What type of property can and cannot be purchased by foreigners

First of all, the terms “inner area” and “periphery” as well as the terms “agricultural land” and “development land” must be defined.

- The “inner area” concerns a certain section within the municipal land, generally the historically grown residential centre including developed and still to be developed areas adjacent to it. Within this inner area, foreign nationals – in accordance with the explanations in the previous chapter – can purchase property without restrictions and without a limit in terms of the size of the plot and/or premises to be purchased.
- The “periphery of a municipality” is the area that does not form part of the inner area (built-up area) and which in first instance serves as agricultural land, forestry and/or extraordinary activities.
The legal description above (Atc LXXVIII: 1997) demonstrates the close relation between the terms "periphery" and "agricultural/development lands”.
- “Agricultural/development” land is that section of land within the periphery of the municipality that is listed in the land registry as a field, vineyard, orchard, gardens, pasture (grasslands), reed marsh, forest, wooded area or fish pond.
That means that the difference between the terms “periphery” and “agricultural/development lands” is only minor. The overlap between the two legal concepts is extensive to the extent that the following basic rule can be applied: property situated within the periphery practically always fall within the scope of the Agricultural Lands Act. Consequently, 98% of property within this periphery cannot be bought by foreign nationals. This rule does not change as a result of the accession of Hungary to the European Union, as this ban on the acquisition of agricultural lands shall continue to remain in force until 1 May 2011. If (due to the low price of the agricultural lands) these acquisitions by foreigners were to compromise the interests of Hungarian farmers, this ban will be subject to an extension of another three years.
As from 01.05.2004, as previously outlined in the section on the History of law, EU Nationals can obtain the property rights of property within nature conservation areas, provided the property is not classed as agricultural land. When purchasing property within nature conservation areas, it needs to be taken into account that the Hungarian State, as well as the local municipal council, has a pre-emption right when it comes to the acquisition of these types of property.
Since the “periphery" and the “agricultural/development lands” are not one and the same category, there are rare exceptions in which the acquisition of lands within the periphery by foreign buyers is allowed, but is further subject to special rules.
A typical example thereof is formed by so-called “tanyas”, listed in the land registry as small farms. In legal terms, they are “residential and economic buildings, building complexes erected for agricultural production with a maximum plot size of 6000m2 registered under the same topographical number”. Please note that this legal formation exists in certain parts of Hungary only and should not be confused with the traditional Hungarian home plus veranda which is often referred to as a tanya, but which is in fact a pet name. It is also important to note that the buyer of a real tanya is only partly exempted from the statutory bans. When purchasing such a property, a foreign buyer is superseded by no less then 4 parties with pre-emption rights, including the Hungarian state.
IN CONCLUSION: A statutory exception on the ban of purchasing agricultural lands are those objects that form part of the concept "tanya" as described in the previous paragraph. That aside, objects that do not fall within the term “agricultural land" can be bought within the periphery. Since the concepts of periphery and agricultural land are largely overlapping, foreigners planning to purchase property within the periphery are advised to consult an independent expert who can indicate whether the relevant property within the periphery can be bought by a foreigner or not, before entering into a purchase contract.
Summarising:
The acquisition of property within the built-up area of a municipality by foreign nationals, including plots of land and (residential) houses can be bought and registered against your name without any restriction whatsoever and without a restriction in terms of the number of plots and/or premises to be purchased and the size thereof.

How does current legislation read?

