New Main Street In Budapest

The Municipality of District 5 has recently opened the new "main street" between Kálvin Square and Szabadság Square. The spectacular HUF 5.5 billion (EUR 20 million) project has already pushed prices up in District 5. The streets have received new decorative pavements and the previous expensive column lighting has been replaced with an energy-saving public lighting system in the revitalization. The beautifully tended public parks, the dazzling interactive fountain at Szabadság Square, and a significant reduction in car traffic, has made this area of the city more friendly, more attractive, quieter and fresher.

The Project

Budapest's new nearly three-kilometer-long high street running from north to south is an urban axis with reduced motor vehicle traffic between Vigszinhaz utca and Kalvin ter. As one of the largest revitalization projects of urban space in Europe, the project was started in 2006, and was completed with the help of the European Union. LED technology is employed in the street lighting and there is wireless Internet access available throughout. The area includes Honvéd Street, Szabadság Square, October 6. Street, Erzsébet Square, Bécsi Street and Petofi Sándor Street, Ferenciek Square and Kecskeméti Street together with Egyetem Square.

Aim of the project

Elaboration of a well-proportioned area that meets the new functions of the inner city: parallel with the pedestrian area of Váci Street, development of a new high street joining the adjacent areas. The goal was to develop a main street in the inner city (a further project includes the bank of the Danube) that physically and mentally connects the Downtown to the Lipótváros areas of a different character for city dwellers as well as for the tourists coming to visit Budapest.

The idea of developing an north-south axis of the downtown of Budapest (earlier the town of Pest itself) has been considered by town planners nearly for one and a half century, an example of which is the way Szabadság Square has been shaped to give space to such an axis.

The overall construction after World War II, based on changes to be made fundamentally for a heavy motor vehicle traffic - namely the reconstruction of Kossuth Lajos Street - have literally cut the downtown into two, for decades, while maintaining the north-south transit traffic on the axis of Kecskeméti Street and Petofi Sándor Street.

Finally, the concept of renewing the functions of the area in question and getting rid of the transit traffic passing through the inner city and its main street, brought more life, increasing real estate value in its wake.

More pictures available: http://ceinvest.hu/2010/07/06/new-main-street-in-budapest/

Andras Patkai www.ceinvest.hu

It seems the newly-built apartments currently available on the Budapest market will be sold by the end of 2010. This means there will be an evident shortage on the market in 2011, which will produce a 15-20% price increase, according to Elephant Holding and OTP Bank's Property Leasing experts.

10-12,000 new apartments were built and sold in Budapest every year in the period before 2008. By 2010 this number has dropped to a mere quarter of the previous amount. According to local developers, the currently available supply will run out by the end of this year and a definite shortage will be felt, claims Zoltan Zelei, Sales Director of Elephant Holding.

Market professionals emphasize that only about half as many building permits were issued over the past two years, as before; the number of handovers after successful completion, has also been reduced. In a European capital city like Budapest, which is the largest commuter hub of the region, attracting over 3 million people, there is a healthy demand for 15-20,000 newly-built units in order to keep the apartment stock refreshed.

Since there was no bubble on the residential market in Budapest, as witnessed in Western Europe and North America; square meter prices remained around 1100-2200 EUR, as opposed to the 3700-7400 EUR peaks in large European cities, or 1800-3300 EUR in Eastern Europe. This is another reason why a natural market correction is expected in 2011.

District 5

We continue our discussion of the primary investment segments of the city, beginning with District 5 of Budapest. Click here for a detailed map. (Google)

This is the prime commercial hub of the city, the most expensive are of Pest, the down town. Also referred to as Belvaros, that is Inner City, it is a fairly large area, containing the posh Bank District and expensive Government District, along the grand and beautiful Danube River. Exclusive hotels, the Cathedral, the Parliament, the central bank, various public institutions, grandiose bridges, and the pleasant view of the historical sights of Buda across the river, characterize the district. Restaurants, bars, pedestrian shopping areas, and beautifully maintained public parks make the district especially attractive. Most of the characteristic art-deco / art-nouveau and gentry buildings are renovated, which makes real estate especially expensive, a frequent choice of Hungarian celebrities.

