Setting up a regulated real estate investment company (“SZIT”) may gain popularity in Hungary due to favorable changes in legislation. The amended act clarifies what business activities may such companies perform; enables more flexible decisions on dividends; and allows issuing preference shares.

Although the concept of regulated real estate companies exists since 2011, the first SZIT was in Hungary was established only in 2017. Several changes in the legislation, however, helped this company type to gain popularity among investors and thereby to attract more capital to the real estate market. Let’s have a look at these changes.

In the past it was unclear what type of business activities a SZIT may lawfully perform. The new law made it unambiguous that a SZIT may perform property development activities but it may not carry out actual building works that need high volume of equipment and human resources. Therefore, a SZIT may negotiate and conclude contracts on building projects with contractors as long as it will not be involved in the execution.

Changes also affect the payment of dividends. According to the previous legislation, 90 per cent of the liquid assets of the SZIT had to be paid to shareholders as dividend. The new law allows for greater flexibility for the shareholders: the management shall make an initiative on the distribution of dividend and the supreme body shall vote about the initiative. Therefore, it may even resolve that no dividend will be paid out, e.g. in order to build reserve for future transactions. The amendment specifies also that the approved dividend shall be paid out within 30 days to the shareholders.

According to the previous regulation, the SZIT was entitled to issue ordinary shares and employee shares only. In the future, the SZIT may issue preference shares as well, save for dividend preference shares and preference shares with a veto right. This facilitates that the main shareholders can secure control over the company by granting priority voting rights.