Hungarian defence real estates
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AARMS MILITARY OBJECTS
Vol. 3, No. 1 (2004) 31–43
Hungarian defence real estates
BÉLA NÉMETH
Ministry of Defence, Infrastructure Department, Budapest, Hungary
National armed forces are one of the most significant estate owners in every country.
Approximately one percent of the national land is assigned to fulfil military
requirements in democratic sovereign countries. These sites are heavily supported with
built infrastructure even if situated far from inhabited areas. Undoubtedly the
management of that portfolio makes the armed forces one of the main players in the
national real estate business. However the portfolio is very rigid profit oriented, and
has only a few connections to the market.
Substantial changes after the cold war period are leading the Ministry of Defence
(MoD) to be more open for society (the taxpayers) and to identify a huge amount of the
surplus real estate.
These changes serve as a good opportunity to get the defence involved into the
national real estate development process, to get it closer to the market and gain
advantages for both investors and society.
“ ... be seeking to ensure that, as far as humanly
practicable, every pound spent on defence will be
spent both wisely and well.”
From the speech of the UK Defence Secretary to the
Royal United Services Institute, 18 September 1997.
Handling rights on properties
It is obvious that the Hungarian Defense Forces (HDF) need much different kind of real
estate properties and facilities to implement the mission given by the constitution.
Since Hungary is not unlimited in available land and financial resources, the use of
the land for military purposes have to be proved carefully. The same reason makes
inevitable the reutilize of all surplus military properties.
The majority of real estate used by HDF are state owned properties. Obviously the
state is not a person so unable to practise the rights and obligations derived from the real
estate ownership. In this case the right of handling the property is delegated to the
Ministry of Defence (MoD).
Received: July 1, 2003
Address for correspondence:
BÉLA NÉMETH
Ministry of Defence, Infrastructure Department, Budapest, Hungary
Balaton u. 7–11, H-1055 Budapest, Hungary
E-mail: bela.nemeth@hm.gov.huB. NÉMETH: Hungarian defence real estates
According to the definition of the Hungarian Civil Code the contents of ownership
include the trinity the rights of possession, use and disposition.
• The right of possession means that the owner can hold the property within his power
and can demand that nobody disturb his ownership.
• The right of use (making profit) means those advantages that derive from the
property (e.g. income). But this right places burdens on the owner too, because the
owner is bound to undertake the obligations and damages belonging to the property
(e.g. maintaining).
• The right of disposition means that the owner may establish or cease civil/legal
relations relating to the owned property (e.g. to sell it).
The handling right on the property includes the rights and obligations of ownership
such as possession and use but not the right of disposition.
Therefore the asset handling right is a quasi-freehold ownership. Consequently it has
not only legal but also economical and engineering content as well.
The handling organisation is responsible for appropriate use of the real estate, for
the property management, for keeping the burden and enjoying the goods of the
property.
Management of estates
Referring to Thorncroft`s definition of estate management: “The direction and
supervision of an interest in landed property with the aim of securing the optimum
return; this return need not always be financial but may be in terms of social benefit,
status, prestige, political power or some other goal or group of goals.”1
The definition quoted above supports the opinion, that there is nothing special
making the management of military estates outside of the overall rules.
The quality of military estate management can be measured partly in terms of
produced, used or saved finance, partly in social benefit.
The defence estate management organisation is responsible for all land, buildings
and infrastructure assets and manages the estate functions of investment, repair and
maintenance, acquisition, leasing and divestment.
The practice of the property management organisation of the HDF is very similar to
that used by Hungarian civilian public organisations. The real estate management
process includes acquisition, development, running and sell-off of properties.
32 AARMS 3(1) (2004)B. NÉMETH: Hungarian defence real estates
The existing system of the real estate management is similar to the old one HDF
used to have in previous decades. The real difference is only in the size, which has been
reduced a lot. The principal structure of the defence estate handling and management
system is shown in Figure 1.
