The World Bank has prepared its first Subnational Doing Business report on Bulgaria, Hungary and Romania entitled Doing Business in the European Union 2017: Bulgaria, Hungary and Romania. The report is based on the surveys conducted last year by involving respondents from 6 cities in Bulgaria, 7 cities in Hungary and 9 cities in Romania, measuring 5 indicators: starting a business, dealing with construction permits, getting electricity, registering property and enforcing contracts.
In this subnational research in Hungary, Ebuild Hungary (the parent company of Ebuild Romania, EECFA’ s Romanian member) was responsible for choosing the respondents from the private sector in Hungary on 2 of the 5 Doing Business indicators: dealing with construction permits and getting electricity. EECFA Research, Buildecon, was responsible for coordinating the project on these 2 indicators in the private sector in Hungary. Buildecon also completes the World Bank’s National Doing Business survey on dealing with construction permits in Hungary every year; a survey regarded as a benchmark for investors.
Here we are going to take a look at the key findings on the dealing with construction permits indicator* in Bulgaria, Hungary and Romania, what regional variations are, how the processes could be improved according to the report, why Germany is so efficient in getting building permits and how Hungary is trying to follow suit.
Key findings on getting construction permits
It has been concluded that overall, it is in Hungary where it is the easiest to obtain a construction permit for a warehouse (18 procedures) compared to Bulgaria (19 procedures) and Romania (26 procedures). However, all countries are lagging behind the EU average of 13 procedures.
In terms of the length of the permitting process, it is in Bulgaria where the process is the quickest: on average 141 days, and it is in Romania where it takes the longest time: 256 days. In Hungary it is 164 days, though it is better than the relative EU average of 169 days. There are 2 EU member states, the Slovak Republic and Cyprus, where the process is very long – 286 days and 507 days, respectively.
As far as costs of the construction permit are concerned, it is in Hungary where it is the cheapest to get a permit (0.5% of the warehouse value) and it is in Romania where it is the most expensive (3.4%). Bulgaria is only slightly cheaper (3.2%). By comparison, the EU average is 2.0%.
All three countries have been found to make building regulations available online and clearly specify the requirements for a building permit. Also, it has been concluded that all three countries have strong building quality control mechanisms and strict qualification requirements for professionals responsible for permitting approvals.
On the other hand, in comparison with the EU, the report has found that in all three countries the construction permit procedure is much more burdensome than in most other EU member states. Key hindrances to being more efficient, according to the report, are:
- the number of necessary approvals before applying for the actual permit,
- lack of transparency in requirements,
- lack of streamlined processes for preapprovals and weak electronic platforms, and
- lack of adequate staffing in the capital cities of all three countries.
Subnational findings on obtaining construction permits
The capital city Sofia is leading in construction permitting process among the 6 examined cities (Burgas, Pleven, Plovdiv, Ruse, Sofia,Varna). There is quite a large regional variation: in Sofia, it takes only 97 days to get the permit, while in Ruse it is the slowest: 165 days, compared to the national average of 141 days. Sofia offers a fast-track option for some services if entrepreneurs are willing to pay extra, but this is why it is in Sofia where the procedure is most expensive – 4.6% of the warehouse value – and Ruse is the cheapest (national average: 3.2%). The number of procedures also varies, from 18 to 20 days (Sofia -18, Plovdiv – 20) due to the number of requirements to get water and sewerage connection.
Surprisingly, it is not the capital city Budapest, but the city of Pécs that is the top performer in how easy and fast it is to get construction permit among the 7 cities inspected (Budapest, Debrecen, Győr, Miskolc, Pécs, Szeged, Székesfehérvar). In Pécs, 17 procedures (national average: 18) are required and the length of the permitting is 144.5 days (national average: 164) partly due to the better staffing in the Technical Unit of the Mayor’s Office. Budapest has the most complicated and the slowest permitting process: there are 20 procedures which take 205.5 days. The reason is the heavy workload of the Chief Architect Unit Mayor’s Office due to the bigger volume of applications.