It is the dream of every investor to purchase a low-priced unrenovated classic apartment here and convert it into an attractive rental property for the business and foreign community. Capital appreciation is relatively stronger as the number of properties available in this district is limited (19,180 apartments in all), with the most exclusive properties overlooking the Danube River. The Danube promenade is a World Heritage Site and many buildings in the district are listed monuments.

There are 836 residential buildings in the district, 93.5% of them were built before 1944. The average number of apartments per building is 23.5. The average number of large rooms, including the living room, is 2 per apartment, with the typical square meter size being 68.5 m2. An estimated 13.3% of the apartments are rented.

The busy roads which form the borders of the district are not recommended; Szent Istvan korut, Bajcsy-Zsilinszky ut, Karoly korut, Muzeum korut, and Vamhaz korut are too noisy for residential property. The district is divided into sections at the bridges (Lanchid and Erzsebet hid, that is Chain Bridge and Elisabeth Bridge, respectively), the northern, mid- and southern sections, where the dividing main streets (Jozsef Attila u., Szabad Sajto u., Kossuth Lajos u.) are also to be avoided for investment property.

The northern section of District 5 consists of three parts, from north to south: 1) The quiet streets (Balaton u, Stollar u., Falk Miksa u., Nagy Ignac u.) north of Alkotmany u., where there are not as many places for dining and entertainment. 2) The area around the Parliament Building is the government district with ministry buildings, public institutions, the High Court. The streets around Szabadsag ter are also known as the bank district. This is the hub of the top-paying jobs. 3) The most popular streets for tenants & investors are those south of the beautiful square Szabadsag ter (Hercegprimas u., Sas u., Oktober 6. u.) around the Cathedral (Basilica), with recently-pedestrianized streets attracting pleasant restaurants & bars.

The middle section of District 5, between Chain Bridge and Erzsebet Bridge, is the chief tourist area with the stunning Danube Promenade, luxury hotels, famous restaurants, the world's finest shopping brands. Vaci utca and the surrounding streets and squares form the core of the pedestrian zone with the famous Fashion Street leading to Budapest's central square, Deak ter, the only point where the 3 metro lines of the city cross. Therefore Deak ter is the first square people coming to the city learn about. Those who don't mind the constant tourist buzz are happy to rent in this area, it is generally considered to be a very attractive and pleasant part of town. 

The southern part of the district is not as popular. Kossuth Lajos u. off Erzsebet Bridge, leading to Astoria Square is the main thoroughfare of Budapest connecting east and west; this is the point where the motorways from Lake Balaton and Vienna in the west are linked to the large residential areas of Pest and the main motorway leading east, so there is a constant flow of traffic, noise, and air-pollution. The streets south of Szabad Sajto - Kossuth Lajos are narrow, the buildings are older, there are no significant public institutions or work places here and the neighborhood is generally lower-income than in the northern parts. The pedestrian street Vaci utca (referred to as "new Vaci utca") which leads to the Market Hall (Vasarcsarnok) in the south is the most significant investment area for buy-to-let apartments. Another point of attraction is the streets around the square Kalvin ter, where foreign university students prefer to rent.

In summary, the middle and northern sections of District 5 are and will always be a prime location in Budapest. Since location is the primary factor in real estate investments, the best deals are made when one can enter the market relatively low, buying something unrenovated where the value can be further increased creatively. District 5 is the benchmark district, which projects the standard and the future of the Budapest property market.

Andras Patkai www.ceinvest.hu

Budapest

Investment Guide to the City

The Danube River separates Buda and Pest. Hilly residential Buda to the west and flat commercial Pest to the east. There are 23 districts in Budapest, each being an independent municipality. 30% of the Hungarian population lives in the capital and the significant urban commuter belt all around the city. The Budapest metropolitan area, with a population of 3 million people, is the largest commuter area in Central-Eastern Europe.

The densely-built-in central areas, as we know them now, both in Buda and Pest, were built at the end of the 19th century. Since most of the buildings were left in tact during World War II, there are relatively few new developments in the inner districts. The residential buildings are modeled after the French courtyards, which set the style in the Central European cities of the Austro-Hungarian Monarchy during the late golden age of the Habsburg Empire. The decorative bridges across the Danube, the gentle Buda hills, the city's many parks, world-famous bath houses, large busy boulevards and beautiful tree-lined avenues lend a characteristic atmosphere to the vibrant city. 

