The Hungarian real estate funds can be quite attractive for many reasons due to superior returns compared to direct real estate investment.
- Stable Income and Appreciation of Fund Assets
- Superior returns over real estate
- Relieves burden of managing properties
- Linked to residence visa (not available for property owners)
For many people investment funds may be too complicated to understand. The bottom line is real Estate is suitable for those looking for stable income (through rental income) and long-term capital appreciation. Investment Funds, on the other hand, can offer both income (through dividends and interest) and capital growth, depending on the type of fund you invest in ,risks and portfolio allocation.
Property Vs Fund
| Differences | RE Investment Fund | Properties |
| Initial investment | 250,000€ | 500,000€ (Not Available) |
| ROI | 2%-6% (not guaranteed) | Residential – 4%-5% Commercial – 5% to 7% |
| Liquidity | Liquid | Not Liquid |
| Residence visa | Available | Not Available |
| Portfolio | Diversified allocation | 100% Real estate |
| Costs/Fees | Subscription fee, management fee, exit fee, performance fee etc.. | Property tax, Stamp duty, Lawyer fee etc.. |
| Taxes | No (unless withdrawn) | Rental income |
| Management | Fund manager | Self |
| Risk profile | Low | Low |
| Experience | Prior knowledge and experience with funds required | Not required. |
Introduction
The Hungarian real estate fund is considered a legal entity. The special feature of this mass of assets with legal personality is that it does not have an organization or membership, so it is not capable of independent operation and decision-making
Fund Manager
It is represented by the licensed fund manager with the legal capacity to act.The task of the fund manager is to represent the fund to investors, and third parties, and to invest the assets in the fund within the framework. the investment decisions are made by the fund manager instead of the investor
The fund manager of the real estate fund must have a starting capital of at least EUR 300,000. If the value of the assets it manages exceeds EUR 250,000,000, it must increase its capital by 0.02% of the amount exceeding EUR 250,000,000 (up to a maximum of EUR 10,000,000).
Open or Closed Fund
The real estate fund can be open-ended (redeemable monthly) or closed-ended (locked fixed term ex. 5 years). Deposit management is usually carried out by a custodian bank or a specialized financial institution
Guest Investor Qualification
One of the prime requirement for Guest investor program is at least 40% of the net asset value of the real estate fund be made up of investments in residential real estate in Hungary and rest can be freely invested in commercial properties.. The applicant must hold the investment certificate of the real estate fund for at least 5 years from the date of acquisition.
Only those fund managers who are on the list of qualified market operators will be eligible to participate in the GIP Program. This list of qualified market operators is maintained by the Contitution Protection Office (CPO) and the CPO will include in this list the fund managers who apply for inclusion on a basis of a successful prior national security screening.
Allocation
Real estate funds must hold at least 15% of their assets in quickly accessible assets (e.g. cash in a bank account, time deposits, government securities), i.e. liquid assets. Real estate funds must hold at least 20% of their liquid assets in Discount Treasury Bills issued by the Hungarian state. If the investment fund has bond investments, it must hold at least 95% in government securities.
Fees
Many real estate funds in Hungary typically charge.
- subscription fee (approx. €4,100–€5,000)
- annual management fee (2.5%–4% annually),
- Securities account opening fee €4,100
- Legal fee (for visa)
Alternative Investment Funds
Real Estate funds can also be Alternative investment funds. An alternative investment fund managers must be authorised to manage at least the following asset values:
EUR 100 000 000
EUR 500 000 000, where the AIF’s portfolios consist of AIFs which are not leveraged and for which redemption rights cannot be exercised within five years of the date of initial investment in certain AIFs.
Loans
To acquire the property, the investor does not have to take out a loan, but the real estate fund takes out a loan if necessary.
Taxes
The fund is a legal entity, but it is not subject to corporate tax, therefore the fund is not liable to pay taxes on the profits generated in the fund. Taxes apply if yields are paid out similar to stocks. A withholding tax of 15% to dividends paid to foreign individuals, but this rate can be reduced if there is an agreement between the investor’s state and Hungary on the avoidance of double taxation.
Risks
Real Estate Funds carry certain risk such as Liquity risk, valuation risk, rental risk, and privacy risk