Olena Shuliak: On paper house has 10 floors, and in fact, 15 floors are being built

08-09-2016

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If you want to buy a house and are ready to invest money to a new building, you have to know what exactly is waiting for you eventually. A buyer of the apartment may face with a house with 15 floors instead of 10… and it will be legal. The Better Regulation Delivery Office (BRDO) Construction Sector Head Olena Shuliak told the PRAVDA information agency under which laws the construction field works today, which risks investors may face with, and what changes the developers expect to have.

– The construction industry was always considered to be a key for the development of the country’s economy and gave the essential increase in GDP. What is the situation with the construction in Ukraine today?

– According to the forecast, by the end of 2016 it is expected that the part of the field in the GDP structure will amount to 2.5%. It was 2.2% last year. In comparison, in 2001 this amount was 4.7%, and in the long 90th it reached 8%.

Surely, the field has a tendency to minimize the volumes. An index of production of building materials decreases, there is a runoff of employees. 2014 was a peak of downfall. At the same time, it is needed to say that the certain stabilization appeared according to all indexes. From the other side, the indexes are approximate because the business (including the construction one) has been in the sidelines last years that does not give an opportunity to get the real indexes of the field’s work.

In recent years, the commercial real estate property (especially offices) became unattractive for investors. Today, the development of the field is based on the residential real estate property building.

– What is the current situation at the commercial and residential real estate market?

– In recent years, the commercial real estate property (especially office ones) became unattractive for investors. Today, the development of the field is based on the residential real estate property building. Certain factors influenced it. However, the situation at the banking market when a great amount of banks were liquidated because of certain reasons. So, there was no wide range of investment opportunities. Western markets are incomprehensible and unacceptable, a stock market in Ukraine does not work, and deposits became an unreliable tool. Everything came to small investments in the real estate property, which also fell in price. These critical factors contributed to the development of the residential real estate property segment – today housing investments are one of the most attractive types of the of citizens’ financial investments.

Although, in reality, we don’t speak about large investment sums. Also, there are certain differences by regions. The most active construction rates are fixed in five regions: Kyiv, Kyiv region, Ivano-Frankivsk region and in Odessa region.

In all another cities, the situation with the housing construction is rather sad than inspiring. Generally, not so many facilities are being built and have been built in recent years. Nowadays, in Ukraine 1 billion square meters are being exploited: about 300 thousand high-rise buildings and 6 million of private houses. Thus, 80% of this fund had been built till 1980. Only 10-12% had been built for last 15 years.

– With what factors do you associate active development of construction in Lviv, Ivano-Frankivsk region?

– The location is closed to the border. Also, better conditions are created for the tenants. For example, last year, in Lviv rent rates had been stabilized. And what is more, a trend of its increasing began to establish. Why? Business ran to these regions, the interest in the real estate has grown. For example, many IT-companies decided that it would be easier for them to do business in Lviv than in Kyiv or somewhere else.

Besides, mentioned regions have good potential for the industrial parks’ development, where production targeted at EU countries would be manufactured. Great value for the developers in these regions is that the local authorities are loyal and ready to support investors’ initiatives.

– How exactly do local authorities support?

– There is a moment that essentially restrains the construction process, especially, as for commercial real estate properties. I mean the share participation in the development of engineering, transport and social infrastructure.

This year the index of share participation, for example, in Kyiv amounts to 10% from the cost of all object construction.

According to law, local governments have the right to regulate this percent. In comparison, in Zaporizhia the fee for the commercial real estate property is 1.1%. It is 0.1% in Kryvyi Rih, and in Mariupol it is defined as 1 UAH. There the local authorities understand that the less the investor is burdened, the more benefit the city would get.

Now it is difficult to say that these conditions essentially influenced the investments taking into consideration the location of the same Mariupol. Now we are monitoring the situation in Zaporizhia – it is interesting how comfortable it is for developers and real estate developers to work in the given conditions.

Western companies in Ukraine do not construct in practice. If there are single cases, then the management can be under the auspices of Western companies, but the hands, the engineering bodies are ours.

– Is the real estate today being built mostly by Ukrainian or Western companies?

– Western companies in Ukraine do not construct in practice. If there are single cases, then the management can be under the auspices of Western companies, but the hands, the engineering bodies are ours. Nowadays we are a supplier of cheap labor. If it is possible, they engage managers from abroad.

If we speak about the construction funding, more than 50% is the costs of the citizens, 30-35% belong to the developers, and the state provides only 2-3% for the construction.

