Clearing-up the rules of real estate

Moscow’s government has agreed to clear land plots for commercial and residential projects in a bid to make buying land more transparent. It is hoped the move will lead to a more civilized market. But not everyone is sure it will streamline construction i

Starting in August, city authorities are promising to make life easier for developers. The city will solve all the logistical issues, including relocating tenants and demolishing old buildings, on the land plots it sells.

David Geovanis, Managing Director of estate agents Knight Frank, is among those in favour of the changes. He said: “In the past, typically the city would require investors to give the city theoretical share of 30 to 40% of the property and that theoretical share was really difficult to qualify. Now I think the rules will be much clearer, there will be a set price for the property that the developer and investor will pay and they will be able to develop the property from the beginning having a very good understanding of how much their property will cost.”

But others, including Georgy Dzagurov of Penny Lane Realty, say the move could cause project delays and hit developers with additional expenses.

“The developer is the only party truly interested in solving all these underlying issues in the fastest and most efficient way possible,” he said. “I really doubt that the city authorities would be capable of solving tenant relocation or other issues for a more or less serious, sizable project. I just do not buy it.”

The world's second-most expensive city after London, Moscow will add the costs of clearing the land lots to the initial auction prices. The city’s share is already topping 40 percent for most plots.

While many industry watchers agree it’s likely to boost the cost of land in the capital, they argue it will also attract additional investors, especially foreign ones.

Geovanis added: “As the real estate market in Europe and the U.S. is collapsing, Russia is one of the few bright spots in the world estate market. I think that foreign investors will be much more interested in the market now that the rules of the game are much clearer.”

Currently, preparing the land plots for construction in Moscow could reach 30 to 40% of the project’s total cost.