Interestingly Budapest is among the least expensive capital cities in Central Eastern Europe, as far as the value of real estate goes. Speculation has not driven the prices up before the global recession of 2008 and supply remains high. Wages are generally low, lower than Bratislava and Prague, for example, resulting in low rentals and relatively low property prices. This is the reason so many experts view the Hungarian capital as a major magnet for capital in the next few years. The city is big, attractive, and still cheap!

Budapest is a dynamically growing metropolis; the municipality has undertaken major infrastructural construction projects, like motorways, bridges, and a new metro line. A significant number of new residential and commercial developments are being completed currently; entire inner-city streets have been pedestrianized, increasing the quality of life and the value of apartments as well as commercial space. 

Examples of 4 new developments in districts 5 and 6, affecting apartment prices and rentals in the center of the city:

District 5

Orco Property Group's classical 10,000m2 shopping and entertainment building in the prestigious Vaci utca - Vorosmarty ter address. Ideal for high street shopping, a fitting home for the top global brands. To be completed in spring 2011, with a large roof terrace for an exquisite meal, reflecting elegance and splendor, boasting all the amenities of a world-class shopping facility as well as red-carpet offices in a splendid location.

Pictured above: Former building of the Budapest Stock Exchange (BUX)

District 5

Central Eastern Europe's leading real estate developer, the Ablon Group, is building a exclusive 5000m2 apartment hotel in Hold utca, right in the middle of the bank district, near the spectacular building of the National Bank. There will be 90 astounding apartments in Hotel Residence with ample underground parking, a swimming pool and fitness center, as well as a posh restaurant.

District 6

District 6

The 5850 m2 Paris Department Store, by Orco, on the famous Andrassy Boulevard was completed in 2009. The developer has enhanced the functionality by adding 5 floors of luxury open space offices, along with preserving the elegant shopping areas and splendid restaurant on the first floor, originally built in 1910.

For more information contact our Hungarian Expert Andras here

Andras Patkai www.ceinvest.hu

2010 statistics by Otthon Centrum and Ingatlan.com show that the average square meter price of apartments in Budapest has dropped below the psychological 350,000 HUF (1310 EUR/m2) threshold. This means the typical price of a studio apartment is around 10 million HUF (37,425 EUR). Note this is a city average, including remote outer districts as well. The average size of the apartments for sale on the market is 67 m2. Therefore the standard apartment sells for 85-90,000 EUR in the Hungarian capital.

The difference between the actual sales price and the advertized value can be 10-15%, which leaves room for negotiation.

Roughly 1600 new-built apartments were sold in Budapest in 2009. The number has not been so low for decades. The number of unsold apartments in projects which have already been handed over reached a record 3000, climbing to ca. 3800 at the beginning of 2010. Add to this around 3000 more apartments in projects in their final stage of construction, so -- good news for new buyers! -- there are roughly 7000 apartments to choose from in 2010.

Developer Financing

So 2010 would be the year to buy because of the large supply, lower purchase tax, and developers' special offers. Tricks developers used until now (half-priced garage, kitchen furniture thrown in, LCD TV included) are not doing the job; the key issue is financing. We see offers where a 15-20% down payment and the signing of a preliminary contract are enough for the buyer to move in. Part of the remaining purchase price is then paid in installments throughout the next year or two, making sure the monthly payments correspond to the payments of a theoretic bank loan. After this period buyer has an option to sign the final purchase contract and pay the full outstanding amount. Depending on the developer, part or much of the monthly payments may be offset from the purchase price. Should buyer fail to come up with the necessary financing, he forfeits his deposit.

