Budapest

The top 20 places to invest in Europe

Data courtesy of Global Property Guide

20. Paris, France
Good: Low rental costs, high yields in Paris, Global political powerhouse
Bad: pro-tenant rental market, moderate-to-high transaction costs

19. Helsinki, Finland
Good: low to moderate transaction costs, strong economy, moderate yields, tenant-neutral rental market
Bad: high rental income tax.

18. Prague, Czech Republic
Good: pro-landlord rental market. Moderate yields, low transaction costs
Bad: moderate to high rental income tax. Aliens can’t buy land directly

17. Sophia, Bulgaria
Good: pro-landlord rental market
Bad: yields not great, high transaction costs, moderate rental income tax, corruption and crime problems

16. Brussels, Belgium
Good: strong rental demand
Bad: moderate to high transaction costs, tiresome tenancy length limits, moderate to high taxes

15. Vienna, Austria
Good: stable political system, moderate transaction costs, moderate yields for new units
Bad: complicated pro-tenant system, moderate to high rental income taxes

14. Ljubljana, Slovenia
Good: Pro-landlord rental market, low transaction costs, strong post-transition economy
Bad: low to moderate yields in Ljublana, high rental income tax, minor issues with ownership

13. Bratislava, Slovakia
Good: Low to moderate rental income tax, very low transaction costs, tenant-neutral rental market
Bad: minor issues with property rights, low rental yields.

12 Bucharest, Romania
Good: low transaction costs, strong post-transition economy
Bad: low to moderate rental yields, high rental income tax, strong pro-tenant sentiments

11. Warsaw, Poland
Good: low transaction costs, strong post-transition economy
Bad: low to moderate rental yields, high rental income tax, strong pro-tenant sentiments

10. Chisinau, Moldova
Good: High yields, pro-landlord rental market
Bad: secessionist problems, high tax rates, purchases must be in cash, one of poorest economies in Europe

9. Riga, Latvia
Good: pro-landlord rental market, low effective rental income tax rates, low transaction costs, high GDP growth, recent correction in housing market has restored value
Bad: low to moderate yields, minor ownership restrictions on land

8. Rome, Italy
Good: Europe’s historical centre, strong tourist rental market
Bad: strongly pro-tenant laws, high round-trip transaction costs, high income taxes

7. Berlin, Germany
Good: low to moderate transaction costs, largest economy in Europe, high yields in Berlin
Bad: pro-tenant rental market, moderate rental income tax

6. Talinn, Estonia
Good: very low transaction costs, moderate yields in Tallinn, strong economic growth
Bad: high rental income tax, slightly pro-tenant market

5. Zagreb, Croatia
Good: Strong tourist rental market, moderate taxes
Bad: multiple foreign ownership limits, moderate to high transaction costs, vulnerable and unstable economy

4. Istanbul, Turkey
Good: Moderate costs, moderate to high yields, rapid economic growth, low-to moderate transaction costs
Bad: pro-tenant rental market, moderate to high income taxes

3. Amsterdam, Netherlands
Good: moderate yields in Amsterdam, strong economy, moderate transaction costs, moderate rental income taxes
Bad: pro-tenant rental market

2. Skopje, Macedonia
Good: high yields, pro-landlord rental market, low transaction costs, moderate income taxes
Bad: serious ownership restrictions, political and security concerns

1. Budapest, Hungary
Good yields, low to moderate transaction costs, pro-landlord law
Bad: minor ownership restrictions, moderate to high rental income taxes

Legal

In conformity with EU regulations, Energy Performance of Buildings Directive (EPBD), the law in Hungary has been extended this year, requiring the presentation of a valid energy certificate (green card for a property) for apartments sold and rented after January 1, 2012.

Act 176/2008. (VI. 30.) on Certification of the Energy Performance of Buildings came into effect on January 1, 2009. The requirement for existing properties, apartments was optional until December 31, 2011. Now it has become mandatory.

Exemptions

The requirement does not apply in case of apartments where…

• The floor area is less than 50m2
• The property is in a listed heritage building and/or in an area under the administration of the National Monument Society and is classified as “protected”
• Usage is less than 4 months a year
• Premises serve a religious purpose
• The internal heat produced by technologies in construction exceeds 20 W/m2

The Certificate

The energy certificate tells us what the annual energy consumption of the property is in average weather conditions. In case the property does not meet requirements, a proposal is given to address the issues.

