Significant Changes Coming to the Real Estate Market: Local Identity Law Effective from July

On June 17, 2025, the Hungarian Parliament passed a new law that will take effect on July 1 and could fundamentally change the rules for real estate transactions in many towns and cities across the country. The so-called “Local Identity Law” gives municipalities the authority to introduce restrictions on the real estate market, which could have a significant impact on local property prices—particularly in the Budapest agglomeration, around Lake Balaton, and other popular, high-demand areas.

What Does the Local Identity Law Mean?

The law allows municipalities to implement measures to protect local communities and preserve their identity by regulating or restricting property purchases. These measures may include:

• Exercising pre-emptive purchase rights: Municipalities can decide to exercise their right of first refusal in certain transactions, potentially preventing outsiders from acquiring property.
• Linking address registration to conditions: Municipalities may impose requirements for those moving in, such as minimum residency periods or local ties, before allowing official address registration.
• Imposing special taxes: Extra taxes may be levied on buyers without local connections or permanent residency.
• Purchase restrictions for certain buyer groups: The law allows municipalities to exclude specific groups, such as investors buying second homes or vacation properties.

Does This Apply to Budapest Districts?

Yes. Budapest districts have their own local governments and can apply these rules. This may particularly affect central or rapidly developing districts (e.g., II., XI., XIII., XIV., or the Buda hills), where investor activity has been strong and local residents have long complained about rising prices, housing shortages, and the impact of short-term rentals (e.g., Airbnb). Local governments now have tools to control or limit the influx of new residents.

Who Can Buy Property? What Counts as “Local Connection”?

One key question is how municipalities define eligibility for buyers. The law allows them to grant purchase rights only to those with local ties, which may include:

• Permanent residence (official address) in the municipality
• Several years of employment in the area
• Previously residing family members (parents, grandparents, great-grandparents)
• Birth in the locality
• Any other connection defined by local regulations

For example, if a buyer can prove that a grandparent or great-grandparent lived in a village or small town, the local government may recognize this as a sufficient tie to allow the purchase. However, each municipality can define this independently, so approval is not guaranteed.

Prospective buyers, especially those without current local residency, must carefully review local regulations before making purchase plans.

Areas Likely to See the Greatest Impact

The law will likely have the strongest effects in areas where the real estate market has recently heated up:

• Budapest agglomeration: Nearby towns such as Érd, Szentendre, Gödöllő, or Biatorbágy have seen significant demand as families move out of the city, putting pressure on infrastructure and communities. Municipalities may use the law to regulate sales.
• Lake Balaton region: Popular towns such as Balatonfüred, Tihany, Siófok, and Zamárdi have high demand for vacation homes and apartments, often pricing locals out. New rules can help manage or slow these trends.
• Budapest districts: As mentioned, districts such as II. or XIII. could impose extra taxes or residency requirements on non-local buyers.
• Other high-demand areas: Locations like the Mátra, Bükk, or Lake Velence region, which have recently attracted outside buyers, may also see regulatory changes.

How Might This Affect Property Prices?

The law’s impact on demand—and therefore prices—depends on how strictly restrictions are applied:

• Demand may decrease, especially from outside buyers, potentially cooling prices.
• Supply may also decrease if sellers hesitate due to stricter regulations.
• Reducing investor-driven purchases could benefit local residents by increasing availability and affordability.

Key Considerations for Buyers and Sellers

• Buyers should research local rules thoroughly, particularly if they are not current residents. Some municipalities may introduce restrictions as early as July.
• Sellers need to be flexible, as only local buyers may qualify, narrowing the potential buyer pool.
• Real estate professionals will play an increasingly important role in navigating the more complex legal and administrative landscape.

Summary

The Local Identity Law marks a new era in Hungary’s real estate market, giving municipalities tools to protect local character. While many specific rules are yet to be clarified, it is clear that both buyers and sellers will need to carefully review local regulations before any property transaction. The law applies not only to rural towns but also to Budapest districts, meaning its effects could be felt nationwide.

For questions or guidance, feel free to contact the Kenway team, who are ready to help navigate the changing regulations.