On March 1 the Hungarian government has maximized the loan to value (LTV) on mortgage loans, setting a 75% limit in case of Hungarian forint (HUF) loans and 60% in case of euro loans. Swiss francs and other currency loans cannot exceed 45% of the value. There percentages apply to the value of the property as determined by the bank, so the real figures are closer to 65% and 50%, respectively. Reason: Household debt has significantly risen in Hungary over the past two years and the government wants to decrease the risk of personal bankruptcies and resulting foreclosures.

From June 11 collateral alone will not be enough; the applicant’s credit record, personal financial statement, and net income will determine whether they are eligible for the loan. Most banks already operate under such conditions; the government regulation merely formalized the existing situation, preventing banks from returning to more liberal practices after the recession. On the one hand this is a guarantee for more stability and less foreclosures in the future, on the other hand there will be much fewer loan applications, it will take longer for the economy and the property market to wake up from its long slumber. The reason net income is such a problem is the fact that much of the economy is still in the grey. Hungarians have money, but are unwilling to declare it.

Why is this important? Investors seeking to exit and resell on the local market must take into consideration the incentives offered by the government to potential buyers. It seems the situation will not improve in the near future; it will not be easier to get a mortgage loan. Therefore we suggest furnishing and improving the property to attract a stable tenant, otherwise radically reducing the price to be able to sell.

Real estate experts speak of a needed annual 40,000 new units in the country for any quality changes to appear on the residential market. There were altogether 32,000 units completed in 2009. Projections for 2010 point to merely 19,000 units, which would be a 50-year-low. Since 1991, 2009 was the first year when the number of units handed over exceeded the number of units planned. In order to boost the economy, the real estate industry is anticipating government-subsidized loans from the new administration when it launches its program this summer after the elections, but nobody has suggested a source for this budget yet.

Some good news: Government has also maximized the penalty payable when repaying the principal before the term of the loan expires; it cannot exceed 2% of the repaid amount. This only applies to loans taken after March 1, 2010. Why is this important? The penalty used to be higher. Investors can now save on costs when selling property in Hungary. This, coupled with the reduced stamp duty and less capital gains tax, should make it easier to resell on the Hungarian market. All we need is financing for the buyers, unfortunately this is exactly what has been obstructed by the government.

In Slovakia the situation is quite the opposite. The government is encouraging young couples to buy apartments by introducing government-subsidized loans where people pay as little as 2% interest on long-term loans on condition they do not resell within 4 years. However, these options are only available for local residents.

For those who sign up through Property Secrets, we offer a 50% discount on Property Management Services in Hungary, for a year. This means we will manage their apartment for 5% of the monthly rent + VAT instead of 10%, for a year. No strings attached, no obligation to remain with our company if not satisfied.

This is a way for apartment owners to further cut costs in Hungary and we will add value to their investment by providing professional advice on furnishing, rental, financing, resale, and taxation.

For those who do not wish to transfer the management to our company, we offer a Property Audit Service, which means for a fee of 300 EUR + VAT we make a thorough assessment of your apartment, get the full status reports as an independent third party regarding your lease, utility contracts, tax situation, and outlook for the future – possible exit strategies. We will include suggestions regarding insurance and where we think you can save costs. No obligation to use our services afterwards, this is an independent expert opinion, so you are not limited to your existing property manager’s opinion.

Andras Patkai andras@ceinvest.hu