Hungary has a very well-defined set of procedures for property purchase. In comparison to Britain (but in common with much of the rest of continental Europe), these procedures are remarkably simple and quite foolproof.

The role of the estate agent

In principle, the estate agent has to do relatively little, apart from selling the property to you. In pratice, most estate agents do a fair amount of work:

Co-ordinate the paperwork in respect of the seller - this is usually quite simple, as all property in Hungary is registered, so the proof of ownership is in the hands of the public registry, unlike some rural properties in, for example, Spain.

Refer you to a lawyer who speaks your language. The lawyer (more about this below) will prepare a contract of sale, usually in both your mother tongue and in Hungarian.

Ensure that permission for the sale will be forthcoming from the local authorities. This is normally a formality (I have not heard of any instances where this has been refused), and must be granted, in the first instance, from the local mayor, and also from the county authorities (who almost always take the word of the local town hall). Since the entry of Hungary into the EU, this requirement will be removed, but, as all new members generally are given 7 years in which to make the complete transition to EU legislation, this could take a little time.

Arrange all transfers of utilities (electricity, gas, water, etc) into your name. This requires a reasonably good knowledge of the Hungarian language, although, with globalisation also prevalent in Hungary, many of the utility companies can handle English and German customers with relative ease.

The estate agent must be qualified. They have to pass a number of examinations in order to carry out their profession. Due to the language barrier, most of the qualified estate agents are Hungarian, although a growing number of foreign-owned (mainly Austrian) businesses employ a qualified Hungarian person.

The role of the lawyer

There is no requirement to employ a lawyer, However, most lawyers are well-versed in the procedures of property transfer, and they also undertake all of the property registration work.

In most cases, the lawyer will require two or three days' notice to prepare the contract (you must be present for the signature of the contract, and you must have your passport with you); the actual signature session takes about 15 minutes. The lawyers costs are very much dependent on the lawyer used. You can expect to pay a minimum of between Ft 100,000 (€ 400) and Ft 275,000 (€ 1,100) with a percentage of 1-2% of the purchase price for higher-priced properties for this service, although this can be quite a lot higher in Budapest.

The lawyer will normally hold the agreed purchase price in escrow until the permission of the local authorities for the purchase has been granted.

All the paperwork will then be passed through to the Registry office to be recorded. The fee for the permissions and registration is about Ft 75,000 (€300) per registered number (most properties are on a single number but some are split into 2 or more numbers) and includes the registry extract that is attached to your contract of sale. There will also be a small amount of bank charges for the dispersement of funds which is dependent on the amount being transfered.

The property is now yours

... but you have to pay a relatively small amount of tax. Usually, within 4 - 6 months of property registration, the local tax inspector will visit the property, armed with a copy of the sales contract which you signed at the lawyer's office, in order to assess that the price shown on the contract is realistic. In other words, did you actually pay Ft 20,000,000 (€ 80,000) but only showed Ft 10,000,000 (€ 40,000) on the contract of sale ?

Once they have inspected the property (they are very experienced in assessing property values) and having agreed the value, they will calculate the property transfer tax on the spot. Transfer tax for a house is at the rate of 2% for the first Ft 4,000,000, and 6% for the rest of the value. Therefore, taking the example of a Ft 20,000,000 house above, the transfer tax would amount to Ft 1,040,000 (€ 4,160). Land attracts a tax of 10% and assessment of the land portion of the property is made.

Tip: If you buy an old farmhouse, and start work on the renovation immediately (i.e., before the tax inspector's visit), take plenty of photographs before starting work, and also during the renovation work. A heap of rubble next to the house speaks volumes! Keep any invoices for materials, etc (do not show the tax inspector any invoices which have no VAT) used during the renovation work.

Conclusion

Use a qualified Hungarian estate agent; get a lawyer who speaks your language or has staff who does; stick to the rules; and you are unlikely to have any problems.

(All Forint values mentioned in this article have beem converted into the Euro at the rate of 1€=HUF 250. Please refer to the current exchange rate for a more exact calculation)