The acquisition procedure and the land registry
As from 01.05.2009, as previously indicated, foreign nationals can purchase any property – with the exception of agricultural land – under equal conditions as their Hungarian counterparts. As such, the Hungarian property market – with the exception of objects falling within the scope of the Agricultural Act – has been fully liberalised in terms of both substantive and procedural law.
With a view to the fact that buying is the most typical form of obtaining property rights, the main elements of this type of contract are explained below.
In Hungary, the acquisition and selling of property is subject to a documentary obligation, i.e. a written contract must be prepared. In addition to the purchase contract, registration of the change of owner is required in order to transfer the property right.
Registration requires for the purchase contract to be drawn up by a lawyer or civil-law notary. Common practice in Hungary is that purchase contracts are drawn up and countersigned by lawyers. Parties often lay down their agreements in a provisional purchase contract, after which a final version is drafted. This provisional purchase contract too must be prepared in writing, although this contract need not be certified by a lawyer or civil-law notary and can therefore be drawn up by the parties themselves or the estate agent.
The duties of the lawyer are equal to those of civil-law notaries in most other countries. His range of duties include the following: inspecting the registration of the object, drawing up the purchase contract and providing a detailed explanation to the parties as to their rights and obligations in relation with the legal transaction.
When concluding the purchase contract, the lawyer once again checks the registration of the object and the identity of the contracting parties. Hence it is important to bring along proof of identity – a passport or driving licence – to the appointment when the contract is entered into. The lawyer or a separate interpreter provides a translation of the contract. Furthermore, after having been signed, it is the task of the lawyer to forward to documents to the competent land registry office.
The registration of the property right is completed in two steps.
After submitting the document to the land registry office, the office immediately makes an annotation in the margin of the title deed of the object (this is called “széljegy” in Hungarian). This is not yet a registration. It is merely an annotation awaiting further processing, but it does indicate that a contract was concluded under a certain case number with regard to that relevant object. This makes it clear to all parties that the object is sold. This annotation does have a certain hierarchic follow-up. All other legal formalities can only be completed following consultation of the legal relationship indicated by the annotation.
After the annotation has been made, the land registry office must register the property right within 30 days. In the event of incompleteness of the documents, this deadline can be extended by another 30 days. In the event of a foreign purchaser, the decision regarding the registration is submitted by the land registry office to the lawyer involved in the procedure.

The Hungarian registration of property
The Hungarian land registry is an authentic and modern register that contains all data of all of the country’s properties per town, including any rights attached to the property and (legally) important facts. The land register further contains the personal details and addresses of the persons registered.
The Hungarian registration of property is an authentic registration, which means that the registration is a true reflection of the rights and legal facts that are registered. As soon as a right or a legal fact has been recorded therein, the existence cannot be denied by any party.
Therefore, the parties need to be aware that if a right on an object is obtained credulously and by way of consideration, this right can only be relied upon if registered.
The Hungarian property register is fully up-to-date and public. And details registered therein can be inspected by any party. Most lawyer offices have a direct electronic connection with the land registry offices, making it possible to download title deeds online.
The two most important documents of the property registration are the title deed and map.
The title deed consists of three parts. The first part contains the details of the property concerned, the second part contains the details of the owner(s) and the third part contains any encumbrance resting on the object.
The map outlines the borders of the object, segregating the object from other objects.

What is the role of the estate agent?
The role of the estate agent is more or less the same to that in other countries and includes the preparation of the provisional purchase contract. Once everything is arranged and in place, he also organises the key transfer/delivery.
An important difference compared to other countries is that, according to Hungarian law, estate agent activities can only be carried out by persons who are in the possession of an official Hungarian estate agent certificate. They must also be registered as an estate agent in the province where they execute their activities. Those who do not meet these conditions are operating illegally!

