When German discount retailer Lidl applied for 14 exemptions to Hungary’s ban on stores larger than 3,300 square feet (300 square meters) earlier this year, none of them were approved. Lidl is not the only company which failed to gain approval for an exemption. Of 96 applications from retailers received this year by the Economy Ministry, 35 have been denied. Seven other applications have either been suspended or closed.
These policy changes, along with taxes and other penalties, are serving to accelerate cutbacks by commercial real estate investors as funding from the country’s banks (most of which are European owned) is drying up. The limit on square footage for new stores indicates uncertain environment for real estate developers, and the banks are unwilling to provide financing under those conditions.
According to the Hungarian Council of Shopping Centres, only one shopping mall has opened in the country in 2012. No new supermarkets have opened at all. Even before the government restrictions came into force, the commercial construction starts were down. Only five new shopping centres or supermarkets were completed in 2011, and this figure is well below the 33 which were built in 2008, before the start of the global financial crisis.
Investment levels in Hungary dropped in 2011, representing the first time they had done so since 1995. Policies to plug holes in the budget, such as increased corporate taxes, have done little to instil investor confidence. The country has been ranked as the worst place to do business in a poll released by the German Chamber of Commerce in Budapest in April.
Prime Minister Viktor Orban heads a parliamentary majority government which has introduced measures to implement retroactive corporate taxes. Under his mandate, the country’s Constitutional Court cannot rule on economic issues. As a result of these economic measures, the country’s credit rating was downgraded to junk in 2011. Orban was forced to seek help from the International Monetary Fund, and the country is in the brink of a second recession in four years.
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