Moscow construction complex – 2017: not all developers will survive

Moscow construction complex – 2017: not all developers will survive
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How the amendments to 214-FL will impact the work of the capital’s developers

Moscow authorities are going to tighten the grip on companies attracting citizens’ finances for housing construction. Moscow Deputy Mayor for urban development policy and construction, Marat Khusnullin, spoke about it at the “Dialogue with an investor” seminar.

According to him, the number of hoodwinked investors has reached 1060 people. Last year they totalled 676. The capital’s authorities cannot explain why this unfortunate index has grown by almost 57%, but they remark that it is inadmissible to damage citizens’ confidence. 

The numbers of co-investment agreement and hoodwinked investors are growing

In March, 2016, Marat Khusnullin made optimistic forecasts claiming that the number of cheated investors would not grow. He remarked that not all companies fit into the preplanned terms, although despite this they are concluding the construction of their objects.

In May, Head of Moskomstroyinvest, Konstantin Timofeev, at a city government sitting remarked that 676 people had been added to the list of people having suffered from unscrupulous developers. As such, the number has now grown to 1060 hoodwinked investors.

According to Konstantin Timofeev, there are 6 unfinished constructions by the notorious CU-155 company. The most problematic objects are situated in Scherbinka at Balaklavsky Avenue and in Bochkov Street.

At the same time, despite the economy present condition, Muskovites continue investing their money in joint-funded construction work. The total volume of the attracted financing under the existing co-investment agreements amounts to 700 bln roubles ($11.34 bln), and since the beginning of 2016  318 bln roubles ($5.15 bln) have been invested in new buildings in Moscow.

Moscow authorities have stressed more than once that the population is the main investor in housing construction, and the number of the concluded co-investment agreements grows annually. Thus, more than 1.6 trn roubles ($25.9 bln) have been invested in joint-funded construction during the last 6 years.

It is a huge sum of money, isn’t it? “16 Moscow Central Ring Roads might be built for this money”, Konstantin Timofeev remarks.

Legal vacuum

It is not surprising that, as Marat Khusnullin puts it, the authorities are interested in strictly following all the norms and regulations of 214-FL. The Vice-Mayor stressed that Moscow’s government intends to control this sphere firmly, despite the fact that, “Some developers do not like it”. 

Following him, it is inadmissible to damage citizen’s confidence in this issue as the population finances 70% of the objects’ construction cost.

“Can we reject 800 bln interest-free roubles a year?” he asks a rhetorical question and answers, “Of course, not! And we shall do everything for this money to stay in the industry. And I’ll ask the developers to switch over to 214-FL with minimal losses.”

As Marat Khusnullin said, some criminal cases have been initiated due to violations of the law..

In his turn, Konstantin Timofeev complained that until the end of the year, construction companies will stay in a “legal vacuum”. But he expressed his hope that the amendments to 214-FL, declined by the RF Minisrty of Finance and the Ministry of Justice, will have been adopted before the end of 2016, making it then much simpler for developers to work.

Moscow construction complex – 2017: not all developers will survive

You have not been inspected yet? We are coming!

One of the measures to secure co-investors is via initiating inspections by Moskomstroyinvest. For 6 years, the institution has organized 770 such events (including 308 preplanned, 392 unscheduled, and 70 together with law-enforcement agencies). The number of checks has increased 5-fold when compared with the previous year. 

In 2017, half of the Moscow companies attracting the population’s money may avoid such inspections. This is connected with their status as “small business” enterprises (almost 50%), and President Putin has more than once forbidden the idea of demonising small businesses.  Nevertheless, Moskomstroyinvest intends to conduct non-scheduled inspections of citizens’ and law-enforcement agencies’ resorts. 

Another criterion to judge a developer’s reliability is the increase of a company’s authorised capital.

— It is a delicate issue. But, in our opinion, anyone who needs public funding should satisfy the legal requirements, the head of Moskomstroyinvest announced, addressing the developers, before reminding that the authorized capital is the company’s own money, which is there to cover the risk they bear. 

To remind you, the deadline for bringing the authorised capital to correspondence is July 1st, 2017.

Timofeev also added that at present 24 companies in Moscow are violating the norms of financial stability, including the norms concerning the designated use of funds, with large market players among them.

It is too early to judge yet if the amendments to the law regulating housing construction at the expense of the population’s money will turn positive or negative.

On the one hand, the appearance of such a document is the reply to the current reality. Construction companies should have become more open long ago, and the market should be devoid of unconscientious players. 

On the other hand, some amendments have not been elaborated properly, and introducing “raw” regulations may deal a blow to the construction industry on the whole.

Not all developers may survive such a shock, especially with regard to small and young companies. In this case developers will ask the State for help again, which will create an additional burden for the budget.