Developers target the large group of would-be buyers who do not have the necessary collateral or initial capital to successfully apply for a bank mortgage. There is a striking resentment of rental, a phenomenon on the housing market in the CEE region, where Eastern Europeans would rather live under impractical crammed conditions and commute from incredibly long distances than 'throw money out the window' for rent. On average a much smaller percentage of the population rents than in Western Europe. However, the grim financial reality forces changes in large urban centers as well as remote provincial locations and the adjustment which took place decades ago in the West is slowly happening in Eastern Europe as well. Knowing this, developers offer the following crucial advantages for buyers:

• 1-2 years delay in having to obtain a mortgage, when loan conditions will most probably be better

• pay the stamp duty only after you sign the final purchase contract

• secure property at a low 2010 price level

• part of the monthly payments may be offset from the purchase price

• gain time to save for a larger required down payment for a future loan

• gain time to sell your existing apartment to free up some capital

Actively Combat Vacancy

CE Invest is currently involved in a number of projects where maintenance costs are reduced and the overall rentability of an apartment is improved. For example in one apartment we are about to replace the outdated heating system to cut monthly heating costs by 75%, thus making it more attractive to tenants and more efficient for the owner in the long run. In another apartment double-glazing windows are installed for perfect sound insulation on a busy street. We install functional kitchens and reception-room furniture in apartments which may be rented as office space later, so the first impression of a potential tenant is favorable.

Is there anything we can do for you in order to rent your apartment?

Find Me a Solution

We at CE Invest are presently securing financing for corporate clients who want to use their existing real estate as collateral and make further leveraged investments. We are also working on joining two smaller penthouse apartments to provide a solution for an investor who wishes to purchase a large luxury apartment in a central location. In another instance we are exploring the possibility of developing several luxury apartments in the attic space connected to one of our apartments for sale.

Is there anything we can do for you in order to realize your investment plan?

Andras Patkai (CE Invest)

www.ceinvest.hu

info@ceinvest.hu

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. These 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 (last year household loans already dropped sharply to a mere 20% of the previous year's turnover), 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 for early-repayment 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. Government-subsidized loans have been stopped in July, 2009.

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.

Property Audit Service

Service for Apartment Owners in Budapest and Bratislava

A thorough assessment of your apartment

Get the full status reports from an independent third party professional regarding your...

• Lease

• Utility contracts

• Tax situation

• Outlook for the future & possible exit strategies

Included are 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 a single expert's opinion.

Fee: 300 EUR + VAT/property

Ivory Tower

Unique corner apartment for sale on the top floor of a magnificent turn-of-the-century building in central Budapest

• Built in 1913

• Beautiful view, Budapest District 7

• 79 m2

• 6th floor with lift

• Area currently being turned into a pedestrian zone

• Parking garages available nearby

• Business district

• Rental potential: €550-600 depending on furnishing quality

• Needs renovation - plans in place to turn it into an exclusive loft apartment with 2 rooms

• Price: €82,500 (65% LTV financing available)

Andras Patkai

info@ceinvest.hu

To request further details on anything you have seen on our newsletter click here or call +36 1 878 1320.

Fantastic Offer from CE Invest

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.

Sign up today and mention Property Secrets to claim your discount

 info@ceinvest.hu

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.

 info@ceinvest.hu

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 their apartment, get the full status reports as an independent third party regarding their lease, utility contracts, tax situation, and outlook for the future – possible exit strategies. We will include suggestions regarding insurance and where we think they can save costs. No obligation to use our services afterwards, this is an independent expert opinion, so they are not limited to their existing property manager’s opinion.

info@ceinvest.hu

Sign up today and mention Property Secrets to claim your discount

Andras Patkai - www.ceinvest.hu

Property owners renting their apartment in Central Eastern Europe have a tax liability in the country where the real estate is located. We differentiate between corporate and private ownership in Hungary. In case the owner is a company, all the expenses connected to the operation of the company are deducted from the total income, VAT is handled separately, and the company is taxed at a 16% corporate tax rate on profits. Generally, as with companies everywhere, there is much more room to “optimize” the tax at the end of the year, than in the case of private ownership. Establishing a company is not required; non-residents may own property directly without any restrictions in Hungary. Properly maintaining a company is time consuming and costly, so most foreign investors of apartments in Budapest are individual owners.

The governing document regarding taxation of non-residents is the agreement to prevent double taxation between Hungary and the investor's country of residence. In most cases this document prescribes taxation in Hungary when the property being rented is located in Hungary. Later this tax may be deducted from a similar category of personal income in the country of residence.

