Hungary for Success
Of the ten new EU members in May 2004, Hungary has proved to be the
most economically dynamic. What’s even more encouraging for current and
future investors is Hungary’s insatiable appetite for ensuring its
continuing economic growth, reports Caroline Hollingworth.
Since Hungary threw off the shackles of Communism in 1989, early bird
investors have benefited from unprecedented property price rises. According
to the Hungarian Central Statistical Office there were increases of 63%
across the country between 1999-2003, while in Budapest alone property rose
by 60% during the same period.
Between 2003-05 this growth rate has since steadied to a very respectable
15-20% with rental income continuing to boast a minimum yield of 6% rising
to around 15%.
Jonty Crossick, the director of Ready 2 Rent, says this combination of
good capital growth and steady rental yields is exactly what many investors
are looking for. “When you consider Hungary has one of the wealthiest and
most stable economies in Eastern Europe, it is exciting, not to mention
hugely financially rewarding, being able to buy a brand new luxury apartment
there for less than £28,000.”
There are a number of solid reasons why Hungary’s economy should continue
at its current pace and for property investors to feel secure that there is
still more to gain from buying property here. One look at its economy
post-Communism shows Hungary has exemplified one of the most progressive and
developed financial systems in Central and Eastern Europe (CEE).
In less than 16 years, the government has managed to reduce inflation
from 17% in 1989 to 3.2% (Q1 2005), notched up steady annual growth of 3-4%
from 2001 onwards and increased its productivity level by an average of 13%
every year, which has highly effectively attracted over $24 billion foreign
investment – the highest amount per capita in the whole of the CEE.
It’s not surprising that many market analysts are comparing Hungary’s
boom to Ireland’s in 1989, which, following initially large increases,
sustained itself at a steady 15-20% per annum.
Hungary’s ‘sustainability factor’ comes down to the fact that its economy
is underpinned by a diversity of wealth-creating sectors, mostly from EU-integrated
trading partners, which will allow Hungary to continue on its path of ‘real
convergence’ with richer EU countries.
Already behind Hungary’s success lies the confidence of the boards of
many of the world’s most powerful companies, including General Electric,
Coca-Cola, Citibank, Ernst & Young, Siemens and IBM, among numerous other
well-known international heavyweights.
In the past decade, a myriad more blue chip firms have set up factories
and headquarters here, lured by a combination of incentives. Low operating
costs, low corporate tax, a well-educated population, a progressive
government and an ideal central European location have all contributed to
make Hungary one of the most appealing countries to do business.
There is little doubt that Hungary’s capital city is still the best place
for investors to take advantage of the country’s flourishing economy.
“Budapest has the lowest cost of living of any major European city, which
is reflected in its property prices,” says Martin Padfield of Hungary
Property, who is married to a Hungarian and has witnessed the marketplace
first hand. “Incredibly, prices in Budapest are still lower than in
comparable European cities like Prague. But I can’t see it remaining that
way for much longer.”
“Picture Ireland and in particular Dublin ten years ago,” says Jonty
Crossick. “This is what Budapest is widely believed to be like at present.
On average the price of a property in Dublin today is more than double the
Hungarian equivalent.”
Budapest is a thriving, lively city rich in culture and history that has
become an established business centre. With flights from the UK as little as
£18, low cost airlines such as Wizz Air and Easyjet have made it accessible
and affordable for both businesses and tourists. In 2004, over 2.3 million
tourists visited Budapest, 16% more than the year before, a figure that is
set to rise in 2005. Budapest has also become a hugely popular place for
conventions, welcoming over 150 large-scale congresses and conferences
annually.
It’s no surprise that 70% of all foreign direct investment ends up in the
capital, yet Budapest only accounts for about 20% of the country’s 10
million strong population. With over 60% of all commercial activity taking
place in Budapest there is a high demand for residential property that
co-exists alongside healthy employment levels, which has been a determining
factor in the city’s property boom.
“There have been a number of key residential market trends developing in
Budapest over the past few years,” says Jonty Crossick. “One is the demand
for high quality apartments from an influx of relocated ex-pats and
increasingly wealthy locals, and the other is from starter home couples and
young families looking for modern but affordable accommodation.”
Cutting edge riverside developments like Sun Palace on the flourishing
Buda side of the city, and Marina Part in rapidly developing District 13,
are two of Budapest’s most ambitious apartment complexes, built specifically
to cater for the top end of the marketplace. Boasting views across the
Danube, on-site fitness centres, pools, landscaped gardens and restaurants,
as well as being within walking distance of the city centre, will ensure
these developments become two of Budapest’s most prestigious addresses. “My
wife Alise and I love the fact that you can buy a top notch apartment in
Budapest in the equivalent of Chelsea Harbour or the Embankment for less
than £40,000,” says Jonty Crossick.
