Investment property in Budapest

samb

My parents are thinking of buying an investment property in Budapest. Its a new apartment near the centre for 120k (which I thought was expensive). What is the current thinking with regard Budapest. Is it a good investment in Short?, Medium, Long term.

dunkamania

Hungary would be my first choice in eastern europe.
I think 120k is a bit expensive,but it depends what they are getting for the money.

ronbyrne2005

whats the rental yield like?? i have read budapest is a good investment but do your research,google it and you'll find reports by newspapers like the times etc which can give some good information if the article is unbiased and objective.
120k seems steep but if its a high quality one in the best district it could be ok.
have they considered the tax implications,letting,maintenace insurance etc?how will they finance it? is there currency risk? if borrowing what if interest rates rise?
hungary seems to have a reasonble average wage of 15k a year so rents should be good but do your research.

cousin_borat

Hey there. Funnily enough I was about to post seeking others opinion on whether they're happy with their investment. Anyhow to try and offer some advice to you.

The only way to compare like with like is to breakdown appartments by the price per square foot/metre. Have a look at the following example:

You have an appartment thats 100 m2 (metres squared) at Eur 200,000. That works out at Eur 2,000/m2.
Take another appartment in the same condition in the same district at Eur 160,000 thats 90 m2, this works out at Eur 1780/m2.

Same district, same condition. Pretty easy to see which is the better value property. This is pretty simplistic as youd take other factors into account such as whether there is a lift in the property, condition of the exterior building, potential for rental income, etc etc. I guess you can use this criterion for new appartments as well.

The property I purchased in 2004 worked out at Eur 1,200 / m2. This was a large appartment in the middle of district V that was 100 m2. So take into account capital appreciation and make your own judgement of how much over that your parents would be willing to pay. TBH I can't give you rates for new appartments. However I would look at this site to get an idea, www.dunahouse.hu. I bought through this estate agent. If you want a contact there PM me.


Regarding rental Income:
Rental income is generally pretty poor. You will be doing well to conver your mortgage. For new properties you will get a decent rent. However you have to weigh up if you want to furnish the appartment which is essentially Eur3000 down the drain and get a higher rent or take a slight cut and rent unfurnished. Personally I would try to rent unfurnished. And be very observant of the charges of rental agencies.

I stand to be corrected but if you buy as a private investor you will have to pay a hefty wad of stamp duty. If youre buying as a company they you won't have to. It's pretty easy to set up a company in Hungary.

Overall its a good medium/long term investment. As interest rates go down in Hungary due to EU harmonization you will see the middle class property market start to increase seeking appartments in the city centre area of Budapest. This should be pretty much guarenteed, so its up to the investor whether they want capital appreciation or hold on to the property long term as a pension type investment.

Hope this helps somewhat

shepthedog

Interesting post by cousin borat..

Check out recent copies of "Irish Property Buyer" magazine, I think it was Nov/Dec edition that had a great article on Hungary.

As for Hungary itself I think its one of the best up and coming eastern europe countries in terms of property investment. Stable growing economy, great location etc. I am honestly of the opinion that good properties in good locations, most preferably in capital cities will be the best investment.

cousin_borat

shepthedog wrote:

I am honestly of the opinion that good properties in good locations, most preferably in capital cities will be the best investment.

Exactly! If you can afford to buy in the downtown area of a good city or capital city of an up and coming country at good value you will not go wrong.

samb

Thanks for your replies. It is a new apartment (off the plan) so will be in good condition. All the rental etc will be looked after by the agent. don't know about size. My parents wont have to borrow for it so thats not an issue. It is a kind of pension investment but thats only about 7 years away.

RainyDay

cousin_borat wrote:

Exactly! If you can afford to buy in the downtown area of a good city or capital city of an up and coming country at good value you will not go wrong.

Don't listen to anyone who tells you 'you won't go wrong'. It might go wrong. Assume it's going to go wrong unless you've run the numbers to assess your risk. Make sure you investigate all the tax impacts before you sign on the bottom line.

cousin_borat

Rainyday.
If you read my previous posts I have my suggestion on how to look at the figures. I've also mentioned the tax situation ie Stamp Duty and the difference between buying as a private or company.

"It might go wrong. Assume it's going to go wrong unless you've run the numbers to assess your risk"
That's some great advice there, very insightful. I would assume that most people posting here would know that, no need to insult their intelligence.

connundrum

Check out the Mach issue of House Hunters in the Sun, big Hungary special there as well as the Hungarian Fact File. I do work for the mag and if there's any other help I can give PM me.. on any location of course :v:

RainyDay

cousin_borat wrote:

Rainyday.
If you read my previous posts I have my suggestion on how to look at the figures. I've also mentioned the tax situation ie Stamp Duty and the difference between buying as a private or company.

If you think that 'Stamp Duty and the difference between buying as a private or company' adequetly covers the tax situation, then that puts your other posts in an entirely different light. What about the basic issue of income tax? Have you investigated the impacts of any double-taxation agreement between Ireland & Hungary? What about capital gains tax when you come to sell?

cousin_borat

I'm not about to type out a comprehensive analysis of the tax situation, quite frankly it's all out there and easily accessible. regarding Stamp Duty for a new appartment, theres none if the value is under Eur 120,000.
http://www.casaro-hungary.com/pages/faq.php#7

I still say that investing in property in a downtown area of an up and coming EU capital city, once you are well informed of the tax, stamp duty, etc. You can't go wrong.

Also all of the major stockbrokers do analysis of the medium term prospects on all of the EU countries, Davy's being among the most comprehensive. To the original poster you should look those up as well.

