Guide to Buying an Apartment by Kyrre Flatø Nessa |
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22 Apr, 2006 - Click here to download this article as a Word-file
Introduction
This article will be an attempt to provide any potential property buyer with both general information about the legal and bureaucratic concerns, as well as sharing my personal experiences, my subjective views of the market and the contact details of various suppliers that I've been satisfied with. This article will be divided into sections, following the chronological order of the process from pre-purchase to end-product step by step. Please distinguish between what I present as general information (e.g. legal requirements) and my own views and interpretations throughout the article. I still regard myself as inexperienced with this, so please be critical to my suggestions and statements.
Outline: 1: How to get started 2: Getting to know the market 3: The process of buying 4: Renovating 5: Furnishing 6: Additional Advice
The initial step is to define both the budget and your own needs and desires. These two factors are the obvious preconditions for making meaningful comparisons of different properties on the marked. Factors that should be taken into consideration are; location, standard and size of the property. Obviously, when the budget is fixed, there will always be a trade off between these factors. Therefore, it is important that you know what is important to you, and what you want to prioritize. Otherwise, the search for the apartment that will suit you the best will be very difficult.
Next, when starting the search, it is important to get acquainted with the various real estate agents in Budapest, and the different means by which one can search for a property. Most of the real estate agents in Budapest have websites in English language where they present all the properties they have for sale. Some have a rather generic strategy with a vide scope of apartments in all areas of the city, whilst others have a more narrow customer segment that they focus on. However, it is useful to have a look at all of them. Below are some good links:
Duna House: www.dunahouse.hu A1: www.A1realestate.hu Casaro: www.casaro-hungary.com Capital Real estate: www.capitalrealestate.hu BudapEstate: www.budapestate.com
Most of these websites have search engines where you type in your criteria (i.e. price, district, size, standard) and then it searches the database for you. Some of these real estate agents have several hundred properties for sale, so that's why it is so important that you have defined some of your criteria before you actively start searching. There are many more real estate companies than the ones listed above, so just search the internet and you'll find more. There are also firms that only advertise apartments through printed papers. One such is the Szuperingatlan, which is sold in kiosks all over the city.
Some useful general information about how a property is sold: In many countries, the selling of a property on the market is conducted in an auction-like manner; The property is advertised, public viewings are arranged and whoever is interested can bid on the property over a limited time-course before the seller has to accept or decline the offers. However, this is NOT how it works here. The whole process can be best described by the “first come, first serve” principle. The seller and real-estate agent agrees on a price for the property, and then the property is advertised at that given price. Next, whoever is willing to pay that price can get the contract signed straight away.
So what implication does this have for you as a purchaser?? Firstly, it has the obvious implication that many properties on the market are priced at a higher level than what the market is willing to pay. Consequently, many properties are on the market for a very long time without getting sold. Secondly, due to the absence of “auctions”, the property might get sold before you even propose your offer.
There are no general rules of how to avoid either, but my best advice is to watch the marked for a long period of time. When you first start looking, it is useful to spend one or two days on looking through all the properties of the major real estate companies. This will save you a lot of time later, because then you can just look through the weekly updates. And when you search their whole database, you will recognize the apartments that have been for sale for long periods of time.
Newly Built vs Classic apartment To stimulate the activity of building new homes in Hungary, as well as enable Hungarians to enter the property market, the Hungarian government offers cheap loans to Hungarians that buy newly built homes. This is important to keep in mind when searching for an apartment, because this is obviously a factor that increases the price of newly built apartments.
2.2: What to look for:
Very many different factors have an impact on the price. Some of these are pretty obvious, whilst others are less so. Here are some: -District and street -State of the building -Floor of the apartment (generally, the price increases the higher up you get) -Floorplan -Street view vs. Courtyard view -Noise from surroundings -Security -State of the apartment -Common costs of the apartment -Restrictions to renovation (e.g. if you're allowed to change the functions of different rooms, or knocking down walls inside the apartment). -Parking
The more you look at properties, the better understanding one gets of how these factors impact the price. But it is not only important to know the decisive effect of this on the price, it is equally important that you are aware of your own prioritizations. For example, if you don't mind that the outside of the building looks like the German Rikstag in 1946, then why pay the premium of living in a newly renovated building?
