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Legal News

Tax Authority plans changes, 05.10.2016. – Such changes should give taxpayers a real chance to win their disputes with the authority (currently 80 per cent of all lawsuits initiated are won by NAV, the Hungarian Tax Authority) and to ensure that honest taxpayers are pestered less frequently. However, independent experts say it would not be a good idea to ignore unanimous whistle-blowers (another plan of the management) because they are an irreplaceable source of information.

The management of NAV would also give taxpayers more opportunities to pay their debts. Currently, unpaid tax obligations are subject to forcible collection on the second or third banking day after they have become due. Experts, however, warn that payment warnings and on-site distrainment are more costly than forcible collections from taxpayers’ bank accounts.

Satellite settlements’ decreasing popularity, 26.09.2016. – The population of Budapest is increasing by almost 0.6 per cent a year, while the settlements in the outskirts are rapidly losing popularity. The inner districts of the capital are more and more appealing to apartment buyers, which is reflected in increasing prices. Ten to fifteen years ago Budapest and several other large Hungarian towns were facing slumming, a phenomenon known by Western metropolises, i.e. the radical worsening of standards of living in the inner districts. However, development projects succeeded in reversing this tendency and now potential buyers are again showing increased interest in downtown areas. At the same time, the population growth of satellite settlements has slowed down: while at the turn of the millennium some of these places registered an annual growth rate of as high as 4-7 percent, today there are hardly any that grow at a rate exceeding 1 per cent a year.

CSOK has still not taken grip, 27.09.2016. – The initial enthusiasm has ebbed and now CSOK (Family Home Allowance) does not seem to be such a success story after all. Real estate agents say the most serious problem is the sluggishness of the approval and disbursement procedure, which in turn causes extreme difficulties to construction contractors. CSOK is unlike a bank loan that you can apply for during the construction phase. The future allowance must be pre-financed either by the buyer or the developer. Most applicants are still waiting for their money even though they signed their contracts months ago. Banks regularly reject the documents, requesting new or additional information or amendments. On account of the poor experience of the past months developers and construction contractors are not happy to deal with CSOK clients and ask their real agents not to engage buyers who want to finance their purchase of a new apartment from CSOK.

Lodger tax to be introduced? – The Ministry responds, 12.09.2016 – Rumours of a new “lodger tax” have been spreading lately, so the Ministry of National Economy issued a bulletin to set the situation straight. The letting of apartments has been subject to income tax since more than 25 years, so there is no news here. The rules are clear: offering your apartment for lease through an online accommodation marketplace qualifies as a taxable accommodation operation and the landlord must have a tax number and register with the local notary public. Letting an apartment or part of it for the long term, e.g. to a lodger, is also subject to tax, but the landlord does not need to have a tax number.

According to the Ministry the online accommodation marketplaces undoubtedly created new opportunities for Hungarian landlords. The National Tax and Customs Authority started a systematic analysis of the situation back in the spring of 2016. Based on the data collected from just a single online marketplace they found that in May there were 8299 properties offered by 5206 landlords.

How to calculate profit before tax from a long-term apartment lease?, 13.09.2016 – There are two ways to calculate profit before tax from a long-term apartment lease. First, the landlord can deduct every verifiable cost item (cost of utilities, renewal expenses etc.) and depreciation from the revenue earned.

Second, the landlord can deduct a flat-rate 10 per cent cost ratio from the revenue earned. A tax advance shall be paid on a quarterly basis and the revenues shall be entered into the tax return under “revenue earned from non-employment activities”. The tax rate is 15 per cent. If in any tax year a private person’s revenue earned from property rental exceeds HUF 1 million, then 14 per cent social security contribution must also be paid.

Do landlords need a tax number?, 06.09.2016 – According to a bulletin issued by NAV, the Hungarian Tax Authority recently, no tax number is needed for landlords offering their property for a long-term lease, unless they are legal entities with a compulsory tax number. As the lease of properties for non-touristic purposes by private persons is exempt from VAT, no invoice needs to be issued for the rental fee – a receipt or any other form of verifiable record will be sufficient.

Touristic accommodation services, on the other hand, fall into the category called “other types of accommodation” and involve a formal business activity, mainly the provision of short-term accommodation and related services. Property owners have a choice of several forms of business and taxation methods. Most of them do so as private persons and must apply for a tax number and also register with the local notary public.

