New Construction Rules
Important amendments have recently been introduced to Belarus’ laws regulating the construction sector. The amendments formalized the new rules of the game for the industry. The terms of shared-equity construction dramatically changed; attestation of specialists and organizations was instituted; the punishment for mala fide developers was toughened. All these amendments are designed to help resolve the problems outlined by the working group that has been set up to deal with issues in the construction industry. These amendments are also expected to offer additional protection to Belarusians who want to live in their own homes. Have the amendments born fruit? What are the most promising lines of business in the construction industry? How will the quality of construction services be improved and what will be done to expand the export? These questions were addressed by the Economy of Belarus Magazine to Architecture and Construction Minister of Belarus Anatoly CHERNYI.
Mr Chernyi, the day you were appointed minister you told journalists that Belarus’ construction industry should embrace European standards. What did you mean?
I meant harmonization of Belarusian technical documents with European codes and norms, as well as efforts to advance the domestic construction industry to the European level. We are located between the CIS and the West. Therefore, we should set an example. We need to make sure that all construction and development projects proceed smoothly and evenly and keep up with the deadlines. Everything should work like a clock, from project engineering and preparation of a construction site to the timely delivery of a facility. That was what I meant. And, of course, quality should be at the core of everything we do. Our building materials and construction services should meet European standards.
What was the rationale behind the novelties like government procurement and rented homes?
It is not a tribute to fashion or new trends, but the most optimal and acceptable solutions for now.
For example, public procurement allows addressing issues associated with construction delays. These delays are often due to irregular financing. For example, someone fails to get a bank loan or transfer their funds in time – all this is detrimental to the pace of construction. The public tendering mechanism will help avoid such situations in principle, because the future property owner does not take part in the investment process on the stage of construction. In the case of public procurement, only one public contractor is involved – a capital construction management company that drafts detailed critical path schedules and directly transfers bank loans into the construction project. Six months before a house is delivered, a cooperative of future property owners is formed. The future residents take over their ready-tomove-in apartments together with loan commitments.
Besides, the Belarusian President has recently decreed that one square meter of housing built under government procurement contracts should be equal to the average monthly salary in Belarus with the coefficient of 1.2. Thus, thanks to these measures, a future property owner will know exactly when he will be able to move in to his new apartment. He will not be afraid of being charged more than was initially agreed on, because the cost of the project will be settled in a contract with a developer. More than that, it will be easier for a future property owner to plan his spending, as he will know exactly how much he will have to pay for the housing. Therefore, public procurement guarantees stability and gives a sense of security to both property owners and developers.
To help developers keep costs under control, the ministry and subordinate agencies have come up with solutions related to costefficient housing construction. If developers go over budget, they will have to revise their expenses and cheapen the cost of housing. They need to keep in mind that their savings will translate into their profits. It is a win-win strategy.
In addition, the mechanism of the government procurement can be introduced for small housing development. Such a possibility is not excluded at the legislative level. Today, for example, using the mechanism of government procurement, we can build separate houses for large families if the cost of 1m2 is equal to the average salary in the country with the coefficient of 1.2. We implement a
sufficient number of small housing development projects in principle and will further develop this area.
With regard to rental housing, the practice of commercial apartment construction has been long-established in many countries. We used to focus on housing lending programs before and missed the point that rental housing could be a solution to the housing problem. Today this is a great opportunity to save up for a future home purchase or to be more mobile if there is a need to travel around the country, for example, for work.
For people’s convenience we have developed projects of rental studio apartments, which can be a great option for students. This is a small one-room apartment with a low rent, which will be quite comfortable and inexpensive for students. And if a university graduate gets assigned for work to another city, he will be able to easily rent a new place in another city and save up to buy or build his own home.
When these projects gain ground and the public commercial housing stock is big enough, the money that will come from rent will be invested in new commercial apartment construction. And this will become an ongoing process. In the meantime, we are using budget funds.
If the rent of state-owned commercial apartment is lower than that of private landlords and the proceeds are spent on further construction, then this begs the question: how lucrative is this business today? What is a payback period of rental housing projects?
If it were very profitable and lucrative, the business would be all over such projects. Of course, these are the projects with a long payback period, but we have to take care of people who need housing and are unable to pay the rent on the commercial market.
Payback period is influenced by such a factor as the use of decreasing coefficients for certain categories of citizens. This is a social not a commercial project, but rental housing should be developed because it is promising.
Belarusians prefer to have their apartments in their ownership. Many expect that in the future they will be able to buy out rental housing. Should they count on it?
If the buying out is allowed, then the rental housing project will make no sense. All will buy out rental apartments, and this project will fail. Therefore, the buying out should not be allowed. I will personally insist on that.
When a person gets an opportunity to live in a rental apartment he will be automatically removed from the waiting list for housing. Do you think this is fair?
