Redemption and Punishment in the Supreme Court’s Decision on the Building Regulation Code (NOK)

Posted on December 13, 2024 11:59 am by manager

by Kioleoglou Konstantinos for Skai.gr

The announcement of the Supreme Court’s decision on the Building Regulation Code (NOK) brought a sense of redemption for all those involved in the construction sector.

Redemptive and Punitive Implications Supreme Court’s Decision on the Building Regulation Code (NOK)

The announcement of the Supreme Court decision on the Building Regulation Code (NOK) was a moment of clarity for all involved in the construction sector. In a market frozen for months by speculation, this decision finally provides a clear framework, enabling developers, engineers, landowners, and buyers to understand their position, how they are affected, and how to proceed.

A Swift Decision by the Council of State

The  Supreme Court , displaying unprecedented efficiency, concluded the necessary procedures and rendered its decision on December 11 regarding the NOK. The full ruling will be published in January, but the plenary session has already deemed several provisions of the NOK unconstitutional. Notably, the ruling does not have retroactive effect, yet it significantly impacts thousands of properties across Greece, reshaping the legislative framework and construction terms while introducing new conditions to the real estate market.

Key Impacts of the Decision

According to the press release, the ruling abolishes NOK’s energy incentives and mezzanine spaces, reducing the buildable area of plots by at least 30%, and in some cases more. This has immediate effects on land values, which are estimated to drop by approximately 40%. It also complicates profit-sharing agreements (Join Venture Porjects), as reduced development potential alters negotiation terms. For example, a plot that could previously host a 1,000 sq.m. building may now be limited to 650-700 sq.m., with lower floors of lesser value due to height restrictions.

The market will require a period of adjustment to absorb these changes and resume normal operations under the revised conditions.

Challenges for the Real Estate Market

The real estate sector faces a new challenge as land prices and profit-sharing agreements must adjust to the new reality, temporarily halting new deals. Reduced construction activity will likely diminish the supply of new properties, leading to increased rental and sale prices in the short term.

Reasoning Behind the Decision

The SC  found the NOK provisions unconstitutional primarily due to their implementation rather than their content. The court determined that permitting significant deviations from established urban planning norms without appropriate scientific studies undermines the urban environment. It emphasized that incentives should be based on comprehensive assessments of each area’s unique characteristics. The decision takes effect on December 11, 2024, ensuring legal certainty by not retroactively affecting building permits with ongoing construction, provided they were issued before the ruling.

Affected and Punished Parties

  1. Local Authorities and Citizens: Those opposing the 2012 NOK provisions are vindicated, though future selective use of bonuses is not ruled out.
  2. Government: The ruling undermines government plans to base economic growth on the construction sector and challenges budgetary projections for 2025 that relied on substantial revenues from real estate.
  3. Landowners: Thousands will see significant declines in property values due to reduced development potential.
  4. Tenants: With limited new housing supply, rental prices, already at record highs, are expected to rise further.
  5. Developers: While some face losses from speculative land purchases, those who adopted a wait-and-see approach may benefit in the short term.
  6. Litigants: Projects with pending legal cases face potential permit revocations, creating unequal treatment among similarly situated developers.

Consequences and Required Interventions

The legislative upheaval highlights the urgent need for a stable regulatory framework. Laws should include transition periods to ensure smooth adaptation for stakeholders. The government must assume responsibility for past policy errors and protect those who acted in good faith under previous laws. Local urban plans, offering clarity and consistency, are critical to restoring market confidence.

Conclusion

The real estate market, poised for robust growth in 2025, now faces serious challenges. Short-term adjustments may cause instability, but with strategic planning, recovery and further development remain possible. Despite cyclical market trends, events like the CoS decision disrupt these cycles and set new baselines. Patience and resilience will be key for stakeholders during this transition. The CoS decision and subsequent legislative actions will shape the sector’s trajectory.

Kostas Kioleoglou, REV, is a Civil Engineer (NTUA), MEng in Structural Engineering (NTUA), MSc in Real Estate Investment and Finance (Heriot-Watt University), and a Recognized Expert Property Valuer & European Valuer (TEGoVA).