Invest In Budapest? Guide To Hungary's Capital

In a country without a coastline to attract tourists, Budapest has become the driving force behind the growing Hungarian property market...

Why Budapest?

Budapest, aka the 'pearl of the Danube' is the beautiful capital city of Hungary.

The country has been a member of the EU since 2004. With the communist years now a fading memory, and hopes of accession to the Euro before too long, it's considered a good long-term investment.

Budapest itself is a thriving city that effortlessly combines beautiful architecture and a buzzing café culture and arts scene with the commerce that accounts for 60 per cent of the country's GDP.

For Brits who want to own a city bolthole, Budapest is a more attainable alternative to Western European capitals, and numerous airlines, including the low-cost carriers, can fly you there in a couple of hours.

And, of course, the city's blend of students, workers, and international business people, many of whom need to rent accommodation, has not gone unnoticed by, among others, Irish, Danish, Italian, Israeli, and British investors.

Who's Buying, Who's Renting? Buyers range from seasoned investors snapping up 60 properties at a time, to people in their twenties who can't get on the property ladder at home. In Budapest potential tenants will depend largely on the area you choose to buy in, but, clients tend to be students, young professionals and foreign business people.

Location, Location: Where Should You Buy? Budapest straddles the River Danube, and is comprised of 23 numbered districts. The numbers run clockwise out from the middle, with the most central districts having lower numbers and, usually, higher prices. The districts all have differing attractions. District VI, for example, is home to the best cafes, bars, theatres and the opera house, while District IV, which is on the Danube, offers clean air and easy access to the centre. But investors willing to take a risk may want to look further afield, for example to District VIII, home to much of the city's gypsy population, which has recently been the subject of much investment, or District X, which used to be an industrial area.

How Much?

Obviously this can vary enormously, but a one bed apartment in District VI could cost £60-85,000, while the same sized place in the less popular District VIII only £43-65,000.

Hungarian mortgages of up to 70-80 per cent are available to British buyers with interest rates of around six per cent.

What To Buy: New Build Or Crumbling Beauty?

While the beautiful Habsburg-era dwellings can be tempting for the romantic British buyer thay can present problems. Not only can renovating from a distance be costly and difficult, but, he says, pricing resale property is tricky, and you could easily end up paying too much. In addition, an older property may not appeal to the local rental market. As the standard of living of many Hungarians has risen, they are looking for more modern accommodation. You can rent out resale properties but tenants prefer the newly built.

In addition, older properties may come with larger, but fewer rooms, which reduces the amount of potential rental income. "A 40sq metre property might be a resale studio but it would be a one bedroom new build. You could have the best of both, however, in the form of the new loft apartments that are appearing on top of many of the historical buildings. Developers install a new lift, and build up a couple of extra storeys on top. The buildings are beautiful, but the loft conversions are a better investment."

The Prospects: Get Rich Quick?

According to the agents, although there has been a huge amount of new construction, tenants are still out there, and rental incomes are covering foreign investors' mortgages, (though yields of 7-8 per cent may be more likely with international tenants).

But, in terms of capital growth, this is no high-risk, high-profit emerging market. Although the city has seen huge price rises in recent years, it now looks set for more moderate growth, and investors are tempted more by stability than high profits.

According to a recent Knight Frank report on global house prices, year-on-year price growth in quarter two 2006 was five per cent.

Robert Weiner at GPL Hungarian Property says: "I have people who say they want to invest for a few months, and I have to tell them that really it's a three-to-four-year investment."

The Buying Process

If you are buying only one or two properties in Hungary the process is drawn out but straightforward. Permits are required, which appear to be a formality, but can take three months.

However, if you need to speed it up, or plan to hold a portfolio of properties, you will have to establish a Hungarian company.

This will reduce your tax bill on any rental income, but may cost you around £700 to set up, plus monthly payments to maintain your books. In addition, as a business, you may have trouble borrowing more than 50 per cent on a Hungarian mortgage.

Your total legal expenses will vary according to price and whether the property is a new build or a resale.

Stamp duty on new builds is six per cent, but it starts at 15 million forints (around £37,000). So if you're buying a HUF 20 million (around £53,000) new-build property, you should set aside around HUF 800,000 (£2,115 or four per cent) for legal expenses.

For resale properties duty is two per cent on the first HUF 4 million rising to six per cent thereafter, so you would need to add an extra HUF 740,000 (nearly £2,000) to your costs.

Tips

- Choose a reputable agent and developer.

- Avoid inspection trips offered by agents - don't be pressurised into making any decisions.

- If you want to buy in a less salubrious area, be realistic. It may take a long while for it to become 'gentrified', so look at the reality, as well as the potential.

- If you are asked to pay any fees or commission to an agent, look elsewhere.

Hungary: The Facts

Total Population: 10.1 million

Budapest population: 2 million

Government: Parliamentary democracy

Official language: Hungarian

Currency: Currently the Hungarian Forint (£1 = approx HUF 400), but accession to the Euro looks likely by 2014

Major religions: Roman Catholic, Protestant, Greek Catholic, Jewish, Orthodox

Members of: the IMF (1982), NATO (1999), OECD (1996) and the EU (2004)

How to get there: By air: Budapest (Ferihegy) International Airport is ten miles from the city centre. By rail: direct links between Budapest and 25 other capital cities. By water: hydrofoil services during the summer months link Budapest with Vienna and Bratislava.

Within the city: Three subway lines, buses and trams carry passengers throughout Budapest.

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