Construction in Moscow gaining pace and ease

07.04.2016

Moscow authorities are right trying hard to make developer’s life easier: terms of implementation of construction projects have reduced, and most importantly – the whole process has become clear and more or less predictable, admit the developers. But doing business has not become easier – decrease in demand for housing and the rising costs of financing construction projects quite successfully compensate the benefits of removing administrative barriers.

Achievements of the Moscow Construction Complex

In terms of improving the investment climate the Construction Complex focuses on the elimination of redundant approvals and transfer of all possible procedures to electronic format, said the Head of the Moscow Department of urban policy Sergey Levkin at the roundtable discussion on innovations in the system of design approval in Moscow held by the Moscow Urban Forum in collaboration with the Department and Agency for Strategic Initiatives.

In particular, as late as in 2013 have been canceled:

  •    approvals of prefectures and district councils on various phases of implementation construction projects;
  •    approvals of project documentation. A prohibition on adoption of project documentation for the state expertise was imposed, in case it includes approvals not provided by the legislation;
  •    issuance of cutting permits with the availability of positive findings of state examination of project documentation and construction permit, issued by the Moscow authorities;
  •    issuance of passports of color appearance for construction and reconstruction of capital construction projects.

In 2015, new rules for issuance excavation permits in case of capital construction projects were adopted. Since that time a number of procedures were set aside, namely geotechnical expert examination, getting the State Traffic Safety Inspectorate’s approval of design documentation for works related to damaging the road pavement, changing or limiting pedestrian and vehicle traffic, getting the State Committee for Sanitary and Epidemiological Oversight’s approval of construction organization plans and method statements for excavation, getting a report on compliance with civil defense requirements and emergency prevention for the construction project, approval of land improvement design for utility exclusion zones.

The following state services are available for developers online, namely conducting the state examination of design documentation and results of engineering surveys; issuing of construction and occupancy permits; issuing of conclusion on compliance of the constructed building with the construction norms and rules (ZOS); issuing of architectural and urban planning solution (AGR); issuing of passport of color appearance of the façade; approval of design project of construction site barrier; submitting data to the Integrated online database for maintenance of town-planning activates in Moscow; submitting notifications about the commencement and completion of constructions works; submitting an account of carrying out activities involving employment of funds of shared construction participants; issuing of excavation permits.

The authorities do not intend to satisfy with what has already been achieved. The service of preparation, approval and amendments of the development plan of a land plot (GPZU) is available only online since April, 1. The following services will be converted to electronic format this year: approval of project technical specifications (until August 1), issuing of engineering opinion on the compliance of utility networks and underground facilities to the Consolidated Plan (until November 1) and supply of information from the Consolidated Plan of utility networks and underground facilities of Moscow (until December 1).

The reforms suited the taste of developers – 73% of applications for state services in 2015 were submitted online.

Long-term plans

According to Sergei Levkin, the Department of urban policy in collaboration with the Ministry of Construction, the Ministry of Economic Development of Russia and resource supplying companies are working on facilitation of the arrangement of utility networks – it will imply making changes to the town planning and land legislation. It is supposed to classify the types of networks in terms of their technical characteristics and establish requirements for registration of land relations and for preparation of plot for development depending on its type.

On March 22, the Moscow Mayor Sergey Sobyanin signed a decree (#108-PP) which canceled the need to obtain construction permits for certain types of utilities. Union of Administrative Technical Inspections (UATI) and Rostechnadzor (Federal Environmental, Industrial and Nuclear Supervision Service) will be charged with supervision over arrangement and operation of this kind of networks. The actual procedures for arrangement of distribution lines are preserved.

The work on creation the Consolidated Plan of utility networks and underground facilities of Moscow is finishing; it will include integrated data about the types and layout of existing and planned underground utilities and structures.

Moreover the work on transferring materials and engineering surveys of Geofund to electronic format and making it a part of the Integrated Online Database for maintenance of town-planning activates is ongoing in Moscow.  As a result of digitizing of engineering and geological research, construction companies will get access to information about geological specifications of land plots meant for construction, and consequently will be able to reduce costs for preparation of project documentation and enhance the quality of designing.

It is also planned to complete the GPZU (Development Plan of a Land Plot) with information on underground communications and facilities, as well as on preliminary technical conditions of connection to water supply and sewage networks. This initiative has already received approval from the Ministry of Construction of Russia, Ministry of Economic Development of Russia and the Agency for Strategic Initiatives. The pilot project on simultaneous issuing of GPZU and technical conditions for connecting to water supply and sewerage networks will be implemented before the end of April.

It is decided to create an Integrated Contact Center of the Moscow Construction Complex for informing investors about amendments of procedures and regulations in construction sector. According to Levkin, the pilot version of the Center will be launched this year. In the Personal Account of Developer (the portal of the Construction Complex) it will be possible to use the so called “calculator of procedures”. It is intended to help developers to find out what documents, where and when must be submitted to obtain permits and approvals.

Developers note improvement of operating conditions

Developers highly appreciate the efforts of the Moscow government. Given that the construction business, according to its representatives, has not been spoiled by much attention to their needs. “I do not remember that 10 years ago we gathered and asked what kind of help do we need,” shared Leonid Kazinets, President of the National Association of Property Developers, Executive Chairman of the Barkli Corporation. “It was once, during the crisis of 1998, when we were called and told that the construction sector was experiencing a huge slowdown, that’s why they were ready to set a seal on some postponed contract, that’s all… Comparing to nowadays when the work with procedures and developers is ongoing”.

