Investment climate in real estate: What holds up the industry development

Victoria Bereshchak

Real estate market columnist

The current investment climate in Ukraine, with variable success, can be called rather favorable than vice versa. This is some kind of an amazing state of a performer balancing under the dome of a circus. Any wrong move—and way down is guaranteed. Especially considering the perfect coronavirus storm.

On the one hand, a number of extremely important, positive trends have emerged over the past two years in the field of urban planning policy that are capable and, it seems, should in the future, make the life of developers significantly easier.

A large part of the work done is the establishment of a single digital window for developers, including the establishment of a Unified State Electronic System in the construction sector, a reduction in the list of documents needed to be provided (by the way, one can already submit many of them in electronic form and order services online).

The second important point is the awareness of the problems in the structure of the SACI (State Architectural and Construction Inspectorate). Note that this refers to the problem awareness, not to the solution, since the restart failed. The result of this failure was a decrease in construction volumes by almost 40% according to the results of the last year, as well as an increase in the average delays in commissioning in the market. However, I would like to believe that the second round of reforming the body and the entire system of control over the construction sector will be much more successful.

The third significant nuance is legislative initiatives. Here I include the cancellation of share participation that for a long time was a real treasure trove of corruption schemes and "fixed agreements" regarding land and plots for construction, practices in the protection of investors' rights, including a proposal to register ownership of a construction facility, practices regarding a bill on reconstructing obsolete housing, in particular, a decrease in the threshold of willing residents from 100% to 75%.

However, many systemic issues still remain open that not only stop, but sometimes even paralyze the industry development.

First of all, the absence of a strategy for the spatial development of Kyiv is among them. A strategy that would clearly define the urban planning concept of the city and answer questions about the distribution of resources, help the city and suburb grow and develop not in a parasitic, but in a natural way.

The second most important issue is chaos in the bodies of control over the construction market and in urban planning policy in general. This also includes personal financial and, if necessary, criminal liability for violating urban planning norms. Special attention should be paid to the use of the administrative resource for personal purposes or to fulfill the order of certain financial groups.

The investment climate is also dragged down by internecine wars over spheres of influence and resources that should not be forgotten. This includes the issues of biased performances of pseudo-activists, social activists, the increased attention of certain political forces to construction sites and plots claimed by developers. Unfair competition, unfortunately, generally undermines the credibility of the investor in the industry and reduces the level of trust.

The notorious bill 5600 that in its current version will hit investment deals very hard may become the right hook for the development business. Let me remind you that since the beginning of the year they have actually tripled in the primary market, reaching almost 40% in the overall structure of demand on the back of monthly declining rates on deposits and inflationary rallies.

Here, I am afraid, the business environment, the general morale of the stakeholders, and the investment climate condition in general can change significantly. This will subsequently hit both the willingness of Ukrainians to carry their money to the sales departments, and the number of new construction projects, and the level of development investment, which will immediately reduce the construction multiplier by a minimum of 1.5-2 times. The industry will immediately lose about 30-40 billion UAH, if we compare the figures of previous years.