Architecture Act: Hungarian construction materials should be protected

Let's take a look at the planned measures one by one.

Tracking imports and exports

In order to ensure full monitoring of the import and export of construction materials, the framework law would provide for the obligation to register the import and export of construction materials, while specifying the right of the state to purchase and pre-empt exports.

For the import and export of construction materials and products, the law would require registration 30 days prior to export and import. For export and import, the state's knowledge would not be required, but for export, the right of first refusal and purchase would be granted for registered raw materials and products.

If a price level is set for a particular product, the consideration for the exercise of the right to purchase/right of pre-emption in relation to the export should not be higher than the set price level.

Failure to notify would be subject to official sanctions. The measure would both address a potential shortage of supply and provide the basis for a comprehensive database on the construction economy.

Establishment of a National Building Materials Trading Network and a National Tree Nursery Network for the sale of State-purchased building materials to ensure security of supply

The products purchased by the state would be available for purchase in state-owned "National Building Material Stores" and "National Tree Nurseries", set up primarily to ensure the supply of building materials in Hungary. Country-wide coverage would be required. Private individuals (possibly: families receiving pre-natal baby loans and Family Home Building Allowances (CSOK), as well as individuals carrying out energy efficiency modernisation investments in buildings and disadvantaged people) would be exempt from VAT on the construction and nursery products they purchase.

Encouraging energy efficiency

To increase energy efficiency, Hungarian building materials manufacturers would be encouraged to increase their energy efficiency through tax incentives, while private individuals would be encouraged to invest in building energy efficiency through VAT refund. Increasing the use of secondary fuels would also serve energy efficiency objectives. In particular, efforts should be made to ensure proper selective waste collection. Selectively collected waste would then have to be transferred free of charge to secondary fuel producers, mainly with Hungarian ownership, following the Austrian example.

Protection of Hungarian raw materials

The export of steel and iron scrap would be completely banned, and their sale would be allowed only to companies that undertake to recycle them. The quantities of construction materials needed by the state would be fixed and exports would be authorised only in excess of these quantities.

In order to protect and boost the Hungarian construction materials industry, the state would be granted a right of pre-emption in the event of the divestiture of factories and factory sites producing construction materials. Efforts would be made to ensure that mining rights are granted to Hungarian-owned companies and Hungarian individuals. The production and use of Hungarian tree nursery products would be encouraged and coordinated with the needs of planners and the long-term development intentions of the municipality.

Securing supply

In principle, export activity can only be carried out in relation to a construction product for which there is no import exposure.

If the minister responsible for the construction industry is notified that the export of certain construction materials is such that it significantly impedes or renders impossible the establishment, operation, maintenance or development of critical infrastructure, thereby endangering public supply or posing a risk to security of supply in the construction industry, he shall prohibit the export of the construction materials for a period of up to one year, as necessary to guarantee security of supply.

This does not apply to building materials exported for investment in diplomatic premises outside Hungary, nor to building materials exported for processing and used domestically after processing.

When will the state feel the need to intervene?

The minister responsible for the construction industry is given powers of intervention in the event of certain situations (see below), and will have the right, among other things, to fix price levels, require data, order to maintain or boost production, and ban exports.

The minister is to monitor economic trends in the research, extraction, production, trade and use of construction materials and products in the domestic economy. In this context, the minister is to examine whether a situation arises that requires intervention. The conditions for this are:

the price level of certain raw materials and construction products increases by more than 5% or one and a half times the inflation rate published by the Central Statistical Office (KSH);

• shortages of certain raw materials and construction materials are imminent;
• a producer with a market share of at least 20% stops production;
• a foreign producer dominates the market for a particular raw material or construction product;
• an emergency situation may be declared for a maximum period of three months, which may be extended if the conditions continue to exist.

The measures that may be applied in a situation warranting state intervention are the following:

• Requesting data from any actor in the construction industry on production, sales and production capacity.
• Introduction of price levels: companies selling above the price level (not only producers but also traders) would be obliged to pay a 90% royalty to the state, similar to the additional mining fee.
• Mandate to increase production: if the company does not provide an acceptable explanation (e.g. citing a shortage of raw materials or other circumstances outside its control) and does not comply with the obligation, the state may impose a fine of up to 10% of the company’s revenue of the previous financial year.

At Portfolio’s Construction Industry 2023 conference on 30 March, Regő Lánszki, State Secretary for Architecture at the Ministry of Construction and Transport, will give a presentation on the expected details and impacts of the Hungarian Construction Act. Also, a panel of experts the following experts, moderated by Ernő Wagner, President of the Hungarian Chamber of Engineers, will discuss what the engineering profession should prepare for with the new construction and investment act:

Tibor Keszthelyi, Chairman-CEO, FŐMTERV Zrt.
Gergely Laczkovich, founder / managing director, 3E International Kft.
Regő Lánszki, State Secretary for Architecture, Ministry of Construction and Transport

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Cover photo: Getty Images