Real Estate Players Expecting Major Reforms Under New Urbanism Code

One of the biggest changes expected by real estate companies in terms of legislation is the approval of a new Urbanism Code, which is currently under debate in Parliament. Meanwhile, a raft of new fiscal and legal updates have been enforced across the country since the start of the year, some of which are supporting new property investments.

By Ovidiu Posirca

The Urbanism Code was submitted for debate in the Romanian Senate in April 2023 and it could be approved by MPs in the fall session, consultants suggest. The document has strategic importance for property players as it introduces major reforms and regulates practices for spatial planning, town and country planning, building permits, and other related matters.

“We note that the Urbanism Code is meant to bring together the three most important laws currently regulating construction and urban planning activities, namely Law no. 50/1991 on the authorization of construction works, Law no. 350/2001 on land-use planning and urban planning, and Law no. 10/1995 on construction quality, as well as their methodological rules. Furthermore, we note that the draft Urbanism Code is still under debate and that the current version will most likely suffer major amendments,” said Alexandra Siminiceanu (main photo left) and Miruna Coderie, lawyers at Bancila, Diaconu & Asociatii.

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Sergiu Gidei (main photo right), partner at CEE Attorneys/Boanta, Gidei si Asociatii, adds that the new code should be a game changer for urban planning and construction, aiming to make the development process much faster, more efficient, and less exposed to bureaucracy. In the meantime, there are still major delays in the development of new projects in Bucharest due to the difficulty of obtaining permits.

The Urban Zoning Plans (PUZ) for Sectors 2, 3, 5, and 6 have been annulled. Moreover, the applicability of the PUZ for Sector 4 has already been suspended.

“In the absence of applicable PUZs, the General Urban Plan (PUG) should be the one to enable the permitting process for new properties. Regarding this matter, the mayor of Bucharest announced that a new PUG is currently being drafted and that it would be adopted by the end of 2023. However, the likelihood of having a new PUG by the end of the year is rather hypothetical and, in light of the current practices and the administrative steps that must be followed for the approval of such a plan, a more realistic term would be 2-3 years,” say the lawyers at Bancila, Diaconu & Asociatii.

The updated PUG is currently being debated and it outlines the potential development plan of the city, splitting it into 61 neighbourhoods. The plan drawn up by a consortium envisages the building of new park & ride areas on the outskirts of the city and improved transportation connections through the development of a port and second international airport in southern Bucharest. Gidei of CEE Attorneys/Boanta, Gidei si Asociatii points out that the current uncertainty of the permitting process is leading to many developers reevaluating their plans in the city. This will translate to a smaller number of new real estate developments throughout the year.

Despite the constant fiscal and legal changes, Gidei suggests that from a business perspective, Romania is still attractive for commercial property investors, especially for projects located in small and mid-size cities.

Legal and Tax Changes Approved in 2023

As a major legislative novelty, the authorities have adopted a series of regulations aiming to ensure public transparency for building permits. As per the new rules, after the issuance of the building permit and prior to the start of the construction works, the permit holder will have to undergo the following formalities: (i) register the building permit in the land book of the construction; (ii) publish the number and date of the building permit and the title of the investment project in a widely circulated newspaper, and (iii) place the investment notice board in a visible location on the site.

“In addition to these means of publicity which shall be carried out by the holder of the building permit, the competent authority is required to publish the main conditions enclosed in the permit (e.g., POT – land occupancy percentage, CUT – land use coefficient, surfaces, etc.) within a maximum of 30 days from the issuance of the building permit,” the Bancila, Diaconu & Asociatii lawyers explain.

There is also a newly introduced right in favour of interested public and social bodies, allowing them to review the main conditions of any building permit issued for a new construction, as well as any other documents considered to be of a public nature. Moreover, special terms have been introduced allowing interested social bodies to request the cancellation of a building permit or submit applications for accessory or principal interventions in such disputes.

Elsewhere, a new regulation for reception and registration in cadastre and land records was adopted in 2023, in order to update, correlate, and simplify the legal deeds regulating the cadastre and land book registration process. The new legislation has also brought several new policies, such as the fact that photovoltaic panels and/or solar panels placed on buildings, cabins, kiosks, display panels, pools, indicators, etc. no longer need to be registered in the land book.

“Amendments were brought to Romania’s existing legal framework for renewable energy projects, providing that building permits for renewable energy projects may be issued in the absence of territory and urban planning documentation, irrespective of whether the renewable energy projects are to be developed on land located outside or inside the built areas,” say Siminiceanu and Coderie.

Further changes that impact the micro-enterprise (MET) tax regime were also enforced starting 2023. Among the main updates is the reduction of the annual turnover threshold to EUR 500,000 to qualify as an MET, alongside with meeting other conditions such as having at least one employee and generating at least 80% of total revenues from activities other than consulting and management (except accounting and fiscal advisory firms).

“On the fiscal front, a new category of buildings has been introduced for which local councils can decide to grant exemptions or reductions of the building taxes. This applies to new or rehabilitated buildings intended for housing, for which the owners carry out works to increase energy performance at their own expense, for the installation of electricity production systems from photovoltaic sources or for certified ecological water collection and treatment systems for used products resulting from own consumption,” explains Miruna Enache, EY transaction tax partner, CESA tax markets leader | tax & law.