In general, the more you have defined what you're looking for, the easier the search gets.
3.1 Before signing the contract:
When you've found a property that suits your criteria, there are a number of things you should do before you sign any contract.
First of all, do not regard the information you get from the real estate agent and/or seller as sufficient amounts of information about the property. To avoid any unexpected post-purchase surprises, there are two things you can do:
1: Get an independent property-investment consultant to come and look at the apartment with you. He/She knows much better than you what to look for, and the advice you may get can prove very valuable. The information he/she provides you with may also enable you to bargain the purchase price. If you need the contact details of one, then just drop me a mail, and I'll send you the contact details. 2: Speak with the person in charge of the maintenance of the building to ask for various issues of the building, and to ask for the whole building plan. If you're planning on doing a major renovation, it is very important to see these building plans before buying, because these drawings define the legal restrictions of what you are allowed to do. For example, if you want to move the bathroom to another location in the apartment, you are not allowed to do this if the new bathroom would be above the living room of the apartment below.
If you have found an apartment that you want to buy, there are several steps you need to go through:
Firstly, you need to pay a deposit to take the apartment off the market. This is usually 1% of the price of the apartment, and is not refundable. You do not pay this amount to the seller, but to the real estate agent, so that in case the seller suddenly decides not to sell, you will get your money back.
When you've paid this amount, you get a week to find a lawyer and prepare the contract. Upon signing the contract, you have to pay another 9%, so that you've paid 10% in total of the agreed purchase price. This is standard legal procedure in Hungary. After signing the contract, you get one month to pay the remaining 90% of the purchase price. If the purchaser decides to break the contract during this period, the seller will have the legal right to keep the 10%. On the other hand, if the seller decides to break the contract during this period, he will have to pay you back the 10%, plus another 10% of the purchase price. When you pay the remaining 90%, the seller will sign a paper that formally transfers the ownership to the buyer. The standard lawyer's commission is 1%, so basically the price does not differ, but the scope of the services differs to some extent. Included in the price, I got a contract in both English and Hungarian language and complimentary legal counselling, in addition to them serving as my correspondence address with the local counsel. This saves you from a lot of hassle when paying the stamp duty fee and registering the ownership. The lawyer office I used is called: Dr Orban Laszlo Tibor Law Office, in Szemere utca 8, district V.
About four months after the ownership is transferred, you have to pay a stamp duty fee to the local counsel. This amounts to about 5% of the purchase price.
4.1 Reasons for buying an apartment in need of renovation.
Many of the students that have purchased apartments here, including myself, have renovated the apartment. I decided to buy an apartment in need of renovation due to several reasons: 1: The amount of renovated apartments on the market is much smaller than the amount of apartments in need of renovation. Hence, it makes it much harder to find a renovated apartment that suits all of your other criteria. 2: The price premium for a renovated apartment is much bigger than the cost of renovation. 3: Many of the renovated apartments are renovated in a cheap, simple and impersonal manner. 4: There are many “fake renovations” of the apartments on the market. This can be pretty hard to detect, like if for example they tell you that the electricity is new, but in fact they've only changed the plugs, so that it looks new. However, the wires may be 50 years old. The same may apply to the water pipes and central heating. Basically, if you suddenly have a major water leakage, you're pretty screwed. 5: If you renovate it yourself, you will get everything according to your own personal taste, which in the end makes it more of a home.
4.2 Renovating.
In this section I will present some of my experiences from renovating an apartment in Hungary.
1 Get an assistant!
The very first thing that I would recommend anyone to do before starting a renovation is to get an assistant that speaks Hungarian and that can sort out practical stuff and take care of various time-consuming processes during the renovation. Although having an assistant obviously costs money, as I will explain later, it will surely save you many times the amount you pay him/her. Furthermore, it will save you a lot of time and the end result will also be better.
