The main types of real estate transactions are:
- Real estate purchase
- Real estate swap
- Real estate granting
- Real estate gift
- Registering or deleting mortgage
Why you need an attorneys assistance to buy property in Hungary?
In Hungary lawyers are competent to authentificate real estate agreements for the land registry, which is required for the validity of the transaction. Therefore, if you plan a real property transaction in Hungary, you'll need a lawyer.
Contract, title deed, physical possession
To become owner of a real estate, signing a contract before a lawyer is not enough. You need to be registered at the land registry, in a public real estate register, and you need to take over the physical possession of the property. Therefore, when we draft a contract, these elements are always included: terms and conditions of property registration, and taking the physical possession of the property.
Almost every data, that may be relevant in a property trasaction in Hungary, is shown on the extract of the land registry (tulajdoni lap) that we translate as "title deed" or "land registry certificate". A title deed consists of three parts:
I. Data of the property (land registry nr., physical adress, type of property, surface area, etc.)
II. Data of the owner(s) and ownership(s) (owner, usufructuary)
III. Burdens, encumbrances (mortgage, servitude, usage right, ongoing execution)
The very first step to start a new transaction is to gather the title deed from the land registry. In fact, if you plan to buy a real estate, we recommend you to ask us to send you a copy of the title deed before you make any payment, or an offer.
Preparing an agreement
Based on the title deed, we provide you with advices, how to bargain with the seller. Some risks, that certain burdens, or situations may pose, shall be handled by splitting up payments, or binding payments to certain terms and conditions. Payment terms are the most sensitive part for sellers, so we try to keep the transaction secure, with as little stress on the seller as possible.
Once you've get to the point with the seller, that your lawyer (us) prepares the agreement, you should book a consulting appointment, when we talk to the seller (with or without you). Establishing communication and trust is very important, as it helps us to complete the transaction smoothly. Some sellers are suspicious, had negative experiences, or just find it out of their comfort zone to talk to the buyers lawyer. Lawyers sometimes don't handle such situations right, talk down to people, and that's why we sometimes have a negative reputation. Negative feelings of the seller go away once we first talk to them. We're used to crack the tough nuts. They've got the right to safety of their payment, and it's our duty to take that into consideration. We can explain and make them accept many legal things that you can't.
Once we feel that every party understands and agrees how the transaction shall be completed safely, rendering everybody content, we draft the agreement and send it to every party for reviewing. The seller often has their own lawyer, that they trust, and want to get involved in the transaction. It's an unequal situation, as we -through the act of authentification- are equally responsible fully to the seller and the buyer, the sellers lawyer has no responsibility at all. Sellers lawyers usually receive payment based on what they contribute, so the often take the opportunity and make suggestions on modifications, additions. As the countersigning attorney at law, it would be easy to turn these suggestions down, but we don't want to turn someone against the transaction, that is on confidential terms with the seller. Therefore, we cooperate, and if the suggested modifications and additions don't pose any risk, don't get any of the parties in a more difficult situation, and are not opposed by any of the parties, we simply say thank you for the cooperation and add them.
Signing the contract
In 2020. real estate transactions are still drafted on paper in Hungary, as one of the last paper based, non electronic procedures. A digitalization is planned for 2021., and the COVID19 pandemic is encouraging this process, but for the time being contracts are signed, authentificated and prepared on paper made of cellulose pulp, in hard copy. The signatures though, can be put on the paper at different times and places, so parties can sign abroad, or in other cities, at different times. The only rule is, that everybody shall sign in front of the lawyer, but that is accepted online as well. Once the lawyers countersinging is put to the paper, with his dry stamp, nobody can question the signing.
Signed contracts and additional documents (for example tax declaration) are submitted to the land registry on paper, which registers it in 60 days. With 10.000 HUF extra fee, extra quick procedure can be requested, which is 30 days. Permission for foreigners to buy real estate takes 45 days, which means foreigners get a title deed with their names registered on it in at least 75 days. This period would be extremely risky for buyers, as if anything happens (the seller sells the property, dies, or an execution procedure, debt collection is started) the buyers encumbrance free registration could be at risk, while he already paid a signficant amount of the ourchase price.
One of the worlds safest systems
The hungarian system is pretty advanced in this aspect. On the very day of signing the contract, we can submit it to the land registry paying 6.600 HUF for property registration (20 EUR), and it's registered on the title deed immediately. If the price is not paid at once, we receive a written statement from the seller, with the date of the contract, that should remain in our escrow deposit until the price is fully paid. Once we submit this statement to the land registry (after the price is paid) the rights of the buyer will be registered. If the contract is submitted to the land registry on time, and the sellers statement as detailed above is in our deposit, nothing can put the buyers rights to risk. After having seen dozens of different legal solutions across the globe, we can say that hungarian law is among the safest, 99,9% safe (just because we can't give 100) in the whole world.
Registration of the property
Once the land registry office executes the registration, it sends an extract of the decision to every participant, and the case is closed. If any tax shall be paid, it is requested by the tax office soon after the registration (but it can be requested before as well). For a long time, property tax at purchase is 4% in general, and 2% for real estate trader companies (that sell and buy).
About the permission needed for foreigners to buy property in Hungary
As a final word, we'd like to talk about the permission that foreigners need to buy real estate.
Foreigners need permission to buy property of any kind in Hungary, and some types of real estate (arable land) can't even be permitted at all. Permission is asked for in a separate procedure, before the land registry procedure. It is conducted by a central administrative authority, involving local municipialities. The procedure lasts 45 days, and usually ends without the authority making any decision, as the lack of a refusal means an approval in this single case. This procedure is followed up by us. When the contract is signed, we prepare a separate request for permission, adding some extra documents to it (like your passport copy, police clearance certificate, the real estates title deed etc.). and submit it personally. We also get in touch with the authorities, officers personally to establish communication.
This procedure was originally meant to protect hungarian buyers from financially strong competition of foreigners. However, as hungarian sellers realized, that foreigners mean an extra 45 days waiting time, and there is a bit of uncertainty in the procedure (though 99% of requests is positive), they started to raise the prices, and of course foreigners have accepted that (prices were and are still very favourable for them). The sellers than understood, that it's in their interest to be patient for 45 days more, for an extra 5-10% of the purchase price, and they have set the prices for everyone 5-10% higher than before. So while it is somewhat more inconvenient to wait extra 45 days, which gives a head start for hungarian buyers, real estate prices were climbing slowly, but steadily. Of course you may still encounter an owner, that refrains from the 45 days period, and the uncertainty, but there is a way to skip this permission process after all.
A good solution to skip the permission process is this: you need a hungarian company, to which you provide a loan, amounting the purchase price. It can be your own company. The company buys the property, paying a 2% property tax. Later, You buy the property from your own company, without paying for it physically, as the company owes you exactly the same amount as the purchase price. For this transaction, you'll pay 4% property tax. In total, you paid 6% tax, but you could buy the property immediately. When a property is sold 20-30% under market price, and there is a que standing wanting to buy it, paying 2% extra tax is worth it, to be able to buy it, because you can bet, no owner will wait 45 days for you, when three others without needing a permission are standing there waiting. Instead of a company, you may use a foundation, or any legal person. Foundations are typically optimal for such purposes traditionally, and in Hungary they can be founded openly to personal benefit (personal benefit of a person may be the main goal of a foundation officially).