Real Estate & Construction Practice Newsletter (Issue 2, 2015)
Projects and events
Louis Vuitton Foundation to build offices and a warehouse in Moscow area
The Moscow Regional Government has granted permission for French investors from the Louis Vuitton Foundation to build an office and logistics park on 620 thousand square meters in the Solnechnogorsky District of the Moscow Region. L Real Estate, Spinel Corporation, and Comex Holdings are among the companies authorized to participate in the construction of this USD 1.5 billion complex on 115 hectares.
LSR Group seeks contract for RUB 37 billion road reconstruction project in Saint Petersburg
The LSR Group and its co-investors have offered to assume an estimated RUB 37.3 billion in construction costs for a transportation bypass of the Saint Petersburg city center. In return, they want the right to construct and operate a paid parking network. The bypass project includes: five tunnels in the area of the Obvodny Canal (RUB 22.7 billion); a bridge over the Mezhevoy Channel to Gutuevsky Island (RUB 4.2 billion); a tunnel on the approaches to the Alexander Nevsky Bridge (RUB 2.1 billion); a replacement for the Malookhtinsky Bridge (RUB 1.8 billion); and interchanges at the Sverdlovsk Embankment (RUB 6.5 billion).
China's MIC Zhengyi Group selected as possible general contractor for a RUB 25 billion distribution center
The Agropolis Northwest group of agricultural companies and the Chinese state company MIC Zhengyi Group recently signed a memorandum outlining the terms of a possible joint project, with MIC Zhengyi Group as the general contractor, for the construction of a wholesale and distribution center in Moscow’s Krasnoselsky district. As a condition of the agreement, the Chinese company must attract financing from Chinese banks for this RUB 25 billion project.
The 100-hectare site will include approximately 400,000 square meters of pavilions for the wholesale trade of vegetables, fruits, meat, fish, and other fresh products. It also will have logistics facilities and areas for sanitary and veterinary control. The first part of the construction, consisting of 60,000 square meters, will be complete by the end of 2016, and the remainder of the project will be ready by 2020. The planned payback period is eight years.
Basic Element to operate the Krasnoyarsk airport
Basic Element, one of Russia’s largest diversified industrial groups, has won a tender to acquire 51 percent of the shares of the ERA Group, which operates the Emelyanovo International Airport in Krasnoyarsk.
The EuroSibEnergo PLC power company, the operator the Krasnoyarsk hydroelectric dam and part of the EN+ Group, also participated in the tender. Specialized structures within Basic Element and two undisclosed foreign investors will finance the acquisition and reconstruction of the airport. Under the investment conditions for the competitive tender, Basic Element has six months to arrange the issue and placement of another 20 million of its shares, for a total of RUB 2 billion. The ERA Group then will use this capital for the construction of a new passenger terminal, engineering systems, and improved communications at the airport.
Moscow Prosecutor's Office seeks to divest pond owners for violations
The Environmental Prosecutor's Office recently announced that it had found violations of land and water laws on certain plots of land with ponds in the Troitcky and Novomoskovsky districts of Moscow. The environmental prosecutor has initiated proceedings in the district courts to divest the current owners of these lands, which contain more than 424 hectares and have a total value of more than RUB 44 billion.
In the courts
Supreme Court reinforces requirement for a building permit before beginning construction
A PromStal plant began to build a dwelling before applying for a building permit. The city administration refused to issue a late permit, and PromStal sought a court order compelling the city to grant the permit.
In the first two instances of the trial, the judges interpreted PromStal’s actions as an attempt to "circumvent to the requirements of town planning legislation” and to obtain “legalization of unauthorized construction.” The district court of cassation reversed the ruling, holding that, because PromStal eventually applied for a permit, although late, there were no grounds for the city administration’s refusal. On appeal, the Supreme Court upheld the city’s refusal of the permit, ruling that the law requires a building permit before construction may begin.
Federal legislation
Government proposes restrictions on participatory financing of residential property
On 24 July 2015, First Deputy Prime Minister Igor Shuvalov held a meeting of senior government officials to discuss housing policy and the availability of affordable housing. They focused on the issue of strengthening citizens’ control of investments in the shared construction of residential property and the desire to prohibit the sale of unfinished apartments to people.
The group will propose new regulations on participatory financing for property under construction. Beginning in January 2016, the purchaser, developer, and other investors in the purchase are to deposit funds in a special bank account, which will finance the completion of the project on time. At this point, the monitoring of the disbursement of funds is unclear.
Ministry of Natural Resources and Environment to allow construction in forests
The Ministry of Natural Resources and Environment has drafted legislation to allow the construction of permanent structures in forests. Officials believe that innovative tourism investment in forest areas will offset the reduction in government subsidiaries to the forestry industry.
The bill responds to President Vladimir Putin’s directive to improve legislation supporting forest recreation. The current ban on construction in forests prevents investments in the development of forest regions and restricts an organized approach to the development of tourism. The ban also has resulted in a large number of petitions to transfer forest lands to other land-use categories.
The ministry’s bill would permit construction in security and sanitary protection zones in forests. The new legislation would allow not only temporary structures but also “other objects for recreation and tourism.” The ministry proposes to allow the fencing of these projects, in order to ensure public safety and to create favorable conditions for their operation.
Ministries dispute jurisdiction over project documentation
The Ministry of Construction and the Ministry of Natural Resources and Environment are arguing about whose construction expertise is better. Each agency contends that it has the authority to conduct the state’s ecological examination of project documentation for dangerous capital construction projects. Deputy Prime Minister Dmitry Kozak is attempting to eliminate the possible duplication of functions, in response to concerns in the construction industry about the security of the examination procedures.
Three-year “supervisory holiday” for small businesses
Russian President Vladimir Putin has signed a law that will exempt small businesses, including legal entities and individual entrepreneurs, from routine government inspections and examinations. The exemption will be in effect from 1 January 2016 through the end of 2018.
Regional legislation
Leningrad Region proposes no-bid land transfers
The City Property Management Committee of the Leningrad Region has drafted legislation to allow investors to obtain plots in regional and municipal lands without bidding. The investors would use the land to build houses, under a state housing program, or agricultural facilities. Companies that take over and complete the construction of housing that has faced delays also would be eligible to obtain the land on a “no-bid” basis. The bill’s drafters expect that the regional parliament will approve the legislation by the end of 2015.
Moscow City Government approves unified system to support investors
The Presidium of the Moscow City Government has approved a bill to provide additional measures to support entrepreneurs. The legislation, On the Investment Policy of Moscow and the Support of Investment Activity, gives a new status, “priority investment project of the city,” to the modernization, expansion, or creation of new industrial facilities.
“Priority investment projects” will enjoy reduced rates for some taxes and other benefits, such as special provisions for lease payments. The new law also introduces a simplified process for on-line appeals of overpriced cadastral values. If the cadastral value is erroneous, the service will correct it and transmit the updated information to the federal inventory. There will be no cost for this service, which will take between 15 and 90 days.