RainyDay

So many errors, so little time.....

cousin_borat wrote:

I'm not about to type out a comprehensive analysis of the tax situation, quite frankly it's all out there and easily accessible.

Nice sidestep - So why don't you point to just one single site that shows the income tax & CGT issues for Irish tax residents investing in Hungary - just the basics of how mortgage interest is treated in both jurisdictions and what tax rates would apply - nothing fancy there - Just one little site will convince me that might actually know what you're talking about.

cousin_borat wrote:

regarding Stamp Duty for a new appartment, theres none if the value is under Eur 120,000.
http://www.casaro-hungary.com/pages/faq.php#7

Please tell me that you don't take tax advice from estate agents or other salespersons with a vested interest in making the sale.

cousin_borat wrote:

I still say that investing in property in a downtown area of an up and coming EU capital city, once you are well informed of the tax, stamp duty, etc. You can't go wrong.

And you were doing so well there - right up to the 'can't go wrong' mistake. Fatal - it can so easily go wrong. But maybe those who have alredy invested there have a vested interest in hyping up the market so other suckers will keep the prices rising.

cousin_borat

Regarding the link, I fully accept your point about estate agents. However I have bought property there. I was in work at the time of posting. Hence I did not have the time to type out the details. I read quickly through that link and the facts are correct so I posted it.

As for your last point, well you're overstepping the mark. That's a pretty pathetic comment. You think that the Investment section on Boards.ie will influence the market in Budapest. Jesus. :rolleyes:

I'm posting my comments as somebody who was in a similar position to the original posters parents. Your other posts on this forum are generally very helpful. I'm not sure whats got into you here.



ps look up the meaning of error in the dictionary

RainyDay

cousin_borat wrote:

Regarding the link, I fully accept your point about estate agents. However I have bought property there. I was in work at the time of posting. Hence I did not have the time to type out the details. I read quickly through that link and the facts are correct so I posted it.

The information on that link is meaningless for Irish residents, as it tells them nothing about the Irish tax issues. Would you care to throw any light on the Irish tax impacts of Hungary property investments?

cousin_borat

Ok, I'm not in work now so here goes!

Regarding what I said earlier, you pay stamp duty if you do not open a limited company. You pay a reduced interest (2%) if you elect to sell the property within two years, which is usually not worth doing unless you acquire a good property for an exceptional price otherwise it's 5%.

Regarding rental income you pay 20% per year.

Capital gains on the price of the property when it is sold. Capital gains is 20%, however it reduces by 10% annually after 6 years. At the time I bought you were not charged capital gains if you re-invest in residential in Hungary.

That's all from my documentation when I bought.

I also previously mentioned that there is an agreement between Ireland and Hungary that prevents dual taxation. This applies to earnings from businesses, work, students and includes capital gains tax.
This is a link to the treaty, you should find all the information you need regarding the taxation. http://www.revenue.ie/services/tax_info/dtas/hungary.htm

onedmc

this site is good for ROI templates etc http://www.mortgagesexposed.com/Book_Contents/spreadsheet_summary.htm

RainyDay

cousin_borat wrote:

Regarding rental income you pay 20% per year.

Capital gains on the price of the property when it is sold. Capital gains is 20%, however it reduces by 10% annually after 6 years. At the time I bought you were not charged capital gains if you re-invest in residential in Hungary.

That's all from my documentation when I bought.

I also previously mentioned that there is an agreement between Ireland and Hungary that prevents dual taxation. This applies to earnings from businesses, work, students and includes capital gains tax.
This is a link to the treaty, you should find all the information you need regarding the taxation. http://www.revenue.ie/services/tax_info/dtas/hungary.htm

It appears that you have made a dangerous misinterpretation regarding the impact of Double Taxation treaties. As general rule, the existance of such a treaty does not mean that payment of tax in Hungary is accepted by Irish Revenue as the full discharge of your tax liability. It means that the tax you pay in Hungary is accepted as a credit against your Irish tax liability.

So you don't pay 20% income tax on your rent. You pay 20% in Hungary and (assuming you are a top rate taxpayer), you pay a further 22% in Ireland to bring you up to the normal 42% rate. Here's the exact wording from the Revenue treaty you linked to which explains this;

Article 23 Elimination Of Double Taxation

2. Subject to the provisions of the laws of Ireland regarding the allowance as a credit against Irish tax of tax payable in a territory outside Ireland (which shall not affect the general principle hereof)-

(a) Hungarian tax payable under the laws of Hungary and in accordance with this Convention, whether directly or by deduction, on profits, income or gains from sources within Hungary (excluding in the case of a dividend tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any Irish tax computed by reference to the same profits, income or gains by reference to which Hungarian tax is computed.

On the same basis, your point about CGT reducing after 6 years is not correct, as the Irish CGT rate of 20% would apply for ever.

Like many of those who are investing in offshore property, it seems that you have made such an investment without understanding the basics of the taxation issues involved, and you continue to recommend investments to others without having a full grasp of the issues.

hmmm

RainyDay wrote:

It appears that you have made a dangerous misinterpretation regarding the impact of Double Taxation treaties. As general rule, the existance of such a treaty does not mean that payment of tax in Hungary is accepted by Irish Revenue as the full discharge of your tax liability. It means that the tax you pay in Hungary is accepted as a credit against your Irish tax liability.

Pretty basic stuff - this is one of those never ending gobsmacking property investment threads.

RainyDay

hmmm wrote:

Pretty basic stuff - this is one of those never ending gobsmacking property investment threads.

Yep - it is pretty basic to me too, but it never ceases to amaze me that so many people who are actively investing offshore or promoting such investments don't have a grasp of these basics.

But I guess that Borat is too busy meeting with his newly appointed tax advisor to come back to the thread now.....