New rights for Hungarian municipalities mean they can effectively 'close the gates'.

Self-defence in overpopulated settlements

Zsolt Semjén, Deputy Prime Minister and Tibor Navracsics, Minister of Public Administration and Regional Development, have signed the bill on the protection of local identity, which was submitted on 14 May. Under the proposal, local authorities will be given new legal tools to prevent overpopulation: they will be able to impose pre-emption rights, prohibit or condition the registration of a residence and impose tax obligations on settlers. A change from the much-criticised original draft is the removal of the part of the text that would have allowed municipalities to exclude the purchase of property.

According to the text of the proposal,

excessive population growth or massive property purchases in several municipalities have resulted in the displacement of young people and the damage or loss of the character of the municipality.

The new legal instruments will allow communities to better protect their way of life from the negative effects of overcrowding and property purchases.

The text recalls that the 15th Amendment to the Constitution, by elevating the right to self-identity of the local community to the level of a fundamental right, states that the exercise of the right to choose one's place of residence shall not be in violation of the fundamental right to self-identity of local communities in Hungary.

The subject matter of the Act establishes the content of the right to local identity, the means of its enforcement and the procedure for its enforcement. The personal scope of the Act covers municipalities and new residents.

The Act would not apply to the acquisition of immovable property by operation of law, or to the acquisition of immovable property in judicial enforcement proceedings, tax enforcement proceedings, liquidation proceedings, property settlement proceedings, debt settlement proceedings, probate proceedings, or by virtue of a judicial, notarial or other official decision.

According to the text,

the right to local identity allows the community to exercise self-defence in order to preserve and protect its social structure, way of life, traditions and customs, and its character.

Prevention of settlement

The community of the municipality can

prevent an unwanted increase in the population of the municipality and can counteract the undesirable social development of the municipality.

As a local public matter, the municipal community has the ultimate right to determine who can settle in the municipality and under what conditions. The use of pre-emption as a means of protecting the rights of local residents and property owners to acquire property is preferable to those from other settlements.

To protect local identity, municipalities are given the following tools:

• the right of pre-emption;
• the prohibition or condition of residence;
• taxation (making settlement subject to tax).

The application of the instrument of legal protection can be directed to a transaction concerning immovable property and the moving into the settlement.

• The protection of rights may include the granting of a pre-emption right.
• Personal protection may include prohibiting or imposing conditions on the establishment of a residence and extending taxation.

The right of pre-emption may be granted in the following order:

• a) to the right of pre-emption by virtue of other legislation,
• b) to the municipality or to the economic company designated by the municipality to exercise the right of pre-emption,
• c) to the owner of the property bordering the real estate,
• d) to the person owning real estate in the municipality where the real estate is located.

The draft law considers the following to be real property: agricultural land, land which has been subject to a prohibition on land conversion, a prohibition on construction or a prohibition on alteration within ten years immediately preceding the entry into force of the law, and all real property except real property created by a building right.

The draft law states that the instrument of legal protection shall also apply to the transfer of ownership of the property, unless otherwise expressly provided by the municipality's ordinance. The municipality could change the content of the instrument of protection up to once per calendar year.

According to the draft, the municipality is free to decide, within the limits of the law, on the number of inhabitants it wishes to have and on the use of the legal protection instrument, and is free to decide on the introduction of exemptions. The municipality may use more than one of the means of legal protection at the same time in its ordinance.

Another interesting procedure, which could even be a breeding ground for abuse and corruption, is when the municipality can hold a kind of "admission interview" for those wishing to settle in the course of making an individual decision. The bill stipulates that

[a] municipality may provide in its ordinance for a personal interview prior to an individual decision to move in.

Any natural person shall be exempted from the prohibitions, restrictions and conditions applicable to the settler who either:

• is a relative of a person residing or owning real estate in the municipality and whose place of origin is the municipality;
• proves or at least plausibly demonstrates that he or she or a relative has lived in the municipality for at least 12 months in the 10 years following his or her birth;
• settles in the municipality as an employee of the State or a municipality, including employees of companies in which the State or the municipality has a majority holding, for the purpose of carrying out such employment;
• declares in a declaration in a private document with full probative value that he intends to carry out an activity for the purpose of employment in the municipality;
• has become homeless as a result of a major disaster or accident;
• is involved in the acquisition of real estate with the help of state housing aid, including their close relatives; 
• is an employee of a church or a legal person governed by a church;
• is a pupil or student of a public education or higher education institution operating in the municipality;
• is living in a religious, health, sports, social, child and youth protection or penal institution or institute in the municipality, is exempt from the prohibitions, restrictions and conditions applicable to residents.

The municipality could also exempt or set more favourable conditions of entry for additional categories of persons by decree.

In the case of the legal defence procedure, the time limit is 30 days, which could be extended by a further 30 days. The decision closing the procedure may be valid for three years from the date of its issue. The decision is binding on the applicant and cannot be transferred to another person. An administrative appeal may be brought against the final decision closing the legal protection procedure.

If the acquisition of immovable property by a settler is made in violation of the provisions of this Act, the legal transaction on which the acquisition of immovable property is based shall be null and void.

The municipality may initiate the cancellation of the settler's address registration in the case of unlawful settlement in connection with the declaration of address. A fine may be imposed for unlawful settlement.

New information on the 'taxation' part

The bill submitted on Tuesday also states, according to the channel, that those who have bought property with state support, such as CSOK, have previously lived or studied in the municipality, or would move for work, will be exempt from the restrictions.

According to the bill moving in affects house prices, meaning that young people cannot afford to buy a home. Furthermore, new residents are said to change the atmosphere of the settlements.

Therefore, municipalities are given the option

to restrict address registration, exercise pre-emption rights, or impose a resettlement tax.

László Balogh, Ingatlan.com's chief economic expert, told the public television's news programme that tax collection could be an option for municipalities that are short of funds but need to invest in infrastructure. This mainly refers to popular suburban areas.

Some municipalities will implement these drastic measures, which may slow down the rate of price increases in those settlements.

 Earlier, Minister Tibor Navracsics also admitted that real estate could become cheaper as a result, but said this would only be temporary. A bigger problem is that young people in some settlements cannot afford to buy a home.

A significant change compared to the previous draft is that the legislation no longer excludes the acquisition of real estate. However, from a practical point of view, municipalities will still have a number of tools at their disposal.

The draft law covers not only areas most affected by significant migration (e.g. the Budapest metropolitan area or the Lake Balaton region), but also other municipalities. This means the new law could cause shifts or even disruptions in supply and demand in the real estate market anywhere in the country.

The right of first refusal for real estate transactions already exists in many places, mostly where undivided common ownership applies. However, local provisions will extend this right to many new parties, which will make acquiring real estate, and thus housing credit, much more time-consuming in the municipalities concerned.

Although the draft does not grant local communities a general right to exclude home purchases, it could greatly increase the risk of mortgage lending in many parts of the country where municipalities exercise this new right. Consequently, certain municipalities may be excluded from the list of those eligible for loans by some banks, which could negatively impact housing loans.

Cover image (for illustration purposes only): Portfolio