Hungary to stimulate economy with rust belt rehabilitation tax break

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The Hungarian governments plans to launch a “real urban rehabilitation program”, cabinet minister Gergely Gulyás said at Thursday’s government press conference. He said the plan is to involve the private sector by offering them a preferential 5 percent VAT rate on the sale of new apartments up to 150 square meters (1,614 sq feet) built as brownfield investments.

The conservative government first introduced the 5 percent VAT rate on new apartments in 2016, but discontinued it at the end of 2019.

László Koji, president of the Hungarian Builders’ Association, told Magyar Nemzet that in the four years the preferential rate was in effect, the country’s construction industry significantly expanded, meaning that should parliament be able to pass the required legislative changes in June, several such projects of a few hundred apartments each can be launched this year in Budapest alone.

The industry now has capacity to build 25,000-27,000 apartments a year, and the program would also have a spill-over effect on the country’s regional cities.

Koji said that the country’s entire economy would benefit from the plan as it would maintain the capacity expansions achieved in the past few years. Due to the high demand for qualified construction workers, many Hungarian craftsmen returned from Germany as the domestic industry is now able to offer them competitive wages.

Budapest alone has rust belts totaling an area of 68 to 70 square kilometers (27 sq miles), or about 15 percent of the capital’s total size. Most of these are located along the rail lines leading into the town center and in the formerly outer industrial belt, which the city’s expansion leapt over during its growth in the 20th century.

Balázs Fürjes, state secretary for the capital’s urban development, said that parliament will decide about the urban home building plan before the summer recess. Additionally, Ádám Banai, Central Bank Director for financial analysis, said that the bank was already working on a preferential loan scheme to complement the government’s plan.

Title image: Dilapidated industrial building in Budapest.

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