Settlement Bond – How Does it affect the Hungarian Real Estate Market?

In recent years, the Hungarian real estate market has undergone significant changes, with one of the key factors being the settlement bond program. This initiative allows foreign citizens to invest in the country’s economy and, in return, receive permanent residency permits. Although this incentive program offers tremendous opportunities for both investors and the Hungarian economy, it also poses serious challenges for the real estate market and society.

What is the residency bond?

The residency bond is a program that allows foreign citizens to invest in Hungary’s economy and, in exchange, receive permanent residence permits in the country. A key component of this program is real estate investment.

Foreign citizens participating in the residency bond program have two options for real estate investment. One option is to invest at least 300,000 euros (approximately 100 million forints) in Hungarian government bonds, which must be held for five years. The other option is to invest at least 250,000 euros (approximately 80 million forints) in a Hungarian business that creates new jobs.

The real estate purchase requirements include that the foreign citizen must purchase property worth at least 500,000 euros and retain it for at least five years. This property can be residential, commercial, or agricultural land.

What impact does the residency bond have on the Hungarian real estate market?

The real estate purchases supported by the residency bond program have a significant impact on the Hungarian real estate market. Many foreign investors choose this option, which increases property prices, especially in the luxury real estate sector. Additionally, it can stimulate new real estate developments, as foreign investors may buy new properties or renovate existing ones.

Furthermore, the foreign investors attracted by the program can contribute to Hungary’s economic growth and development in the long term, as well as create new jobs in real estate development and related industries. Overall, the impact of the residency bond program on real estate purchases can be significant for the Hungarian real estate market and economy.

Some specific impacts:

• Increase in property prices: Foreign investors entering through the program increase demand for properties, especially luxury properties and those in central urban areas. As a result, property prices rise, which benefits existing property owners but may make it harder for buyers to find affordable properties.
• Encouragement of development projects: Properties purchased by foreign investors can stimulate new developments and renovations, creating new jobs and attracting further investments in the real estate market. These developments can improve the infrastructure and appeal of the area.
• Changes in rental market trends: Foreign investors often choose rental properties to generate passive income. This trend can increase the supply of long-term rental apartments and short-term rentals (such as Airbnb) in certain areas, influencing the rental market and property prices.
• Development of regional markets: While Budapest is the most popular target for real estate investments, the residency bond program can attract foreign investors to other regions of Hungary. As a result, regional real estate markets, which were previously less focused on, may also develop.

These combined effects shape the Hungarian real estate market and influence property prices, development projects, and the dynamics of supply and demand in different parts of the country.

What kind of property purchases are recommended under the residency bond program?

When recommending properties for foreign investors in Hungary, I consider several factors such as current market trends, the investor’s goals and preferences, and the type and location of the property. Here are some types of properties that might be worth considering:

• Residential properties: In the city center of Budapest or popular urban areas. Budapest is becoming increasingly attractive to foreign investors, and residential properties in the city center or popular districts are particularly in demand. These properties typically offer good returns and long-term value appreciation.
• Commercial properties in major cities: Such as office buildings or commercial properties with good locations in urban business districts or busy shopping centers. These properties can provide stable rental opportunities and attractive returns.
• Tourism properties: Such as apartments or holiday homes in popular tourist destinations like the Balaton region. Tourism in Hungary is constantly growing, and tourism properties can offer rental income and short-term rental opportunities.
• New developments: Foreign investors might find it interesting to participate in new real estate developments offering high-quality apartments, offices, or commercial spaces. These properties provide opportunities for early involvement during construction and long-term value appreciation. However, it is important to note that the ideal type and location of property can vary for each investor based on their individual goals and preferences. Therefore, investors are always advised to seek local expert advice before making decisions about real estate purchases.

Personal and Other Requirements for the Residency Bond

The residency bond program has several personal and other requirements for participation. These include:

• Citizenship: Applicants must be foreign, non-EU citizens to be eligible for the program.
• Financial requirements: The required investment amount to participate in the program can vary, but generally, at least 300,000 euros or an equivalent investment is necessary. This can be an investment in government bonds or a Hungarian business.
• Economic requirements: Citizens investing in a business must demonstrate that their business contributes to the Hungarian economy, such as by creating new jobs.
• Health and criminal record: Applicants usually need to have a clean bill of health and a clean criminal record, undergoing certain medical and criminal background checks.
• Good reputation: Applicants must prove that they are not involved in any criminal or illegal activities.
• Appropriate accommodation: To enter the program, applicants must have appropriate accommodation in Hungary registered in their name.

The details of these requirements may change over time, and it is important to note that the program is regularly reviewed and updated. Additionally, the application process can be detailed and typically requires legal or attorney consultation for a successful application.

Residency Bond and Citizenship

There is no direct link between the residency bond and citizenship. The residency bond program allows foreign citizens to invest in the Hungarian economy in exchange for permanent residence permits in the country. The permanent residence permit enables them to stay in Hungary and exercise certain rights within the country.

However, obtaining citizenship requires additional steps that are not part of the residency bond program. For example, foreign citizens must maintain regular residence in Hungary to obtain permanent residency. Additionally, after a specified period, usually at least 8 years, permanent residents may become eligible for Hungarian citizenship.

In summary, the residency bond program allows foreign citizens to stay in Hungary and exercise certain rights, but additional steps are necessary to obtain citizenship.

For questions about the residency bond, please contact the Kenway team.