Moscow is a megapolis with a high pendulum migration from residential areas to the center, where a large number of offices and workplaces are concentrated. It can take up to 20 hours to get to work in a week. The Moscow authorities have been trying to solve this problem for years. Alexander Prokhorov, Head of the Moscow Department of Investment and Industrial Policy, told in an interview with the TASS news agency about the solution of the pendulum migration issue and new methods to stimulate investors to create jobs outside the Third Ring Road and Moscow Ring Road.
- Today the city wants investors to create jobs not only within the Third Ring Road, but also outside it and the Moscow Ring Road. Developers have an old habit of building closer to the center. How can they find consensus?
- The consensus is achieved thanks to the favorable terms of cooperation offered to business by the Moscow Government. They also include financial benefits for developers willing to develop non-residential projects outside the Third Ring Road.
- How does it work?
- When constructing residential buildings, the investor needs to re-register the land plot from one type of permitted use to another, namely, the construction of apartment buildings. Changes are subject to a fee.
Here comes the time to make a choice: pay the full amount or invest in one more construction site and get the benefit. If the investor along together with the current construction site will also build a facility outside the Third Ring Road or the Moscow Ring Road, where new jobs will appear (office or industrial enterprise), he will be exempt from the fee for changing the type of permitted use and thus reduce the cost of creating a non-residential facility.
- What is the change fee?
- The cost of changing the type of permitted use is calculated individually each time and depends on many factors - the area of the land plot, location, current type and much more. The total fees are in millions and billions.
- Does the ownership form of the land plot where the permitted use is changed matter for the benefit?
- The benefit applies both to those who rent a land plot for the construction of residential houses and those who own such land plot. So many developers who may participate in the program have purchased land plots to build residential housing.
- If a residential real estate developer is interested in getting a concession for building an office center, where should he start?
- He should apply to our department, submit documents about his company, about a residential project, about a project related to the construction of office space or production facility. As soon as an expert evaluation is done, the Moscow Government decides on granting a benefit. The application is to be submitted online.
The investor may receive partial or full exemption from the fee for changing the type of permitted use if he invests all the savings in the construction of a non-residential facility. The office space a should be not less than 5,000 square meters, the space of a factory - at least 2,000 square meters.
The benefit is provided in form of the investor’s full exemption from the total fee for changing the type of permitted use or in form of an partial exemption from such a fee if the investment in job creation is not comparable to the fee amount.
- However, the money the investor will save on the benefit may not be enough to build a second facility?
- Exactly, that's the point. Moscow encourages developers to invest additional funds in the region’s development for the joint benefit of the investor, the city and many people who get new jobs in convenient locations.
This is a long-term money that the investor will pay back when selling or renting out the business center. It means, if the benefit is equal to RUR 1 bn, the investor invests another RUR 1 bn and builds up a 25,000-square-meters office space. The city benefits in form of additional budget income through profit, property and income taxes from new jobs.
- Should the investor run the second construction site himself or can he attract other investors?
- The project should be implemented by the same investor or with the participation of another company that is part of the same holding. It is convenient for professional developers - they have streamlined work processes, specialists, assets, resources.
- Are there any restrictions on office builders or users? Could it be foreign companies? Or businesses from other Russian regions?
- We are open to investors from any countries and regions of the Russian Federation, we have no restrictions. It can be an office or a production facility opened from scratch or a new space for any existing business.
There are no industry restrictions as well. Working in Moscow only requires meeting environmental and safety standards, urban planning rules. First of all, we welcome high-tech companies.
- It turns out that two construction are being run at the same time, and the fee for changing the type of permitted use is charged in the first year of rent. How do I get the benefit?
- First, the developer receives a delay of payment, then he gets exempted from the fee for changing the type of permitted use upon completion of construction and commissioning of the non-residential facility. It is also important to clarify that even those developers who have already paid part of the fee can enter the program. In that case, they will be able to receive a benefit for the rest of the fee.
- How to find a construction site outside the Third Ring Road and the Moscow Ring Road?
- The investor has the right to choose a land plot and to purchase or rent it from a private owner. Or he can ask the city for help, and we'll select the site. Since 2016, the Moscow Commission of Urban Planning and Land Use has rented out land plots for 36 large-scale investment projects without auctions. These are 46 land plots of total 84.7 hectares.
- What is the rent rate for land plots provided by the city?
- A job creating project may obtain the investment priority project status if it meets the criteria defined in the Moscow legislation. It enables to rent a land plot at a reduced rate of 0.01% of the cadastral value. It also reduces the regional tax burden by 25% by providing substantial benefits for profit, property and land taxes. In addition, we abolished the fee for changing the type of permitted use of land outside the Third Ring Road in 2019, id the construction runs in this area.
- Are investors already building on this scheme today?
- To date, one agreement on a job creating project has been concluded, and two more applications are in progress. The developers’ interest in the program is growing.