The energy performance of the property is ranked on an internationally recognized scale (from most energy efficient A+ to inadequate I, with C, meaning it meets requirements, and F, being average) for energy efficiency. There are hardly any buildings in Hungary over category C.

It is valid for 10 years.

Only certified and registered experts are allowed to issue the certificate, who are accountable to a national regulatory authority. They are listed on the web site of the Chamber of Hungarian Architects and Chamber of Hungarian Engineers. CE Invest works with reputable professionals and always attaches the credentials of the registered expert to the energy certificate upon issuance.

Common Practice

Since this is a new situation, there is considerable confusion on the market about it. It helps to look at things from a practical point of view:

Why is this important for apartment owners?

Tenants and Buyers are asking for it.

What potential buyers and tenants have picked up from the media buzz is that they have the right to demand this document, which may give them further grounds for negotiation. Therefore, even if in certain cases, it is not required legally, we strongly recommend performing the survey and issuing the certificate, because when people inquire about the apartment, they are looking for it. Inability to produce this document certainly weakens the owner’s position and makes other “properly documented” properties seem like they are more favorable.

It is our policy at CE Invest to issue the certificate for each apartment under our management, so we can see the actual energy status of the property on the one hand, and, on the other hand, compete on equal grounds in the market.

Conditions of Apartments

Many of the apartments in old buildings in Budapest will have a poor rating in terms of energy efficiency. This is due to inadequate insulation and outdated heating systems, improper management and irregular maintenance of the buildings. Some of the newly-built apartments, especially on top floors of buildings, may also hold surprises in terms of energy efficiency.

This should not discourage any apartment owner, for neighboring apartments will also have similarly poor ratings. In cases where the cost of an upgrade in the apartment is justified by a much higher rental or sales price, CE Invest will call your attention to it.

Now that there is a unified standard, tenants and buyers have better grounds for comparison and with rising energy costs, the better ratings will help sell or rent the property.

Service

The no-hassle service provided by CE Invest is swift and thorough.

It consists of two phases:

1)      Survey
Our engineer obtains all the necessary legal and technical documentation of the apartment and the building, liaising with the building management company and local municipality.
A thorough on-site survey is performed, where actual measurements are compared with existing documentation and blue prints.

2)      Analysis
The data thus collected is entered into a nationally accredited computer software to produce the current energy efficiency performance of the property.
The certified expert (energy assessor) verifies the data, then issues and signs (stamps) the certificate accordingly.

Cost

CE Invest charges a one-time 230 euros plus VAT for this service.

This includes EVERYTHING from start to finish:

1)      The collection of data for the survey

2)      All paperwork involved

3)      Liaison with the authorities and engineers

4)      The on-site survey itself

5)      All call-out costs, irrespective of how many times experts have to go out to the apartment

6)      Moving the process forward through all the stages until certificate is issued

7)      Expert fees

8)      Registration and proper filing of the certificate

This is a significant project in our company, which we are taking very seriously, with a number of people working on it. The main coordinator of the engineers, surveys, and processing is Magdi Ohegyi magdi@catherinedickens.com Phone +36 1 354 0912, Skype: ceinvest.magdi. Magdi has overseen several construction projects and knows how to protect owners’ interests. Feel free to give her a call in case you have any questions.

Sincerely,

Andras Patkai

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 long years the exchange rate was around 270 to the euro. People in Hungary are just now starting to realize 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.

http://ceinvest.hu/2011/06/istvan-park-istvanmezei-ut-district-14-e81500-61m2-2-bed-1st-floor-apartment-with-balcony-and-garage/

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 neighbors, are in a bad neighborhood, 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

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

The largest Internet property portal , Ingatlan, released its Budapest statistics for the first quarter and based on the number of inquiries per district,  it was surprising to see that two Buda districts take the lead, namely districts 11 and 2, attracting over 10% of the searches each. District 11 is a very popular large residential and commercial area just south of the center, along the Danube. Numerous work places, new office complexes, the wide variety of properties — from cheap panel blocks to the most expensive luxury residences — and easy overall access, account for the popularity. District 2, extending out to the Buda hills and forests northwest from the center, is the luxury villa district with the famed Rozsadomb (Rose Hill) where the country’s rich and famous live.

Note that prime Pest districts 5, 6, and 7, as well as Buda district 1 (Castle District) are compact small districts, so the number of inquiries is limited, making for a less fair competition between the districts. Consider this before rushing to buy property in one of the large districts.

