Moscow Investment digest May 2019
The Moscow Department for Investment and Industrial Policy, in cooperation with the Moscow City Investment Agency, presents a new issue of the Moscow Investment Digest.
Cable way investor will be determined through tender
A tender was announced to determine a concessioner to build a cable way between the Skhodnenskaya and Rechnoy Vokzal metro stations. Bids can be submitted until July 2. Potential construction investors should meet a number of requirements, including the availability of (own or borrowed) funds and the experience in cable way building and operation or in transport PPP project implementation.
Previously, five companies announced their readiness to tender for the concession right: OOO Stary Gorod (a subsidiary of the concession initiator, which is the German construction company BPS International in partnership with the Austrian cable way manufacturer Doppelmayr), OOO National’nye Kanatnye Dorogi (a subsidiary of the French cable way manufacturer Poma), OOO Moskovskie Kanatnye Dorogi (in partnership with the Swiss cable way manufacturer Bartholet), OOO "Razvitie Kanatnykh Dorog (St. Petersburg) and OOO Proflogistikservis (Moscow).
The cable way will become a new comfortable mode of transport in Moscow: the facility will be integrated with the transport network and the city ticket system. In addition, the second Moscow cable way will become a tourist attraction. Its length will make 2.3 km. The expected passenger traffic is up to 19,000 people per day. The project implementation will significantly reduce the time citizens spend traveling between two districts of Moscow separated by the Khimki Reservoir from 45 to 7 minutes. Ca. RUR 3.16 bn will be invested in the construction of the new cable way. The concession term is 25 years, about 2.5 years of which will be spend on construction.
Investments in fixed assets in Moscow grew by almost a quarter
The investments in fixed assets in Moscow amounted to RUR 403.3 bn in the first quarter of 2019. This is 25.8% higher than in the same period of 2018. According to the Moscow City Statistics Service, the share of extrabudgetary investments in the first three months of the current year made 83.8%, which is 8.6 percentage points more than in the first quarter of the previous year. The share of own funds in the financing structure of investments in fixed assets increased from 61% to 68.1%.
Over 8 years, from 2010 to 2018, the investments in fixed assets in Moscow increased more than twice, in comparable prices. Today, Moscow is accounting for 14% of all Russian investments in fixed assets and approximately for a half of direct foreign investments in Russia.
One of the investment activity drivers is a large-scale city development program. The volume of the targeted investment program of Moscow for 2019–2021 is RUR 1.6 tn that will be used to implement transport, social, improvement, development and other priority projects. Today, every ruble invested by the city in the infrastructure development accounts for more than RUR 3 of private investments.
Moscow's investment attractiveness is maintained by the measures that the Moscow Government is taking to support investors. Actively investing companies are granted tax and rental benefits. The enterprises assigned with the technopark, industrial complex and industrial park statuses, can reduce their regional tax burden by 17 to 25%. A similar mechanism is applied to new investment projects. To date, 93 companies are receiving various benefits: 44 industrial complexes, 35 technoparks, 8 anchor residents, 5 investment priority projects, 1 vehicle manufacturer.
The initial land rental price for industrial complexes construction will make 1.5% of the cadastral value
The Moscow Government adopted Decree No. 335-PP, according to which the right to rent land plots for industrial and production facilities construction will be auctioned at an initial price of 1.5% of the cadastral value. The auction will be won by the participant that offers the maximum bid.
According to Vice-Mayor of Moscow for Economic Policy and Property-Land Relations Vladimir Efimov, before the Decree was adopted, such land plots had been auctioned at market rental rates, which reduced the demand due to the high cost. “During the last two years, only 10% of all the auctioned rights to rent land plots for industrial facilities construction were sold,” the Vice-Mayor said. In his opinion, the transition from a market value to a cadastral value percentage will increase the attractiveness of land plots for such an important purpose as the construction of new industrial complexes and production sites.
In 2019, the Department of City Property will offer investors about 15 industrial and production land plots under the new leasing terms. The land plots that will be put up for public auctions are mainly located in Zelenograd, as well as in the Southern, North-Eastern, South-Eastern, Eastern and Troitsky Administrative Districts.
A record number of facilities to create new jobs were commissioned in the Troitsky and Novomoskovsky Districts
420,000 sq. m of industrial and commercial real estate were commissioned in the Troitsky and Novomoskovsky Districts from January to April inclusive. This is comparable to the volume of housing commissioned in New Moscow since the year start, which is 475,000 sq. m.
“Last month, the total area of industrial premises commissioned in the Troitsky and Novomoskovsky Districts exceeded 108,000 sq. m. They include a warehouse complex in the Nikolo-Khovanskoye village in the Sosenskoye settlement and an office building complex of OOO SO EES (the System Operator of the Unified Power System) dispatch center in a village in the Moskovsky settlement,” Head of the Moscow Department of New Territories Development Vladimir Zhidkin said.
Since 2012, the area of non-residential real estate in the Troitsky and Novomoskovsky Districts has increased 1.5 times - from 6.85 to 10.5 m sq. m. This is social infrastructure, job creating facilities. 3.2 m sq. m. non-residential real estate is currently being designed and constructed to provide thousands of new jobs for the new residents of the Troitsky and Novomoskovsky Districts.
