Here are two exceptional opportunities you may wish to consider regarding property in Hungary.

Currency Opportunity

The mid-rate of the forint as published by the Hungarian National Bank (http://english.mnb.hu/) today is 309.48 HUF to 1 EUR. Last Friday it was 316. (1 GBP is 361.04 HUF and 1 USD currently stands at 231.91 HUF). For many years the exchange rate was around 270 to the euro. People in Hungary are just now starting to realise that the rate is not likely to get better, it is here to stay, or may even get worse. The weak forint is a hot topic in the media, along with hiked up fuel prices and the rest of the gloomy news about the European economy and the instability of the euro.

However, there is another side to the coin. From a Eurozone or Sterling (USD even more) perspective, the price of Hungarian property, goods, and services actually went down. Besides the general pressure on prices due to decreasing demand and increasing competition, there is a cumulative effect of the currency devaluation, which is especially favorable for most apartment owners. The idea is that your costs are denominated in forints while your rental income is in euros. This is why I recommend you fix your rent in euros where possible.

There is an exodus from neighboring Slovakia to Hungarian shopping malls, for example, prices have become so attractive. Hungarian repairmen, professional service providers are also in greater demand for businesses more connected with the euro economies.

For those wishing to sell their property this is not good news, unless you want to leave your income in Hungarian forints and not take it out of the country. Here is another opportunity for those reinvesting (to buy something more valuable), namely that the price of what you would buy also went down. The price of larger properties has seen a larger proportional decrease than smaller properties. While the formerly 380,000 euro flats went down to 230,000 euros, the formerly 100,000 euro flats only went down to 80,000 euros. Because of the cumulative effect mentioned above, owners of larger properties are often more motivated to sell, so there are great opportunities for those who can put together the capital.

For example here is an apartment which two years would have sold for for 100,000 EUR. The current price is 70,000 EUR. 1150 EUR/m2 including garage. Rental yield is 6.7-7%, depending on the exchange rate.

Here I would like to take the opportunity to recommend getting rid of your old dysfunctional property which is not producing a profit. Especially apartments which have structural faults or impossible neighbours, are in a bad neighbourhood, or there is some never-ending legal challenge. As long as you can trade it in for a much greater deal, in the long run you will be far better off. Now is the opportunity. If you sell below market value and "lose" 8000 euros, you will "gain" more than 8000 euros in the next purchase. It is worth a try. The key is to take advantage of the low prices and offer it really low as long as you can buy something else really low. My colleagues will assist you in pairing up properties on the market this way. Look for properties selling in HUF, not EUR. Just write to info@ceinvestgroup.com and mention property secrets.

Financing is available for private individuals at roughly 60-65% LTV and interest rates around 8-10% for HUF loans and 6-9% for EUR loans. Currently our experience shows that companies cannot get mortgage-based loans to purchase property in Hungary.

CHF and EUR Loan Repayment

Much of the Hungarian population has Swiss franc or euro based mortgage loans on their homes. At the time (5-10 years ago) these loans seemed to be the most favorable, their interest rates much lower than the Hungarian forint loans. There was no government regulation in place to guard against runaway currency exchange rates in the future, so businesses as well as households were exposed to this risk, effectively doubling monthly repayments in many cases.

The Hungarian government passed a very controversial law on September 19, 2011, which makes it possible to repay CHF loans at a fixed rate of 180 HUF to 1 CHF (current rate is 251.26). This only applies to clients who had an equal or lower rate of exchange when they received the loan and their loan contract was not terminated before June 30, 2011. No further interest, administrative costs, taxes or fees may be charged to client. In case of euro loans, the fixed repayment rate is 250 EUR. The law forced the banks to accept the exchange rate difference, causing outrage in the financial sector. Altogether about 66,000 people took advantage of the opportunity so far, until the end of October, causing a total of HUF 104 billion (EUR 340 million) loss to the banks. Originally the expected number of households was 150,000.

Fitch, along with S&P and Moody's, recently downgraded Hungary as a result of this move. ". various fiscal policy measures and the scheme to allow the repayment of household foreign currency mortgages at below market exchange rates have dented foreign investor confidence, on which medium-term growth prospects depend," said Matteo Napolitano, Director in Fitch's Sovereign Group.

The deadline for the decision to repay the full outstanding capital is Dec 30, 2011, deadline for payment of the full amount is Feb 28, 2012.

This law also applies to foreign owners of property in Hungary. Have you considered taking advantage of this opportunity? Let us know if we can be of any assistance.