District 13 in Pest, north of the center along the Danube, took third place with over 8% of inquiries. Here again, a very large district with a very diverse range of properties, quite a few panel block housing estates in an excellent location, as well as fabulous views west across the Danube explain the results. Number four was District 14, northeast of the center in Pest, past Varosliget (City Park), with excellent public transport, including the National Football Stadium and wealthier neighborhoods than neighboring districts 13, and 15.

Buda District 12, west of the center, is the other prestigious villa district; and Buda District 3, the northernmost district, also received around 8% of inquiries. District 3 can be compared to District 11 with a wide range of property types, there is much less industry and pollution in District 3, however, it is considered slightly more remote because of the limited access points to the center (Belvaros) and motorways. After these districts there is a huge gap before other districts follow, regarding the number of searches.

Although the 2010 numbers of the property market have only been processed until mid-2010 by the National Statistical Bureau, it is already obvious that prices have dropped further since 2009 in most districts. In some areas of the capital prices have begun to climb by mid-2010. Prices have risen in the following Buda districts: 1, 2, 11, and 12. In Pest it is only districts 16 and 18 (outer family house neighborhoods) which have seen an actual average price increase. District 1 has already seen a 7% increase in prices in the first 6 months of 2010. Another source for realistic prices is the Apartment Price Index of FHB Bank.

Below you will see the map of Budapest districts with some interesting relevant statistics, namely Budapest districts ranked according to income per capita, the number of apartments built between 2004-2010 per district, and the number of searches registered per district for apartments for sale.

Andras Patkai

2011 Real Estate market overview in Slovakia

GDP growth prediction for 2011 in Slovakia is estimated to be 3.6%. Real estate prices dropped by average 10-15% in Slovakia due to the world economic crisis.

As a result of the balanced economic growth in Slovakia during the boom times, there was no significant real estate bubble created which could be compared to that in Ireland or Spain.

73% of real estate transactions in the country are performed in Bratislava and surrounding localities.

80% of all mortgage contracts are realized in Bratislava.

People living in Bratislava earn 50% more than those living in the countryside by average.

The price of real estate in Bratislava is double that of the countryside.

The number of unsold newly-built apartments decreased from 5,000 to 3,000 between 2009 and 2011.

Unemployment rate in Bratislava is 4%. In Slovakia it is over 10%.

Mortgage sales rose by 18% this year.

85% of the Slovak population owns property without any mortgage.

For those who are thinking to sell their Slovak property, it seems to be the right time, if they purchased before the prices went to the peak during the years 2007-2008. Investors who purchased at peak prices are advised to wait until the prices start climbing again. According to industry experts the growth of prices this year will be at the rate close to the GDP growth which is expected to be 3.6% for 2011.

Martin Melisko

CE Invest Slovakia
www.ceinvest.sk
Sales
www.century21.sk

The government freeze on evictions, usually only applied in the winter months, so no families end up on the street in the cold, has been extended to July 1^st. However, the National Bank opposes suddenly dumping 90,000 properties on the market, so it seems certain quotas for releasing the properties, or a system of gradually introducing them to the market, will be forced upon the banks. Marton Nagy, Director of Monetary Stability at MNB, claimed that “The freeze on evictions has induced such tension in the market that the release itself will cause a considerable but manageable risk.”

The number of nonpayers on the national Lenders’ Black List has risen from 670,000 in April 2009, to 930,000 by the end of 2010. Considering that this is roughly 10% of the population, this is a very serious issue.

The trend in the reduction of corporate loans also continues, with anticipation of growth only toward the end of the year. On the one hand bank requirements are stricter, on the other hand decreased income overall in the economy makes it more difficult for companies to apply for loans. One of the reasons for the stringent loan conditions is the recent bank crisis tax.

No growth is expected in new mortgage loans in the residential sector until the end of 2012. Two of the most important factors here are the increase in wages and employment, as well as the favorable rate of the Swiss franc to the Hungarian forint, since most of the households owe their debt in the Swiss currency. This is the reason the government still enforces the prohibition of providing euro mortgage loans to the public.

See our earlier article on the Freeze on Evictions http://ceinvest.hu/2011/04/impact-of-the-freeze-on-evictions/

Andras Patkai

We at CE Invest Group value our staff and believe that the human factor is not a liability, but an asset in every enterprise. Our people carry our reputation in their hands, in the smile on their face, as they meet landlords and tenants every day. In our series of introducing our employees, we would like to begin with Irisz Geller.