Figure1. Principal organisation structure of estate management in the HDF
AARMS 3(1) (2004) 33B. NÉMETH: Hungarian defence real estates
Estate management structure
The traditional management of the HDF military real estates includes:2
• Property Maintenance:
Maintenance is concerned with the standards necessary to maintain the property in
an acceptable condition. This will ensure that the property remains (or enhanced) in
a state which can command the maximum benefit. The property maintenance
includes the following activities:
– Conservation preserves the physical conditions and keeps fixtures and fittings
and fixed equipment in working order keeping the existing function of the
built estate.
– Repairs are undertaken to remedy defects.
– Enlargement is a complex of repairs and conservation activities with or without
physical enlargement in order to facilitates a new function for the built estate.
– Renewal and modernisation occurs when the aim of the technical activity is to
establish new better quality for the existing property or a new function.
• Building Operation:
It is the day by day engineering activity in order to ensure the capability of built
estate has been erected for.
• Building Administration:
The complex of legal, accounting and other administrative procedures to protect the
interest of the owner and occupier.
All the military related topics use to be classified in the previous decades in eastern-
European countries. It is obvious, that the military estate management was exclusively
internal management.
The management situation has been changed during the last 5 years. An MoD
owned company (HM EI Rt.) conducts the external management of military facilities.
There are no available publications on this strategic plan of HDF. This leads me to
the question on the levels of management.3
• Operational Management:
It is concerned with the routine day to day management of the property, which falls
under the traditional HDF management described above.
• Strategic Management:
It is concerned with ‘higher’ level activities and decisions often having wide effect
and implications, and generally these are concerned with the medium and long-term
strategies of the organisation. It includes:
– Portfolio structure and investment decisions,
34 AARMS 3(1) (2004)B. NÉMETH: Hungarian defence real estates
– Establishing the framework within which operational management is
undertaken.
As it seen the portfolio structure and investment related decisions taken during the
examined period could not been proved by the property management strategic policy.
They were prompt decisions derived from the politics and military-politics decisions.
No one has doubt about the higher priority of the political goals, however as far as
possible they should be achieved taking into account the existing strategic plans
including property management strategy as well.
Portfolio of estates
Part of the HDF real estates have been owned by the Treasury and used by the
Hungarian Royal Defence Forces before the II World War. These are lands, barracks,
warehouses and some representative historical buildings.
The Hungarian Peoples Army between 1950 and 1970 has erected the majority of
buildings operating today. Part of these assets became state owned as a result of the
confiscation or requisition process.
The property interests are divided to full ownership and leasehold interest. By the
number and scope of HDF leasehold interests are so small would not be taken into
account further.
The HDF Facility Management Organisation groups its real estates by its type as
follows:
Built Assets (Buildings and Facilities) for Military Purposes
• Housing estates
• Lands
Housing estates are includes all houses for military personnel and their families and
military hotels owned and managed by the HDF. All the other real estates being not a
land belong to the first group.
The main quantity registration measurements used in HDF are:
• Built up volume (m3) – for the buildings,
• Hectare (ha) – for the lands,
• Accountancy registration value in HUF billion – for the financial value.
The total number of the MOD real estates is more than 2000 pc, excluded all
subregistreted items.
The quantitative report on the MOD real estates is shown in Table 1. Some blocs
remained blank in the table, because those data were not available.
A graphical summary of the data is given in Figures 2 and 3.