Surprising news re: Family Home Allowance (CSOK), 29.08.2016 – Hardly anyone has bought a new home using the Family Home Allowance (CSOK) yet, despite the fact that more than ten thousand applications have been registered so far. At the same time, the price of new homes has increased way beyond expected and reasonable levels since the new scheme was announced. Estate agents say they have “not seen a living soul who had actually bought a new home using an approved CSOK application”. Home prices surged since the introduction of CSOK, but a larger number of new houses and apartments at CSOK-conform prices and floor spaces will be completed next year only. Another handicap of CSOK applicants is that cash buyers are quicker to pay and snap up the best deals.

Changes in apartment prices between 2014-2016, 03.06.2016 – According to an estimate made by a large Hungarian real estate agency compared to 2014 the average price of used and new apartments in Hungary increased by 11.6 and 6.7 per cent, respectively. In 2015 the prices of used condominium apartments in some districts increased by 1-20 per cent compared to the previous year, while the price of new condominium apartments showed an increase exceeding 20 per cent. The prices of used houses and concrete high rise apartments showed a more moderate increase of 5-15 per cent.

In Q1 2016 apartment prices in Budapest were still on the rise. The increase of used condominium apartments was close to and in some downtown district even exceeded 30 per cent. For new condominium apartments and for concrete high rise apartments the hike was 25 per cent. Houses could be bought at prices almost 15 per cent higher than a year before.

Mood improvement was temporary only, according to new analysis The most recent, April confidence index of GKI, the Hungarian Economic Research Institute, decreased by the same amount (five points) as it had improved in March. This index has been hovering in a comparatively narrow range at levels lower than previously. Why does production fail to improve faster? One of the reasons is that the lack of workforce now prevents an expansion of production to a much higher degree than before. The limited amount of workforce available mainly disrupts smaller companies with less than 50 employees. Based on seasonally adjusted figures, the short term outlook of Hungarian economy among construction companies did not deteriorate in April compared to the previous month. The ratio of optimistic and pessimistic views was 18 and 17 per cent, respectively – the same as in March.

Heavy fines on black market apartment rentals According to a survey conducted in Terézváros, the 7th district of Budapest, about 75 per cent of Airbnb hosts evade paying tax either on purpose or out of ignorance. These results are in line with those of international surveys. Failure to issue a proper invoice may result in fines up to HUF 1 million levied by the Tax Authority. The survey used local government property registers, publicly available data at the Airbnb website, and also personal interviews were made.

The Hungarian Tax Authority issued a press release recently to clear up any misunderstandings. The press release confirmed that private persons commercially letting one single room or their entire apartment for accommodation purposes through an online reservation system, such as Airbnb or similar, are legally obliged to issue an invoice and pay income tax, too.

Foreign buyers of Hungarian apartments The boom of the Hungarian residential property market has raised the interest of foreign investors, too, and buyers from China, Russia, the Ukraine, and the Middle-East have become a regular feature in Hungary. According to 2016 Q1 figures less than 1 per cent of residential property transactions were effected by foreigners, but their ratio was almost 4 per cent in the most popular districts (V., VI. and VII) of downtown Budapest.

Chinese buyers had the biggest share (36 per cent), while another 15 per cent came from another country of South-East Asia. Buyers from the Middle-East had a share of 5 per cent. Judged by their combined share European buyers are still in majority, but the individual proportion of Austrian, German, French, English, Northern or Southern European buyers is small.

Most foreign buyers went for an apartment of 60-80 sq. m. in downtown Budapest at an average price of HUF 45 million.

Apartment rental: tighter rules looming According to a proposed bill all private persons exploiting their residential properties for commercial accommodation purposes should pay HUF 1500 tax a year for every sq. m. of the property. Each private person could exploit a maximum of three residential properties this way. This would be a simplified but more stringent method of enforcing the principle of equal tax treatment in tourism-related accommodation sharing (such as Airbnb), one of the most popular fields of sharing economy. The frequency of targeted inspections by the tax authority would also be increased. Legislators believe it would also be necessary to align the rules of private apartment rental to those applicable to traditional hotels.

Property prices may surge on account of refugees In the next 15 years residential property prices may see a significant rise in German cities like Berlin and Hamburg because the growing number of refugees increases demand for residential properties, analysts of German Postbank say, assuming that by 2030 a total number of one million refugees will be granted a permanent residence permit in Germany. According to their results a 1 per cent increase in population triggers a price hike in urban apartment and house prices of 3.5 per cent and 1.9 per cent, respectively. The Eastern part of the country may benefit from the influx of refugees, but cities like Hamburg or Berlin will be facing serious difficulties on account of the increased demand for residential properties. The report says a fact of key importance is that according to Destatis, the Federal Statistical Office of Germany, German population will decrease even if the highest estimates of the number of immigrants should come true.

