Update on the Hungarian Golden Visa Act: Key Changes and Implications

Understanding the New Legislation

Laws passed under time pressure often require amendments shortly after their introduction. This is precisely what has occurred in Hungary with the new “Golden Visa Act,” which came into force on January 1, 2024. The changes primarily affect real estate buyers and fund management companies.

Recent Modifications to the Immigration Act

The law governing residence permits for investors in Hungary, known as the Immigration Act, also took effect on January 1, 2024. This legislation outlines all forms of migration to Hungary, including student, work, scientific, and sports visas. In total, there are around 20 categories. A relatively small portion of this law pertains to investor residence permits, specifically the Golden Visa. Although this segment of the law will only be applicable from July 1, 2024, it has already undergone amendments.

Key Changes: Minor Adjustments and Major Implications

Most changes are minor, aimed at clarifying ambiguities in the original legislation. However, two significant alterations stand out.

The first change concerns the validity of the investor visa. Previously, it was valid for two years; now, it is only valid for six months. This adjustment alters the timeline for obtaining a 10-year residence permit, which involves three stages: applying for an investor visa, making the investment, and receiving the residence permit. Investors now have six months to finalize their investment after receiving the visa. This change necessitates a quicker investment decision, reducing the time previously available.

Investment Options and New Restrictions

Investors still have two options for investment:

1. Invest €250,000 in a real estate fund.

2. Acquire direct ownership of a residential property worth at least €500,000.

   
   

However, a crucial update is that direct property purchases will only be permitted starting January 1, 2025. Any purchases made before this date will not qualify as valid proof of investment for obtaining the Golden Visa. Thus, from July 1, 2024, until January 1, 2025, the only viable option will be to purchase fund shares.

Changes for Fund Managers

Another significant update pertains to real estate fund managers. Previously, any registered fund manager in Hungary could accept investor funds from Golden Visa applicants, provided they had a state security certificate. The new law introduces minimum asset requirements for fund managers wishing to accept Golden Visa investments.

There are three distinct groups based on these requirements:

• Group a: Fund management companies managing alternative investment funds (AIF) must have a total value of at least €100 million. This includes assets acquired through debt financing.

• Group b: Fund management companies managing non-leveraged alternative investment funds, or those where redemption of fund units is excluded after five years, must manage at least €500 million in assets.

• Group c: All other investment fund management companies must manage a minimum of €600 million in funds.

  
  

Market Implications of the New Regulations

The restriction on direct investment in Hungarian residential properties until January 1, 2025, may lead some applicants to postpone their applications. The exact proportion of applicants favoring direct ownership over fund investments is unclear. However, it is likely that only a minority will be significantly affected, given the higher minimum investment required for property ownership (€500,000) compared to fund investments (€250,000). Real estate agents may express dissatisfaction with this change.

For fund management companies, the increased capital requirements will likely complicate entry for newcomers into the Golden Visa market. This shift favors established, larger Hungarian fund management firms.

The Landscape for New Entrants

The legal threshold for entering the real estate fund management market remains relatively low. A fund management company and its first fund can be established, approved, and licensed within 8-12 months, at a cost of less than €100,000. It is also feasible to acquire an existing Hungarian fund manager along with its managed funds. Capital-strong start-ups still have a viable opportunity; the required minimum capital of €100 million corresponds to the investment of 400 applicants investing €250,000 each. Assuming a conservative debt ratio of 50%, only 200 investors would be necessary. While this is a considerable amount, it remains achievable.

Existing providers from Portugal, Spain, and Greece, who are seeking new markets due to changes in their home countries, will likely find Hungary appealing.

Conclusion: A Complex Yet Promising Future

The delay in allowing direct property purchases is regrettable. It likely stems from the authorities' current inability to manage such transactions effectively. However, the changes regarding fund managers are seen as beneficial, as they protect the market's integrity and reputation from opportunistic investors. The new regulations offer a degree of security for local fund managers while still allowing financially robust new entrants, both domestic and international.

As the situation evolves, it remains an exciting time for those considering the Hungarian Golden Visa program.

For more information on how to navigate these changes and secure your Golden Visa, you can visit Bentley Golden Visa.