Land management challenges in the public sector in Hungary and possible solutions

 Jozsef Hoffentrager, Hungary

F I G Commission 7,Annual Meeting 1996,Budapest, Hungary

One Day International Conference, 18 June 1996

"Land Management in the Process of Transition"


 Treasury Property

" …… property serving to fulfil state responsibility, that enhances the functioning of society and the realisation of the goals of the national economy".

 But state-owned historical monument properties, nature conservation areas, arable land, and -unless the law otherwise stipulates-forests, and several other properties also belong here.

 The management of this property is regulated by Act XXXVIII of 1992 on State Finances. The state organ in charge is: The Treasury Property Directorate.

 State-owned Entrepreneurial Property

" …… practically speaking, all state-owned assets that are not subject to the provisions of the Act on State Finances, or not exempt from the category of entrepreneurial property by Act XXXIX of 1995 (e.g. the Justice Ministry’s penal authority companies, work therapy companies, business organisations engage in rehabilitation).

 Act XXXIX 1995 on Privatisation specifies the authority and tasks related to entrepreneurial property. The law makes a distinction between property that is in state-ownership on a permanent basis (e.g. the national public utilities service provider, property of strategic importance to the national economy and fulfilling defence or other special tasks and realising goals thereof) and property allocated for privatisation and sale. Appended to the said Act is an itemised list enumerating the assets to be retained n permanent state ownership, and the extent of the state’s stake therein.

 In relation to state-owned entrepreneurial property, I would like to draw your attention to the state’s "indirect proprietorship role", which is especially characteristic in respect of assets and real estate property.

 For instance, a business organisation is owned by the state, while the property, buildings, assets are in the said business organisation’s ownership.

 Consequently, it is not always possible to assert the state’s will adequately or efficiently regarding the utilisation and sale, as it may, for example, happen that the state is not even a majority stake holder in the given company, or, say, even if it were, other factors (e.g. management) impede it in asserting its will.

In such a case it is important to be aware of the fact that even though the company is the legal proprietor of the real estate, the state, however, or its legal representative, as the proprietor of the said company, has a say, or may have a say, in all important decisions.

 In addition to treasury property and state-owned entrepreneurial property, I would like to mention, as community property (which is no longer state-owned), local authority property, of which it is also characteristic that, in line with its function, it comprises marketable and non-marketable elements, and here, too we can distinguish between direct ownership and ownership asserted via local authority companies.

 The enumerated (and the not even mentioned private property) ownership structure emerged from the late 1980’s on, and primarily signifies the dismantling of the predominance of state ownership, the allocation of property to the local authorities, and the privatisation of state property, that is to say the expansion of private ownership.

 In regard to real estate in both state and local government ownership, I believe indirect ownership to be better and more efficient, with the proviso that there is a need for a more marked assertion of proprietary interests.

 Thus, it follows from the aforesaid (which is but a rather sketch overview of the structure of state ownership), that while a significant amount of property has been removed from state ownership the state continues to own substantial assets.

 The major question is how the state utilises the property in its ownership

 The use and utilisation of property in Treasury ownership is delimited, since however, profitable the renting out, say of an excellently located ministry building to a bank would be, this cannot actually be done, since ministries must fulfil their public administration functions.

 Naturally, and this is my own opinion, efforts must still be made towards the efficient utilisation of real estate, of buildings in this segment of state property, so that temporarily or permanently unused premises or buildings may be utilised, and ultimately, be transferred into the entrepreneurial property category.

 I expect a great deal from the reform of state finances, from the layoffs in state organs. Accordingly, I would like to draw your attention to efforts aimed at reforming state finances. In regard to this property group, may I draw your attention to the new legal institution inaugurated by the amendment of the Act on state finances, which replaces the right of management (this had been effective in respect of state-owned buildings,  ensuring quasi-ownership rights for the manager), and with the exception of the right of alienation and lien, it grants the appointed property manager of state-owned real estate, land, etc with full proprietary powers. This is the right of property management. In regard to Treasury property the Treasury Property Directorate is the authorised organisation.

 It is also important to note that this change does not have to be separately entered into the property register, since the law stipulates that the registered right of management signifies the right of property management.

 Naturally, in the wake of concluding contracts for property management it would, in my view, be beneficial to register the manager with the property register.

 The role and significance of use and utilisation is substantially greater in regard to entrepreneurial real estate property subject to the provisions of Act XXXIX.

 The use and utilisation in relation to this property segment holds a dual function:

aiming for revenue with a view partly to reducing operating costs (this is temporary and basically signifies upkeep only)

simultaneously with utilisation, the preparations for privatisation.