Significant capital growth and guaranteed rental prospects are not just
confined to the central districts of Budapest. Mill Hill Gardens in District
16 is a unique high-quality apartment complex in an upmarket neighbourhood
designed for the growing numbers who have been priced out of the city. Mill
Hill Gardens offers the same superior standard of accommodation as Sun
Palace or Marina Part, but apartments here start from just £27,564.
Significant price hikes in the area are also expected as a new wave of
commuters opts for suburban living as a result of the new M0 ringroad –
Budapest’s equivalent of the M25 or the Peripherique in Paris – which
completes the section from Mill Hill to the city centre in 2006. The
resulting capital growth in the area is anticipated to hit 19%.
Regeneration is also propagating the boom in Budapest. Over one third of
all apartments in the capital require renovation which has created a gap in
the market for well-presented properties. Many Districts, like Obuda in
District 3 where Sun Palace is located and District 13 where Marina Part has
been built, are benefiting from the government’s National Development
Programme, a major 2 year plan that has slated €4 billion to rejuvenate key
areas across Hungary.
Part of the scheme also ties in with private sector plans to build
Europe’s answer to Hollywood in Budapest. At the beginning of this year, the
government passed a new film law, which gives foreign movie-makers shooting
films on Hungarian soil a 16% return on all expenditure incurred in Hungary,
and further savings if a Hungarian company is a co-producer on the project.
Another of the government’s smart incentives to encourage investment in the
capital.
Indeed, it’s not just film makers who can benefit from a low tax regime.
If foreign buyers purchase property through a company, they too can take
advantage of the attractive corporate tax rate, which is currently only 16%
on net profits in 2004. This figure will be reduced to 12% by 2006 in annual
2% reductions. Even more appealing is the company tax rate on capital gains,
which is just 2% when a property is sold through a company.
Having a Hungarian company also avoids the need to obtain a residency
permit which private individuals are required to do and can take around six
months.
The company route is essential for investors who want to buy more than
one property as Hungarian authorities routinely deny residency permits for
individuals applying for the acquisition of more than two apartments.
Setting up a Hungarian company to buy a property costs around €850.
It is also worth noting however that is more difficult to get a mortgage
through a company unless your company has been operating for more than one
year and can show a certified income.
Mortgages for individuals on the other hand are as readily available as
mortgages in the UK, subject to the usual status requirements. Foreign
buyers can choose to take out a mortgage in three currencies. A mortgage in
euros is the most cost effective, at around 4.6% against an interest rate of
7-8% for Sterling and 12-13% for Hungarian Forints. A 70% Loan-to-Value
mortgage on either the purchase price or the market value is currently
standard on products that include Residential Purchase, Buy-to-Let,
Refurbishment, Commercial and Re-Mortgages on unencumbered property. A new
non-status loan of up to 50% has also emerged.
In Jonty Crossick’s experience, property investors have particularly
liked Hungary’s organised and transparent legal system. Ready 2 Rent has an
established relationship with a legal firm in central Budapest who charge a
one-off fee of €800 for purchasing one apartment and €900 for buying two.
“Buying two apartments is not as uncommon as it might sound!” says Jonty,
“Because properties are still so cheap in Budapest, we are offering
investors two properties for the price of one 30% deposit, which, in some
cases, means investors only need to find a deposit that is as little as
£11,866.”
The rule of law in Hungary is sound and follows EU directives. And if you
want to rent out your property, there are legal procedures in place that
ensures the relationship between the landlord and the tenant is manageable.
A Hungarian Bank account isn’t necessary, although this may be convenient if
you propose to rent out the apartment, to avoid frequent currency transfers.
“Buying a property in Hungary is as straightforward as buying a property
in the UK,” says Martin Padfield. “The biggest difference is that while the
UK market has levelled out, Hungary still has years of growth ahead.”
The key to Hungary’s continuing drive towards economic success will be in
its bid to ensure the Forint is exchanged for the Euro by 2010. This target
will undoubtedly encourage ministers to implement sensible policies that
maintain a stable economy with low inflation and good growth opportunity.
A recent analysis by the Economic Intelligence Unit (EIU) confirms this,
predicting that Hungary can expect $3.5 billion annually in foreign direct
investment over the next five years as a direct result of the economic
reforms that have boosted growth in the past few years.
So as Hungary looks forward to exchanging its currency, so too investors
can look forward to reaping the financial rewards of the government’s
determination to sustain and improve upon Hungary’s past few years as a bona
fide growth marketplace.
For more information about the investment opportunities available
throughout Europe (including land syndication deals and off-plan
developments) in Hungary, Bulgaria, Croatia and Spain, among many others,
Contact Martin Padfield at Hungary
Property on:
Tel: +44 (0)1293 541667
Fax No: +44 (0)1293 541667
Email:
sales@hungaryproperty.net
Website: www.hungaryproperty.net
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