Sergei Pakhomov: Construction must solve problems, not create new ones

Sergei Pakhomov: Construction must solve problems, not create new ones
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The Minister of Construction for the Moscow region tells, in an exclusive interview, about the key tasks and problems of the construction industry in the Moscow region.

Sergei Pakhomov, minister of the construction complex of the Moscow region, answers questions from our magazine.

— Mr. Pakhomov, the Moscow region has been the all-Russia leader in housing construction for a few years. What is the role of your Ministry?
— It is true: we have put into operation more housing than all the other regions. As far as our role is concerned, judge for yourself: formerly, municipal authorities issued permits for construction and putting objects into operation. As of January 1st, 2015, it has all been done by our Ministry.
Formerly, each municipal district had its own regulations for construction procedures and for issuing documents. We have introduced a general standard, making the process universal. A multifunctional center has been opened in each municipal district in order to receive and process documents in all municipal districts according to unified regulations and standards.
We carefully follow the process of issuing permits for putting objects in operation. Formerly, we had a great number of complaints from the population. People said that sub-standard houses were being put into operation with a letter of indemnity under a temporary scheme, the so-called winter improvement: the house is put into operation in winter, people move there in spring, and there is no territorial improvement, the contractor cannot be found.

S. Pakhomov: If, formerly, municipal authorities issued permits for construction and putting objects into operation, starting from January 1st, 2015, it has all been done by our Ministry.

We have stopped this practice and insist that a contractor should do all the work on the project to the full in any season. In some regards we have tightened regulations, but the market has listened and understood. Contractors know that we now commission only the houses which meet all these requirements. Of course, it takes a longer period of time, but people must get what they have paid for in full.

— How can this influence the quality and volume of housing?
— We have already mentioned that the Moscow region builds more than the others. If it builds less, but with higher quality standards, this will be better. Our principal task is to raise quality, so that the purchase of a new flat brings joy to people rather than problems. In fact, moving to a new flat is in some sense the beginning of a new life. Let your new house be commissioned a month later, but without any drawbacks.

— Are there any preliminary data about the volume of housing put into operation in 2015? In 2014 you put into operation 8m m2. How much will there be this year?
— It is worth saying that statistical figures are different, as individual housing construction is developing rapidly in the region. If we do not include individual construction, the figure is 3.6m m2. In November and December construction certificate terms draw to a close, so the highest volume and the highest level of putting into operation will take place in these two months. I think the result will be 6.5 – 7m m2.

— What are the plans for 2016?
— Of course, the general economic situation has introduced changes. Mainly, these are connected with difficulties in getting bank credit for developers. The requirements for borrowers have tightened severely: developers are included in the 4th group.

S. Pakhomov: In November and December construction certificate terms draw to a close, so the highest volume and the highest level of putting in operation will take place in these two months. I think the result will be 6.5 – 7m m2.

Of course, this makes access to money more difficult. Nevertheless, the number of claims for construction certificates has gone down by only 10%. It is not a very significant drop as compared with 2014.

— What does it mean?
— It means only one thing: we remain an attractive region from the point of view of investment, including the construction business.

— The regional government has charged the construction complex of the Moscow region with large-scale tasks, including the use of innovative technologies in construction. How has the putting in operation of the modern MORTON – DSK ‘Grad’ plant in Naro-Fominsk changed the general situation?
— The integrated home-building DSK ‘Grad’ factory is one of the most modern enterprises in the sphere of panel housebuilding in both the Moscow region and also in Russia. While decreasing the primary cost, they produce a high-quality new product as compared with other enterprises which have not updated.
The technology of colored concrete is applied at the factory: that is, a produced model can be colored in the production unit, so we do not need coloring or finishing on the house, and neither does a ventilated façade need to be installed. Of course, this significantly decreases the primary cost of production.
The factory is now developing a series of panels, including some that may be used in the course of resettling people from substandard housing, so that will correspond with the price stated on a federal level.

— And what is the situation with construction material production? To what extent does the Moscow region provide itself with the necessary materials?
— The local provision for construction material is 90%. We pay great attention to the materials the houses are built of, and we carefully study all technical documentation. Of course, priority is given to local enterprises – they give us taxes and jobs.

— Investment flow into the construction industry of the Moscow region has increased sharply of late. This is connected with the new policy of the regional authorities providing investors with different privileges and attractive conditions. Do you agree?
— A good question, and it really confirms that we are going in the right direction. As far as job and enterprise creation is concerned (not only in construction), they are monitored and controlled by the Ministry in what is called ‘manual mode’. Our work starts with land transfer and the issuing of all urban construction documents. There is a department in the Ministry dealing with this process from the very beginning to the end.

S. Pakhomov: Why do businesses come here and invest money? Because they understand that our priority task is not housing construction but job creation.