Irisz is currently completing her third degree as Expert on Real Estate Valuation and Investment at Budapest University of Technology and Economics (Royal Institution of Chartered Surveyors, RICS). She graduated as an EU Expert from the Budapest Institute for Graduate International and Diplomatic Studies of Corvinus University. Having completed earlier studies in Debrecen and London, she is well-equipped to handle complex transactions involving diplomat clients and prime real estate.

Irisz used to work as Senior Sales Consultant and Rental Manager at the prestigious Engel & Völkers office covering the diplomat districts of Buda, as well as luxury apartments of Pest. Previously, among other responsible jobs, she gained valuable experience as exhibition and event organizer at Hungexpo, the main international exhibition center in Hungary.

Her area of specialty is catering for the individual property needs of the diplomatic corps. Irisz loves and fully understands every aspect of the properties she recommends to her clients. The embassies and foreign representative offices appreciate her professionalism and discretion when handling delicate issues, which she does with efficiency and charm.

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

Fundamenta-Lakáskassza Zrt. is a housing savings bank, formed after the merger of Fundamenta Rt. and Lakáskassza-Wüstenrot Rt. in 2003. The company’s activities include taking deposits, providing credit and bridging loans. The company’s owner is Bausparkasse Schwäbisch Hall AG, which is the largest housing savings bank in Europe.

Most of the planned investment is geared towards improvement, modernization, and expansion of existing property, as opposed to exchanging it with new property. The ratio of those intending to spend on housing is slightly higher outside the capital, Budapest, than in the city.

72% of those wishing to spend money on their property intend to stick to a low budget of less than 3 million HUF (11,000 EUR), 17% would spend a larger amount, and only 10% would spend more than 10 million HUF (37,000 EUR). Of all those planning to spend on property, merely 31% would take a loan for this purpose (57% specifically object to taking a loan).

The average monthly payment is considered to be 40-80,000 HUF (150-300 EUR) in Hungary, which only 39% of respondents would be able to build into their budgets. 54% would only agree to a lower monthly payment, while only 1% could take on a larger burden.

[Pictures of managed apartments by Catherine Dickens Properties, a company of CE Invest Group]

Achievements so far include
• Market leading status in prime residential property management in Budapest
• Market leading status in residential property management in Bratislava
• Opening of the first CENTURY 21 real estate agency in Bratislava
• Management of prime residential buildings in the luxury segment in Budapest
• Representation of all of the top A-class office buildings in Budapest

The fusion will benefit our clients in many ways.
• Better customer care with meticulous attention to detail
• Higher level of control through the online property management system
• Further reduction in vacancies through an increased market share
• Successful re-sales through an enlarged contact base
• Less tax to be paid due to rigorous accounting
• Elimination of non-paying tenants through proper screening and preventive measures
• Even more transparency and availability

Offices have moved from Hollo utca (Gozsdu Court, 7th District) to the much more prestigious Vigyazo Ferenc utca, in the 5th District of Budapest, between the Hungarian Academy of Sciences on the Danube River, at Chain Bridge, and the Central European University. There are 17 committed and qualified employees working in the 240m2-office in a beautiful classical listed building, restored to its original splendor.

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.

Compare

Budapest, 2-bed, prime location, €155,000
Beautifully renovated 67m2 apartment in a monument building in District 5, the government and bank district next to a prime office building and a luxury hotel. Glass-covered courtyard, 24-hour English/Hungarian reception, hand-built dark wood kitchen with thick stone marble work surface, dark wood parquet and limestone flooring, price includes furniture, click for pictures and more…

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Bratislava, 2-bed, new-build, €175,000
A modern 95m2 1st-floor apartment with 2 bathrooms and a balcony. 24-hour security and reception service, kitchen furniture, 3 built-in wardrobes, indoor parking space included. The Octopus Building is an award-winning architectural curiosity with a beautiful green inner courtyard and spectacular colors in the common areas, situated on a main commuter artery, a few tram stops from the city center, click for pictures and more…

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Bratislava, 1-bed, new-build, €148,000
A trendy 64m2 2nd-floor brand new apartment with balcony in the popular Eden Park complex, with a well-tended park, close to Strkovec Lake in the Ruzinov District. There is no reception service. Price does not include kitchen cabinets or parking space, click for pictures and more…

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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 will take 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.