Source: Building World (2/2022)
Authors: Ondřej Majer, Oliver Benda
The real estate market in Slovakia has seen a constant rise in prices in the past years, recently reaching unprecedented levels. Just to illustrate, the average price of residential property rose by 22.1% year-on-year, while the prices of houses rose by 31.5% year-on-year in the last quarter of 2021.
The rising prices are often attributed to low mortgage interest rates and the rising prices of construction materials and energy. According to experts, however, the main cause can be seen in the insufficient supply of new real property, which is unable to match the demand.
In its latest report on economic and monetary development, the National Bank of Slovakia maintained that the prices of real estate had reached levels with a high risk of correction. Hence, the government is attempting to tackle this issue and has come up with ideas to boost the supply of new residential real estate.
Apart from the construction of rental apartments, one of the ways to address the insufficient offer of apartments in Slovakia is to adopt a new building bill. The bill is expected to bring about a major acceleration and streamlining of building proceedings and thus increase the number of new development projects and accelerate their supply on the market. The new building bill consisting of two independent bills on zoning and construction has already been passed by the Slovak Parliament and signed by the president, meaning that the new regulations will replace the 1976 Building Act as of 1 April 2024.
The new Building Act is the law-making body’s response to the long-term criticism of the inadequately long and non-transparent building proceedings in Slovakia. In the international Doing Business rating benchmarking particularly the duration and complexity of the building permit application proceedings, Slovakia ranked an unflattering 146th, faring worse than a number of developing countries.
The rigidity of building proceedings, however, is not merely an issue negatively impacting the availability of housing but also an obstacle to the development of the Slovak commercial real estate market. The unreasonably complicated and lengthy procedures at the construction authorities are the target of complaints among our clients operating in the office building and logistic park development fields.
Currently, before starting construction in Slovakia, it is necessary to obtain a zoning decision and then a building permit in two separate proceedings. For certain types of larger constructions, the zoning decision must be preceded by an environmental impact assessment in the EIA proceedings. Under the new Act, all the above proceedings will be merged into a single proceeding in which the building authority will issue a building permit decision once all pre-conditions have been met. The designer will then prepare a detailed construction project that will have to be verified by the building authority before the construction can begin. However, for simple structures, e.g. family houses, the verification of the construction project by the building authority will not be required and such constructions can start immediately once the building permit decision is issued.
Furthermore, the building proceedings in Slovakia will now be, to a large degree, choreographed by a designer who is required to discuss and resolve the comments from the self-governing units, the authorities concerned and the participants in the proceedings (e.g. neighbours). Based on the individual opinions discussed, the designer will then prepare a report, which will serve as the grounds for the decision of the building authority. The building authority will thus have rather a supervisory function and its role will primarily be to resolve potential disagreements between the submitted construction plan and the comments filed by persons concerned that have not been resolved by the designer.
Another crucial change is the stipulated fiction of consent of persons entitled to comment on the construction plan (i.e. the self-governing units, authorities concerned and neighbours) in the event the deadline for sending opinions expires. These persons will have to send their comments within the time limit stipulated by the Act (30 days, in general). Otherwise, they will be deemed to have no comments and it will be possible to approve the construction.
The new Act intends to modernise and accelerate building proceedings through extensive digitisation at all levels of proceedings. All building permit processes should take place electronically via a newly established information system.
In addition, the transfer of building authority powers from the self-governing units to the state will also constitute a major change. A new central Zone Planning and Construction Office will be established; the powers of existing building authorities will be transferred to the offices of the new state authority.
Another provision worth mentioning concerns the prevention of subsequent legalisation of unlawful constructions(i.e. buildings built without permission) that will not be granted an occupancy permit and will not be connected to utility networks. The new Act should also make it easier to issue an official order to remove unlawful constructions. The building authority’s claims regarding costs linked to the removal of a construction will be secured by a pledge over the property concerned. If the claim is not satisfied, it will not be possible to transfer the property to another person.
The approved changes are based on the same founding principles as the new Building Act in the Czech Republic that the authors of the Slovak Act were probably inspired by in many ways.
During the public discussion over the new Building Act, there was a general consensus that the intention of the law-making body to accelerate and simplify construction proceedings can be viewed positively and that the new provisions governing the construction proceedings should truly remove a number of unnecessary barriers and prerequisites that unreasonably protract the current construction approval process. Despite that, the new bill has faced extensive criticism from the professional public, NGOs, and self-governing units since its inception.
The original versions of the Act, its critics claim, seemed unfinished in many aspects and could lead to ambiguities during its future application or drastically interfere with the established principles underlying administrative proceedings in Slovakia. A potential problem was also seen e.g. in the delegation of powers of building authorities to entities that are not, for reasons of capacity and expertise, competent to do so, e.g. such as the heritage conservation and environmental protection authorities.
The strong position of the designer in the new construction proceeding was also subject to criticism. The designer, as the person paid by the developer, will always be expected to act, the critics claim, in the developer’s interest, which could lead to the violation of the principle of impartiality of public administration.
Furthermore, some stakeholders have voiced their concerns about whether the acceleration of proceedings will, in certain cases, take place to the detriment of the self-governing units, neighbours or environmental protection principles. The self-governing units, in particular, disapproved of the amendment taking away the powers of building authorities regulating construction in their territory.
According to media coverage, lawmakers have only partially resolved relevant comments regarding the approved wording of the legislation received by the authorities, self-governing units, and NGOs. The heritage conservation bodies, for instance, succeeded with their comments and will at last not be in charge of the approval of constructions. The environmental protection authorities, on the other hand, who have had no experience so far with these activities, will be responsible for permits and approvals of structures with an impact on the environment. The originally proposed vast powers of designers have also been preserved.
The approved wording of the Slovak Building Act thus fails to fully dispel doubts whether the approval procedures will always be decided by authorities lacking qualities and sufficient staff to ensure professional and quick assessment of the compliance of the structures with legal regulations, and whether the impartiality of the public administration will be sufficiently secured in the approval processes.
Despite the above shortcomings, we firmly believe that the new Building Act will at least to some part contribute to faster construction and will thus increase the supply of new residential (and commercial) property. Time will tell whether these beliefs will turn into reality. Regardless of the anticipated positive impact on the real estate market, however, the new Building Act will undoubtedly bring an element of uncertainty to the Slovak real estate market resulting from the radical change in the building approval processes, which have more or less been in place without any changes since the 1970s. There will be issues with the application of the new regulation especially right after it becomes effective that will be resolved in practice or, in the worst-case scenario, an additional amendment to the act.
