Mikhail Menn: it is too early to strike a balance

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Mikhail Menn: it is too early to strike a balance
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The RF State Duma has adopted many laws concerning the construction industry. Will they be of any use?

Recently the 6th State Duma completed its work. It adopted a series of important documents regulating the construction industry. The Minister of Construction, Housing and Utilities, Mikhail Menn, summed up the results of the legislative cycle and spoke to journalists on how the adopted documents will influence the construction complex and the real estate market.

Correction is probable

At the beginning of his press conference, Menn spoke on the results of the industry’s work in the first half of 2016. One positive thing, from his viewpoint, was a significant growth in mortgage loan credits. They reached 48% for the 5 months, and the credit volume lent totaled 320 bln roubles. The average rate decreased from 14.5% in 2015 to 12.7% this year and 320,000 families have improved their housing conditions.

If 2014 was a year of records as to the volume of mortgage loan credits, (RUR 1 trn, 760 bln), 2015 for the number of square meters put in operation, 2016 has every chance to break these records, Mikhail Menn is sure.

The “Housing” Federal Target Program continues to be implemented, and young families are taking part in it. More than 98 bln roubles have been allotted to it. 4,000 certificates for receiving flats were issued in the first half of 2016, and more than 7,000 will be issued in total by the end of the year.

According to the developers’ investment policy statement, 76m square meters of housing are to be put in operation this year. However the figure may be amended depending on credit rates and the general macroeconomic situation, the minister remarked.


Private property advantages

Important processes are going on in the sphere of utilities. The number of concession agreements is growing, and the volume of private investments in the sphere has increased 20-fold as compared with 2010.

Mikhail Menn characterized the market’s growth with the help of numbers. In 2014, 112 concession agreements for 7.2 bln roubles were concluded, whereas in 2015 it was 271 agreements for 71 bln roubles, and in the first quarter of 2016 736 agreements for 83 bln roubles were signed.

Private capital participation in the utilities service is bringing positive results. One of these is the lowering of accident risks. Thus the number of problems with heat supply systems decreased by 28%, and with water supply systems by 20%. Experience shows that private management companies are really working on reducing the cases which bring them direct losses, the minister explained.

In this regard, the RF Ministry of Construction, Housing and Utilities supports the appearance of concessioners in small towns, where there are special conditions for their attraction. Private capital will not enter the sphere without special preferences. In total, 100 utilities objects will be put in operation in 2016—2017.

36,000 houses were overhauled between 2014 and April, 2016. Mikhail Menn thinks it a good result, although there are a lot of questions concerning the new system of capital repairs. In 2016, 40,000 apartment houses will be repaired.

Charges collections for the target are also growing. If in 2015 they totaled 77%, in the first half of 2016 the figure is 79.5%. Now the task is to actively use the money.


Many laws adopted

The main legislative result of late is the adoption of amendments to FL-214.  According to the minister, six issues may be pointed out so as to alter the situation in the sphere of co-funded construction.

One is the stiffening of demands on developers’ assets depending on the area of the housing being put in operation. The list of documents (information) a construction company must present to co-funders has been extended.

Escrow accounts have been introduced. A developers’ register will be created for such an important notion as the targeted use of citizens’ money.

Besides this, an indemnification fund of shared-equity construction is being formed to finance the completion of construction in the case of developers’ problems.

According to the minister, the latter issue is most important, as it guarantees that a co-funder will receive what he has paid for. He said that there were several approaches on how to solve the problem. At first, it was supposed to be solved at the expense of social insurance, but in practice, our insurance system cannot cope with it so another mechanism had to be worked out.

Another important document is the introduction of amendments to the law on concession agreements. The essence of the document is the lowering of administrative barriers for private companies. In particular, the law helps to solve one more problem in this sphere: property registration. If a management company agrees to register its part of the property, it gets the opportunity to conclude a concession treaty.

The same order works for a state organization having debts: in the case of a concessioner undertaking the debt repayment, he may conclude a concession agreement.

Another important amendment to the law, according to the minister, is a compulsory participation of a third party, a Federation subject, in the concession agreement. Firstly, municipal authorities do not always have the opportunity and competence to make the right agreement. Secondly, tariffs are set at a regional level, so the new scheme looks more complete and logical.

One more legislative novelty is connected with the system of self-regulation in the industry. New regulations introduce compulsory membership in SROs only for general contractors. Sub-contractors, mainly representatives of small and medium-sized business, can enter SRO on a voluntary basis.

According to Mikhail Menn, the law was difficult to adopt, as many SROs opposed it, not willing to lose their members. But it was the right step as it gives life to small- and medium-size businesses. New amendments give SROs a chance to prove their usefulness. Construction SROs are to convince the authorities and the professional community that they are a necessary and useful tool - but if a member of a SRO is guilty, nobody is responsible or punished.

As an example, the total volume of indemnification funds of all SROs is billions of roubles, but only a little more than 70m roubles were paid from this source, the minister reminded us with indignation.

The law has introduced a number of changes to the system of self-regulation. For example, SRO creation on an area basis was set for construction organizations. For project designers it is not compulsory: their organization may choose any SRO in Russia. Also, personal responsibility has been established for the chief engineer and chief architect of the project in designing and constructing objects.

Mikhail Menn spoke of one more law, on the compulsory use of efficient project documentation for repeated application, or to put it in a simpler way, of standardized construction. This document is closely connected with another law directed at the price formation system improvement. It does not mean a return to standardized construction and the use of fixed prices, Mr Menn assured us. The task is different: to determine the prime cost of construction contracts most accurately.

A free-for-all is well-known to have reigned in the sphere, so there won’t be any return to the planned principle of price formation.


It is too early to sum up

Speaking on the results of legislation work in the construction sphere, its main vector is connected with the development of co-funded construction, co-funders’ security improvement, and utilities sphere concession development, the minister is sure. “Our task is to make this business not only very profitable, but also sustainable and steady, like all over the world,” Mikhail Menn stressed. “As for the strategic aims, about 100 m square meters of housing is to be built annually.”

But it is not the end of the construction industry legislation formation. According to Mr Menn, the new State Duma will have a lot of work. In particular, it will have to adopt the law on direct treaties in the utilities sphere. Discussions are still going on.

The system has both pluses and minuses. Its advantage is that a consumer and resource deliverer have a direct relationship. Thus, such acute problem as non-payments between legal entities may be solved.

On the other hand, it lowers the importance of a managing company and breaks the system of united information-computing centers. So we must look for a balance of interests, Mikhail Menn concluded.

One more important topic is the formation of the rental housing market. The basic legislation already exists, but it is quite a new market for us, and it is not quite clear how it will work. So new legislation initiatives are quite probable, the head of the construction ministry thinks.

We would like to think that the above-mentioned laws will correct the situation in a construction industry currently surviving a crisis, but it is evident that basic changes are necessary for the industry to develop further. Will the adopted laws help? We’ll see…

Vladimir GURVICH