Monitoring of the estate agent

The purchase of property is always a matter of trust, particularly so abroad. Trust is subjective, yet at the same time numerous objective criteria can be stated in order to provide a healthy basis of thrust. Outlined below are a number of points of interest on the basis of which the prospective buyer of property in Hungary can determine and check who he contacts and whose services he uses.
1. Contrary to other countries, property mediation in Hungary is a separate discipline and one which requires a permit.
2. In Hungary, all professional economic activities – including property mediation – can only be carried out by a company. A company always has a tax reference number, a reference number of registration in the Commercial Register, a number of the Central Statistics Office and the registered office and is thus fully verifiable.
3. It is important that the client checks whether persons with extravagant names truly meet the conditions referred to under points 1 and 2.
4. This check can be carried out at the commercial courts (which operate in conjunction with the provincial courts) where every company trading in Hungary is listed. The up-to-date details of companies can be access by all by means of an extract from the Commercial Register.
5. This extract from the Commercial Register (not to be confused with the "Chamber of Commerce”) contains, among other things, the name of the company, the registered office, the number of the Central Statistics Office, the reference number in the Commercial Register, the economic activities that the company is allowed to carry out, details with regard to the owners and the names of the Directors.
6. As stated previously under point 1, a person who is authorised to mediate in property must be in the possession of a separate certificate which must be open for inspection by the client at the mediation agency.
7. In Hungary, membership of the Commercial and Industry Chamber is not compulsory. The fact that registration at provincial level is carried out by the commercial courts is taken into account. However, real property companies are members of the locally authorised Property Mediators of the Chamber and as such can be verified by the Chamber.
8. The property mediators registered with this Chamber are bound by certain ethical rules. It appears that various “specialists” engaged in the selling of houses in Hungary fail to comply with these rules. This includes negative comments on e.g. the unfavourable ethnic or population composition of certain areas in Hungary, the extraordinary poverty in certain areas or provinces and/or rumours about profit accumulation of market participants. These types of comments mainly come from the aforementioned so-called “specialists” and relate to malicious, distorted competition rather than correct information. It is recommended to select your property mediator on the basis of objective information.

The acquisition of agricultural land
At the time of the fall of the communist-social regime, the “1987 Land Act, I” was important and it constituted that property (in this instance referring to agricultural land) can be owned by the state, unions and legal or natural persons.
This Act allowed natural persons and natural persons in possession of companies to own agricultural land. The 1988 Company Act, VI (no longer in force) was formulated not long after the Land Act and provided the basis for company law that remains effective to this day.
The 1987 Land Act, I offered the relevant legal possibilities for land acquisition. The decrees in the 1988 Company Act, VI, offered companies the possibility to obtain ownership of Hungarian agricultural land.
During this time, companies were not subject to any legal or statutory legislation imposing a maximum in terms of property owned. Therefore, there was no reference as to how much agricultural land a company was allowed to own.
Companies formed in this period are active in Hungarian agriculture to this day and by buying shares of such a company, individuals with nationalities other than Hungarian can become owners of agricultural land in Hungary.
A major advantage of obtaining ownership through company shares is that no ‘capital charges’ are due for the capital obtained.

In addition, when purchasing a company, the pre-emption rights stipulated by the Agricultural Land Acts do not apply; they only apply in the event of purchasing agricultural land and not when buying shares of a company.
The 1994 Agricultural Land Act LV involved some major changes and is still important when obtaining agricultural land.
The most important change is that from the moment the Act came into effect, viz., 27 July 1994, foreign natural and legal persons could no longer obtain ownership of agricultural land.
In order to meet the criteria of the rule of law, the Act does of course not have retrospective effect. The prohibitory measures do not apply to companies that obtained ownership of agricultural land previously. However, the Act does exclude all further legal amendments effectively excluding "exchange" as a legally valid method of property acquisition by legal persons. Therefore, existing ownership cannot be expanded in any way.
After the 1994 Agricultural Act LV came into force on 27 July 1994, the following situation applied to foreign nationals and legal persons with regard to Hungarian agriculture:
- companies that purchased agricultural land prior to 27 July 1994 continue to be the owners of the agricultural lands obtained before the effective date of the Act. The companies cannot in any way obtain ownership of any other agricultural land.
- In the period between 27 July 1994 and 1 May 2004, only Hungarian nationals were able to obtain ownership of agricultural land. The maximum area for which ownership could be obtained per individual amounted to 300 Ha or 6000 “gold crown”. A further restriction in the area to be purchased was that total ownership of the natural person and affiliated persons to him could not exceed a quarter of 1000 Ha of agricultural land of the village.
- After 1 May 2004, foreign nationals who are independent entrepreneurs in the agricultural sector, who want to carry out agricultural activities in Hungary and who have been living in Hungary for a consecutive period of at least 3 years and carry out agricultural activities, can purchase agricultural land. When Hungary joined the European Union, Hungary was granted postponement of 7 years in order to liberalise the agricultural market. After these 7 years, the Hungarian State is allowed to extend the ban on the acquisition of agricultural land by foreign nationals by another 3 years. This means that the earliest date for liberalisation of the Hungarian agricultural land market will be 01-05-2011, or 01-05-2014 at the latest.

