Newsletter
CE Invest Newsletters
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Excerpts from a selection of our newsletters:
March 3, 2010
Financing - Buyer Prospects in Hungary
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.
February 25, 2010
Income Tax on Rental in Slovakia
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.
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.
February 17, 2010
Income Tax on Rental Lowered in Hungary
Are you paying income tax on rental?
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.
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.
According to Act CXVII of 1995 on Personal Income Tax, 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%.
Note that in 2009 the tax threshold between the brackets was 1.7 million HUF (6300 EUR), which meant anyone receiving more than 525 EUR rent/month, including the utility expenses, was already in the higher tax bracket, which was 36%. The part if the income under 6300 EUR was taxed at 18% in 2009.
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.
We will register and obtain your Tax ID and Tax Number, prepare and submit your tax returns for an annual fee, please email for further info.
February 12, 2010
Tax Update 2010
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.
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 Slovakia currently
there is no stamp duty on purchased property.
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.
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.
November 27, 2009
Overview for Buy-to-Let Investors in Slovakia and Hungary
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.
October 20, 2009
Factors Affecting the Value of Real Estate (Part 2)
Last time we looked at six factors affecting the value of your property in Central Eastern Europe. We continue with 9 more factors, with special focus on Slovakia and Hungary.
7. Whenever there are lower interest
rates, the payments of mortgage loans are lower.
Lower payments mean higher rentability and ultimately higher income from rents.
Lower payments also mean more demand among buyers, which results in an increase
in value.
The current base interest rate in Hungary is 7.5%. It is 1.75% in Slovakia, just
like everywhere else in the euro zone.
8. The mortgage payment cannot exceed
30% of the purchaser’s gross income.
While this ratio has somewhat changed during the past year, lending practices
are likely to normalize in the coming months. Many lenders in Western Europe and
America have liberally loaned out money prior to the fall of 2008. Eastern
European banks on the other hand, have been very strict in evaluating the
eligibility of their clients. Rigorous credit checks and proof of long-term
employment were the norm. It was virtually impossible to get loans from two
different banks without letting them both know and approve. This is the reason
there are not that many foreclosures in Hungary or Slovakia.
Why is the payment important? Because as an investor, the higher your registered
income is, the more leverage you can use. If payments are lower, more people
can afford to buy homes, they will buy bigger, better homes, driving prices up.
If payments suddenly rise above this ratio (because of unemployment or currency
devaluation), more people are forced to sell, rent, and there are more motivated
sellers, below-market-value deals on the market.
TIP: When payments are high just extend the term of the loan.
October 6, 2009
Factors Affecting the Value of Real Estate (Part 1)
There are thousands of foreign investors who own rental property in Central Eastern Europe, hoping for better economic times. Looking back at the past half a year, I can confidently say the situation is not devastating in Slovakia or Hungary. Although it has become difficult (not impossible) to sell property, the apartments of investors are rented, producing an income. The Hungarian currency has strengthened again, so received rents are relatively higher than 3-6 months ago. What about the value of real estate?
The following points summarize the main factors affecting the value of investment property, with emphasis on the Hungarian and Slovak markets.
1. Your property occupies a unique spot on the Earth’s surface, “Location, location, location…” The historically and culturally rich capital cities of Central Europe are definitely a matchless choice, demand will surely rise for a stake in these special places of interest and current economic expansion. The anticipated economic growth of the Eastern Bloc is greater than the West.
2. To most buyers,
apartments will always be emotional possessions, therefore values are often
distorted; one can never rely on statistics when buying or selling.
TIP: A clever renovation project can dramatically increase the perceived value
of the property.
May 22, 2009
VAT up to 25% in Hungary from July 1
As part of the conditions for the latest IMF package to Hungary, the new Hungarian government introduced tax modifications, the current 20% VAT will be increased to 25%. The increased VAT will apply to every invoice issued after the 1st of July, 2009. (VAT remains 19% in Slovakia.)
