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Legal News

Changes in the taxation of apartment letting

napi.hu, 09.05.2017 – According to a new analysis published by one of the largest property trading websites of Hungary next year’s tax legislation will rearrange the HUF 110-130 billion apartment rental market. Rental prices in Budapest are not expected to grow anymore, but in other towns there is still room for expansion, especially on the demand side. This is not expected to cause any rise in prices because next year’s revised tax legislation will basically halve current taxes and duties levied on apartment letting revenues.

According to plans the 14 per cent health care contribution would be abolished on revenues exceeding HUF 1 million per year. Revenues will only be subject to 15 per cent personal income tax, which may mean that the current average rental fee of HUF 130-135 thousand will not increase – not least because clients cannot afford to pay more. The average rental fee already equals two thirds of the average salary in Hungary.

Residential Property Market Slowdown

napi.hu, 04.05.2017 – According to the estimate of a major property agency a total of 10.6 thousand apartments changed owners in April, 16 per cent less than a year ago. Poor weather and the Easter holidays were bad on the property market which, following the boom in March, closed with significantly more modest numbers in April. That said, 10,575 transactions are still one of the highest figure since last summer though, despite being 16 per cent less than a year ago, the survey says. According to the agency’s estimate 40,175 properties were sold in the first four months of the year, 13 per cent less than the 46,000 transactions recorded in the same period of the previous year.

This is how crime rate affects apartment prices

In theory, there is a strong correlation between the crime rate and the property prices of a neighbourhood: security has a well-defined market value. However, in reality this relationship is not that straightforward: “As ever so often, the devil is in the details”, a property market analyst said. 60-70 per cent of the price of an apartment depends on the property’s physical parameters and the rest comes from the quality of the neighbourhood and the quantity and quality of services available locally. Crime and security have a strong influence, but we must also consider what type of crimes the statistics mention.

For example, although according to data published at www.police.hu the crime rate per 1000 inhabitants is the highest in downtown Budapest, apartments here are still some of the most expensive ones in the Hungarian capital: the average offering price of HUF 515 thousand in 2014 increased to HUF 862 thousand by 2016. The districts most severely hit by burglaries are the central ones in Buda (with the exception of District I.), and although the number of reported cases sank by 30-50 per cent in all of them, burglaries are still very frequent compared to the number of inhabitants.

Apartment buyers deterred by prices

napi.hu, 06.04.2017 – According to the transaction volume estimate of a large Hungarian property agency 11 560 apartments changed owners in March in Hungary. March was a strong month on the property market, far stronger than the second half of 2016, even considering the 7 per cent backlog compared to the same month of last year. The recoiling was caused by the earlier surge in property prices which forced the market to take a deep breath while potential buyers waited to see where prices were going next.

March transaction volumes and indeed the increased demand in February indicate a return of buyers to the market, which means the wait for lower prices is over. This is also supported by the increasing proportion of buyers purchasing for themselves as opposed to investors. In total, there were 29.6 thousand property sales transactions completed in the first quarter of 2017 in Hungary. In 2015 and 2016 the same figure was slightly over 30 thousand, while in 2013 it was a mere 18 thousand.

Experts expect a boom in apartment construction

napi.hu, 03.04.2017 – According to experts the number of apartments constructed this year may rise significantly, but a change in VAT legislation and the lack of skilled workers may have an unwelcome effect on the construction industry. A recent survey showed that the number of condominium apartments completed this year will reach 2010 highs, but even last year’s 10 thousand was a four-year record. Experts base their estimate on the number of planning applications mainly in the periphery of Budapest, in larger Hungarian towns and in the vicinity of Lake Balaton, mainly as a result of the 5 per cent VAT. This VAT rate will probably be in force until 2019 only, so – due to the time requirement of planning permission procedures – developers have only one year left to start new projects.

Overpriced properties on the Hungarian market

napi.hu, 05.01.2017 – A recent survey published by the Hungarian Statistical Office revealed that half of all Hungarian residential properties are worth less than HUF 10 million and one-third falls into the HUF 10-20 million category. Only every tenth property is worth more than HUF 20 million and less than five percent have a value of more than HUF 30 million. An apartment whose asking price is unrealistic will be sold with great difficulties only, no matter how strong the market is. Finding the perfect price is a key aspect of a successful sale and experienced  property agents clearly have the edge here.

