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Why Hungary Banned Construction of New Shopping Malls?

November 11, 2011   ·   0 Comments

Hungary’s government approved a proposal to impose a temporary ban on the construction of new shopping centers larger than 300 square meters.

“The goal is for the structure of retail to take a change for the better,” government spokesman Andras Giro-Szasz said.

The Corporate International brands that takes over the malls make it difficult for local small business owners to compete. This has caused local businesses to close down and prevented SME development.

As he explained, 69% of Hungary’s retail turnover is controlled by bigger, typically international corporations that represent only 1% of all retail enterprises. As such, the other 99%, the smaller businesses, get only a 31% share.

The idea has been on the table since the summer, much to the chagrin of the property-development industry. Interest groups of property developers, shopping centers and employers released a statement saying the regulation is pointless, and will lead to the loss of further jobs for Hungary’s already troubled construction industry.

Property developers claim that each shopping centre creates 1000 direct job and that a hypermarket provides about 500 jobs.

The developers declined to comment on government approval of the mall ban.

Hungary’s real-estate sector has been suffering ever since the Lehman Brothers crisis erupted. The latest figures published by the central statistics office or KSH show that the sector’s output dropped 12.3% year-to-year in August, while the number of contracts lapsed a whopping 37% from a year earlier.

Developments on the Budapest office market have been seriously reduced, but even so, the above-20% overall vacancy rate persists, as evidenced by the latest, third-quarter report released by the Budapest Research Forum, an association of real-estate agencies.

The profession is divided on whether Budapest needs any more malls — it already has many — and if rural locations where affluence is usually lower are capable of supporting such centers.

Still, Budapest’s shopping-center landscape received two new additions this year, another is near completion and there are plans to build at least five more.

Mr. Giro-Szasz said the moratorium will enter into force on Jan. 1, 2012 and will stay in effect until the end of 2014. Exemptions may only be granted by Economy Minister Gyorgy Matolcsy after the given investment’s plans are evaluated by a committee.

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