Residential property prices on the increase – huge differences – According to an analysis that processed more than 100,000 residential property advertisements the increase of prices may, at first sight, seem dramatic, but the trend is far from general. Between July 2015 and January 2016 the average price of a square m of residential property in Hungary increased from HUF 220,000 to HUF 312,000. The hike was probably caused by the changes in the government’s real estate policy. In the above period the average asking price increased from HUF 323,000 to HUF 403,000. The Western part of the country soared, too, but the performance of the remaining counties was rather varied. One of the key reasons was that the asking price of hard-to-sell properties, mainly larger detached houses, had to be continually decreased. Average prices are likely to grow in popular parts, while in less trendy settlements further price decreases are to be expected.

You could have made a 40 per cent profit last year There is a good chance you could never guess where you should have invested you money in 2015. It is always easy to be clever in hindsight and this is no exception. While demand bank deposits earn next to zero per cent and even sums tied up bring 2-3 per cent maximum, the price of apartments in concrete housing blocks in Buda increased by 41 per cent on average last year — and this happens to be the type of property that sells like hot cakes if you need your money fast. Selling times average at 35 days and buyers have the least margin for bargaining. In contrast, the average selling time of residential houses is six months and sellers will need to be prepared to reduce the price to catch a buyer.

Hungarian residential property prices almost on pre-crisis level Residential property prices are still on the increase. In Q3 2014 buyers were facing the same prices as at the turn of 2008/2009. According to figures published by FHB Jelzálogbank there has been a continuous hike in residential property prices since Q2 2014, although the rate of increase has been diminishing gradually. Between April 2014 and September 2015 residential property prices increased by about 25.8 per cent both nominally and in real terms. The number of planning permissions granted (8616, an increase of 1000 over the same period of the previous year) also increased between January and September 2015.  The volume of loans also reflects the boom of the residential property market. In Q3 2015 the value of residential loans granted exceeded HUF 100 billion, an increase of 43.5 per cent over Q2.

Unlucky apartment buyers seek help from the Prime Minister Apartment buyers who signed their contract last year at a gross purchase price (as opposed to a “net + VAT” price) will not be able to enjoy the benefits of the VAT reduction – not even if they can take delivery of the “product” in a year or two. There is no legislation for this situation and even though this is against the intention of the legislator, there is nothing to force developers to pass on to their buyers the extra profit they happen to make. The only option the latter have is to cancel the contract but this would, too, benefit the developers who in view of the significant price increase that has occurred in the meantime can resell the apartment at an even higher price. As there is no comforting solution at present, affected apartment buyers wrote a letter to the Prime Minister, asking him for help.

Don’t hope for cheaper residential properties as yet The government expects a doubling of new residential property developments as a result of the VAT cut, but prices will reflect the changes in the long run only. Earlier discounts and subsidies have been cancelled which made new homes more expensive, but the new subvention scheme will hopefully boost the market.

The twin pillars of the new subvention scheme are the reduction of VAT levied on new residential apartments to 5 per cent from 27 per cent (for apartments and houses up to 150 and 300 square metres, respectively), and a refund of up to HUF 5 million for private person developers of VAT levied on not more than 70 per cent of construction expenses backed with an invoice. Both schemes apply until 31 December 2019. A new apartment/house is one that has no occupancy permit yet or whose residency permit is not older than 2 years.

Do you own a house? Here’s some good news A call for tenders for state subvention of the comprehensive overhaul of residential properties will be published soon. Property owners will be invited to submit their tenders from August. The objective of the government is to provide a state-funded scheme for the modernisation of residential properties owned by private individuals. The source of the funds will be GINOP, the Economic Development and Innovation Operational Programme. The government approved the amount dedicated to the extension of the programme back in mid-December. Part of the funds amounting to HUF 103.9 billion and available from August this year will be used as loans aimed at improving the energy efficiency of residential properties and the increase of the use of renewable sources of energy.

Apartment Rental Fee Trends in Hungary The average monthly rental fee of a 40-80 square metre apartment in Budapest was HUF 130,000 in October and November. Compared to the same period of the previous year apartment rental fees increased in Budapest, Pécs and Miskolc by 8, 33 and 28 per cent, while in Szekszárd and Szombathely they decreased by 18 and 20 per cent, respectively.

There are significant differences among Budapest districts. District 16 exhibited the highest increase, 56 per cent, to HUF 106,000. Based on October and November advertisements, district 5 is still the most expensive at an average rental fee of HUF 180,000, which is a 20 per cent increase on a year-over-year basis. District 2 showed the biggest decrease: in October and November 2015 the average rental fee was HUF 140,000, 12 per cent less than in the same period of the previous year.