Of course the gain compared to the euro is not that great, however the implications of buying property from a motivated seller are enormous. A person who owes say 16 million HUF (52,000 EUR) to the bank can now suddenly repay 13 million HUF and walk off with the difference of 9700 EUR. Imagine the person who owes 50 million (160,000 EUR). Now they can get away with paying merely 40 million. The difference is 32,000 EUR. How much would they lower the price of their property in order to get rid of the increasing burden of the installments? We are expecting to see further radical price drops until the end of the year because of this phenomenon.

Sincerely,

Andras Patkai
Director

www.ceinvest.hu

A recent study by Otthon Centrum on the Residential Property Market in Budapest (OC Lakaspiaci Monitor) reveals 4 proposed impact factors which could initiate an increase in apartment construction.

1) Improved consumer expectation of households
2) Increase in wages
3) Affordable loans
4) 5% VAT (down from 25%) on newly-built apartments

Between January 2010 and January 2011 the number of unsold new apartments in Budapest has been 3200 units (down from 3800).

There are roughly 2000 new apartments to be handed over this year in the capital. 500 of these are being built in District 11 (Buda), 300 in District 14 (Zuglo, Pest), and 180 in District 12 (Diplomat District, Buda), just to name some of the most popular residential districts.

There is much uncertainty regarding the second-hand market, for it is difficult to judge how many foreclosed properties will enter the market as soon as the government freeze on evictions is lifted on July 1, 2011. There is a pressure on the banks to get rid of their bad loans in order to bring more activity to the mortgage market.

Read 90,000 Households in Default http://ceinvest.hu/2011/04/90000-households-in-default/

How has the Recession Impacted Property Prices?

The average prices of used apartments have changed in varying degree since Q1 2007, until today, influenced by apartment type, and location.

Budapest regular apartments dropped 6.67% from 300,000 HUF (1120 EUR) to 280,000 HUF (1050 EUR)/m2.
Budapest “panel” apartments dropped 10% from 200,000 HUF (750 EUR) to 180,000 HUF (670 EUR)/m2.
Country regular apartments dropped 5.26% from 190,000 HUF (710 EUR) to 180,000 HUF (670 EUR)/m2.
Country “panel” apartments dropped 18.75% from 160,000 HUF (600 EUR) to 130,000 HUF (490 EUR)/m2.

Please note these are AVERAGE prices throughout the entire city of Budapest, a city of over 2 million, including mass housing projects of outer districts, low income neighborhoods, as well as industrial areas. Many of the housing estates were built before the 70′s, very similar to the so-called panel blocks. By “panel” we mean the grey “Communist-style” pre-fab blocks of flats built mainly in the housing boom of the 70′s, so common in Eastern Europe, which suffer from poor construction, insulation defects, and awkward layouts. Property in the country is also averaged, including former industrial towns of Eastern Hungary most hit by unemployment. The numbers only refer to apartments/flats, not detached houses or other property.

Andras Patkai

www.ceinvest.hu

The CE Invest Group is to merge with Catherine Dickens Properties under the new name Central European Property Group registered in Budapest and serving both Slovakian and Hungarian markets as a leading property management and consulting firm. Combining the professional world class service culture and internationally recognized interiors of Catherine Dickens with the strengths of CE Invest in residential and commercial lettings, international networking as well as corporate and tax consulting which will provide the added value that a foreign investor is looking for in Central Europe.

We are expecting an increase in property prices, especially in Budapest, in the coming years. Today an investor can still purchase a 2-bedroom luxury apartment in a refurbished listed building with 24-hour concierge service in a prime location in the heart of Budapest for €155,000, while the same amount would merely buy a 1-bedroom unit in a new development away from the center in Bratislava. The rental income of the luxury flat in Budapest would be twice that of the 1-bed unit in Bratislava.

The new Hungarian government has introduced incentives for property buyers, has created a more attractive business environment for foreign companies and employers in general, and has taken on the EU Presidency from January 1. Recent constitutional and monetary legislation has created uncertainty in the international markets, so the outlook for the Hungarian currency is ambiguous. Therefore this is a good time to buy property, however, only in the prime areas of Budapest. For those who have purchased property it is best not to sell, but keep it under good management to maximize revenue. The companies under CE Property Group specialize in the planning and project management of the restoration, interior design, and subsequent rental of high-end properties in Budapest.