Overpricing can, in most cases, be attributed to one of two main reasons. In many cases the owner is also attached to the property emotionally and will attempt to reflect this attachment in the asking price. Another reason is the lack of experience: in their entire life, most people have the opportunity to sell two or three properties only, unlike real estate agents who, thanks to their professional experience, have a better overview of market prices.

First Apartment Trivia

napi.hu 14.12.16 – Demand and opportunity tend to arise ever later for young people to have their own first apartment and household. According to data collected by the Hungarian Statistical Office during the past 10 years young Hungarians leave the family home at the average age of 27.5.

During this ten-year period a total of 280,000 young people moved to their first new home, 75 per cent of them started their new life as proud owners. Ten years ago the average purchase price of the first home was HUF 9 million (approx. EUR 28 650 at current exchange rate) and it bought a studio or a one bedroom apartment.

This has also changed during the past decade although HUF 9 million does not seem a lot if we include the properties purchased in small settlements and small towns. An apartment bought for HUF 9 million ten years ago can be worth twice as much today. Only a few fortunate can buy their second apartment without having to sell the first one. The majority adds HUF 3 to 4 million to the selling price and buys an apartment with one or two bedrooms more.

Decreasing apartment prices on the horizon?

napi.hu, 29.11.2016 – There are signs of slowing of the property market, not only in downtown Budapest but in the outlying districts such as South-Pest, too. Prices are stagnating but experts believe they may even start to decrease in the near future. Real estate agents agree that the selling price hike has stopped and is hovering at previous, high levels, but any further growth of supply may result in lower prices. One source of such growth could be the consequence of the exchange rate limit that may increase the monthly instalments of loans denominated in a foreign currency and this, in turn, can force owners to offer their properties for sale. This could bring about a price drop of 5-10 per cent. However, the bargaining margin has not increased yet. Owners of condominium apartments seem very tough negotiators and are not prepared to give discounts exceeding 5 per cent. For detached or semi-detached houses buyers can achieve a little more: 5-12 per cent.

Ruined apartments in the wake of Airbnb

napi.hu, 15.11.2016 – Airbnb is causing more and more problems worldwide. The scheme faces stiff opposition, too, because it poses competition for the hotel industry, reduces the number of apartments available for long-term rental and also results in increasing rental fees. The situation is the same in Budapest, where many Airbnb hosts have already become disillusioned.

A great number of owners joined the Airbnb bandwagon with high hopes a year or two ago. Some had just one single apartment and many of them are now forced to admit that this is not what they were expecting. Their properties have been devastated by foreign tourists, the revenue has been less than they had hoped for and Airbnb requires a lot more work and attention than letting an apartment for the long-term.

Short-term apartment letting involves active marketing, one must follow the dates of important events in the city and amend prices accordingly, and both the apartment and the guests need constant attention, too. If you just post your property for EUR 40 a night and hope for the best — you will be seriously disappointed.

Residential Property Price Outlook

napi.hu, 05.10.2016. – The pre-owned residential property price increase expectations in Budapest are almost the same as in the previous quarter. 28 percent of respondents of a survey expect that prices will go higher and 19 percent said they would go down. The expected overall average price increase for Budapest is still approximately 1 per cent. A material increase of about two per cent is expected in Buda and in the upmarket parts of the downtown areas of Pest. As far as the Eastern and Western parts of the country are concerned, the survey forecasts a price increase of 2 and 3 per cent, respectively, while strong regional differences will prevail. This means the national index is back at where it was six months ago while that for Budapest is somewhat lower than that. Based on the responses building plot prices will increase by 3-6 per cent in the next 12 months.

Tax Authority plans changes

napi.hu, 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

napi.hu, 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

napi.hu, 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

napi.hu, 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?

napi.hu, 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?

napi.hu, 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)

napi.hu, 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

napi.hu, 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

napi.hu: 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

napi.hu: 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.