Hungary — and Budapest in particular — is certainly one of the most popular eastern European destinations for second-home owners. Hungary joined the EU in 2004 and its economy has been described as the most dynamic of the 10 countries that joined at the same time. Expectations are that it will continue to grow, particularly during its run-up to adopting the euro, by 2010 at the latest.

Hungary has many attractions for investors and tourists: it is at the heart of Europe, and numerous airlines fly into Budapest, including low-cost carriers. This is always an important consideration when buying overseas if you are looking to realise your investment in the near future, as resale values are affected by the cost and ease of communications.

There are new-build projects near the Danube as well as renovated classical flats ready for investment. You could restore a property yourself, but I suggest you go for one already available for rent, as renovating can be costly, time-consuming and difficult to manage effectively from a distance. The market is fairly evenly split between traditional properties for renovation and modern properties; traditional accommodation has appreciated at a faster rate than new- builds over the past few years.

The rental market is quite strong, driven by city-based locals, and there is also a high demand for student accommodation. You could expect an annual rental return of between 6% and 10% if you buy in the right areas and get the right tenants. Prices are still low compared with western European cities: two-bed new-builds are available from about £60,000.

Some observers believe the property market in Budapest has already hit oversupply, but others, including a study by HVB Bank, say that it will grow rapidly at least until 2008. You could look at countries not yet in the EU but are soon to join, such as Bulgaria or Romania, but many think Bulgaria is already oversupplied, and the market there is suffering from some local scandals in the sales process. Montenegro is another option, but with its uncertain future, carries more risk; however, if it obtains EU accession, values there are likely to rise fast.

Bill Blevins is managing director of Blevins Franks International, an independent firm providing tax and investment advice

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