If you have a question on your property or would like to know more about the Hungarian or Slovakian market, you can ask our expert Andras here

Despite some recent website problems of late, everything is going well at CE Invest in Budapest, we are in the middle of insuring a large number of apartments under our management, there are also ongoing renovation and furnishing projects, which keep us busy. We have added 10 new apartments to management in the last two months, mostly people who came over from other property management companies. Our new colleague, Adam, helps out with the workload. Investments have not stopped, we recently sold buy-to-let residential property in the 6th district @ 1673 EUR/m2.

The economic outlook in Hungary is volatile. Everyone is concerned about the red sludge on the news, which is a major environmental catastrophe, however it does not affect property in Budapest. Perhaps the most significant event influencing the property market in Budapest were the local government elections on October 3rd. Until now the government was careful not to say or do anything which would have weakened its position for the elections, so practically nothing was done since April, when the ruling party Fidesz took office. Now the markets are expecting subsidies and incentives for construction and purchases and generally, employment. The monetary playing field for the country is limited, so much creativity is needed to stay overboard. Those who bought property in the capital cities of Central Eastern Europe are far better off than investors who were looking for a larger profit in up-and-coming areas, which have fallen back to economic stagnation.

The rental market in Budapest is booming, we are not complaining - with the right pricing, anything can be rented.

Opening of New CENTURY 21 Office in Bratislava

I am proud to announce to you that we have successfully opened the first CENTURY 21 office in Bratislava, Slovakia. The name of the brokerage is CENTURY 21 CE Development. CE Invest operates on the side as the core property management company, however all sales and rentals will take place according to the golden standard of the brand CENTURY 21. My business partner Martin Melisko, and I, have decided to purchase the license of the world's number one real estate franchise network, because we feel the next few years will be about the consolidation of the property market in Central Eastern Europe and large time-tested franchise networks will be able to spread across the landscape, bringing a higher level of professionalism to the market. Back in 2004, we were the first company to sell buy-to-let property along with a comprehensive property management package in Slovakia on the Internet. By 2009 we have established ourselves as the market-leading residential property management firm. It is good to be at the forefront of innovation and through our involvement with the National Association of Licensed Real Estate Agencies (NARKS) we hope to contribute to national standards in real estate education and professional practice in Slovakia. 

Take a look at the pictures of the event here:

Our team in Bratislava

Our agents have the privilege of taking the country's most advanced courses in ethics and property mediation services, with a special emphasis on the legal and financial implications of a property transaction in Slovakia. Thus, they are equipped to act as professional consultants when it comes to sales or rentals, with the empathy and experience of a seasoned property manager.

Andras Patkai www.ceinvest.hu

Follow me on Twitter

I have recently started a personal (actually professional) Twitter account, @andraspatkai. You are welcome to follow me, where you will receive the most recent information about what's happening in Budapest and Bratislava as regards real estate. You can expect posts of pictures, market trends, news and opportunities. Your intelligent insights are most welcome, of course!

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

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

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

Although income tax is 19% in Slovakia, the  available incentives are so large, that an average apartment owner ends up with paying less than 2% tax on gross rental income. Here is how.

The deadline for submitting the 2009 Tax Return in the Slovak Republic is March 31, 2010. This applies to individuals who own property in Slovakia and receive an income from the rent.

Where should I pay this tax?

This has already been decided. It must be paid in Slovakia.

Double Taxation Treaties are conventions between two countries that aim to eliminate the double taxation of income or gains arising in one territory and paid to residents of another territory. They work by dividing the tax rights each country claims by its domestic laws over the same income and gains. Slovakia signed a Double Taxation Agreement with the United Kingdom, for example, on November 5, 1990, which came into force on December 20, 1991, and was published under Law 89/1992. The document may be downloaded here (HM Revenue & Customs). The same agreement between Ireland and Slovakia can be found here (Revenue, Irish Tax & Customs). The updated list of countries may be downloaded from the web site of the Slovak Ministry of Finance here. Since these agreements between countries follow an international standard, they are very similar. Article 6 of the Agreement discusses "Income from immovable property." It provides for each government to levy income tax in the country where the real estate is located: "Income from immovable property may be taxed in the Contracting State in which such property is situated." The tax paid in Slovakia can be deducted from the tax base in the country of residence.

What if I have already paid tax on my 2009 worldwide income in my home country?

Strictly, you should have first completed tax returns and paid any tax in Slovakia. Then when you completed your tax returns in your home country, you would have been given credit for the tax you paid in Slovakia, against your domestic tax liabilities. However, in the case you have completed your tax returns in your country, and have paid tax on the rental profit but have not had credit for any Slovak tax, you now need to complete a tax return in Slovakia and pay any tax in Slovakia. Once you have done so, you will need to obtain credit for the Slovak tax against the domestic tax you have paid.

