Hungary Real Estate Investment Fund: An Investor's Guide

What is a Real Estate Fund?

In Hungary real estate fund is a collective investment form that allows investors to indirectly participate in the profits of the real estate market. Fund managers invest the fund's capital in various properties, pooling investors' money to engage in a diverse real estate portfolio. Real estate funds differ from securities funds, as they typically involve specific, tangible assets—such as office buildings, residential properties, and industrial sites.

Returns from real estate funds stem from two main sources:

• Income from Rentals: Fund managers lease properties, providing regular income for investors.
• Development and Sale of Properties: The fund's value increases through property development, modernization, and potential sales, benefiting investors over the long term.

According to the Act XVI of 2014 on Collective Investment Forms and Their Managers, real estate funds can be categorized into two main types: open-ended and closed-end funds.

• Open-Ended Real Estate Funds: These investment units can be redeemed at any time, allowing investors to access their money whenever needed. This provides flexibility for those seeking liquidity.
• Closed-End Real Estate Funds: Here, investors can only access their capital at the end of the fund's term. Closed-end funds generally invest in larger, longer-term real estate projects that require a greater commitment.

Types of Real Estate Funds according to BAMOSZ

According to the regulations set by BAMOSZ (the Hungarian Association of Investment Fund Managers), real estate funds can further be divided into direct and indirect real estate funds:

• Direct Real Estate Funds: These funds purchase specific properties, which may include offices, apartments, and industrial real estate in their investment portfolios.
• Indirect Real Estate Funds: These funds buy shares in other real estate funds, thus participating in a diversified portfolio indirectly.

Hungarian Real Estate Funds: Key Requirements and Limitations

According to government regulation 78/2014 (III. 14.), the rules regarding real estate funds primarily include the following:

Type and Classification:

• A real estate fund is an investment fund that primarily invests its assets in real estate, which must be indicated in its name ("real estate fund" or "real estate investment fund").
• If the fund holds a significant proportion of properties for development purposes, it must be designated as a "real estate development fund."

Definition of Asset Scope:

• The real estate fund may invest its assets in various instruments, such as domestic or foreign real estate, shares in real estate companies, property-related rights, other financial instruments (e.g., stocks, government bonds), and necessary movable assets required for the proper use of the real estate.

Investment Limits:

• The value proportion of individual properties in the portfolio must be limited. For open-ended funds, the value of a single property must not exceed 20% of the portfolio, while for closed-end funds, it must not exceed 30%.
• The total value of properties under construction must not exceed 75% of the fund's assets.
• In the case of public real estate funds, at least 15% must be held in liquid assets to ensure the fund's liquidity.

Loans and Borrowing:

• The real estate fund may borrow up to a maximum of 60% of its net asset value. Such loans may be used for financing property purchases or maintaining liquidity.
• The fund can provide collateral and establish a mortgage on its properties in accordance with its investment policy.

Derivatives:

• The fund may enter into derivative transactions primarily for hedging purposes to reduce its risk exposure.

What Real Estate Funds Are Suitable for Guest Investors?

Real estate funds eligible for Guest Investor Visas or Residence Permits are defined by the following main criteria:

1. Registered with the Hungarian National Bank: The fund must be listed in the Hungarian National Bank’s register.
2. Investment Unit Value of at Least €250,000: To apply for the guest investor visa, the investor must purchase an investment unit valued at a minimum of €250,000 in their name.
3. Portfolio Requirements:
   • At least 40% of the net asset value managed by the fund must be invested in residential properties located in Hungary.
   • The fund manager must be listed as a qualified market participant under the law on procurement for defense and security purposes.
4. Restricted Securities Account: Investment units must be locked for at least five years in a sub-account, with written confirmation provided to the authorities.
5. Thresholds: The fund manager must qualify as an alternative investment fund manager, with managed assets exceeding €100 million or, in non-leveraged portfolios, €500 million.

Thus, real estate funds must meet the Hungarian National Bank's regulations, possess defined asset values, and demonstrably serve Hungary's national economic interests through investments.

What Fund Managers Can Do For Investors?

Fund managers are essential for guest investors aiming to secure Hungarian residency through real estate funds. They ensure regulatory compliance by adhering to the Hungarian National Bank’s requirements and managing assets effectively, always meeting the €250,000 minimum investment and asset lock-in rules.

Additionally, fund managers provide expert asset selection and diversification, balancing risk and growth within the Hungarian market. Through strategic portfolio management, they maximize investment value, offering transparency and regular updates to maintain investor confidence while meeting residency program criteria.

The Evolution of Investment Funds in Hungary: A 30-Year Journey

Although the past is not indicative of the future, according to central bank publications Hungary’s real estate funds have grown and transformed significantly over the last 30 years, developing a stable regulatory foundation that provides added security for investors.

Hungary’s journey with real estate funds began in 1992, marking the emergence of this investment option as a structured, regulated entity for both local and international investors. The initial funds were predominantly closed-end with fixed terms, but since the mid-1990s, the market shifted toward open-ended funds, allowing more flexibility and ease of access for investors. Hungarian regulation has evolved in tandem, prioritizing investor protection and transparency through requirements on asset valuation, fund management, and disclosure.

By 2021, the market boasted over 820 active funds and 104 fund managers, with a combined asset value nearing 20% of the national GDP. This growth reflects both the regulatory stability and the increasing interest in real estate as a safe, long-term investment vehicle.

Conclusion

Investing in real estate funds in Hungary is not only a practical approach for those seeking a stable and diversified asset but also an excellent pathway for obtaining a Hungarian golden visa. These funds offer the benefits of professional management and market-tested strategies, making them a hands-off yet effective investment choice. For golden visa investors, the added stability of Hungary’s real estate market means lower exposure to volatility while generating consistent returns through rental income. Additionally, with the flexibility of managed real estate investments, investors can fulfill visa requirements without the direct complexities of property management.

In summary, Hungarian real estate funds provide a balanced combination of investment security, potential for steady income, and a pathway to residency, all of which align well with the aspirations of golden visa investors. As with any investment, it’s advisable to consult with professionals to ensure the fund aligns with your goals and risk tolerance, but real estate funds undoubtedly present an attractive option for those looking to make Hungary their second home.

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