Legislative changes in the construction market: results of 2017
Recently, interesting and useful material appeared in the «Property Times» edition. Indeed, during the past year there have been many changes in the legislation on the design and construction market of the country. Some of them caused serious discussions, some were hard to get used to, and some required more work. We’ll see how the profile market will react in 2018, and now we are joining the expert comments.
Legislative changes in the construction market: results of 2017
Irina Nastych, Property Times
2017 for the real estate market was marked by serious changes in the legislative sphere. Laws aimed at deregulating the market and simplifying business were passed. Specialty lawyers believe that the innovations of 2017 just contributed to the promotion of Ukraine in the «Doing Business» rating from 140th to 35th position in the indicator “Obtaining a building permit”.
Property Times, along with market professionals, analyzed the main legislative initiatives that were adopted last year.
Cancellation of complexity categories
The main legislative change in the real estate market in 2017, experts called the Law No. 1817-VIII “On Amendments to Certain Legislative Acts of Ukraine Concerning the Improvement of Urban Development Activities”. The document abolished the existing categories of complexity of construction, replacing them with impact classes, also abolished the declarative principle of construction process.
The law caused a lively discussion among market participants, as it radically changed the permitting system. The most acute issue was the mandatory examination of construction projects that previously belonged to the third category of complexity. “There were fears that the construction projects that started to be built before the changes took effect will not be put into operation, as their expertise was not carried out,”- comments Oleg Milchenko, senior lawyer at DLA Piper in Ukraine.
“In addition, it was expected that the law would influence negatively on middle-level developers, who mainly worked with objects of the third category of complexity, especially on their conscientious part, which did not practice understating the category,” – emphasizes Oleg Boychuk, a lawyer, partner of EPAP Ukraine.
On July 19, 2017, the State Architectural and Construction Inspectorate of Ukraine issued a letter, explaining that objects of the third category of complexity could be put into operation after the abolition of the categories of complexity without mandatory examination of the design documentation. Examination is required only in case the project was amended during the construction.
“The timely and detailed explanation of the new provisions of the legislation on the regulation of urban development has allowed to avoid legal conflicts, that would lead to delays in the delivery of facilities into operation, and in general had a positive effect on the construction industry,” – believes Oleg Milchenko.
fully estimate the impact of this law on the market in the long term, more time is needed. “In particular, to understand how much it helped to overcome the problem of understating the category of complexity and did not entail an increase in the cost of construction,” – explains Oleg Boychuk.
“Yes, the law indeed solved the problem of undervaluation of the complexity category by the interested parties (designers and customers), but did not eliminate the problem in determining the classes of consequences – the change in the classification approaches to construction objects is unlikely a qualitative reform.
However, it allowed them to gain back partially lost control over the quality of the implementation the project documentation on the main construction objects by introducing mandatory expertise”.
As part of the deregulation of the construction market in March 2017, electronic registration of declarations on the readiness of facilities for operation was introduced. This service concerns only the objects of CC1 class of consequences. Applicants can now submit an e-declaration at any time via the web portal of the State Construction Inspection or through the website of the Unified State Electronic Services Portal. “Online registration of the declaration will save time on the acceptance of completed construction projects and minimize the risks of possible misuse while doing so,” – believes Lina Nemchenko, partner, MIF Baker McKenzie.
Another simplification touched registration of the right to lease land for agricultural purposes – the Ministry of Justice launched a service for online registration of lease rights for them.
To do this, the applicant must submit an application and a scan-copy of the concluded lease contract through the personal cabinet on the website of the Ministry of Justice with the imposition of his own electronic digital signature.
“The innovation is aimed at improving the business environment and strengthening the protection of the rights of landowners and land users,” – commented Andrey Grebenkin, senior lawyer, MIF Baker McKenzie. “This will allow us to optimize the work of state registrars, especially taking into account the fact, that the area of agricultural land in Ukraine is about 70% of the entire territory.”
Cancellation of Technical Requirements from the Emergency Service
Since May 2017, the requirement to obtain technical conditions from the State Service of Ukraine for Emergency Situations for the design of construction facilities has been canceled. “This allows us to optimize costs and time in the design, as well as contributes to the deregulation of economic activities in construction,” – says Andrey Grebenkin.
«The cancellation of the receiving the technical requirements has formally shortened the procedure for obtaining initial data for the implementation of design work, but considering the increase in the number of objects that are undergoing examination and require the mandatory implementation the project’s sections on civil protection, no significant simplification has taken place», – says the Chief Engineer of the Design Institute Igor Olenchyn.