There are three ways of calculating and paying income tax on rental. The first method, called Source Tax, is simply deducting 25% of the rental income, submitting a tax return, and making the payment every quarter. The second method, called Combined Income Tax, deducts 10% as expenses and the remaining 90% is taxed at 17%. In the rare case that annual income exceeds 5 million HUF (18,500 EUR), the tax bracket is 34%. The third method, called Thorough Expense Reporting, allows the investor to deduct all relevant expenses, after which the remainder is taxed at 17%.

Before we examine each of these options, let us determine what the income and expenses are. Accountants do not agree about the nature of utility expenses, whether they are included in the rental income, thus are taxable, or not. Let us work with the worst case scenario and count the electricity, water, gas, and common cost expenses as part of the rental income. Later we will see how they can be deducted as expenses. Expenses may be any money spent on the apartment, as long as it is backed up by invoices.

Source Tax

Those apartment owners who want the least hassle have the option of simply paying 25% of the total rental income every quarter as income tax. No expenses can be deducted whatsoever. The income is immediately taxed at its source, hence the name.

Combined Income Tax

There is an option of paying significantly less tax if one declares the rental income as part of the combined personal income in the country. The law states that if expenses cannot be determined accurately when renting an apartment, there is a fixed 10% which may be deducted from the tax base as expenses and the rest is taxed according to the applicable tax brackets. There are only two tax brackets, 17% and 34%, the threshold being 5 million HUF between them. So unless the rental income exceeds 1540 EUR/month, the tax is 17%. Since only 90% is taxed, the rate is effectively 15.3% of the total income. Note that other sources of income in the country, if any, must also be declared.

Thorough Expense Reporting

There is an option to further reduce the tax base, although there are additional accounting expenses. If all the expenses can be justified with the relevant invoices, there is an opportunity to write off much more than the fixed 10% suggested above. The property management fee itself is 10%, to which we add VAT and we are already in this category. Property management fee, tenant finding fee, costs of furnishing and renovation, as well as the utility bills and the interest paid on a bank loan can all be offset against the rental income. The items must be approved by the accountant individually to determine whether they would stand in case of a tax audit. What remains is taxed at 17%. Therefore theoretically in the end the income tax may be pushed down towards 10%. Here again the 5 million HUF threshold pushes us up into the next tax bracket.

The deadline for submitting the tax returns and paying the income tax for the year 2009 is May 20, 2010, in case of private ownership.

There is no need for non-residents to pay an additional 14% Health Subsidy (EHO) on top of the personal income tax. Hungarian citizens are obliged to pay this health tax, which apparently discriminates between Hungarian and non-Hungarian apartment owners, giving a market advantage to the foreign investor.

In order to start the process one has to obtain a Tax ID (adoazonosito) as well as a Tax Number (adoszam) from the Tax Authority (APEH). The Tax ID registers the investor as a tax payer in Hungary. The Tax Number refers to the specific activity of renting real estate. The investor may rent his/her apartment only after the Tax Number is issued. There is an obligation to issue monthly invoices either from a numbered invoice pad or a computer program registered with the Tax Authorities. Copies of these invoices, along with invoices (not receipts or bills) of expenses, form the basis of the annual or quarterly tax returns. It is highly recommended to employ professionals to handle the paperwork properly, who have the relevant liability insurance and competence to handle issues promptly and accurately.

It is fairly common and legal in Budapest to rent an apartment in a residential building as commercial premises, for example a lawyer's office or a marketing agency. In case the apartment is rented to a company, a monthly tax advance must be deducted from the rent. Reference to this must be included in the rental contract and the tenant (the company renting from the foreign private investor) must pay the tax advance regularly. In case tenant fails to pay the tax advance, it will be held liable, not the apartment owner.

