Europe

Everything You Need to Know About Hungarian Golden Visa Property Investment

Csaba Magyar
Budapest


This article is a sequel to IMI Pro Csaba Magyar’s article from March: Everything You Need to Know About Hungarian Golden Visa Real Estate Funds

A third-country national may stay in Hungary as a guest investor for a 20-year period. The guest investor residence permit can actually be apostrophized as a residency by investment or a golden visa, which is common in international parlance, although the legislation does not use this term.

A third-country national whose stay is of national economic interest can obtain a guest investor residence permit. The acquisition of a residential property located in Hungary with a value of at least EUR 500,000 is considered (among other investment options) to be of national economic interest to the country.

Buying and selling real estate is done differently in every country, so in the summary below, I will cover what a guest investor should pay attention to when buying a residential property in Hungary, and, at the same time, we will go through the investment process.

The process of buying real estate for guest investors

1. Making an offer

    At the end of the negotiation, the buyer can make an offer for the property, which the seller must accept. After the parties have agreed on the purchase price, the buyer can give an advance or deposit as a sign of commitment. Typically, these options arise when the purchase price will not be paid in one lump sum.

    The essence of the deposit is to oblige the seller not to sell the property to anyone else. There is no requirement, but typically 10% of the purchase price is the amount of the deposit. If the transaction fails because of the buyer, the buyer loses the deposit. If the sale does not occur because of the seller, they must repay double the deposit amount.

    Unlike a deposit, an advance does not constitute a security. In the case of an advance payment, an important rule is that if the contract is not concluded between the parties for some reason, the seller will refund the advance payment. The down payment is included in the purchase price, and the buyer can hand it over to the seller at any time. The amount of the purchase price advance is not limited compared to the purchase price; i.e. it can be any amount.

    2. Conclusion of the contract

      The closing of the purchase process is the signing of the contract, which requires the involvement of a lawyer (or notary public) due to the countersignature. The counter-signatory must represent both parties and cannot be biased towards either.

      The lawyer must obtain and check the property’s title deed to make sure that the property is, in all respects, what the seller claimed it to be. In Hungary, all real estate is listed in the land office’s real estate register according to geographic number. Only the person who appears in the register in this capacity is considered the owner.

      The title sheet contains not only the property’s classification (e.g., residential property) but also its size, the owner’s main data, and the rights and obligations related to the property (e.g., mortgage).

      In the guest investor program, an important condition regarding the property is that it must be a residential property (no commercial or industrial properties qualify) and free of lawsuits, encumbrances, and claims.

      According to the current text of the applicable law, the investor shall acquire the ownership of the residential property. This means that off-plan property cannot qualify for this purpose; the investor shall purchase a completed property.

      The Hungarian immigration act applies the singular when it stipulates the requirements in connection with real estate investment. Consequently, it is still not clear that only one residential property purchase is acceptable for the Guest Investor Program or that two or more investments are also suitable. I hope a soon-to-be-published government decree will clarify this topic.

      Another requirement for the guest investor is that, upon acquiring the ownership of the residential property, a prohibition on alienation and encumbrance must be registered in the real estate register for a period of up to five years from the date of the conclusion of the sales contract. For five years, the third-country national submitting the application for the guest investor residence permit must own the residential property exclusively. It is also acceptable, however, for the residential property to be jointly owned by one or more family members (spouse, minor children) of the third-country national.

      The lawyer also checks the data of the contracting parties and must inform the parties of their contractual obligations and rights. In the contract, the seller and the buyer must be clearly identified, and the contract must record the name, birth name, place and time of birth, permanent address, personal identification number, and tax identification number.

      If either party is a legal entity, the name, registered office, company registration number, statistical number, tax number, and the name of the person acting on behalf of the company must be included in the contract. The contract must include the name of the settlement in which the property is located and the topographical number of the property.

      The purchase price must be fixed in the real estate purchase contract. The immigration authority can check the authenticity of the purchase price of the guest investor with the involvement of an expert. The energy certificate of the property is also mandatory for the conclusion of the contract. The date and place of the document must also be indicated.

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      The lawyer can only countersign a document that was signed personally, except if the document was signed abroad and properly authenticated. Identifying and concluding a contract without the parties appearing in person, i.e., electronically, is possible. The lawyer prepares a recording of the electronic identification and conclusion of the contract.

      If the buyer pays the purchase price in one sum, the lawyer submits the contract and the permission to register the ownership right to the land registry after the conclusion of the contract. The sales contract must be submitted to the Land Registry within 30 days.

      In case of payment in installments, retention of ownership is possible. In such cases, the application submitted to the land registry does not refer to the registration of ownership but to the fact that the sale took place with retention of ownership.

