Airbnb: Tax inspectors in tourist disguise?

hvg.hu: Short-term, mainly tourism-motivated apartment or room rental e.g. through Airbnb is gaining in popularity in Hungary, too. Earlier, the Hungarian Tax Authority had already reminded owners letting their property using the services of Airbnb that they need to register a tax number and must also issue an invoice. Now owners are warned that tax inspectors may even go one step further and rent rooms advertised online.

As part of their job employees of the tax authority perform test purchases and use various services, including accommodation, to find out whether providers comply with applicable tax regulations. Tax inspectors focus on spotting tax evaders and ensuring that neither tourists, nor legitimate companies or service providers, nor the state budget suffer any losses.

Construction industry on the decline

napi.hu: The sudden recoil of the construction industry was predictable and the rest of the year will see a marked decline with 2016 expected to take a very sluggish start. The construction industry is currently delivering on its large-scale contracts concluded back in 2013 and early 2014 and there have been no significant new jobs in sight since. Public procurement orders were 36 per cent down from the first half of 2014.

Retail and business contracts cannot make up for the missing government orders, so the output of the construction industry (including the sloping figures for the second half of the year) will be about the same, HUF 2100 billion, as it was in 2014. Now, in the second half of September there is still no sign of EU-financed high-profile tenders that could have a positive impact on the construction industry.

Properties are not the most popular form of investment – yet

According to napi.hu the combined amount of residential loans grew by almost 80 percent during the ten years between 2004 and 2014. At the same time, the total amount of state-funded loans shrunk by almost 50 per cent. The average amount of a loan taken out for a residential property (with all types of property considered) slightly exceeded HUF 3 million in 2004, then soared to HUF 6 million in a mere five years.

From 2009 onwards the economic crisis, stricter loan conditions and bad debts resulted in a quick decrease back to the 2004 level where the average has been floating ever since for the past three years. Despite the boom of the residential property market investment-motivated purchases are still comparatively rare and occur mainly in Budapest.

How many months’ gross average salary for a new apartment?

Napi.hu reported that according to a recent survey the price of a new 70 m² apartment in the Czech Republic, Poland and Hungary equals 7.1, 7.2 and 7.8 years’ gross average salary, respectively. In Belgium and Germany people only need to save up 3.2 and 3.3 years’ gross average salary, respectively, to buy a new apartment with the same floor space. In the UK, however, they need to save up for 10 years to do the same.

Generally speaking, the more developed a European country, the shorter the time needed to save up for a new apartment. The UK is an exception because property prices are boosted by foreign investors and the demand created by immigrants and expat employees working in the UK.

Last year, the average price of 1 m² of new apartment floor space in Prague, Warsaw and Budapest was 2020, 1760 and 1190 euros, respectively.

Austrian Tax Authority has its sights on Airbnb

According to hvg.hu the Austrian Tax Authority demanded business-related information from Airbnb and other private accommodation providers to find out the amount of revenues made and whether those offering their flats as commercial accommodation are paying taxes on such revenues. The Austrian Finance Ministry said negotiations are still pending and they have contacted Airbnb and the other platforms directly.

The biggest complaint of the authorities is that these sites are paying VAT for the mediation services but not for the accommodation itself. Private accommodation providers are a thorn in the eye of big hotel chains, too, because hotels are losing profits over their online competitors. According to an Austrian accommodation industry spokesman they are demanding equal requirements and equal rights for all market players.

A new area of Tax Authority investigations

According to napi.hu the Hungarian Tax Authority has been making undercover test purchase and rental transactions on the residential property market since early July, including the increasingly popular Airbnb properties. Anyone failing to issue a receipt or an invoice for the money taken risks fines of up to one million forint and those conducting market activities without a license may face further inquiries and penalties.

Airbnb and commercial accommodation services are subject to 18 per cent value added tax. Those offering their apartments for rental on the internet may be exempt from VAT if their annual turnover does not exceed HUF 6 million. According to market experts 80 per cent of all Airbnb-transactions are concluded on the black market which also results in constantly increasing rental prices.

Turning point on the residential property market

Napi.hu reports that while the Q1 figures published by KSH, the Hungarian Central Statistical Office paint a decidedly encouraging picture of the domestic residential property market, we are actually approaching a turning point now. The price hike is about to trail off, the supply increases and things are getting back to normal in a previously demand-driven market. One of the reasons of the increasing supply is that the effects of the newly introduced Family Home Allowance (Családi Otthonteremtési Kedvezmény, CSOK) are smaller than expected and many a former foreign currency loan debtor realizes how tight their situation actually is, and instead of paying exorbitant instalments decide to sell their property. As a result of the unexpectedly big supply the number of sales transactions may even surpass 2014 levels in 2015.