AARMS 3(1) (2004) 35B. NÉMETH: Hungarian defence real estates
Table 1. Status of MoD real estates
1989–2002
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
1 Military installations
quantity (in million m3) 24.1 24.9 25.6 25.6 25.6 25.0 25.3 25.4 24.9 24.8 24.1 23.8 23.0 21.9
net accounting value 83.7 86.5 215.6 197.2 197.5 192.9 245.1 245.9 242.0 338.8 331.9 329.9 323.9 311.9
(HUF bn)
2 Residential estates
quantity (in million m3) 6.9 7.1 7.2 6.2 6.0 5.7 3.9 3.3 2.9 3.0 2.7 2.6 1.8 1.8
net accounting value 27.2 28.0 53.8 45.4 44.2 42.0 42.1 36.4 32.3 36.6 35.6 35.3 28.0 30.5
(HUF bn)
3 Total built estates (1+2)
quantity (in million m3) 31.0 32.0 32.8 31.8 31.6 30.7 29.2 28.7 27.9 27.8 26.8 26.4 24.8 23.7
net accounting value 110.9 114.5 269.4 242.6 241.7 234.9 287.2 282.3 274.3 375.4 367.5 365.2 351.9 342.4
(HUF bn)
4 Land
quantity (in thousand ha) 162.0 162.4 155.2 151.0 149.5 146.3 145.5 145.3 144.4 144.1 143.0 142.8 140.5 134.1
net accounting value 395.0 396.0 378.2 366.6 364.1 356.3 354.4 354.0 352.0 351.0 348.4 347.9 341.4 324.7
(HUF bn)
5 Total
net accounting value 505.9 510.5 647.6 609.2 605.8 591.2 641.6 636.3 626.4 726.4 715.9 713.1 693.3 667.1
(HUF bn)
36 AARMS 3(1) (2004)B. NÉMETH: Hungarian defence real estates
Quality of estates
The quality of real estates depends on many factors. The most important ones are the
location, type, technical condition, functional and aesthetic usability, surroundings,
level of development and the further development ability.
Last but not least, the marketing conditions and situation have a crucial influence on
quality consideration.
The quality is the main factor determining value. However a new, very expensive
high quality racket-luncher installation can have a very low market value, since there is
not demand for it at all.
The range of real estate managed by HDF is very large, there are building sites, rural
lands, barracks, office and residential buildings, warehouses, clubs, airfields, and
workshops among them.
Land
Land is the main asset of the HDF real estate portfolio. It takes about 48 percent of all
accountancy registration value. Approximately one third of the land possessed by the
HDF situates in built up area, while two third is outside of any settlements.
Most of the inner city sites are valuable. Those are suitable for building
development. There are some extremely important and valuable sites in Budapest, for
example the former KINIZSI Barrack in the 11th district, which is for sale, the MOD III
buildings in the 2th district, which is a large green area with some good quality old
buildings and high developing potential.
Lands in the outer area are could be very different by value. The land value is
mainly depending on the future development potential.
The current uses of those lands are training and shooting ranges, or just simply a
camouflage green belt.
Most of them are without any developed infrastructure. There are only built access
roads.
Valuing those lands we have to take into account that the majority of them used to
be rural land, but now they are not suitable for agricultural use. They have to be
recultivated. It means to process a decontamination work for both chemicals and
explosives. The main contaminating source was fuel, especially in vicinity of airfields
and POL stations. The most contaminated area was the TÖKÖL Airfield, where the
water from the control wells was flammable.
The real danger for explosives can be in sites used for combat training or on the
shooting ranges.
AARMS 3(1) (2004) 37B. NÉMETH: Hungarian defence real estates
The biological reserves of the soil also could be lost during the intensive mechanical
use of the land. The need for biological rehabilitation has to be assessed carefully
during the land valuation.
Figure 2. Portfolio of HDF real estates (2002). Value of HDF real estates (HUF)
Figure 3. Portfoilo of HDF real estates (2002). Capacity of built estates (m3)
There are also some sites bearing very high value however they have no market
value at all. Those sites belong to National Parks or other protected areas, for instance
part of the protected Budapest green belt in the 12th district.
38 AARMS 3(1) (2004)B. NÉMETH: Hungarian defence real estates
Built assets and housing buildings
The built assets of HDF consist of barracks, residential buildings, office buildings,
hotels, warehouses, clubs, former kindergartens, airfields, dry cleaning and sawing
workshops and other infrastructure assets.
The main groups of estate are:
• built assets for military purposes,
• housing estates,
• infrastructure assets.
The infrastructure assets are very significant part of military real estates, however
they have not individual registration number in the Hungarian National Real Estate
Registration System. They are valued and registrated as a part of the main estate (land
or buildings).
Housing estates are flats for the military servants with family and hotels for single
ones. Most of them located in the cities some of them nearby the camps.
They gives only 5 percent of the total HDF estate value, but important to note, that
this category is in the best physical condition comparing to others.
Majority of the housing estates is occupied. The tenants have special contract for
lease, which is common in Hungary. These leases are valid for a non-determined term.