Among the 9 cities benchmarked in Romania (Brasov, Bucuresti, Cluj-Napoca, Constanta, Craiova, Iasi, Oradea, Ploiesti, Timisoara), Craiova is the one where it is the easiest to get a construction permit. It is in Oradea where the permitting process is the quickest – 156 days, and it is in Timisoara where the process is the slowest – 315 days (national average: 256 days). The fewest procedures are in Bucharest (24) and the most procedures are in Cluj-Napoca, Ploiesti and Timisoara (27). Oradea is the most expensive city to obtain construction permits – 7.6% of the warehouse value (national average: 3.4%) given the high costs of connecting to water and sewerage.
What could be done to be more efficient in getting construction permits?
Recommendations by The World Bank
The report suggests that the introduction of the following practices would help make the permitting process more efficient:
- Consolidating requirements and regulations, making information easily available for developers in all three countries;
- Adopting a risk-based environmental approval process; projects exempted by law should not undergo such process in all three countries;
- Reviewing the cost of permits, considering lower fees for permitting more simple buildings in Bulgaria and Romania;
- Streamlining the procedure for preconstruction approvals and expanding electronic platforms during permitting in Bulgaria and Romania;
- Clarifying responsibilities of supervisory agents, eliminating the duplication of tasks between architects and supervisory companies in Bulgaria;
- Consolidating final inspections after construction completion, coordinating a joint inspection in Hungary; and
- Looking for easy ways to simplify construction permitting in Romania.
Good practices: Germany – what they do better
In comparison, a country with good practices in Europe is Germany, where in the benchmarked capital city Berlin (as per data collected in June 2016 in the Doing Business project) the number of procedures for getting construction permit is 8**; the time to get the permit is 96 days and its cost is 1.1% of the warehouse value***.
The reasons for the efficiency might be that since 2011 certain constructions have required only a simplified construction permit or a waiver. In case of a simplified construction permit, the application is complete within 3 weeks: obtaining the building permit itself (Procedure 1 out of 8) takes 25 days. If the building department is silent for four weeks, the application is granted and construction may begin.
In addition, starting from 2013, construction permit documents are to be submitted electronically. Further, Procedures 5 and 6 – inspection after completion and application for water connection – can be done simultaneously to gain time.
As well as this, in the German law the principle of procedural merger is recognized: to simplify the permit procedure, the emission control permit application procedure includes the building permit process. Thus, there are no repeat procedures and there is only one contact partner for the applicant****.
Hungary – doing the homework
Hungary seems to have been learning the lessons: in recent years, in an attempt to cut down on red tape, legislation has been modified, including the building permitting process. Like in Germany, the electronic submission of documents has been a practice in Hungary since 2013.
A similar legislation to the above-mentioned German deadline for the building department was introduced in Hungary from 2015: the building authority has 60 days to issue the permit and if exceeded, they are obliged to repay the fee or to automatically grant the permit.***** A very recent modification (June 2017) that will only be reflected in the 2019 National Doing Business project, though, is that in case of industrial buildings the law specifies a deadline of 16 days for the building authority except a special administration procedure is needed.
Further, effective from July 2017, connection to public utilities has been simplified and certain fees for utility connection have been lifted for SMEs and individuals. Tighter deadlines for public utility companies have also been introduced. ******
Being part of the study, we have experienced – beside the practical results – another major impact during the research: many public figures were involved and their attention was drawn to the problems this research is intended to address. This concluded to the highest level (National Competitiveness Council) and this could be promising in generating more reforms for making business easier in Hungary.
Prepared by: Eszter Falucskai, Buildecon
*Definition: “Dealing with construction permits indicator records the procedures, time and cost required for a small or medium-size domestic business to obtain the approvals needed to build a commercial warehouse and connect it to water and sewerage; assesses the quality control and safety mechanisms in the construction permitting system.”
**Obtaining building permit (1), Application for approval of static calculation (2), Fire safety inspection (3), Inspection of building shell (4), Inspection after completion (5) Application for water connection (6), Inspection by water company (7), Obtaining water connection (8)
******Source: epitesijog.hu/fooldal/2091-maganszemelyeknek-es-kkvknak-ingyenesse-valtak-a-kzmbektesek (Hungarian)
Source of data and findings: World Bank. 2017. Doing Business in the European Union 2017: Bulgaria, Hungary and Romania. Washington, DC: World Bank. License: Creative Commons Attribution CC BY 3.0 IGO.
This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank.