A cautionary tale of losses in Budapest

budapest said:
The exterior of the building is also a problem, but at some stage (who knows when?) it will be renovated and the apartment will become instantly more desirable.
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Well I spoke to the agent about that one - whether it would be advisable to wait for the building to be done up. She says that the house committee have told her that they have no money and thus no plans to upgrade the facade. In addition, unlike me, locals would expect a signed commitment from the house committee if they were told the facade was due to be renovated "in the future". On the other hand, I swallowed this fantasy whole!
 
amgd28 said:
Well I spoke to the agent about that one - whether it would be advisable to wait for the building to be done up. She says that the house committee have told her that they have no money and thus no plans to upgrade the facade.
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It might be worth double-checking this story. Don't forget the agent has a vested interest in encouraging you to sell.
 
True, but if there were concrete plans to upgrade, then this woud actually assist the sale. In any event, she is the first estate agent in Budapest that I have come across that I have full confidence in, after going through a number of duds.
 
Unlucky, I too invested the same amount at the same time in a new apartment in District VI. I have to say I was fortunate in one sense, I attended an overseas Property seminar in Athlone and was sold an apartment for €92k gross I could add 15k for fees, furnishings etc, with guaranteed income for 3 years(I know). After some advice from my brother I went to Capital Eyes and bought a 55m2 property for 78k very similar to the one I was offered in Athlone, I got my deposit back btw.
I am getting €350 (€227.50after tax and fees) per month and have a long term client who pays his rent on time and loves the apartment. Some things struck me; one is if I had stayed with the company in Athlone I would be in serious trouble now. Also my apartment is on the 4th floor, this is very important as this was the first thing the client remarked upon how the sunlight hits this part of the building but not on any of the first 3 floors. I consider myself fortunate and intend to stay there for the long term, but I still think I was incredibly naieve to have invested in the first place without doing the proper research. There must be thousands like me and the OP sold duds at exhibitions(or nearly as in my case).
'The Irish look after their own' Must be the biggest myth ever.
They give out about Double Glazing, Insurance, timeshare etc, these exhibitors must be the biggest con artists of them all.
 


Given that the former West and East Germany territories (and their people) celebrated the 17th anniversary of the "re-unification" last week, surely that event isn't having an impact on the Balaton micro-economy in 2007 ?? If it's true, then that's one hell of a lag indicator !!
 
amgd28, it's almost funny reading your experience as my own is a practical carbon copy, down to the price, i was having a coffee one day in a hotel in 2005 and stumbled upon one of these investment shows and just completely fell for the charm of a good sales woman. i had no research done and bought without even viewing. paid the paddy price of course. looking back i think i must have lost my senses for a few hours.though prob down about 30k too i think i'll hold, i'm 29 so i think i would be unlucky if i didnt see a property boom in budapest at some stage in my life. question for budapest if your reading, as i'm sticking with the city do you know is it possible to remortgage with a bank out there to say realease equity and buy another place, i can see on inglatan you can still get a small one bedroom pads in district v for about 40-50k, its hard to imagine that these would ever be too difficult to let, given the location, or is budapest different to say dublin cos of better public transport that living right in the down town isn't valued as much? thanks
 
70% finance is now available for foreigners in Hungary - sometimes even slightly higher.

What one bedroom apartments are available in District V for €40,000 though? If you do purchase something like this, make sure that it's not on a busy street, it's bright, quiet, low common charge, located in a renovated building in a nice part of the district and priced correctly. That pretty much eliminates 98% (maybe even 100%) of what is available on ingatlan.com! However, if you do find a good one with all of the above criteria, small apartments in nice parts of District V rent themselves in my experience.
 
PATMAC said:
I am getting €350 (€227.50after tax and fees) per month and have a long term client who pays his rent on time and loves the apartment.
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Patmac or anyone in CEE markets,

I like oversea investment don't get me wrong...but I don't mean to be flippant, just curious. The net rent per year, (3.5% nett), does it cover the outgoing costs of the investment or do you have to subsidise part of it. Some OPI's with net yields of 3.0-3.5% with 90% LTV must be heavily subsided by the owners. To me this seems like paying Vodafone a large retainer annually just to hold onto their shares, which maybe considerably lower than previous market values?

Please can someone explain the mechanics of how it washes itself and presents capital growth?
 
amgd28,

On my last point the silence is deafening - which leds me to believe the maths does not stack to the relative economics. You were right to cut your losses and get out.
 
asdfg said:
Afaia you can carry forward the loss including legal expenses etc and offset them against any gain in the future in order to calculate your CGT liability.
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amgd28,

you should make a CGT return for the sale of this property, recording your loss on it.
 
Webtax - I will do - Thanks, should cushion the blow somewhat in the end

MichaelDes - yes it's sad to see that some people refuse to see the wood for the trees - if an 'investment' is delivering negative cashflow on a sustained basis then unless there is rational evidence to suggest this will change, it is not an asset, it is a liability, and so should be dumped
 
Sorry I am small time investor i.e. I remortgaged my current house with a low mortgage to buy this my only overseas property, I am in it for the long haul so to speak, but looking at this my yield is 3% my mortgage must be 4.5% so despite renting my apartment am I still losing money, should I sell and cut my losses?
 
What do you think ?.

You've got a negative cashflow of 1.5%, and you could get 6.3% interest in a UK based account; so, effectively you are 'losing' a potential return on your capital of 7.8%. If you think capital growth will exceed this and you can cope with the monthly shortfall, then maybe hold. Personally, I'd get rid a.s.a.p.
 
Patmac,

Looks like property growth has been a bit of a dog compared to other regions although Germany fares worse. See and scroll down Euro Property Tables . Pm Budapest, he seems to be up to speed on what is going on out there. Do not be rash. Your investment does not look good at the minute, but a lot can change in 24 months or so. If you have a 90% LTV an upward movement of 20% would put you in the clover, considering your initial capital. Do the maths to review your positon but ultimately unless Budapest on AAM or some other conclusive information shows an upswing in the market - I'd dump the dog and its fleas.
 

And for a view of property in Budapest that's not an estate agent index, see [broken link removed]. Note especially their forecast for the change in second hand property prices over the next 12 months. I believe the index charts are based on 2000 prices, but it doesn't say this. I also know nothing about GKI and it's claims to be an independent economic think-tank or it's methodology! Despite this, I think it's worth looking at for balance.
 
I've mentioned this a few times before, but in relation to the Budapest market, statistics can be very misleading. The reality is that vast majority of the property currently for sale is not attractive to buyers and is lingering on the market for up to a year and more.

In stark contrast to this, the apartments, which buyers are very actively looking for are selling very quickly (typically less than a week). A typical example of what I'm talking about is any 40-50sqm, 1.5 room bright, quiet apartment in a renovated classic building with a good aspect in a prestigious neighbourhood in the city centre, priced below 15M HUF.
 

How can he be losing a potential return of 7.8% ? He has re-mortgaged to buy the property. If he hadn't remortgaged he wouldn't have the funds in the first place ! Surely that's one of the reasons why people invest in property in the first place ie. because you don't use your own money ! If there's a negative cashflow of 1.5%, which in this case is approx €500 pa don't you think it's worth holding on for a few yrs ? If it even goes up by 3% for the next few yrs then you'll have had a chance to recoup your expenses & maybe even make a profit.
 
I think its worth the risk ...... good chance that Budapest will boom 2009 - 2010.

Also the the markets in UK and Ireland will be static or even fall - this would be offset by the growth in Hungary.
 
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