Investing in Hungarian Real Estate Funds? Here Is What You Should Know!

Why Invest in a Real Estate Fund for a Golden Visa?

Investing in a real estate fund for a Hungarian Golden Visa offers a range of benefits that make it a standout option for those seeking residency in the European Union. Here’s why this investment path is worth considering:

• Flexible Investment Options - Hungary’s Residency by Investment Program allows you to qualify for a Golden Visa by purchasing shares in a designated real estate fund with a minimum investment of €250,000. This is significantly lower than the property purchase requirement of €500,000, making it an affordable and flexible way to gain residency.
• Lower Initial Commitment - Unlike acquiring physical property, investing in a real estate fund doesn’t require you to manage or maintain real estate personally. It also offers a lower upfront commitment while still meeting the criteria for obtaining residency in Hungary.
• Portfolio Diversification - Investing in a real estate fund offers diversification benefits, as these funds typically hold a range of properties, from commercial buildings to residential complexes. Real estate funds are managed by professional fund managers with expertise in maximizing the value of the properties within the fund. This reduces your investment risk compared to purchasing a single property.
• Comprehensive Consumer Protections - As a guest investor, you benefit from Hungary’s consumer protection laws. The investment terms offered to you are transparent, and they cannot differ from those provided to Hungarian or EU citizen investors, ensuring fairness throughout the process.

Requirements for a Golden Visa via Real Estate Funds

To obtain a Golden Visa through a real estate fund investment, several key conditions must be met. The Hungarian Immigration Law, as outlined in the Act XC of 2023, allows third-country nationals to apply for a special investor visa if their investment serves the national economic interest of Hungary.

Key Requirements:

1. Investment Amount: Applicants must invest at least €250,000 in a real estate fund that is registered with the Hungarian National Bank. The fund must issue investment units for the specific amount under the applicant's name.
2. Real Estate Allocation: At least 40% of the fund’s net asset value must be allocated to residential real estate investments within Hungary. This ensures that the fund's assets are significantly tied to the domestic property market.
3. Fund Eligibility: The real estate fund must be managed by a fund manager recognized as a qualified market participant under the Act XXX of 2016 on Security and Defence Procurement. Additionally, the fund manager must be classified as an Alternative Investment Fund Manager (AIFM) under the Act XVI of 2014 , managing assets that exceed €100 million or €500 million under specific conditions.
4. Holding Period: Applicants must maintain their investment for a minimum of five years. The investment must remain in a locked securities sub-account to ensure compliance, and any changes must be reported to immigration authorities within five days.
5. Proof of Compliance: Investors must provide documentation from the fund manager and the Hungarian Central Bank (MNB) proving that the investment meets the legal requirements. This includes providing the ISIN code for the investment units and detailed records of the amount and duration of the investment.

By adhering to these requirements, eligible third-country nationals can apply for a Golden Visa and 10+10 years residency permit, which allows them to stay in Hungary or travel within the Schengen Area.

How to Choose the Right Real Estate Fund for Your Golden Visa

Choosing the right real estate fund for your Golden Visa is one of the most crucial decisions you’ll make during the residency application process. Your choice will impact not only your financial returns but also your eligibility for residency in Hungary. Below are key factors to consider to make an informed decision that balances both your financial objectives and the requirements of Hungary’s Golden Visa program.

1. Determine Your Investment Goals

Start by clarifying what you want to achieve with your investment. Are you looking for long-term capital appreciation, regular income, or a balance between the two? Your investment objectives will guide you in choosing a fund with the appropriate strategy.

2. Consider the Fund's Strategy

Real estate funds vary in focus, with some investing in residential properties, others in commercial real estate, and some combining both. Choose a fund with a strategy that aligns with your investment goals and risk tolerance. For example, a residential-focused fund may be safer but offer lower returns, while a mixed or commercial fund may provide higher potential rewards with more risk.

3. Evaluate the Fund Manager's Expertise

The experience and track record of the fund manager are critical. An experienced Alternative Investment Fund Manager (AIFM) with a proven track record in real estate will be better equipped to manage risks and maximize returns. Look for managers with solid portfolios and who adhere to the regulations set by the Hungarian Central Bank (MNB).

4. Assess the Fund's Performance

Review the fund's historical performance to evaluate how well it has managed risks and returns over time. While past performance isn't a guarantee of future success, it offers valuable insights into the fund's reliability.

5. Understand the Fee Structure

Fees can significantly affect your overall returns. Pay attention to management fees, performance fees, and other associated costs. Ensure that the fee structure is transparent and aligned with your expected returns.

6. Analyze the Risk Profile

Different funds come with varying levels of risk. Be sure to assess the level of risk you're comfortable with and choose a fund accordingly. Higher-risk funds may offer higher returns, but they also come with greater volatility and uncertainty.

7. Liquidity and Investment Horizon

The golden visa program typically requires you to hold your investment for at least five years. Ensure the fund's liquidity terms align with this requirement. Understand the lock-up period, and any penalties for early withdrawal, and make sure you're prepared for the long-term commitment.

Can You Exit the Real Estate Fund and Keep The Golden Visa?

The short answer is: after a certain period, yes. According to Hungarian law, foreign investors holding a "guest investor visa" must maintain their investment in a real estate fund for at least five years.

If an investor withdraws their investment before this five-year period, their eligibility for the golden visa can be jeopardized. The immigration authorities regularly monitor compliance, and any changes to the investment must be reported within five days. Furthermore, the investment must be validated through official documentation, such as a securities account statement, confirming that the investment has been frozen for the required duration.

To maintain golden visa status, investors need to strictly adhere to these conditions, as exiting the real estate fund prematurely would likely result in the loss of their visa. However, after the five-year period, investors are free to sell their shares while continuing to enjoy the benefits of a 10-year residency permit.

Are There Any Tax Advantages for Investing in a Real Estate Fund?

Navigating tax laws as a foreign investor in Hungary can seem complex, especially when it comes to understanding your obligations and potential tax advantages when investing in a real estate fund. However, Hungary offers some favorable conditions that can make these investments more appealing.

Tax Residency and Double Taxation

To fully understand the tax benefits, you must first establish whether you are considered a tax resident in Hungary. If you are a tax resident, you are required to pay taxes on both your Hungarian and global income. Hungary's double taxation treaties with over 80 countries ensure that you won't be taxed twice on the same income, allowing for credits on foreign taxes paid.

Taxation on Investment Fund Income

For Hungarian tax residents, income earned from investment funds, such as real estate funds, is subject to Hungary’s personal income tax law. The profit from these funds—whether from dividends, interest, or capital gains—is taxed at a flat rate of 15%. If your real estate investment fund distributes returns or if you sell your shares in the fund, your earnings will generally be categorized as interest income and taxed accordingly.

If you hold your investment in a Long-Term Investment Account (TBSZ), you may benefit from reduced tax rates. After holding the investment for three years, your income from the fund is taxed at a reduced rate of 10%, and after five years, the income becomes entirely tax-free.

Conclusion

In conclusion, investing in a real estate fund for a Hungarian Golden Visa offers a compelling and flexible pathway to residency within the European Union. With lower upfront costs, portfolio diversification, and comprehensive consumer protections, this investment option can meet both your financial and residency goals. By adhering to the program’s requirements and understanding the tax implications, you can secure a long-term residency permit in Hungary while potentially benefiting from favorable tax conditions. As with any investment, careful planning and consultation with legal and financial experts are essential to ensure that your chosen real estate fund aligns with your objectives and complies with Hungarian law.

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