June 2016 - At the end of 2015, significant amendments to Hungary’s social housing subsidy were introduced, further stimulating the residential property market and lowering the VAT on certain new residential properties.

Summary of the new subsidy

The new amendments widened the scope of subsidies available for families purchasing or constructing new residential properties that were originally introduced on July 1, 2015. (In addition to these amendments, a further subsidy was implemented regarding the purchase of or building of extensions to already existing residential properties.)

The amended provisions for the purchase or construction of new residential properties provide the following benefits: (i) a lump-sum non-refundable state subsidy (the so-called “CSOK”); (ii) a tax refund; and (iii) an interest-rate subsidy for families with three or more children.

The CSOK is a non-refundable state subsidy for constructing or purchasing new residential properties, available for young (in certain cases only married) couples, the amount of which depends on the number of children they have or undertake to have within a determined period.

To be eligible, the applicant must have had social security for at least 180 days, no criminal record, and no public debt.

Both the maximum amount of the subsidy and the minimum useful net floor area of the real property which can be constructed or purchased through the CSOK depends on the number of children in the family. For example, in families with only one child, the CSOK requires a minimum 40 square meters as useful net floor area and provides a subsidy in the amount of HUF 600,000, while families with two children are entitled to a subsidy of HUF 2,600,000, and families with three children are entitled to HUF 10 million).

A further condition is that the subsidized persons and their children must reside in the constructed/purchased new apartment for 10 years.

The expected impact of CSOK on the market

In line with the improving investment climate in the Central European region, and as Budapest is currently one of the most attractive European cities for property investors, the recent legislative changes are expected to further stimulate the market.

Investments postponed by investors in recent years are expected to commence in this and upcoming years, and the CSOK will further increase the number of private investments – an expectation bolstered by the increasing number of obtained building permits. However, these constructions have not yet begun, and the first of these construction projects is expected to be finished in early 2017.

The Hungarian savings bank TakarekBank revealed in February that it has registered some 15,000 clients potentially interested in CSOK.

Based on its own estimation, OTP Bank expects to receive a large portion of the applications. According to OTP’s Director, Zoltan Kormos, only 9% of the bank’s clients were planning to purchase a newly built property.

With regard to the amount applied for, only a small proportion of the applicants applied for the highest amount of CSOK (i.e., for HUF 10 million). However, the number of those who are interested but who have not yet applied is high (e.g., 30,000 from OTP Bank).

At the beginning of this year, several procedural difficulties slowed down the application for CSOK (e.g., obtaining verification that the applicant has had social security for 180 days, the underestimation or overestimation of construction costs). The good news is that these initial difficulties are starting to wear off. According to credit intermediaries, the review of an application now takes only five to six weeks.

For the remainder of the year, most experts expect a boom of CSOK applications (e.g., OTP Bank expects 40,000 applicants), which would have a further beneficial impact on the already positive investment climate.

This Article was originally published in Issue 3.2 of the CEE Legal Matters Magazine.