A controversial issue. In my opinion, we should not remove people from the waiting list. Let the person remain on this list, so much so that it does not provide any special benefits. After all, the main advantage of this list is the right to receive a soft loan, and there are not many people in Belarus who are entitled to such loans. By Decree No.13 preferential loans can be extended to a narrow circle of people: large families, people who have lived more than 10 years in dormitories, military personnel. And by the way, I believe that large families should receive maximum support. They should be entitled to live in rental housing, and build their own apartments or houses on a preferential basis. We need a humane approach here!
Recently there has been a lot of talk about rental housing and government procurement and less talk about such an interesting project as the construction of satellite towns. Why has not this promising idea been explored further? What is the reason?
You see the development of satellite towns was not as urgent as other issues. For example in Minsk there are available areas to build 7 million m2 of housing. The satellite town projects have been put on the back burner, so to speak. But work on the project has not been stopped. It resulted in Decree No.214 “On the development of satellite towns”. We have worked on this document long enough because it was often returned for finalization. We needed to reach a consensus, and we succeeded in that.
The decree was developed simultaneously with the implementation of the very project. Housing construction was launched in Smolevichi. The suitability of the land for new housing construction projects was examined. The issue was anything but simple since the land under consideration was classified as ploughland or wetland. Besides, the satellite town project requires
the associated infrastructure, and in some places it is underdeveloped. The new decree formalizes all the abovementioned issues.
When will the first dwelling in Smolevichi be commissioned? Have new areas been allocated for the future construction projects?
The house in Smolevichi will be commissioned this year. As for new areas, once Decree No.214 comes into effect, construction projects will be launched in other satellite towns: Dzerzhinsk, Zaslavl, Logoisk, Rudensk, Fanipol, Skidel and Zhabinka. Design and estimate documentation, engineering infrastructure plans will be worked out for each of these areas. I will reiterate that infrastructure is needed in the first place. There is no sense in starting housing construction in the middle of nowhere with no utility systems available. Utilizing the site with the main lines and necessary networks in place is both convenient and wise. Thus, before talking about big results, one should undergo all the preceding stages which include designing, coordination, preparation of design and estimate documentation and infrastructure development. I think that the work on the development of these territories will be fully launched next year.
There are plans to considerably cut on housing construction in Minsk and to keep the volume of new construction under 500,000m2 per year starting from 2016. In the meantime, the Belarusian capital has the
longest waiting list for housing. Does it mean that new housing will be available in satellite towns only?
As I have already said, today the area available in Minsk is enough for building 7 million m2 of housing. The annual construction plans for the coming years will provide for at least 1 million m2. It will be gradually reduced through 2020. Now you can imagine how much new dwellings the capital will have. The reduced construction volumes will hardly be noticed.
Then go satellite towns. There is no need to be afraid of them. With all necessary engineering and transport infrastructure developed, speed railway communication and highways in place, it will be very easy to get to the satellite town from the capital. By the way, the industry will be gradually moving from Minsk to satellite towns and people living there will have their jobs nearby.
The working group on construction issues that has been set up in pursuance of the President’s instructions focused its utmost attention on uncompleted construction projects. How is this issue addressed?
The issue is serious. Yet the progress is considerable. In early 2014 there were 144 unfinished construction projects. 78 of them were commissioned by 1 May 2014. However, over the period under review 18 more houses joined the list.
According to the schedule, 18 houses are to be delivered in May and about 63 in June, and these are the houses that arouse special concerns. Heavy workload falls on the last month of the deadline set up by the head of state. Although the level of their readiness is very high, it is not good to leave any work till the very last moment.
Ministry representatives and I personally inspect the sites on a regular basis. All my deputies are in charge of different parts of Belarus where they supervise the troubled construction projects. Today, unfortunately, some issues in Minsk and Minsk Oblast have
yet to be addressed. The issues are solvable if we concentrate all the efforts there and organize the work in two and three shifts. The uncompleted construction projects that are developed by the enterprises affiliated with the Construction and Architecture Ministry are all under a tight control. I have no doubts they will be completed on schedule.
It will be a disaster if we fail to fulfill the President’s instructions and do not complete the works in progress by 1 July. We have analyzed every unfinished building and had the commissioning dates for some of them postponed. Such projects are few however. Thus, the commissioning of the notorious building No.10 in Pritytskogo Street (Minsk) has been rescheduled for December 2014. Work on the building began in September 2007. The construction was protracted due to some scams which resulted in damages for hundreds of equity holders. The house will be completed this year. The relevant decree was signed by the head of state. Other projects are to be completed and commissioned in time.
Is it possible that as the attention to this issue abates the issue of the unfinished construction projects will emerge again?
The main solution to this problem is to organize large-scale construction using the government procurement mechanism as soon as possible. It will help avoid troubled projects because financing will be provided on an equal basis, while the country has enough building materials. Therefore, there are no reasons to delay the housing delivery. I am absolutely convinced and can guarantee that the government procurement mechanism in housing construction will help eradicate the problem of unfinished construction projects.
Apart from that, a number of legal documents were passed to streamline the construction industry. For example, it is now possible to have an influence with developers and certify their qualifications level. Certain measures have been taken in the shared-equity construction sector. For instance, a developer has to finance at least 15% of the construction project. It will guarantee that the developer will commission the project and will not create a financial pyramid to deceive shared-equity construction participants.