2 Find a company
The first step is to find someone who can do the renovation. There is high degree of “monkey business” in this sector of the Hungarian businesses, so you should be very careful with whom you get involved with. Of the students I spoke with that had renovated before me, none would recommend the people or companies that they've used. In some cases there had been major disagreements about quality of work, pay etc that had caused both financial loss and postponed completion of renovation, as well as major worries for the people involved. Although it is difficult to secure oneself against these potential traps, some basic things can be done to avoid this: 1: Agree on unit prices for the work to be done: E.g. Square meter prices for painting, laying tiles, renovating doors, etc. 2: Agree on total prices for new electricity, heating etc. 3: Don't pay anything in advance!! I paid half of the total amount as the work was proceeding, and half after completion.
In addition to the labour costs, you will have to pay for all the materials they use as the work is proceeding. Obviously, it may be difficult to control that all the materials will be used on your apartment. I demanded that they had to provide me with all the bills, with my name and address printed on them. In this way, you can control that they're not cheating you. The receipts with your name and address on can also be used to deduct the tax of the profit when you sell the apartment.
There are many renovation companies to choose from, but very few speak English. My impression was that those who spoke English were more expensive, so if you have an assistant that speak Hungarian and can communicate with the workers, I'm pretty sure it will be cheaper. All in all I was quite satisfied with the price, quality and honesty of the workers I used, so if anyone's interested in getting their contact details, then just drop me a mail. I could also add here that if you want to pay legally, they will demand you to pay the VAT taxes. Hence, it is cheaper to pay under the table.
Being a naïve Scandinavian, I was convinced that being nice to all the workers would make them doing a better job. This approach would work in Scandinavia, but it is not the optimal strategy to pursue here in Hungary. If you're just generally nice and seemingly happy with whatever they do, they will see that as a good opportunity to do a less proper job. Since you don't pay for the work at an hourly rate but at agreed prices, it is obviously in their interest to spend the least possible time on doing the jobs. Therefore, it is important that you are strict with the quality levels of the work they do. If you do so, they will simply do a better job. For example, I had agreed on a price for peeling off the paint of the doors in my apartment. This is a terrible job, in which they have to burn and peel of the old paint, and then use sandpaper to remove the burn-marks and make the surface smooth. When they told me that they had completed the work on the doors, there were still loads of burn-marks and I was not happy with the quality. The worker argued that it was impossible to do a better job without spending weeks on it. I didn't believe that it was that hard, so in the evening I went to the apartment and spent half an hour, using their equipment, to work on a small area of one of the doors, until it became as nice as I wanted it. The next day, I met with the workers, showed them what I had done, and simply told them that if I can make it this nice, you can do it as well. Obviously, they had to agree to this, and they improved the work on the doors. Had I done this in Scandinavia, the workers would have gotten very offended. Here, however, the workers expect to be confronted in this way.
Kiralyi utca, parallel to Andrassy, is the “interior design street” of Budapest. But there are also many nice ones in Andrassy, and in smaller streets in that area. Some other shops that are worth visiting are:
I bought the apartment in the beginning of my first semester here in Budapest. I would not recommend anyone to do the same. The first exam term is tough, and having to worry about a renovation project in addition is not desirable. When the renovation is completed, you will need at least two weeks of running around Budapest before the apartment is habitable. This may sound like an exaggeration, but trust me, it is not!! I had a week from when I finished my exams until the next term started, and then I spent the first week of term on doing this. However, in many ways this was more tiring than the exam term itself, so you'll definitely not get the rest you need. So what I would recommend everyone to do is to buy in the spring term, and stay here in July to sort out the furnishing and move into your new home. But not only is the timing import, also proper budgeting is very important. You will be dealing with a lot of money, and you will need to make decision for how to prioritize the spending continuously. Hence, planning your prioritizations as early as possible provides many advantages.
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