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1024 Budapest Hungary

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Attorney's office e-mail info@drlittner.hu

Don’t hope for cheaper residential properties as yet

napi.hu: 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

napi.hu: 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

napi.hu: 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.

Intend to sell your apartment? We have some good news

napi.hu: The property price hike continues: the FHB property price index climbed from 179.36 points at the start of the year to 184.2 in Q2 2015 – this is a 2.7 and 1.7 per cent nominal and real increase, respectively. Despite the fact that the hike has been going on for 18 months prices are still lower than they used to be in 2008.

All in all, during the more than one year since the start of the price increase nominal and real prices increased by 14.9 and 14.6 per cent, respectively. Last year more than 100 thousand apartments changed their owners. For this year, property agents predict that the number of sale and purchase transactions will exceed 150 thousand, which is the same as in 2008.

Possible effects of a VAT cut of newly built apartments

napi.hu: If the government approves the proposed VAT cut we can expect the following effects: at a VAT rate of 18 per cent there can be a slight increase in the number of new apartments on offer, but the prices remain stable. At a VAT rate of 5 per cent prices may fall by 8-10 per cent at most.

Apart from the VAT cut, a credit scheme with a 3-4 per cent interest rate would be needed to stimulate demand. The rollout of this scheme is, however, delayed because the European Commission objected to two clauses of the draft agreement to be concluded between the government and the banks on more active residential construction financing. That said, the construction industry would be happy to see even the slightest market boost to improve its seriously shrunken order book. In lack thereof the industry’s output will return to 2012 levels.

Return of the “Kádár-cubes”?

napi.hu: In order to support residential building projects and to “improve the quality of our constructed environment” the government plans to re-introduce the standardised residential house plans reminiscent of the “Kádár-cubes” of the socialist era. A “national standard plan catalogue” comprising plans with characteristic architectural features of the respective region will be compiled for prospective home owners. Standardised plans will be cheap and buyers will be freed from the hassle of plan approval proceedings: a simple “acknowledgement procedure” will suffice. The Hungarian Chamber of Architects is happy; its members are not. Architectural plans will be accompanied by a technical documentation including an itemised list of materials and man-hour requirements. The new scheme will apply to residential buildings with a floor-space not exceeding 160 sq. m. and three stories (basement, ground floor, attic).

Government plans to reduce VAT – apartment prices going down?

napi.hu: There is no info regarding either the rate or the date of such reduction. Apartment developments are on the back burner not because of a lack of demand but because developers can’t make profits at current price and VAT levels. If they pay 27 per cent VAT at current market prices they can’t even reach the break-even point, developers said to napi.hu. The smaller the rate of VAT reduction, the less its effect on apartment prices will be. A new VAT of 18 per cent would only result in a modest increase of supply while a reduction to 5 per cent would trigger a mere 8-10 per cent decrease of prices – provided that demand starts to increase again.

Apartment renovation is a lucrative business

Napi.hu: Ingatlan.com compared the physical repair and the asking price of almost 300 thousand properties advertised at the end of September. The national average of the price per sq. m. for apartments in a “good”, “average” and “poor” physical repair was HUF 348,000; 281,000 and 258,000, respectively.

Prices are of course stipulated subjectively by the sellers but the results are a good indication of the trends. The data show that apart from the general boom on the property market another good idea is to buy an apartment in a less pristine physical repair and renovate it. One must, of course, consider the costs involved: a fresh coat of paint new flooring cost significantly less than the removal of walls and the renewal of the entire pipeline and electricity system.

VAT of apartment renewal should also be reduced

napi.hu: The Minister for National Economy announced today that the Ministry is looking into the details of a potential reduction of rate of VAT levied for the construction of new apartments. This is an issue of national economic and social interest because a reduction of the currently 27 per cent VAT levied on residential constructions could at last boost the residential market and the number of newly constructed apartments could soon reach 20 thousand units per year.

At the same time, the Association for Residential Construction (TLE) declared that the new VAT rate should, apart from the sales of new apartments, be applied to the contractors’ fees paid by private persons for the construction of new apartments and to apartment renewals contracted by retail clients. The reason for this is that family homes (detached houses) are mainly built under a construction contract and that lawfully contracted apartment renewals are an important contribution to the improvement of the physical repair of the pool of residential properties – and also of the whitening of the construction industry.

Money flows into Budapest property funds

ingatlanhirek.hu: While three years ago domestic property funds were plagued by a trend of funds withdrawal, the situation has changed significantly since. Simultaneously with the upswing of the residential property market more and more investors turn to property funds which, as a result of the inflow of capital, have become one of the most active buyers of the property market.

Record-low deposit interest rates redirect investors to property funds offering relatively high returns. Property funds are, on the one hand, happy to have this influx of capital, but are, on the other hand, under a heavy pressure. They must buy more and more new properties to maintain their comparatively high level of returns. One of the consequences of this pressure is that domestic property funds have become one of the most active group of investors of commercial properties in Budapest (offices, shopping centres, logistics centres etc.).

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.