The VAT increase will affect buyers of newly built property, as contracts signed before the tax modification will not be exempt. This means that developers must apply the VAT valid at the time of the transfer of the purchase price installment. So practically there is a 5% price increase on the remaining installments of the purchase price. If you fall into this category, in order to avoid the +5% increase, the remaining installment(s) must be transferred before 30th of June 2009.
There is no VAT on resale property or rental income.
Foreclosed BMV apartments for sale in Budapest
Amazing, you can find an apartment in central Budapest for 20,000 euros!
Here are a number of interesting offers from the banks, significantly below market value, which are worth considering as an investment. Remember you make your money when you BUY real estate, you just realize it when you are selling. Most of these studios and apartments must be renovated and furnished before they can be let, but the yield is significant.
Property Management
CE Invest is proud to announce that we have doubled our property management portfolio in Budapest in the last 6 months. We have waiting lists of tenants in most locations, taking on apartments to rent from other property management companies just to meet the demand. Our furnishing and apartment-renovating teams are busy creating visually appealing and highly functional rental apartments in the city for corporate tenants, foreign students, and local young professionals.
January 22, 2009
The Credit Situation in Hungary
The mortgage options in Hungary have been tightened, but are still present for foreign investors. Any foreigner can apply for and receive a loan. Preference is given to easily marketable property, which is already built, or off-plan where the bank giving the mortgage is heavily involved in the financing of the development.
The number of buyers has fallen drastically on the real estate market throughout the country, as is the case all over the world, especially in areas of buy-to-let investment. The Hungarian forint has weakened significantly, 1 EUR = 282.42 HUF, 1 GBP = 300.66 HUF, and 1 USD =216.58 HUF. Hungary still experiences currency fluctuations, unlike Slovakia, where the euro has successfully been introduced on January 1. The base interest rate is currently 9.5%, recently dropped, 2 days ago (National Bank www.mnb.hu). Therefore property in Hungary has suddenly become cheaper for the Western European buyer. Interests remain high, EUR loans cost 10.5% while HUF loans cost 15.1%, including all bank fees. LTV is relatively low, 72%, usually for 30 year terms. Best rates apply on off-plan sales, little lower LTV on resale property. The banks have tightened their conditions both to individual buyers as well as developers, but not as much as was expected at the end of 2008.
Because of the shortage of cash, some developers in Budapest are already starting to advertise off-plan apartments with a 10% downpayment now and 90% upon completion. This is good news for investors, as there is less risk involved. We are expecting more of this throughout the year.
The bank loan is cheaper if there is proof of a steady employment income ...
October 28, 2008
Buy Completed New Apartments
Instead of off-plan
SLOVAKIA
In Bratislava the value of resale old apartments (the least-sought-after product) went down 20-30%. Of course not everyone advertises at this level yet, however, if someone wants to sell, there is no choice. This applies to the featureless old buildings. This means we have 2006 prices, around 1850 EUR/m2, we are down to more realistic "Budapest levels" in Bratislava.
This price dive does not apply to new off-plan units, however. Developers saw no reason so far to decrease prices, in spite of them being approached daily by aggressive agents and investors looking for 30-50% discounts. They are satisfied with the ongoing sales, there is a strong local demand, and there is no sign of discounts for buyers or commission for agents. Apparently, they are very confident, even those who are just beginning sales and construction is still far ahead. In the meantime we hear of companies which have completely halted construction works for the year. Trustworthy sources report that certain banks have fully canceled developer financing on specified projects, demanding their money back, and are renegotiating terms with others.
HUNGARY
The latest news which rocked the Hungarian market is the massive currency fluctuation. The Hungarian forint weakened from around 230 HUF to the euro back in July to nearly 280 now. Today the mid-rate of the National Bank stands at 271.9 to the euro. GBP is 335.82. This means a 17% devaluation compared to the original value! This is only around 15% in the case of the GBP during the same period.
Hungarian property, which was already the cheapest in the region, suddenly became 17% cheaper. Hungarian products and services are even more affordable now.
To restore the trust of foreign investors in the Hungarian currency, on October 22 the National Bank increased the base interest rate from 8.5% to 11.5%. This stopped the falling currency. We are back in the era of double digit interest rates which characterized the period before and immediately after accession to the European Union.
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