For a property investment in Budapest, should you ask for rent in Euro or Forint? At first glance, it may be more comfortable to ask for it in Euro to avoid the risks linked to the exchange rate variation. However, the currency issue is more complex in terms of management.
The elements that do not change: The payment of charges.
Whether the rent is collected in Euro or in Forint, the charges must be paid in local currency. Electricity, water, gas or internet providers do not offer the possibility of paying in euros, nor does the government with the payment of taxes. Receiving rent in Euro requires property management with two currencies.
Rent in Euro, what are the advantages and the disadvantages?
The advantage of asking the tenant to pay rent in euros is to guarantee the value of the rent against the risk of a falling exchange rate. However, it does not guarantee the variation of the amount linked to charges which cannot be paid in Euro.
There are many disadvantages:
- Management difficulty with two currencies: For example, each tenant is asked to pay an amount used to fund the monthly charges. At the end of the year, we carry out a charge adjustment based on what has actually been consumed. In the event that the change in the exchange rate would make the amount paid as a provision on charges insufficient to pay the actual charges, it would be difficult to ask the tenant to make up the difference to balance the situation.
- Payment of charges: If the rent is being received in euros, payment of charges will require the monthly transfer of Euros to Forint. Firstly, there is a risk that the amount of charges will increase due to changes in the rate of exchange. Moreover, there are also many additional bank charges to take into account.
- The tenant profile: A person who accepts to pay rent in Euro in Hungary has either a student status or an expatriate status. In the second case, the expatriate also has a Forint account. A student is a tenant who will generate more turnover. The coronavirus crisis caused the price of the Forint to drop, but also caused the departure of many tenants. Of all the apartments we manage, 100% of the tenants who left their apartments were students. Compared to the risk of changes in the exchange rate, the risk of a rental vacancy can cause a larger shortfall, not to mention the additional costs necessary to find a new tenant.
Request rent in Euro and provisions for charges in Forint?
It can be tempting to ask for rent in euros and provisional charges in forint. Aside from the additional difficulty of finding a tenant willing to pay for their rental in multiple currencies, this system does not avoid the disadvantages of changing currency. The monthly charges which are incumbent on the tenant will be paid with the provisions received in Forint but it will still be necessary to pay certain charges linked to the owners in Forint: taxes, management fees, and possible renovation etc. In addition, in the case of rental vacations, certain charges such as condominium/building charges or internet charges will be payable by the owner.
Our Recommandation :
EVERYTHING IN FORINT
Simplified management
Possibility of having tenants who will occupy the apartment over the long term
Avoids having to make currency changes (no costs or risks linked to the change of currency value rate)
Rent paid to the owners in the currency of their choice: we convert the rent to the currency of your choice when we pay you the net rent.
The only risk of having a rent paid in Forint is an unfavorable change in the exchange rate. But we must put this risk in perspective:
An exchange rate can be unfavorable but it can also be favorable. A falling exchange rate can also go up and in this case can improve the value of the income received by an owner.
In the event of a crisis like that linked to the coronavirus, which is exceptional and temporary, it is always possible to request the income to remain in Forint and to collect it in Euro at a time when the exchange rates are more favorable.