In Kyiv only 12-15% of the territory is covered by such urban planning documentation. And there is less than 50% across the whole Ukraine.

– How much permits are should be prepared today to begin the construction process?

– The construction is impossible if there is no land. To allot the land in Kyiv, for example, you should prepare 55 (!) paper documents and meet with the officer or surveyor about 17 times according to the BRDO experts.

In this case, we are speaking about a simplified scheme of getting the land. It is about the land plots where the certain real estate exists or they are in use, and it is needed to change the designated purpose or get the land for the social housing construction.

Generally, the process of land allocation in the capital takes 2-3 years.

There are mechanisms allowing to reduce the term and the amount of papers. Now we need to automate the process and implement the electronic services to submit documents in digital form, and simplify procedures.

For example,   in accordance with the legislation, before approving the permission for getting the land, the project should pass two sessions of the City Council. First, you have to get the permit for the development of the land planning, and then the permit for the rent. In this context, it would be important to gain one session, when the deputies vote for the decision to allocate a certain land plot for rent. This procedure could shorten the term of land allocation by one and half-twice.

It is essential. In any project time resources have their value.

The market is changing, so it is unacceptable to freeze money in the project for a significant period of time.

A long procedure of land allocation is not the only factor that complicates the work of developers. We can speak about the getting permits for the land rent for the construction only with the condition of having developed plans with the territories detuning – TDP (territory’s detailed plans). It is regulated by the Law “On the Urban Development Regulation” from 2011, or more specifically, a concrete provision, the effect of which was transferred on January, 2015.

In Kyiv, only 12-15% of territories are covered by this planning documentation. There are no more than 50% across all Ukraine.  Unfortunately, State Budget, local budgets do not have costs for the development of such documentation.

When a certain developer-investor who really wants to build and is ready to develop this documentation at his own expense appears, local government usually negotiates a tripartite contract. There is an investor paying for the documentation development. There is a customer appearing as the Department of Architecture of the City Council. There is a compiler – an organization that can perform such services for 6-7 months.

There is an interesting moment. Even if the investor developed the documentation, paid for it, it does not give a guarantee that he will be allowed to build. He has to pass mandatory public hearings. And sometimes this procedure turns into the making money for the certain organizations pretending the worried public and officials.

If the investor managed to pass all these circles of hell, his further territory plan is proposed to local governments again. This is time, nerves and money.

On average, we counted that with luck the development of detailed territories’ plans would take a year. After it, the above-mentioned procedure of land allocation starts.

– Were there any attempts to speed this process up?

– They were. This year the deputies tried to transfer the effect of the named provision of the Law “On the Urban Development Regulation” to the beginning of the 2018 explaining this with the necessity of the construction while there is a market. Unfortunately, nobody heard them.

Personally, I believe that postponing of this question is fundamentally wrong. Even in the context of the sector development.

– Today there is a decentralization process, in the framework of which the local government gets more mandates, in Ukraine. Will the territorial communities have a right to develop detailed territories’ plan itself?

– We have the only hope that incorporated territorial communities will understand how important it is to take a participation in the process of territory strategy development, and develop that part of documentation, which will be necessary for the further land allocation. This will become a basis for these territories development.

But still there have not been any the pilot projects. We hope that the situation will change soon.

Let’s return to the algorithm of the preparation to the construction. After two main conditions are done – there is available urban development documentation and the leased land, can we start the project?

If everything is alright with the intended purpose, then it is necessary to start the design phase, collect the documents to get the architectural workshops, and begin to work with the project institutes or create your own object – first on the paper at least.

If the object has IV-V consequence categories, then it is necessary to undergo the state examination of construction works. In the case of I-IV categories, you just need to lodge a declaration to SABI (State Architectural and Building Inspection) and start the construction after its registration.

Every fifth deal with residential real estate in Kyiv falls into the category of doubtful ones.

– Do the developers follow the mentioned rules?

– I shall start with the example. On paper, there is a project of a building with 10 floors, and factually 15 floors are being built. How do they do it? The developers exactly know that the residential house with 15 floors distinctly falls under the IV category object. This is the situation when it is necessary to bring a lot of documents, coordinate and solve. Corruptive component is added here. In such cases, the developers often consciously use a scheme, when the construction of the building is divided into porches, in stages, and is being brought under the III category for a simplified procedure of getting permits. And later, the additional floors and others appear. Such a scheme is completely legal. We need to change it. And legislative initiative is already here – there is the relevant legal act registered in the Verkhovna Rada.

Besides, some important issues also require an attention. First, the illegal buildings.

