring expense and vary based on the location and size of the property. Additionally, the purchase contract should be scrutinized for any clauses that might impose additional monetary obligations on the buyer.

Why do you need a registered Hungarian lawyer for real estate transactions?

In Hungary, written formalization of real estate transactions is required by law, usually in the form of a real estate sale and purchase agreement. While the parties involved can draft and sign this contract independently to make it legally binding, transferring the ownership of property without the involvement of a lawyer or a civil law notary is impossible. This is due to the fact that initiating the property registration process with the land registration authority is a task exclusively reserved for these legal professionals.

Beyond the legal requirement, involving a lawyer or notary in the transaction is more than just a formality. Their expertise and advice are invaluable for navigating the various complexities of the real estate process.

Conclusion

Investing in Hungarian real estate can be a wise decision, but it requires a clear understanding of all associated costs. My approach as a property lawyer is to provide transparent, comprehensive advice to ensure our clients make informed decisions.

We're dedicated to offering a client-first approach, ensuring a smooth and cost-effective property buying experience in our Budapest, Pécs, Szeged and Kaposvár offices!

The cover image was created by Nikoletta Fazekas.

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