Improvement of investment climate in construction was discussed on round table in Moscow


In Moscow, an Urban Talks round table expert discussion was held, the topic of it was “Investment climate in construction industry. Challenges and New Solutions “. It was organized by the Moscow Urban Forum together with the Department of urban planning policy of Moscow. The round table was attended by representatives of the city government, members and experts of construction and financial markets.

Panelists noted that today the situation in investment and construction sectors cannot be considered as favorable. For developers, it is characterized by a combination of three factors: limited access to financial resources, the high cost of loans and drastic lessening of demand for certain types of real estate, primarily for offices and retail facilities. Profitability of a number of high-quality objects of Moscow real estate remains high (about 10-11% annually), but part of the office and retail space is empty.

According to the head of research department of Cushman and Wakefield, Denis Sokolov, 20% of Moscow office sector and about 10% of retail facilities are vacant now.

During the last two years the volume of investments in commercial real estate has been reduced. In 2015, the volume of investments has decreased almost three-fold (to $2.8 billion) in comparison with 2013. Construction of commercial real estate is radically dropping. Experts do not predict a drastic change in the situation during the next two or three years.

According to their forecasts, annual volumes of commissioning of office facilities do not exceed 30-50% comparing to the volume of 2014. Moreover, the market is experiencing repricing, said Sokolov. “In this regard, today we face the question of how to revive the market, how to ensure the flow of investments, regardless of any geopolitical challenges,” he said.

Schaffer Martin Managing Director and CEO, PPF Real Estate Russia
New economic situation makes use of all the tools to improve the investment climate. With this in mind, along with the expansion of economic incentives it is extremely important to lower administrative barriers for construction sector. This significantly reduces investment risks, expenses and terms of project implementation.

As Sergey Levkin, the Head of Urban Policy Department noted in his speech, Moscow addresses the task posed by the Mayor: to find a balance between the interests of three parties ¬– Muscovites, investors and the city. A clue for successful development of the city is to rely on human capital assets, he stressed. If a person is at the forefront and every effort is aimed at his comfortable life, investments must meet these requirements.

Construction is one of the most important trends in development of the city. Being a major city Moscow cannot live and develop without the involvement of private investment, said Levkin.

Tsvetkova Lyubov Chairman of the Board, Association of Investors of Moscow (AIMOS)
Attracting investors to construction sector, according to Levkin, is possible through the establishment of special preferences, which is especially important in times of economic crisis and demand reduction. The Moscow City Government has already made a number of steps in this direction. In particular, it was decided to grant instalments for rent payments or for change of permitted use of land plots, to reduce rental rates for the land intended for construction of apartment buildings, subject to new quality standards, approved in requirements for architectural and town-planning solutions of apartment residential buildings.

Levkin also said that the city has issued construction permits for a total area of more than 31 million square meters of real estate. The targeted investment program for the next three years is also approved; more than 500 objects will be built in its framework. In addition, over the last 5 years, town planning solutions for potential construction of 150 million square meters were adopted.

He also noted that out of the total area on which the construction permits were issued, 90% of construction is carried out by investors, while the budget of the city is involved in the process only by 10%. Huge amounts of budget funds are invested in development of infrastructure, particularly in roads and transport development.

One of important fields of work to improve the investment climate is to implement administrative reform in construction industry, said the Head of the Moscow Department of Urban Policy. Since 2013, the Moscow Construction Complex has done a lot in this field: the process is optimized and the term of obtaining permits is reduced. The transparency of the entire process is ensured by transfer of state services to electronic format.

Adomanis Mark MA/MBA candidate at the Lauder Institute and the Wharton School of Business
Today the whole cycle of procedures is converted to e-format: from obtaining a land plot for construction to commissioning of a facility. 12 basic state services related to construction industry is available in electronic format.

The growth of real estate prices in Russia will be explosive. The moment the demand exceeds supply, prices will rocket up. The state should perform the regulator function. And today, when there is a decline in demand, the state should support it. The state acts as a regulator, keeping the stable volume of construction, in order not to suffer from the lack of supply when real estate prices start to rise.

At the meeting the participants exchanged views on how the business climate of the capital has changed in recent years, how the crisis has affected the expectations of investors, and what sort of interest have foreign investors in the Russian real estate, etc.

Kazinets Leonid Executive chairman of the Barkli corporation, President of the National Association of Property Developers
According to some participants of the round table, the current situation in the economy and the construction industry will change, though not in the near future. This will affect the demand for real estate – it will cause the explosive growth, considers the Executive Chairman of the Barkli corporation, Head of the workgroup of the Agency for Strategic Initiatives on facilitation of obtaining construction permits Leonid Kazitets. But even now the state must fulfill the role of market regulator and maintain the volume of construction in order to ensure market supply, when the demand goes up.