When Soviet tanks rumbled through the streets of Budapest in 1956 to crush an anti-communist revolt,
who'd have thought that Hungary would, under Prime Minister Janos Kadar, become one of the most liberal of the Eastern bloc nations? A range of policies enacted under Kadar’s leadership from 1956 to 1988 helped the transition from central control to market economy. As of 1989 the state became multi-party. In 2004 Hungary joined the European Union and, among all else, the property market opened up to the west.
History at your feet... the parliament building in Budapest
Country and economy
Roman, Germanic and Asiatic conquests of Hungary pre-date the Ottomans who ruled intermittently for almost 200 years until their expulsion at the end of the 1600s. Next were the Hapsburgs who stayed until 1867, at which time Hungary became part of the Austro-Hungarian Empire. At the end of the first world war the Austro-Hungarian Empire was no more. Hungary was aligned to Germany during second world war. By 1949 it was proclaimed a one-party People's Republic.
From an economic base of agriculture and small manufacture with a heavy reliance on foreign trade, in the 1950s the government forced through rapid programmes of industrialisation.
Until the late 1980s the Hungarian economy was dependent on trade with the Soviet Union and other Comecon countries. Although certain market reforms had been put in place, the 1990s marked an uneven transition from the communist era. But by the end of the decade, massive foreign direct investment and numerous government reforms put Hungary on the path to sustainable economic growth.
Belle époque properties are being snapped up all over the city
Enhanced no doubt by the country’s accession to the EU in 2004, nowadays Hungary is a top emerging open market economy and, reports the Economist Intelligence Unit, around 80% of the country’s exports are with the EU.
That the prime minister lied about the state of the economy – which led to political protests last September and in March this year – rattled economic confidence. Today, Hungary’s budget deficit is one of the highest in the EU. But, reports the Economist, an austerity programme appears to be on track. The World Bank puts per capita income at more than €7,000. Almost two thirds of GDP is produced in the service sector, of which real estate is an important segment.
‘Post-EU membership has meant steady growth rather than an overall property price boom, unlike some other new member states,’ observes Henry Wilkes, Eastern European residential manager at Savills.
Caroline Hollingworth, MD at Hollingworth and Associates, is bullish about investment prospects. ‘With low property prices and a weak currency, much like the United States, now is a good time for foreign investors to invest,’ she says.
Budapest is the country’s main property hotspot. Described as the ‘pearl of the Danube’, the capital is divided by the river, with Buda hills on one side and Pest lowlands on the other. Representing a pocket of exceptional price rises, centrally located belle époque apartments have increased to five times their value since 2004,’ observes Hollingworth.
Budapest has a wide range of properties for sale, ranging from period to modern and some that combine both. Palazzo Dorottya, for example, close to the river and in the fashionable District Five is a classical building that has been gutted to create luxury high-tech apartments starting at €3,000 per square metre, for sale from A1 Real Estate.
‘Up and coming areas of the city with lots of classical architecture are Districts Seven and Eight, where for the moment you can pay as little as €900 per sq m for a period apartment in need of refurbishment,’ says Suzanne Varga, consultant at A1 Real Estate.
Modern builds like Ibiza Gardens, above, are springing up
along the skyline Photo: Hollingworth and Associates
Centrally located and in the middle of the Danube is the 42km-long Csepel Island. Although much of it has been industrial for some years, part of a new look includes Ibiza Gardens, a marina development with 181 riverside one and two bedroom apartments priced from €60,000 up to €200,000, the latter for a spacious penthouse. Contact Hollingworth and Associates.
Less central and more affordable are the new ribbon developments around the city. ‘Many owners have cashed in their central period properties and moved out to the new suburbs, especially around the Orbital – the counterpart to London’s M25 or the Paris Peripherique,’ says Hollingworth.
Holmi Residence is 1km from the Orbital and adjacent to the vast Holmi Forest and lake. The area is receiving huge injections of development money and is minutes from the airport and a new industrial park that is home to an expanding number of multinational companies. From Hollingworth and Associates, 20 studios to penthouse apartments are priced from €56,990.
Nearby, Zaragoza is a larger project of 336 apartments on the market from Colliers CRE. Phase one will be ready at the end of the year. Prices start at €57,990.
The market is less developed outside Budapest. While Lake Balaton (to the south-west of the capital) has long been popular as a tourist destination, there is very little in the way of new developments. There are exceptions, such as the nearby Hungarian Balaton Properties golf course with apartments from €195,500. Or the new Budapest Gate, some 40km from the city, has off-plan golf properties from just under €100,000.
Lake Balaton has managed to remain largely undeveloped
There are numerous spa towns and small villages dotted around the countyside and along the Danube with period properties for sale. ‘As the rural market is in its infancy, you’d be well advised to tread with caution,’ warns Hollingworth. And as Varga says: ‘Hungary has many historic towns and cities with bargain basement property prices, but the country’s transport infrastructure – though improving all the time – does not make access easy.’
Pitfalls and practicalities
That Hungary is becoming a burgeoning economy does not mean that it has lost its emerging market status. This is true nowhere more than in the property market.
Similar to many new EU accession countries, Hungary has negotiated a transition period for the acquisition of property by EU citizens. Certain exemptions apply for EU citizens who have lived in the country for, say, four years. Otherwise, most purchases by a foreign national require a formal purchase permit from the Hungarian state, which can take up to 60 days to process.
To circumvent the legal requirement of a formal permit and save time generally, it is possible to set up a limited liability company. Ownership by non-resident nationals is restricted to a single property, unless they own a company.
The purchase of process is otherwise cumbersome. Once an offer is agreed a deposit of 10% is normally required to secure property. Title searches then commence and can be lengthy. Once clear title is established and the purchase permit is in place, it's time to pay the money and close the interim sale. The buyer has to wait for up to six months for transfer of deeds and full ownership.
Transaction costs including taxes and legal fees are around 10% of the purchase price. The brokerage commission is typically 3% and paid by the seller.
Hungary is expected to join the Eurozone in the future. Some properties may already be purchased with euros, but the exchange rate mechanism will ease currency fluctuations.
A useful database can be found at the Hungarian Real Estate Association and for investment background, Hollingworth and Associates. The Hungarian Tourist Board provides useful country information, as does the Ministry of Foreign Affairs.