      When the seller receives the full amount, he gives written consent to register the title. If the seller has consented, this must be submitted to the land registry, then ownership will be registered but, at the same time, the record of the sale subject to reservation will be deleted.

      3. Licensing at the government office

        A foreign natural person can acquire the ownership of real estate in Hungary with the permission of the competent government office according to the location of the property. Authorization is only required if the investor is not a citizen of the European Union, the European Economic Area, or Switzerland.

        It is also possible to request a permit with a pre-contract. The application must be submitted in writing, in Hungarian, on the form of the government office. A copy of the buyer’s certified travel document, clean criminal record, and title deed must be attached.

        The government office will contact the municipality responsible for the location of the property and request a statement on whether the acquisition of the property harms the local government’s interest. It will also contact the immigration authorities and the police in matters of public interest (ban, entry and residence ban, arrest warrant). The administrative deadline is 45 days.

        If a foreign seller wishes to sell real estate in Hungary, he does not need permission from the government office.

        4. Land Registry procedure

          Entry into the land registry can be made on the basis of a contract countersigned by a lawyer. The buyer becomes the owner only if the ownership is registered by the land registry. Legal representation is mandatory during the procedure.

          After concluding the contract, the lawyer submits the necessary documents to the land registry, which has a maximum of 60 days to register the buyer’s ownership. In the case of an out-of-order procedure, the deadline for administration is a maximum of 30 days.

          As mentioned above, the seller of the property must agree to the registration of the new owner. The seller will provide this when he has received the full purchase price. The buyer’s ownership is registered retroactively to the registration application’s submission date.)

          5. Entry phase

            After the purchase agreement, the parties sign the handover protocol. In this, the parties state that the seller will hand over the property to the buyer, in which case the keys are exchanged. The readings of the consumption meters (gas, water, electricity) must be recorded. The protocol must be signed by two witnesses as a private document. The costs of the property are charged to the new owner from the date of possession. After that, we have 15 days to transfer the utility bills to our name.

            Taxation

            VAT is 5% on the purchase of a newly built property. This reduced tax rate can be applied until the end of 2026, but only if the construction permit is finalized by the end of 2022 at the latest.

            After the purchase of the property, the land office sends a decision on the registration of the new owner to the lawyer. Subsequently, the tax authority determines the wealth acquisition tax. After the purchase of the property, a 4% transfer tax must be paid, which is determined based on the property’s market value. If the property’s purchase price exceeds HUF 1 billion, the tax is reduced to 2% instead of 4% for the portion above it, but the amount can only reach a maximum of HUF 200 million.

            Immigration law does not preclude the investor from using the property, for example by renting it out. A private individual can deduct 10% of the rental income as expenses without proof and must pay only 15% personal income tax on the profit calculated in this way in Hungary.

            The foreign investor can sell the property after five years. From the fifth year following the year of acquisition, the sale of real estate in Hungary is tax-free. A foreign investor does not have to pay tax in this case either, but in this case, it is advisable to check whether he has to pay tax in the country of his tax residence or whether there is an existing double tax treaty with Hungary.

            The construction tax is a local tax, the amount of which is determined by the municipality of the given settlement, so it varies according to the location of the property. There are municipalities that do not even set such a tax or only set it if the residential property is used for business purposes.

            The calculation is based on the useful area of the building in square meters or the adjusted turnover value of the building. Municipalities typically calculate the construction tax based on useful area, the amount of which varies from municipality to municipality but is no more than HUF 1 100 per square meter (approx. EUR 3). Whoever is the owner of the property on the first day of the calendar year must pay the construction tax. The construction tax is paid twice a year and divided into equal parts.

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            Csaba Magyar AuthorSubscriberParticipant

            Csaba is the co-founder of the Society of Hungarian Trust and Estate Practitioners and he is the vice-chair of the Association of Hungarian Tax Experts. In 2023, he became the Immigration Lawyer of the Year in Hungary.

            Csaba is a graduate of the Law Faculty and an Accredited Tax Consultant.

            He passed the Bar exam before attaining accreditation as an Insolvency Practitioner and Asset Controller. He then became a Chartered International Tax Expert.

            Later on, he took the Trust and Estate Practitioner Faculty. He is a postgraduate specialist in investment, corporate finance and stock exchanges.

            Csaba holds seminars and courses about international taxation and immigration law in different training institutes and universities for tax advisors and lawyers.

            In the course of his activity at Crystal Worldwide Law Firm, most of his time has been dedicated to immigration by investment, tax advisory, and business consulting. He uniquely combines the relocation strategies with international asset and tax planning: including handling complex transactions and managing cross-border investment issues successfully for High Net Worth Individuals.

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