On January 1, 2017, the Procedure for attracting, calculating the amount and using the funds for the share participation of customers in the development of the urban infrastructure of Kiev, approved by the decision of the Kyiv City Council of November 15, 2016 No. 411/1415, came into force. This was one of the most anticipated changes, since the previous version of the document had a lot of disadvantages.
The market reacted positively to a decrease in the size of the share participation. “An additional effect of the new order was a significant increase in Ukraine’s position in the Doing Business rating due to a reduction in construction costs. As you know, the rating is formed on the basis of actual practices and procedures in Kiev, – comments Oleg Boychuk. – The irony is that next year Ukraine has every chance to fall again in the rating, if Kiev does not extend the preferential terms of the share participation, or the legislator does not dare to completely abolish it.” The bill on cancellation of share participation is already in the parliament, and its adoption this year can be a long-expected signal for all participants of the construction market and investors in general, the expert believes.
Procedure for granting land
In the spring of 2017, by Decision No. 241/2463 the Kyiv City Council approved a new procedure for acquiring rights to land from communal property lands in the city of Kiev.
“This is the most important procedural document for the capital, which in many ways determines the functioning of the most expensive land market in the country, and thus indirectly affects the processes of construction and investment in real estate,” says Oleg Boychuk.
“The new procedure eliminated a number of bureaucratic obstacles to obtaining communal land in Kiev for rent, reduced the number of documents required from potential tenants and shortened the terms for consideration of applications for land lease. Elimination of procedural obstacles and reduction of terms will have a positive effect on the construction activity in the capital,” – comments Oleg Milchenko.
Rent of state property by foreign persons
In September 2017, the State Property Fund of Ukraine amended the list of documents, which are submitted for the lease of state property.
“Earlier, the profile law allowed foreigners to participate in the lease of state property, but formally such a tenant could be not admitted to the lease procedure, because of the inability to submit documents that only Ukrainian companies and individuals can receive. The changes made helped to solve this old problem, – explains Oleg Milchenko. – Such changes are extremely important, as they expand the opportunities for foreign investors in Ukraine. And there are positive examples, in particular, in the sphere of port infrastructure. “
Certification of energy efficiency of buildings
In June 2017, the Parliament of Ukraine adopted the Law of Ukraine “On Energy Efficiency of Buildings”. According to the law, the availability of an energy efficiency certificate will be one of the conditions for putting the newly constructed building into operation.
Experts note that to implement all the requirements of the law, it is also necessary to prepare a base of by-laws. “We can assume that after the entry into force of all provisions of the adopted law, the cost of construction projects will increase, as it will be necessary to follow energy efficiency classes and pass mandatory certification,” – predicts Oleg Milchenko.
However, in the future, additional costs will have to be paid off by reducing operating costs and energy consumption.
As Igor Olenchyn, Chief Engineer of the Design Institute, says: “An analysis of the previous experience of implementing various regulative measures in countries with high levels of corruption has shown that these measures are ineffective and create only bureaucratic obstacles for honest developers without proper control, and the most important without economic stimulus.”
The validity of unregistered encumbrances
2017 was also rich in judicial practice in the sphere of real property rights. “In early 2017, the Supreme Court of Ukraine in the ruling in case No. 6-2552-16 clarified, that the encumbrance of the right to use and dispose of immovable property that is established by the court, is mandatory for the owner of the property, regardless of whether such encumbrance is registered in the Real Property Rights Register property and their encumbrances,”- comments Oleg Milchenko.
According to the expert, this position of the court created a danger for investors in real estate in Ukraine, since it is impossible to confirm reliably the absence of encumbrances that were not registered in the order established by law.
In 2018, some changes in the legislative sphere are also expected. In particular, Law No. 6403 “On Amendments to the Law of Ukraine” On the Regulation of Urban Development Activities “, which will be a continuation of the decentralization of construction relations, may be passed.
“An important project for the housing market may be the draft law No. 7084″ On Amendments to Certain Legislative Acts of Ukraine Concerning Unfinished Construction and Future Real Estate Objects, – adds Oleg Boychuk. The law is aimed to reduce partially the risks of investing in residential real estate, and also to improve some other issues, for example, identification of construction objects.”
“Previously, the Ministry of Finance printed a list of “ghosts”, it is necessary to avoid such developers (to sell land to others, to build clear deadlines for finishing work, to impose fines for untimely delivery and other processes). It is also important to begin penalizing all those who build without permit documents (to refuse their decisions, to deny licenses, to break contracts on land, etc.)”, – concludes Igor Olenchyn.