Andras Patkai www.ceinvest.hu

Reduced Stamp Duty in Hungary

The purchase tax (stamp duty) payable after acquiring property in Hungary has been reduced by roughly 2%, effective January 1, 2010. 2% is due for the first 4 million HUF (14,800 EUR) of the purchase price, which is 80,000 HUF (296 EUR), then a further 4% for the remaining amount. Until now buyers had to pay 6% on the remaining amount. So in case of an apartment worth 15 million HUF (55,555 EUR), the tax is 296 EUR + 4% of the remaining 40,000 EUR, which is 1630 EUR, altogether 1926 EUR. In case of an apartment which cost 75,000 EUR, the tax is 2700 EUR. A 100,000 EUR apartment would require 3800 EUR in taxes, and a 150,000 EUR apartment would mean 5700 EUR in taxes. Previously it would have been 8400 EUR in case of the latter.

In case of new-built property bought as a first user directly from the builder, no purchase tax has to be paid for the first 15 million HUF (55,555 EUR), and only 4% is due for the remainder of the purchase price up to 30 million HUF (111,111 EUR). Until the end of 2009 the stamp duty on holiday homes, garage space, and storage rooms in Hungary used to be 10%. This has also been reduced to 4% as of January 1.

In case of plots for development, the previous 10% tax has also been reduced to 4%. If the buyer intends to build residential property on the plot within 4 years, the payment of the stamp duty may be delayed. Once the usage permit of the new building is presented to the tax authority, the stamp duty is canceled. Otherwise it must be paid with interest.

Until now it was easy to avoid paying stamp duty when buying property in case the property was owned by a company and the buyer merely bought the shares. Now, if more than 75% of the assets of a project company are real estate, the buyer of the shares is liable to pay the relevant stamp duty. When the transaction value is over 1 billion HUF (3.7 million EUR), the stamp duty is reduced from 4% to 2%, and may not exceed 200 million HUF (740,740 EUR) for each property involved

2010 is an election year both in Hungary and Slovakia, with parliamentary elections due April 11 in Hungary and June 12 in Slovakia. Both elections are followed by elections in the local governments (October and November, respectively), which determine local property tax. This means taxation issues will be a campaign issue in both countries and may change as the new governments begin looking for income, so look out for changes regarding property and rental income.

In Slovakia currently there is no stamp duty on purchased property.

“Central and eastern European markets have been the strongest performers in the world in the past six months, in a sharp turnaround of fortunes as the concerns of investors have switched to the mounting debts in the developed world.” January 31 2010 – Financial Times

Andras Patkai (CE Invest). www.ceinvest.hu

January 27, 2010

Slovakia – Locals Buying

CE Invest is successfully selling the apartments of foreign investors to the local market in Bratislava. The demand for quality housing in the capital city has not abated and now that the prices have come down a little (20%), Slovaks have decided to buy. This phenomenon can only be observed in the segment of the residential market which has always been most attractive to buy-to-let investors, namely city-center, preferably newly-built, attractive 1-2-bedroom units.

What drives the market?

As opposed to Prague and Budapest, there is such a drastic relative scarcity of new stylish apartments in the city that as soon as one crosses the imaginary affordability threshold, people rush to buy. What may not seem so apparent from Western Europe, the contrast between old “Communist” housing and new developments built between 2004-2008 is tremendous. We are not only talking about grey pre-fab blocks of flats; the average apartments in the city, advertised as “brick buildings,” whether pre- or post-war, are avoided by new buyers. The main issues are the “old feel;” poor infrastructure; poorly lit, cold, ghastly stairwells and corridors full of the neighbor’s flower pots, laundry, and household junk; aggravated by the inefficient heating methods, leaking roofs, and aging plumbing and electric systems, which fuel constant debate among the tenants of the building. New buyers are not looking for old units and existing owners are looking for ways to sell at a reasonable price, and move out.

What is more, because of the recession, practically all new construction has stopped, so the supply is limited. The significant demand for new-built apartments has not disappeared in the wake of the credit crunch, for it was driven by a healthy economic need in this post-Communist Central European country. The boom until 2008 has certainly brought unrealistic expectations, so prices are still high, it takes a while for owners to settle for a lower price and now, seeing the increasing demand, those who can afford it, have decided to wait.