Why do businesses come here and invest money? Because they understand that our priority task is not housing construction (it is sufficiently developed) but job creation. The task is to reduce job migration so that people will not go to neighboring districts looking for a job but can work where they live. That is why everything concerning job creation has been simplified in its procedures.
How is it in practice? If you come to us with a proposal on housing construction, we develop an area planning design and hold public hearings on the subject. If it is an industrial enterprise we follow a simplified procedure. So-called ‘zero’ public hearings are held at which we try to ascertain the citizens’ opinions about the appearance of an enterprise in the area. And only then do we move onto planning design and implementation.
Such an approach takes about 4-5 months and at all stages we follow the project in ‘manual mode’. The same thing happened with DSK ‘Grad’ and many other enterprises of importance to the region. I personally supervised them and did my best that the enterprises might be put into operation as soon as possible. And when we start an enterprise we try to introduce the necessary specialties in educational institutions in the region, and we pay a great deal of attention to this.

— Among the priority tasks of the Moscow regional government is integrated territorial development. What results have you managed to achieve?
— The main idea which we promote is that any construction must solve existing problems, not create new ones. And when we adopt a new planning design, we consider any deficits having arisen in the area: schools, nursery schools, polyclinics, etc. And then we tell the developers: “If you want to build here you are to do something good for this municipal district, for its appearance, for the infrastructure, for the common good”. Everybody agrees on such an approach. To cut a long story short, if we have a deficit in a social object we ask the developer to build such an object in addition to what was originally planned. In the Moscow region we have strict regulations about social objects, the number of floors, etc.
And, I repeat, any new construction must both provide for itself and also solve the problem of anything previously lacking in a municipal area. We have no construction sites for housing only. There must be infrastructure objects and jobs: multifunctional centers, offices, some industry.

— How did developers react to your decision to reduce the number of floors in the buildings?
— It was a difficult process, and I say this as a direct participant. First of all, many were against, it thinking that it would lead to financial losses and hurt the companies’ interests. But the situation, including demand, has changed. There are densely built-up areas in the Moscow region (Reutov, Balashikha) where it is impossible to construct low-rise housing. But there are other very beautiful places, such as Ruza or Istra, where new architecture must suit the environment and landscape.
Over the last three years, the situation has changed. Owing to the support of medium- and low-rise construction, new products have appeared on the market. In the current challenging conditions, in which constructors speak of a fall in demand, those who have been building houses of the old series have taken the greatest knock. Those who have brought new products to the market (in the modern medium- and low-rise segments) have acquired new customers.

S. Pakhomov: Companies which have changed their style of work are doing well in spite of the crisis.

You know, customers have seen new products on the market, products provided with social objects, products which are smart, which are pleasant to live in. And this three-year-long policy has brought results.

— In September, you supported the creation of the Moscow Regional Developers’ Association. More than 500 organizations work on the construction market in the Moscow region, and some of them are very weak. So the suggested increase of the companies’ equity capital, from 100 up to 200m rubles, may help correct the situation. Weak companies will leave the market, whereas strong ones will survive. Do you agree?
— First of all, the Association does not regulate such issues. The Developers’ Association is a voluntary professional union created on the initiative of companies working on the territory of the region themselves. The Association will deal with its own problems.
As far as the entity’s capital increase is concerned, this may be also connected with its own finance. This initiative is not discussed at the regional level but at the level of federal government.
As for our point of view, you know, there must be a kind of entry ticket, a ‘safety net’, as in the banking or insurance spheres. This is about working with people and their financial pulling power, but if a company’s capital is some thousand rubles, as with many construction companies now, and they get an allowance for construction – can we be confident that they will fulfill their obligations? And we must be sure that a company has its own finance, which will allow it to complete an object. And there must be a guarantee that people will get their flats. That’s the main thing we work towards: we want to protect people who are buying housing.
We work a lot towards this goal: we compile ratings of companies/developers, we explain to people how to buy housing according to co-investment contracts...

S. Pakhomov: There must be confidence that an object will be completed and put into operation on time, so for this purpose we suggest introducing a criterion of entity capital or one’s own money.

Both the state and the people buying housing must have confidence that an object will be constructed and commissioned and put in operation on time. That is why we suggest introducing a criterion either of entity capital or of one’s own money, which will allow a company to enter the housing construction market.
We suggest a formula based on what and how much a company builds. It is now being discussed at a federal level. We are taking part ( in the work-group under the aegis of the Ministry of Construction, Housing and Utilities.

— Thank you. And to end the interview, our traditional question. How do you spend your free time, what are you fond of?
— I am going to play hockey early in the morning - we are having an important match tomorrow. I play in an amateur team, and it is very important for us to win this game and to get promoted to a higher group. So, at 7 a.m.: hockey, and at 9a.m.: flying over construction sites. By the way, we work on Saturdays. We are supervising construction sites of importance to regional objects. Work takes almost all my time. But if in summer I have an hour or a couple of hours free, I ride a bicycle. In winter, I enjoy skiing.

— Thank you for such a good interview. We wish you and the construction complex of the Moscow region all the best!

Alexander Gusev, Andrei Chernakov