It is very similar to the council flat lease system common in Hungary. Tenants renting
council or state for example military houses protected not only by civil law, but the
special Act and ministerial decree based on the principe of Civil Codex.
The third category is the assets built for military purposes. That is the largest
component of built assets. It would be too difficult to characterise these assets in short,
since they are very different in nature. However there is an essential term for these
estates effects on their value.
That is obsolescence. It is worth to discuss more on the obsolescence because even
the comparably new military building can have high obsolescence.
The ages of HDF built real estates are shown on the next page.
The obsolescence means growing old, however the age is not the principal cause of
obsolescence of property. It can be categorised as follows:
Physical obsolescence4,5
It depends strictly upon the condition of the building and is most apparent when the
building reaches old age. It is a result of deterioration of the building’s structure due to
the decay of its fabric and/or of changes in the environment.
AARMS 3(1) (2004) 39B. NÉMETH: Hungarian defence real estates
Carrying out regular inspections of the premises and ensuring the enforcement of the
repairing covenants contained within the lease may mitigate the physical deterioration
of a property portfolio.
In case of state property these expenditures have to be planned in the budget. As a
result of relatively decreasing allowances for the HDF real estate management the
required physical conditions could not been maintained during the last years. The
technical condition of HDF buildings is shown in Figures 4–7.
Figure 4. Ages of HDF built military estates
Figure 5. Ages of HDF housing estates
40 AARMS 3(1) (2004)B. NÉMETH: Hungarian defence real estates
Figure 6. Technical conditions of HDF built estates
* The required technical conditions of built real estates are: 72–73% for military buildings, 75–76% for
residential buildings.
Figure 7. Nominal expenses on HDF built assets
AARMS 3(1) (2004) 41B. NÉMETH: Hungarian defence real estates
Functional obsolescence
This form may result because of changes in pattern of working, production techniques,
and life styles.
Giving rise to a decrease in demand for premises which are no longer satisfactory or
suitable for today. That happened with many military estates. For instant HDF used
many small radar with high-energy demand. Now there is an ongoing process to
develop three 3D-radar stations, which cover the whole territory of Hungary.
There is no military requirement for the old sites and camp buildings; there is no
demand anymore.
The civil demand, the market certainly has different needs. This functional
obsolescence leads to a change of use, refurbishment of the property, redevelopment of
the site or simply allowed decaying.
All published data have statistics means; those are average figures in this chapter.
It is obvious that the frequently used assets are maintained better while the surplus
assets can be not maintained at all.
Those figures force me to make assumption that the real value of many military
assets, especially of surplus ones is the value of land and built infrastructure facilities
but not the value of buildings.
Conclusions
The research proves about that there is nothing special making the management of
military estates outside of the overall rules. The quality of military estate management
can be measured partly in terms of produced, used or saved finance and partly in social
benefit.
The property management of the HDF is very similar to that used by Hungarian
civilian public organisations. All the phases of the estate management – acquisition,
development, running and sell-off – are related and will be very closely related in the
near future to the service providers.
This process actually leads at least partly to the integration of the defence estates to
the estate management and development market. This also creates the requirement for
employing experts in the public sector able to understand the estate market and
communicate with the newly forming experts of the Hungarian real estate community.
The analysis of the HDF estate status supports the statement that the armed forces
are one of the main estate owners in the country.
42 AARMS 3(1) (2004)B. NÉMETH: Hungarian defence real estates
The new military-political situation makes the HDF not only one of the main estate
management but also one of the main estate disposer (seller) organisation, since the
HDF owns significantly more estates than their expectable needs.
References
1. THORNCROFT, M.: Principles of Estate Management, Estates Gazette Ltd., 1965.
2. Magyar Néphadsereg Építményfenntartási és Elhelyezési Szakutasítása (Beruh/4), Honvédelmi
Minisztérium, 1984.,
3. The Nottingham Trent University: Property Management, 1994.
4. NÉMETH, B.: Real Estate Utilization in the Hungarian Defence Forces, MsC thesis, The Nottingham
Trent University, 1999.
5. MEZEI, Zs.: Az MH elhelyezési tevékenységének elemzése (Szakdolgozat) Budapesti
Közgazdaságtudományi és Államigazgatási Egyetem, 2001.
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