Summarising, a foreign national can legally purchase agricultural land in Hungary in two different ways:
- Purchasing shares of a company that obtained ownership of agricultural land prior to 27 July 1994.
- Living in Hungary for the aforesaid period of 3 years, while active as an independent farmer during that period.

Information and legislation concerning independent trading farmers
The rules applicable to a resident (natural person) of Hungary also apply to EU nationals who have been trading and living as independent farmers in Hungary for a consecutive period of at least 3 years. This means that as from 01-05-2004, if the foreign national person meets the aforesaid requirements, this individual can legally purchase 300 hectares or 6000 'gold crown' (hereinafter referred to AK value) of agricultural land.
The EU national must have been residing in Hungary for a consecutive period of at least 3 years, which must be demonstrated. In order to do so, a government-issued management report can be used which must be applied for by the EU national. Whoever does not hold a permit to establish a business must be in the possession of a valid residence permit or, alternatively, documentary evidence showing that a residence permit has been applied for.
Prior to the property acquisition, the EU national must further demonstrate that he/she has been carrying out agricultural activities in Hungary for a (consecutive) period of three years. The best possible way of demonstrating this is to contact the relevant official of the provincial soil tillage office which holds the necessary information on local activities. In order to issue the relevant statement, the official must carry out an environmental study on the basis of which it is decided whether or not the activities can be considered as continuous agricultural work.
The Act further stipulates that there are situations on the basis of which the issuance of a statement cannot be refused. If, in accordance with a statement of the Tax and Customs Administration, the relevant individual has generated income for 3 consecutive years by means of agricultural work, issuing the statement cannot be refused. In addition, issuance of the statement cannot be refused if the EU national did not generate income due to an investment in relation to agricultural activities. In that instance, the investment must be demonstrated.
The EU national must undertake not to use the agricultural land for alternative purposes, unless it relates to residential and commercial premises required for the agricultural work.
The objective is that the EU national uses the agricultural land himself first. Hence the Act stipulates that the use thereof can be transferred to a third party to a limited extent only. In addition, by means of a statement, it must be agreed that income generated as a result of the transfer does not exceed 25% of the income to be generated by virtue of the agricultural work.
When submitting the purchase contract, the EU national must declare that he meets the conditions set. Therefore, in addition to the purchase contract, he/she must also submit the relevant statements and permits to the land registry office.
The check in relation to the conditions is carried out via the (agricultural) soil tillage offices. In order to have the soil tillage office check the requirements that have been set, the EU national must indicate for which agricultural plot ownership has been obtained. Therefore, insofar as the property acquisition is concerned, the land registry office must inform the soil tillage office of the registration of the property and the corresponding statement confirming the legal validity thereof, including any other corresponding documents.
The soil tillage office, after having received the necessary documentation, must carefully consider all circumstances. If so required, the local committee of property use can be asked for assistance. If this is not possible, the land registry office and the municipal civil-law notary can be asked for assistance. If it is found that the owner has failed to comply with the obligations applicable in this matter (or, in other words, no longer meets the conditions that have been set), the owner is informed thereof in writing and is given the opportunity to take corrective action. If this notice fails to have the desired effect, a fine will be imposed. An appeal can be lodged against this fine by relying on law pertaining to administration and other general regulations.
The fine can be imposed multiple times for as long as the relevant situation continues or until the owner has sold the agricultural land.
In addition, as long as the reason for imposing the fine has not been removed, the owner is not allowed to obtain ownership of agricultural land in Hungary.