Leonid Kazinets: You can withdraw from market, but to come back quickly will not work


Recently the revenues of developers have dropped significantly, but some companies launch new projects even at the minimum profitability. Executive chairman of the Barkli Corporation, President of the National Association of Property Developers Leonid Kazinets shared his opinion on the market situation in the interview with RIA Novosti.

How do developers feel themselves today in a difficult economic situation?

Today, developers get very small profit, especially if the land plots for projects were purchased in earlier period. We can say that developers do earn next to nothing, they just generate working capital. It is unclear how long it will last, and it is possible that many developers may not have enough safety buffers, so they will begin to withdraw from the market. Now we can see that the volume of construction is falling. In the first quarter of this year, the volume of newly launched projects in the country has fallen by 20%, as compared to the first quarter of 2015. That means that by the end of the year we will have a decrease in supply.

The question is what is decreasing faster: the construction volume or the willingness of people to buy housing? Sooner or later someone will win this competition. Now we understand that the volume of construction will fall, and at the time when people will regain a desire to buy, prices may rocket up because of the limited supply. But no one knows when it will happen.

Can we expect the renewal of a record pace of housing commissioning of the last couple of years?

It would be good, but now I see no reason to increase the construction volume.

That means it is a question of financial solvency of citizens?

I would even say it is a question of willingness to buy. We see that people still have the money. A huge amount of savings (trillions of rubles) are on bank deposits, a huge amount is kept in cash. In addition, there is money that our citizens have invested in foreign assets, including accounts in foreign banks and papers. The state sets an example of behavior for its citizens: if the budget funds are not invested in infrastructure and are put in gold and currency reserves, then why citizens can’t do the same?

Surely you are not annoyed about shrinkage of the market in favor of major real estate developers?

On the one hand, of course, unscrupulous competitors will withdraw from the market. On the other hand, companies that are at the stage of bankruptcy or pre-bankruptcy, sell apartments at any price in order to survive on the market. Today we can see how some people try to dump, selling below cost. If someone tries to sell you a one ruble for 90 kopecks, then you should be in doubt. When companies hope to survive somehow and offer crazy discounts, while the market is admittedly coming back to life, they expect to return your money after that. In fact they create a pyramid scheme. By the way, the regional government often says that there is a limit of reasonable prices, and there is an obvious deception or unrealistic promises.

What is the reason to build at zero return, when you can earn more simply putting money on deposit?

Kazinets Leonid Executive chairman of the Barkli corporation, President of the National Association of Property Developers
Yes, it is possible but when we build, we employ general contractor, sales agency, and we are in the market. We make no doubt that the housing prices will go up, it will surely happen, the only question is when. Those who have gained experience in technology, preserved the brand, learned to build quickly, efficiently and with minimum expenses, will have profit in future. It is possible to withdraw from the market, but to go back quickly will not work for such a company as “Barkley”, which I have created 25 years ago. One day or even one year will not be enough.

At the last State Council on urban policy, President Vladimir Putin announced the possibility of setting up a compensation fund for participants of shared construction. Can you comment on how this fund can work, and what will change in the market?

The situation with liability insurance for the real estate developers (according to 214-FZ) is unacceptable. The existing mechanisms work quite controversial. The President said that in spite of the fact that the scheme is in use for two years, there was not a single case when a developer failed in his construction project, and the insurance company paid the insurance indemnity. Subsidiary liability of the Mutual Insurance Company is also an ambiguous thing.

Recently, we held a major meeting with the regional representatives in the National Association of real estate developers. Do you know the opinion of Vladivostok for example? Not a single insurance company of Vladivostok does not work with local developers, so they have to work with Moscow insurers. Documents are processed in hard copy, the procedure takes two weeks. That is, insurance of each co-investment contract takes a minimum of two weeks – it’s just nonsense.

The State Council discussed a state participation scheme, which, strange as it may seem, suits us well. Mechanism of the compensation fund is very simple. When you are going to sell an apartment in a house under construction, you take 0.5% of its cost – quite a reasonable amount – and transfer it to the fund under control of the Central Bank. After that you have the right to register the co-investment contract. It is processed like a regular state duty. At the same time 0.5% will not be a heavy load for a developer and will not affect the consumers because it will be cheaper than a commercial insurance.

The Fund should operate as follows. For example, we have an unfinished construction project. Suppose you want to complete construction of 500-apartment building in some town, where 400 apartments are already sold via co-investment contracts. Turnaround manager or arbitral liquidation commission invites tenders. One company is ready to finish construction for 200 million, the other – for 100, the third –50.  The last wins the tender and receives 50 million from the fund. The company completes the house, commissions apartments registered via co-investment contracts, and sells the rest to recoup their costs. I’d like to stress that the mechanism is easy and transparent.

RIA Novosti