Those apartment owners who have not yet registered the income-producing activity of rental with the Slovak Tax Authority, are strongly encouraged to do so. Otherwise they risk serious penalties for years to come. If no tax has been paid on rental income in Slovakia so far, as far as the Tax Authority is concerned, the apartment has not been rented. In many cases this situation cannot continue, especially if there are regular bank transfers to investor's account from the property management company, which indicate commercial activity. This proves the apartment owner has regular income in the country.

There are significant tax incentives available for individuals who provide housing in Slovakia:

1.Deductable amount for rental activity (odpočítateľná položka): currently 830 euros

2.Across-the-board tax cut (paušálne výdavky): currently 40%

3.Deductable amount for the tax payer (odpočítateľná položka pre daňovníka): currently 4025.70 euros

Net rent and utilities (energies, as they are called in Slovakia) are always combined to form the total rental income of an apartment.

Therefore, if an apartment is rented for say 600 euros/month and energy and common costs are 150 euros/month, the total annual income is (600 + 150) x 12 = 9000 euros. 830 euros may be deducted from this gross sum, which gives us 8170 euros. The 40% tax cut further reduces our tax base to 4902 euros. subtract the fixed amount of 4025.70 euros from this to get the final annual tax base of 876.30 euros. Income tax is taxed at 19%, so we pay 166.50 euros tax. This comes out to 1.85% of the gross income of the apartment.

The above calculation indicates that it is possible to arrive at a zero figure for tax in a given year. In this case a Tax Return still has to be submitted.

CE Invest will prepare and submit the tax return for you, issue rental invoices, and do the accounting for an annual fee. It is also possible to perform a mock tax audit and calculate unpaid tax in retrospect.

Companies are taxed at 19% corporate tax on profits. There is no income tax to be paid on dividends in Slovakia, however such income must be declared in the country of residence, after which income tax is due.

CE Invest is the #1 Rental Agency of Gozsdu Court in Budapest, Hungary

Apartments for Sale in this Exclusive Location

Rented Apartment in Gozsdu Udvar

Price: €110,000
1 bedroom
Facing inner court
1st Floor
Size: 45 m2
Price includes underground garage space
Price includes furniture

Rented for 500 EUR/month until 31st January 2011
Rental potential: €500-550

Duplex Apartment in Gozsdu Udvar, Budapest, for Sale

Price: €140,000
Bedrooms: 1 bedroom + loft (duplex apartment)
Facing inner court
4th floor/attic
Rental potential: €550-600 depending on furnishing quality
Size: 77 m2 registered (73.5 m2 full ceiling height 1.9m)

BUILDING

Gozsdu Court is truly one of the most impressive new developments at present in central Budapest. A monumental classical renovation, Gozsdu has become not only one of the city’s premier residences, but also a key cultural centre in Budapest. The prestigious building, and first class facilities including the stunning Holmes Place gym combined with the central location offer the best in city centre living.

LOCATION

Located between Kiraly utca and Dob utca, Gozsdu Court, a secure gated development, is located in what has become one of the most sought after and fashionable areas in Budapest. The street Kiraly utca has undergone significant development over the last few years and is now home to various cafés and terraces, museums, art galleries, exhibitions and more. The galleries of Gozsdu Court itself are also drawing attention including the White Label gallery. Also close by are all the amenities of Andrassy Avenue, and the Deak Ferenc and Varosmarty Squares.

SERVICES

Gozsdu Court benefits from on-site concierge services and 24-hour security. Residents at Gozsdu can apply for membership at without a doubt Hungary’s most impressive new fitness gym. A spectacular world-class club, Holmes Place, frequented by foreigners, is a 2000 sqm wellness centre, and features the best in modern facilities. Several fitness and conditioning halls as well as various saunas, a steam room and a swimming pool are also located at Gozsdu Court.

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

Generally the year 2009 has been a bleak year for buy-to-let investors worldwide. The crisis came with a delay to Eastern Europe where sellers and developers refused to believe the gloomy predictions until there were obvious signs. Individual buyers, mainly from the UK, and foreign investment funds, which flooded the region until late 2008, suddenly disappeared. Banks toughened their lending criteria, unemployment rose, and the property boom came to an abrupt halt. What used to be a gold mine of opportunities and relentless optimism, gave way to a desperate scene where many property agents and developers were forced out of business.