Seven-year record in new apartment sales in Budapest

Hvg.hu reported that all he available apartments ready for moving in may have been sold by the end of the year. According to the “Budapest New Flat Value Map” compiled using data supplied by developers and sellers, 1800 apartments were sold between January and June. District XI was the most popular, with 400 apartments, followed by District VIII and XIII, with 300+ apartments sold in each by the end of June. There were 530 apartments for sale in Budapest at the end of June, not counting about 600 apartments under construction. This year about 1500 apartments built for sale will be handed over to their new owners in about 100 different projects, but there would be immediate demand for more. Well-designed developments’ pre-sales figures improve, i.e. more and more buyers pay deposit for apartments before they are built or even before the start of construction works.

Fine levied by NAV, the Hungarian Tax Authority is against EU Law

An EU regulation on the prevention of illegitimate international movement of cash requires that any natural person entering or leaving the EU and carrying cash of a value of EUR 10 000 or more shall declare that sum to the competent authorities of the Member State through which they are entering or leaving the EU. Under Hungarian law the fine levied for a breach of such obligation to declare depends on the magnitude of undeclared amount of cash and for sums above EUR 50,000 the fine to be paid on the spot is 60 per cent of the undeclared cash. According to the ruling of the European Court of Justice this provision is not consistent with the principle of proportionality.

A flourishing office market

Napi.hu reported that the upswing of the European office space market will prevail in the period between 2015 and 2017 and a significant boom in London, Dublin, Barcelona and Stockholm may give new impetus to the entire region. According to a survey involving 20 European capitals the region’s rental office market will continue to show signs of good health in the next two years. Office space prices will increase, although the percentage of vacant properties will increase in Moscow, Warsaw and Istanbul.

In Western Europe 12 out of 13 markets will see higher rental fees in the next three years with London expected to experience a rise of 15 per cent. Good performers of the CEE region will likely be Prague and Budapest, even though with a mere 0.8 per cent increase between 2015 and 2017.

High on the Airbnb-fever: Hungarians dreaming of becoming a millionaire

According to hvg.hu a huge property market bubble is growing in Budapest: anyone with at least a free room to spare wants to get a slice of the short-term property rental cake through Airbnb. Three years ago American Airbnb had about 500 Hungarian members; today there are more than 5000 in Budapest alone, and their number is on the constant increase. The hype is based on the fact is that in recent years early birds could cash millions with a comparatively easy job. Many fail to see that this does not hold true anymore and embark on a risky undertaking nevertheless. Huge failures are sure to follow. The Airbnb-fever is also partly responsible for the exorbitant property and room rental prices in Budapest.

Tourism tax abolished and fast food restaurants excluded from merchants accepting “SZÉP cards”?

According to napi.hu tourism tax (ifa) and its automatic state supplement were originally introduced to act as a source of support for local tourism. Now they may be abolished, even though local governments may still be entitled to levy tourism tax at their own discretion. The supplement thus saved would amount to some HUF 10 billion a year and is planned to be spent directly on hotel or spa development projects.

Fast food restaurants may be deleted from the list of merchants accepting SZÉP cards because the original objective of the scheme was to channel spending to the accommodation industry and leisure activities. Today, the majority of monies spent using SZÉP cards goes to the catering industry which does not directly serve the sustainability of tourism.

Prices soaring in the outskirts of Pest

According to vg.hu the property boom that started last year in Budapest continues in two southern districts of Pest: Kispest (district 19) and Pesterzsébet (district 20) where there are currently more buyers than potentially available residential properties. This sent prices soaring to sometimes unreasonable heights.

Property agents hope that this may change by the end of summer, provided that foreign currency loan settlements and any appeals lodged by disappointed debtors are concluded and those affected can see their possible options for the future. A few years ago brick and mortar and brand new properties were most popular, today it is small and mid-sized apartments in high-rise concrete blocks, mainly in the price range of HUF 7-10 million.

40 per cent more properties changed hands

Index.hu reported that according to one of the largest property agencies almost 12 thousand properties changed hands again in Hungary in May. During the same period last year it was a mere 8500 which equals an increase of approximately 40 per cent within a year. However, there is a slight decrease compared to the previous month which is against the usual seasonal trends: in previous years the property market in May was usually busier than in April.

