Hungary: Urban Planning & Real Estate Development - Formality Or Deal Breaker?

06.04.2016

Hungary is a preferred location for investments due to its location and skilled workforce. Investors who intend to carry out greenfield investments in particular favour Hungary, although large construction projects in the office market or within brownfield areas are not uncommon.

Whatever the case may be, in the recent decades the Hungarian municipalities have faced an increasing urge to adapt themselves to the needs of the investors on the one hand, and to the changing legal environment for making possible such investments on the other hand, both concerning urban planning.

The relevant legislation provides several possibilities for the municipalities as well as for the Hungarian State to form the city and the country in order to facilitate  economic and social progress while being committed to sustainable development. While these tools can be helpful to advance a project in some cases, they can also be a hindrance.

  1. Within the statutory provisions, the municipalities constitute the building code in their territory. In case an investment requires the amendment of the local building code, a strict and – in most of the cases – time-consuming procedure must be followed. Prior to starting the planning, the rules of the negotiations with the population, civil organizations must be set forth, the plans and the assessments must be sent to the government offices acting in the judicial role of the state architect for its opinion. The procedure can be shortened if the project and the related proceedings are classified as a priority case from a national economy perspective by Government Decree.
    For the period of drafting of the local building specifications up to its entry into force, a prohibition on modification, further land formation and building prohibition can be imposed to achieve certain urban planning goals.
  2. The municipalities are entitled to establish pre-emption rights for the purposes of urban zoning defined in the local building decree. In this case, in the course of transferring the ownership of such property, the municipality may exercise its pre-emption right within 60 days from notification, with priority over other pre-emption rights set forth in different legislation or by contract.
  3. The investor company and the local municipality may enter into a community development contract in order to reach certain urban development objectives. In this contract the parties may agree upon the financing of the necessary plans, assessments, pre-conditions (e.g. preparation of the area, cleaning the area of contamination) and the consequences of the objectives (e.g. infrastructural developments) will be taken over by the investor company.
  4. Once the proper local building code is consistent with the proper zoning for the investment, the archaeological sites located in the desired investment area must be taken into consideration. In the event of major investments (priority investments from a national economy perspective or investment of over the gross value of approximately EUR 1,600,000.00) before the commencement of any land levelling or land work a preliminary archaeological documentation is to be prepared by the competent institution for cultural heritage protection defining the necessary archaeological works to be done (e.g. excavation, observation, conservation) as well as an estimation for the cost and timing of such works. If necessary, a contract must be concluded with the competent institution for the accomplishment of the archaeological works, the permit necessary for the archaeological works must be obtained, and finally, the archaeological works must be completed as specified in the above permit.
  5. In special cases, despite the fact that no building permit or notification to the authority is required by law, townscape notification procedure must be conducted, e.g. for installing advertising boards. In the townscape notification procedure the advertisement can be installed if it is not banned by the mayor within eight days following the notification.
  6. It is important to refer to restrictions concerning commercial establishments and shopping centres. If a commercial establishment or a shopping centre with an area exceeding 400 square meters comes into existence (even via extension), a specialist authority assessment is needed.
    In deciding the application for specialist authority assessment, the authority must state its position on the effects the commercial building may have on the municipality and its immediate vicinity in terms of environment, transportation and urban development issues, to determine whether the commercial building is considered to induce detrimental consequences which are likely to disproportionately exceed its advantages. We would like here to refer to the case that the European Commission has started to investigate an infringement procedure, since it is indicated that the authority application may be only obtained by Hungarian trading companies. The procedure is confined to the unofficial information-collecting part.

Despite the demanding Hungarian legislation, the local municipalities have been and are cooperative with both Hungarian and foreign investors in order to make it possible that Hungary provides a great location for investments both in the capital and in the countryside. The most significant examples are the plants of the automobile companies over Hungary, the Park Millenáris in the central part of the capital Budapest, as well as the office and technological area of Park Graphisoft in an area near the Danube within Budapest.