The second point is the double or triple resale of the housing at the primary market.  Lawyers say that every fifth deal with the residential real estate in Kyiv ant the region falls into the category of doubtful ones. An unfair developer can sell the housing several times. Then the company turns bankrupt, and next some “owners” of the same flat meet in the court.

The third one point is that the claimed project of a house where people buy a residential property must correspond the building people get in the final result. For example, the developer promises a flat in a 10-floored house with the pram storage room. As a result, a flat in the 25 floored house with the hairdresser instead the declared pram storage room is introduced into service.

The Better Regulation Delivery Office (BRDO) position at these issues is simple: when the developer prepared the construction documentation, got all permits for it, he must register the object in the state registrar. Only those meters which are in the project and have clear purpose get into the registry. If the developer does not register, the criminal responsibility appears. It regulates the question of flats sale, it would be impossible to sell twice the flat had not been built yet and change the characteristics. Superstructures and other surprises will not get into the registry. We are working at the implementation of this provision.

– Will the government support these initiatives?

– This is an open question. The draft law concerning the registration the right of property to be built in future has not been submitted for the Parliament discussion yet. We were working with the lawyers and specialized lawyers. The project is prepared, it is planned to approve it with the Ministry of Justice because it would be their work to register all the investors. I think that is the question of the autumn.

– Is it important today to improve the norms of the construction inspection? Who must do it?

– SABI works with all control issues. It determines whether the construction is done in accordance with the project or not. Exactly there the project documentation is being approved and tested; its appropriateness is also checked. They build on the basis of the working documentation. When SABI representatives come, they reconcile if the project documents correspond those ones the builders work with.

Often the working documentation can differ from the project one. Then SABI reacts. There were cases when the construction was closed because the shed did not hang at an angle 90 as it was declared in the project, but it was at an angle 60.

I personally had a story. Round columns were laid according to the project, and when we started to build, it was very difficult to make the frames. And we started to saw the square columns using the same approach. The arguments that it did not affect the structural and load-bearing properties in no way had not worked. They prohibited. SABI had been acting by rules.

It seems that rules are not the equal for all. There are examples of frankly illegal buildings where the authorities just shrug their shoulders. It is a nonsense and paradox for me.

– We discussed legal issues and construction control questions. Now let us look at the sector work from the side of developers. What problems are the most actual for them now?

– The issue of electricity supply network connection is in the first flight. For example, when the land is allocated in Europe, all the networks have been linked up with it yet. What happens in Ukraine? The developer gets a land in use, but there are no networks there. It is necessary to go to a monopolist – to a heat and power authority. As it is known, they belong to a private capital, and according to the existing minds, developers must connect to the electricity supply networks at their expense.  The heat and power authority give not only the documents for it, but a so-called TS (technical specifications), which usually have significant encumbrance. The result: all developers must construct the network infrastructure for the monopolists to connect their object finally. It turns out that the private capital in the form of the developer finances another private capital building networks for them. This is, you see, one more nonsense.

– Is it legal?

– Yes, the heat and power authority has no any obligations to build such networks. Our experts work at the relevant law on amendments in the part of electricity supply network connection. But there is another aspect. The situation is the next: the networks are built, the connection happened, and the developer does not want to serve them – he wants to transfer them to the balance of the heat and power authority. And so what? Transfer process sometimes delays for years. Let us say, that the network was built at the cost of 20 million UAH, and they want to take at a lower cost at the balance. If you take on the real value, then the heat and power authority will have problems with the tax agency.

Every hryvnia leveraged in the construction stimulates the related industries (furniture production, transport, building materials, etc.), gives additional 4.7 UAH

– Taking into account the current situation, what perspectives of the sector development can be expected in few years?

– Recently we counted the investment multiplier for the construction industry, it was 4.7. It means that every hryvnia leveraged in the construction stimulates the related industries (furniture production, transport, building materials, etc.), gives additional 4.7 UAH. I do not speak about that every place in the construction creates 3-4 workplaces in the related spheres.

The sphere to be developed strong political support and powerful lobby in the parliament are needed. For example, this is observed in the agricultural sector. The relevant ministry should pay more attention to the sector where the construction has not been in priority for a long time. First place is the regional development, housing and utility and so on… This idea is clearly illustrated by the fact that there has not been even the relevant deputy minister being responsible for the sector more than half a year.

It is not easy to expect the improvement of the indexes at such conditions. It will be very difficult to keep head above water and not lose the rate of development without the political will and the activity from the state.

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