[citata id=545]According to him, the crisis is a good time to restore order in the construction industry. On the one hand, there is no overload of investment activity, developers are fewer in the city, and their appetites are now more modest – so it’s time to get it all sorted out. On the other hand, due to the deterioration of the macroeconomic situation, the decline in housing demand and increased cost of credit resources there is fierce need to learn to build in a saving manner. “All kinds of procedures mean money. Though money is a tough matter in investment projects nowadays, developers earn merely a few dollars per meter,” complained the Head of Barkli.

In recent years, the administrative climate in Moscow has improved for investors by 30%, considers Leonid Kazinets, the executive chairman and the owner of Barkli corporation. “A while ago, when a developer was asked about a major severity of his life, he usually mentioned the nightmare of procedures, which were impossible to deal with. Now this is the issue of the third, fourth or fifth position. The current tough issues concern the demand and the money though the procedural issues are greatly smoothed down,” stressed the President of the National Association of Property Developers.

Optimization of procedures and their conversion to electronic format in particular allows developers to save on staff resources: the same number of employees can perform approval process of a much larger volume of projects, said Ivan Romanov, Managing Director of LSR Group in Moscow.

Now we feel no need certain specialists, added Lyubov Tsvetkova, Chairman of the Board of the Association of Investors of Moscow: “Earlier it was necessary to have a special employee – we called him a specialist for the passage of expert examination. His duties were to spend day and night in the expert examination agency, fight with each expert, haunt thresholds, and load with sweets. Now this officer is not needed. Almost every step can be done in electronic format. This does not mean that the expert examination is kinder to us now – sometimes have to remake the whole project. But this process is now very clear, without “creative components”, we often communicate in electronic format: the expert asks – we respond to him, or make amendments to a project.”

Most developers are happy not only with reducing the number of different procedures, but with their strict regulation, the reduction of “creative component”, so that the whole process can be predictable in terms of time and cost. The risks of construction projects are reducing – and it is the most important for developers.

[citata id=550]According to Ivan Romanov, Managing Director of LSR Group in Moscow, after obtaining a land plot and an urban planning documentation a developer in Moscow can enter a construction site and start the works on it in six months – this time is required to change the permitted use of the land plot, to develop of architectural and urban planning decisions (AGR) and to obtain a construction permit – merely about 10 procedures. Earlier on, before conversion to electronic format the process of filing in applications, and development of regulations for procedures, state officials could lengthen out the process for years not giving any clear response to a developer.

For example, four years ago, the procedure of getting certificate of the architectural and urban object decision (AGR), according to the public official of the “ASI” in Moscow, Dmitry Volkov, represented a search for common language between the architect, who designs a project and architect who issues approvals. While they were looking for consensus, the investor paid for land and for operational downtime. Now the procedure is regulated, is carried out in electronic format and, according to experience, it consumes the stated period of time (14-30 days), said Volkov.

“But the main difference is not even in the time, the thing is that the predictability of the investment project has increased by an order”, said Romanov. “By virtue of the Moscow government, which formulated clear regulations and sequence of processing approvals, a developer can predict the timing for complying with formalities with high confidence. This allows us to plan investments for projects and makes the earnings potential more predictable. In addition, it reduces our costs, so we can offer our customers the housing at lower price.”

According to Tsvetkova, the timing of construction projects from getting GPZU (development plan of a land plot) to getting an occupancy permit have reduced from 10% to 25-30% ( the reduction depends on the uniqueness of the project, its location, etc.) – this is at least 5-6% of the project budget, “that is very important in the absence of money,” she said.

Flies in the ointment

Of course, a huge barrel of honey, which apparently constitutes the urban planning policy of Moscow authorities in recent years, has not been without a few spoonfuls of tar. Firstly, the procedures related to the construction process were blamed, and also “a lot of work that precedes GPZU, remained challenging, difficult and ambiguous,” noted Lyubov Tsvetkova. Secondly, not all agencies of the Moscow government are as responsive to the needs of developers, as the Construction Complex. For example, the Department of Transportation does not have e-filing form, and it is even impossible to get a notification that your correspondence is received, said Tsvetkova.

[citata id=327]Developers are of the same mind defining key problem: the absence of an exhaustive list of procedures for connecting to utility networks, and general behavior of “natural monopolies” that “take it out on” developers.

“In order to obtain a construction permit I have submit one application in electronic format, while if I send an application for technological connection for example to MUEGK (Moscow United Power Grid Company), I must submit two dozen documents. And I will surely not succeed at first, even if I’m very big professional. It is not submitted in electronic format, it involves personal attendance. The only wish is to make at least two windows instead of one to reduce the queue,” Dmitry Volkov complained.

It is necessary to create an integrated system which includes all the agencies related to the construction process, said Volkov. And ensure common rules of the game, added Romanov. Then the developers can significantly optimize the cost of projects and make housing more affordable for consumers.

“In Moscow the developers’ wishes will be always more numerous than spare construction sites. There always has been overload of investment activity in the city. To some extent it is ongoing now, although the crisis does not contribute to it. If you allow everyone to build what they want and where they want, you will be surprised in two days. Therefore, regulations of investment activity in the city have to be rigid. But they must be clear and precise, ” stressed Leonid Kazinets.

“Indicators of Real Estate market”

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