And what do we actually mean when in the latter point we refer to the phase of preparing for privatisation. Well, first and foremost

 settling the property’s legal status

who the proprietor is, what the size of the proprietor’s stake is, who the property manager is, and on what basis

does anyone else have any rights or claims on the property (e.g. property formerly owned by the Church is being reclaimed, or say, at the time the state-owned company was transformed into a corporation, the company was mortgage prior to being divested of property to guarantee company debt, etc.)

does the property meet the conditions contained in the property register (categorisation and other criteria)

(e.g. it is especially characteristic of former Soviet properties that had been registered as "State Land!", nevertheless there are, for instance, forests on it, which may not be sold off.)

in the preparatory period, it is extremely important to clarify the property’s status in local authority, urban and community development plans, as well as to establish and lay down with precision the property’s spatial boundaries. At this stage the edifices and buildings, and their technical condition needs to be appraised and categorised.

evaluation from an environmental perspective is a high-priority and rather sensitive task. Such appraisal relates primarily to the existence and extent of environmental pollution and damages and to the obligation to avert and eliminate it. Just think in this respect of the former soviet barracks, air fields, or, say, former industrial plants and establishments). Precise and documentation of environmental damage.

special care and attention must, again, be given to the precise designation and categorisation of historical monuments, buildings of a historical monument character, nature conservation areas and formations, as well as the specification of additional related tasks. (e.g. the Obuda Shipyard Island, wherein the ruins of the Protector Hadrian’s palace are located 6 m deep under the area designated for development).

still in this area I must give mention to the assessment and evaluation of properties (land and buildings). I believe it is very important that the state possess authoritative data in respect of the value of its properties, but also that when the latter are sold off, the seller should have an exact understanding of the relationship between value and price.

Specifying the function and the goal is extremely important in terms of the utilisation and sale of state-owned properties. It is important to prepare tenders and actual projects in a way as to influence investor intent, by clearly formulating the seller’s will, i.e., the state’s preference in regard to the selling price or other factors (e.g. bringing in new industries, creating jobs, home building, expanding services, etc.)

From the viewpoint of real estate turnover and changes in ownership, I regard it extremely important that in relation to the item of real estate it may be authoritatively established, who the proprietor is, whether the real estate property is not involved in any legal action and is free from encumbrances, and that all characteristics of the said property (size, etc.) should be cognizable. The property register ought to serve this purpose, but first it must be rendered suitable thereto.

 It is not for me to analyse the problems of and the tasks facing property records, since you, Ladies and Gentlemen, will be hearing a separate lecture on this subject and will also be acquiring on-site experience. As I see it, however, from the viewpoint of real estate property distribution and the emergence and functioning of a market thereto the backwardness of authoritative records and the insufficient processing of accumulated data poses the greatest problem. (This is not to criticise colleagues working there, but it is to criticise an outmoded institutional network, processing background and, not least, the system of remuneration.)

 Allow me, Ladies and Gentlemen, to draw your attention to a special Hungarian application of a common administrative tool. In many countries there is a special system (annotation) for keeping track of unattended administrative business. And whereas the special feature in other countries of this system is that the documenting and prioritizing of documents not yet attended to can only be valid for a certain specified time period, here in Hungary it is practically based precisely on this provisional administrative tool that we strive to clarify the current status of the real estate property, to ensure turnover. This is aggravated by the fat that lawsuits take a long time to go through the courts (the average for real estate property is over 2 years), and thus we can all see how, when the sale or a development of real estate property is involved, there must be extremely circumspect preparations, based not only on public records, but also involving in-depth legal, technical and geodesic fact-finding and status-recording efforts.

Another major problem is the lack of a Detailed Settlement Pan (DSP) for communities. Such a plan ought to determine what could be built on a given site, area, in a given part of town, what kind of urban architectural stipulations should apply, and what kind of environment and infrastructure is given at present, and what the prospects for the future in this regard are.

 Unfortunately, very few communities possess such a local authority-endorsed DSP. From this it follows that development aims are uncertain, and in many cases the local authority’s security-providing document and its own preferred aim-setting is missing.

 In consequence-and this is of considerable importance particularly from the viewpoint of large areas or townscapes-in the case of the majority of real estate property projects, the subject of tenders is not only how the goals specified by the announcer could be realised focusing on economic viability and technical excellence, but also the kind of real estate development goals that should actually be set for a given area.

Obviously, this problem has unfolded in a rather complex manner, and its emergence was basically due to industrial, agricultural and community structural changes in communities, to the population movement stemming in economic and other causes, and not least to new, transformed, local authority conceptions.

 What can be expected, what kind of tendencies might emerge in respect of state-owned real estate property?

 Real estate property in state ownership will diminish, and real estate property in local authority and private ownership will increase. The process will continue, whereby state ownership will continue to be dismantled to the level stipulated under the law. In my view, direct ownership in the realm of entrepreneurial property will cease within a short period of time (approx. 2 years) - the majority of real estate property, e.g. the former Soviet property falls into this category - with the said being sold off, or ceded free of charge, or brought into a state-owned corporation as in-kind contribution.

 In my view, the majority of the said real estate property will go to the local authorities, who will attend to their utilisation in accordance with local community needs.

 I support efforts aimed at the elimination of direct state ownership, as well as efforts that aim to facilitate utilisation via property management tenders and projects involving the private sector.

 I believe that while-entrepreneurial-property in state ownership will be dismantled shortly, the "property management system" of Treasury property will be adequately established, leading up to the actual utilisation of a vastly increased local authority real estate property.

 This process still calls for major efforts in resolving problem related to sales, property records and real estate records.