The boom of the previous two quarters seems to calm down for a while. One of the reasons is prices in Budapest have become rather exorbitant, the other is the new welfare measure called Family Home Allowance (Családi Otthonteremtési Kedvezmény, CSOK) expected to be introduced in July. There was no decline in demand, however with May registering the second highest demand figures this year so far.

Investor compensation: up to 30m HUF

According to index.hu the National Bank of Hungary (MNB) is about to initiate a law amendment to increase the compensation paid by the Investor Protection Fund (Beva) from its current EUR 20 thousand (approx. HUF 6 million) to EUR 100 thousand (approx. 20 HUF million). This would also mean that investment services providers should pay significantly larger contributions towards this fund than before.

According to the MNB the EUR 20 thousand is in line with the minimum requirements of the EU but the legislation of individual member states are free to provide stronger and more comprehensive protection to investors.

Another initiative of the MNB involves the merger of the Investor Protection Fund with the National Deposit Protection Fund.

Property market trends in the CEE region

According to hvg.hu in Hungary and Romania office rental periods average at 3-5 years, those in the Czech Republic and Poland at 5 years. In the first two countries the average vacancy period is 1.5 months per year, while in the Czech Republic and Poland it is 1-1.5 months and 2 months, respectively.

The economic crisis had grave effects on the property market but it did not hit rental fees of premium office premises as hard as the prices of properties offered for sale and of secondary financial instruments. Warsaw is the most expensive city (average rental fee of premium office premises: EUR 22-24/sq. m./month), followed by Budapest and Prague (EUR 20-22/sq. m./month) and Bucharest (EUR 18-19/sq. m./month). In an international survey of 50 cities globally, Budapest ranked 17^th and was among the Top 5 most economical European rental markets.

CEE banks still more profitable than those in Western Europe

According to hvg.hu the economic upswing of the region may result in a moderate expansion of banks’ loan portfolios and even the level of bad debts can decrease in some countries, a recent analysis by UniCredit Bank revealed. Before the 2008 crisis return on assets in the region averaged at 2 per cent. In 2015-2016 it may reach 0.8 percent, as opposed to German, Italian and Austrian banks’ ROE of 0.4, 0.2 and 0.4, respectively.

Net interest income (i.e. traditional banking activities) are responsible for two thirds of total revenues collected by CCE banks but it will be vital to increase the share of other income sources, mainly those that are based on fees and commissions. According to the analysis loans will continue to be the most important banking product.

Delegation of German businessmen examines Hungarian investment climate

According to hvg.hu in the course of their two-day trip more than 20 German businessmen visit German sister companies in Budapest and in the country and review the opportunities offered by the cooperation of universities and companies. The Hungarian host from the Ministry of Commerce and Foreign Relations is confident that the visitors will gather impressions and information that will help them prepare new investments and reinforce their existing relationships with Hungary.

2014 was an exceptionally successful year for German-Hungarian business relations. Germany’s share in Hungarian exports has grown to 27.7 per cent so Germany is still Hungary’s most important export market and also the biggest investor in Hungary – almost 25 per cent of direct investments in Hungary come from Germany.

Largest Hungarian company database of all times

According to napi.hu the Hungarian Chamber of Commerce and Industry (MKIK) is about to merge the company databases of eight separate authorities by January next year. As a result, the data currently stored about individual entrepreneurs or companies by the Tax Authority, the Competition Authority, the Company Information Service of the Ministry of Justice, the Public Procurement Authority, the National Food-Chain Safety Office (Nébih), the National Office of Vocational Education and Training (NSZFH), the National Consumer Protection Authority and the Central Office of Administrative and Electronic Public Services will be available from one single source. The Chamber of Commerce is authorised to collect these data pursuant to various government decrees. After the merging process has been completed there will be no need to wait until late May or early June to obtain information about the previous year’s business results of your business partners.

Small apartments sell like hot cakes in Budapest

According to resourceinfo.hu postponed purchases started to appear on the property market in 2014 and the increase of demand even resulted in price increases in certain areas. There was a 24 per cent increase in demand for residential properties compared to the same period of the previous year and sales went up by 30 per cent. Properties in Budapest were sold 25 days faster than in the country. In the capital small apartments (35-40 sq. m.) were in highest demand and sold for an average price of HUF 150-240 thousand/sq. m. In the country, slightly larger apartments (50-55 sq. m.) were the most popular and sold for at about HUF 100-200 thousand/sq. m.