Credit is readily available in Slovakia for local residents. The banks provide mortgage loans with the same conditions as before the credit crunch. The only change is that credit is not available (yet) to non-residents. It is possible to obtain a loan with 4.3% interest while the rental yield on the apartment is 6%. There is practically no unemployment in Bratislava, as opposed to the eastern part of the country where the gap between rich and poor is widening. On top of the favorable credit situation, many Slovaks have saved up sizeable amounts of cash. Therefore all the circumstances are ripe for a steady rise in property transactions and prices in 2010.

Examples of what is for sale in Bratislava

Three Towers Development, Bratislava

Stunning views from the landmark buildings of Three Towers, proudly rising over Bratislava. The amazing stylish feel of this apartment for sale, the many sports facilities next door, attract the corporate community from the nearby office buildings and shopping-entertainment mall.

Total area: 49m2 (1-bedroom)
Balcony: 5m2
Floor: 9
East orientation

Price: 135,000 Euros with indoor parking
Furniture: 10,480 Euros (optional)

Realistic rent: 600 Euros net

Kitchen in the Three Towers Apartment Block

Fully-furnished apartment for sale in the unique Three Towers development. Spacious bright living room, quality finish, very elegantly and practically furnished.

Total area: 58,4 m2 (1-bedroom)
Balcony: 4,85 m2
Floor: 11
East orientation

Price: 143,000 Euros with indoor parking

Realistic rent: 600 Euros net

Hungary – Booming Rental Market

The recession has brought some noteworthy changes to the Hungarian buy-to-let market. First of all, because of the halt on loans and troubles back home, foreign investors have disappeared from the residential market in Budapest. Construction all over the country has stopped, creating much unemployment and bankruptcy as the wave moved down the line of subcontractors. Because of the large supply of centrally-located renovated apartments as well as new-built units, the market is beginning to move more slowly, but CE Invest has already registered a steady increase in transactions and prices as the new year started.

Since loan conditions remained strict and credit is expensive, while prices did not come down much, the average Hungarian home owner finds it more difficult to find a good deal. Therefore the rental market is booming in Budapest. Rising unemployment in the country brought all the more opportunities to the capital city (30% of the population lives in and around Budapest), so people are looking for accommodation. The limited space of the inner city districts and the lack of new developments keep prices reasonably high. It is extremely rare to find quality new-built housing with underground parking and Western European amenities in the centre.

The city employees and many foreign companies in the metropolis do not feel the “crisis” at all. The restaurants and shopping malls are crowded; the streets are swarming with tourists; there are no more fears of a currency crisis; the new government seems to have created some economic balance (the base interest rate is down to 6%); and the country is preparing for parliamentary elections due April 11. Hungarians hear stories of the effects of the recession in Britain and Ireland and they cannot believe it. There were no foreign guest workers in Hungary, there was no over-valuation of property, a much smaller percentage of the population was indebted, and credit was never as cheap as in Western Europe. Although there are a few peripheral new developments where a number of flats could not be sold, or cannot be rented; there are no empty ghost streets or ghost districts built on speculation.

CE Invest has successfully rented apartments and residential villas over the past months to the diplomat community, corporate circles, foreign students, Hungarian businessmen, and higher-income families in the city centre. The main reason for the success is intensive networking. The property management company has also doubled its portfolio in recent months by taking over the management from individual managers, lawyers, and competing management firms. Apartment owners find the results of a swift and straightforward rental process compelling. There is nothing like a regular, transparent, computerized financial report system, which gives full control to the property investor.

What is for sale in Budapest

Pleasant, quiet, already rented 2-bedroom apartment for sale in the popular Istvan Park new development in central Budapest. Furnished with style, next to a major public transport hub, sports facilities, and every city-amenity imaginable. Underground parking included.

Floor: 1
Total floor area: 59.16 m2
Balcony: 3.92 m2
Aspect: NW

Price: 85,000 EUR
Current rental fee: net 445 EUR/month
Rental yield: 6.28% p.a.

Amenities: 24-hour security.

For general enquiries on Slovakian or Hungarian properties click here to ask our experts or see the following contacts:

HUNGARY - Richard Vigh, richard@ceinvest.hu +36 30 449 1591

SLOVAKIA - Michaela Erdelyi, michaela@ceinvest.sk +421 911 251 030

Regards

Andras Patkai

ask our expert, Andras a question here