The main issues for investors throughout the year were finding the right exit strategy with the least possible loss, and negotiating favorable property management options in the aftermath, for those who could not or would not sell.

In spite of the bad news and the market slow-down, prices merely stagnated and did not come down as much as expected. There were no massive foreclosures or easy lucrative opportunities. Investors hoping to buy 40-50% below market value were surprised to find tough resistance from unbroken sellers.

Slovakia

CE Invest, as the leading property management company of Bratislava, provides up-to-date data about the prices in the city. The rental market is strong in Bratislava. Apartments are rented within a week or two. The reason for the demand is the low supply of newly-built apartments in the city. A central location is also a much-sought-after deal for the tenants, 50% of whom are locals, the other 50% foreign businessmen, diplomats, and students.

Rental prices of newly-built units in Bratislava

Rental prices of Old Town apartments in Bratislava

Utilities are paid by the tenant. Note that in case of a vacancy, it is not only the missing rent, but the mounting utility expenses, namely building common costs, which take their toll on the investors.

Mortgage Information

Currently only two Slovak banks, OTP Bank and VUB Bank, the latter only in exceptional cases, provide mortgage loans for non-residents in the range of 50-70% loan to value (LTV). The current interest rate varies between 5.2 and 5.6%. The administrative period is around one month until the mortgage is released.

Some recent examples from the re-sale market of newly-built properties:

1-bedroom 59m2 apartment in the 3 Towers development bought by an Austrian citizen working in Bratislava for 152,000 Euros, including parking space.

1-bedroom apartment in the development Jegeho Alej by Finep was bought by a Slovak bank employee for 110,000 Euros, including parking space.

Re-sale Prices of Newly-Built Properties in Bratislava

No VAT is involved when apartments are re-sold by private persons. Costs involved in apartment re-sale for the owner include a brokerage commission of 3.5% + VAT as well as legal fees at 0.5% + VAT. Regarding 19% capital gains tax, which is to be paid on the difference between the current sales price and the original purchase price, there is a tax exemption after 5 years in case the foreign owner is registered in the apartment as his/her “place of residence.” Expenses of renovation, furniture, legal & agency fees as well as a standard 4025.70 Euro tax deduction, can be offset against the tax base.

For those who do not wish to or cannot sell, the fee for property management is 10% of the monthly rental income + VAT. An additional tenant-finding fee of one month's rent + VAT is charged upon finding a new tenant. Costs of complete furnishing including full kitchen with appliances, delivery, assembly, installation, and VAT, are as follows.

Hungary

According to a market study and predictions for 2010, by HVB Bank, yields on the property market are approaching the 6% average of Western Europe and residential prices will not rise faster than inflation.

The investment environment is somewhat blurred, which means it holds opportunities not present in the “stable” and more organized West.

Ambiguity factors include the small size and immaturity of the market, its undeveloped cyclic nature, uncertain liquidity, and the often short-sightedness of the market players. According to the HVB Bank study, there is a chaotic market with a lack of market standards or voluntary law-abiding behavior, a slow legal system, government overspending, and currency risk.

In 2009 the amount of transactions on the residential market fell back to 2004-2005 levels, around 10,000 units annually in Budapest. This is expected to rise to 12,000 in 2010. In 2009 there were 3300 newly-completed unsold units in the city of 2 million. Previously sold apartments re-enter the market as investors rather lose their deposits than complete on the sale. Effective rise in prices is only anticipated in luxury inner-city apartments and newly-built projects in the popular residential neighborhoods close to the center, where low supply will drive prices further up.

The lowering of the base interest rate of the Hungarian forint, currently at 6.5% (down from 11.5% since Oct 2008), and competition between the banks will reduce the burdens on home mortgages. Buyers are reluctant to buy off-plan, they are looking for already completed units. Experts do not expect further price drops. Property professionals expect modest interest from foreign buyers in 2010 and much improvement by 2011, primarily from British, Spanish, as well as Irish investors.

Instead of looking for bargain foreclosures, investors are encouraged to consider the commercial market for opportunities. Most of the foreclosed property is large, often incomplete family houses outside the capital.  On the other hand there are rented inner-city retail units for sale and yielding commercial buildings with yields well over 10% p.a. in Budapest.

Those who own property should not seek to sell at this time, instead minimize expenses of property management and keep a close eye on the market for exploitable leverage.

Andras Patkai (CE Invest - Bratislava)
Martin Melisko (CE Invest - Budapest)