Of course, the Architecture and Construction Ministry will step up control over the industry. If we get information about delays in construction from the State Committee for Standardization, we will intervene without taking into consideration whether the house is built by a subordinate organization, municipal company or a private developer. We have leverage on all of them.
Are all the abovementioned measures efficient? Have you managed to ensure additional protection of people partaking in housing construction projects?
Of course, at present people partaking in shared-equity construction face lower risks because today this process is transparent. All developers and investors are well aware of the rules.
I see that the measures have been a success. Perhaps, in the future it will be necessary to amend the documents. We already have interesting ideas. But these documents should not be set in stone. They must evolve like a living organism.
You have once proposed to peg financial bonuses to heads of Belarusian construction companies to the size of Belarus’ export, progress in reducing backlogs of inventory and productivity per employee. How are you going to materialize this idea?
Yes, I have put forward such proposals. Relevant amendments have already been introduced to the contracts of directors of subordinate organizations and companies. This practice has been introduced at municipal construction companies. Private companies apply it too. It is clear that this is a fair measure because it does not bear losses but creates economic stimuli. You must work harder if you want to earn more.
In your opinion, why do certain companies struggle with export? They even have to revise bonuses to managerial personnel. There are no problems with demand; foreign consumers are interested in Belarusian building materials and services of our specialists. What is the problem here?
You know, the export of goods and services is a troublesome business. It is essential to study the legal framework and requirements of the state with which you are going to negotiate, bolster contacts and ties, inspect facilities, get necessary certificates and so on and so forth. Some people believe that it is not necessary. They prefer to have a construction site nearby. Therefore, it is extremely difficult for such companies to promote export. I can prove my words with facts. In January-March 2014, 34 companies of the Architecture and Construction Ministry had zero export.
But everyone should understand that the construction volumes in the country are declining and will continue to decline because all necessary social and sports facilities have already been erected in Belarus. Construction companies and organizations still have workload targets. Therefore, it is necessary to sign contracts with foreign companies. Moreover, our specialists are highly qualified. The modernization of companies manufacturing building materials was a success. Having cutting-edge equipment and technologies, they will easily be able to boost their export, if they want it. It is also worth saying that modernization and reconstruction projects were financed through loans, including in foreign currency, while export is the main source of foreign currency.
Fortunately, many people realize that. Thus, in January-April this year the export of services and goods of our subordinate companies soared 33% and 9% respectively as compared to the same period of last year. I believe that we will be able to reach annual targets. A 15% increase in the export of services in 2014 is likely to be achieved, but things are more complicated with the export of goods as the global prices for building materials plummeted and we were working at a loss and selling at prime cost or even lower. But this was a forced measure as we had to keep our positions in the market. Now the construction season is in full swing and we are thoroughly monitoring markets making note of every increase in prices and immediately taking decisions.
The situation in Ukraine has also dealt a blow to our exports as we used to ship a great share of the float glass to this country. Yet, the markets are gradually “waking up” and we know how to win a tender so
I am confident that we will handle it.
Not long ago Belarus introduced mandatory accreditation of construction companies and their employees. What is behind this move? After all, the licensing had been abolished before to liberalize the building materials market.
The matter is that there were many problems with not only construction but also architectural design and various geologic exploration works. The process is not efficient anymore as there are too many unfair players. Even when companies realized that they were not capable to deliver on a project they bid anyway.
Today we use a five-class responsibility scale. Only companies passing the necessary accreditation and having the required technical, scientific and archival capacities as well as active fixed assets and accredited personnel are allowed to build facilities of the first and second class. Now if such an organization competes in a tender with another organization, we know that they are equal. The choice will be made based on what suits the customer best and what has a lower price tag. As for employees, even before they had to undergo accreditation, we just did not monitor it so closely.
Now if an employee or a company do not comply with their obligations or fail to meet the terms of an agreement they can lose their qualification certificate which means that all their activities will be suspended as it is forbidden to perform any works without a certificate and the tax authorities will be notified. Everybody should realize that it is not worth the risk of losing a certificate. This is quite a useful leverage.
However, when the accreditation resolution of the Council of Ministers came into effect, there was a problem with regional ag ricultural construction companies. These are associations which include juridical entities with a small number of personnel. To construct facilities of the first and second class they are allowed to count all their workers as, one way or another, they will all be working on the project.
Practical application of the resolution may prompt introduction of other amendments.
The resolution also specifies thateveryqualificationcertificate had to be signed personally by the Minister of Architecture and Construction. Although this will provide a rock solid guarantee that the accredited company or employee can be trusted, is it really necessary for you to sign it personally?
A certificate is a very important document; it is one of the main documents of the company. Getting a license revoked is equal to losing a military banner; therefore it was decided that every certificate will be signed by the minister. Of course, this means that I will have more papers to sign on a daily basis but this is the only way to make everyone appreciate the true value of this document. Besides, this is an additional protection measure and I hope everyone will realize that. As for me, I am ready.