The Moscow authorities and developers have agreed on the New Moscow social infrastructure development plans for three years. Investors will finance the construction of 5 polyclinics, 12 schools and 18 kindergartens.
The area of medical cluster facilities in Skolkovo will double
“The project is in great demand, the number of bids for participation in the medical cluster continues to grow. The area of the facilities will increase from 425,000 to 858,000 sq. m. Basically, these will be medical institutions, namely the world's leading clinics that will be built by the project participants from OECD (Organization for Economic Cooperation and Development) countries,” Deputy Mayor of Moscow for Urban Planning Policy and Construction Marat Khusnullin said.
Within the medical cluster, a technopark will be built to accommodate a biology institute, a medical university, a pharmaceutical technology institute, a campus, an anatomy institute, experimental and laboratory-clinical centers, an engineering center and infrastructure facilities. It will not only be a base for unique medical institutions, but also a powerful educational, experimental&production and laboratory&clinical base. They will help to bring education and Russian medical technologies to a whole new level.
The creation of the Skolkovo international medical cluster is a milestone in the innovative healthcare development in Moscow. The center will provide assistance in applying latest technologies and be able to admit about 300,000 patients a year.
Moscow industry continues to grow
The Moscow industry has been growing for the fourth year in a row. Only in the period from January to March of this year, the industrial production index of Moscow grew by 5.5% as compared with the first quarter of the last year.
Such a dynamic industry development became possible thanks to the investment strategy adopted in Moscow. One of its priorities is the development of high-tech innovative industries that allow to create new high-performance jobs.
According to Head of the Moscow Department for Economic Policy and Development Denis Tikhonov, in the period from January to March of this year the most significant growth was registered in the manufacturing and IT sectors. The production output increased by 47.5% for electrical and distribution equipment, by 24.2% for metal structures, and by 23% for motor vehicles. In addition, the production of computers and electronics in Moscow increased by 60.7%. The industrial production growth also contributes to the industry average wage increase.
Enterprises were invited to apply for Moscow Government subsidies
Industrial enterprises can apply for the partial reimbursement of costs to pay interest on loans and leasing payments for production equipment purchase. Applications can be submitted until June 28 inclusive. There are also subsidies to reimburse the utility connection costs. In this case, applications can be submitted until October 31 inclusive.
“One of the main priorities of the Moscow Government is to develop high-tech and environmentally friendly industry in the city. This is what the program to subsidize the enterprises’ expenses for high-tech equipment purchase and modern production infrastructure provision is aimed at,” Head of the Moscow Department of Investment and Industrial Policy Aleksandr Prokhorov said.
To participate in the tender, one needs to fill out a special form posted at the department website and attach a package of necessary documents. If the application is approved, an enterprise having received a loan to purchase equipment can expect a subsidy in the amount of up to RUR 200 m to pay the interest. Companies can also receive up to RUR 100 m for leasing payments.
In addition, there is compensation of utility connection costs (up to 50% of the total costs). This amount can reach RUR 100 m, if the connected capital construction facilities are located within the same land plot.
Small business of Moscow: support for entrepreneurs
In the first quarter of 2019, the Moscow Small Business Credit Assistance Fund issued guarantees to entrepreneurs for RUR 2.5 bn. This allowed small and medium-sized businesses to receive RUR 5.1 bn in loans.
“In 2018, the Fund issued guarantees to entrepreneurs for a record amount of ca. RUR 13 bn. This is RUR 1.7 bn, or about 14%, more than the previous year,” Head of the Department of Science, Industrial Policy and Entrepreneurship Aleksei Fursin stated.
About 30% of the total number of the regional funds guarantees were issued in Moscow. Today, over 70 lenders are cooperating with the Fund. The service range is also expanding: now there are guarantees for factoring and letters of credit. The current amount of the Fund guarantees exceeds RUR 19 bn, with a net worth of RUR 10 bn. For this amount, businesses received almost RUR 35 bn in bank loans. This means that each ruble of the Fund capital ensures the performance of RUR 3.5 in the real economy.
Most of the guarantees (54%) are issued to entrepreneurs engaged in trade, and the remaining 46% are distributed between such industries as manufacturing, construction, transport, health care and services. The Fund portfolio includes about 57% of guarantees for small businesses, 34% for micro-enterprises, and only 9% for medium-sized enterprises. On average, the guarantee is issued for ca. RUR 20 m. The amount received can cover up to 70% of the loan, but not more than RUR 100 m.
Investors can rent city premises at a discount
The city put up for second public auction 31 premises with a total area of about 9,800 sq. m. at the initial annual rent price that was 30% lower than the previous auction price.
“Thanks to the Decree adopted last year, today investors can rent the premises that are put up for auction for the second time, at a noticeable discount of 30% as compared to the previous auction price. At the moment, 31 of such premises are being auctioned, the facilities are mainly located in the South-Western, Central, North-Western and Northern Administrative Districts. The initial price of the premises annual rent ranges from RUR 100,000 to RUR 5.5 m,” Vice-mayor of Moscow Vladimir Efimov noted.
Until the end of 2019, the right to rent about 50 city facilities will be put up for auction again at a 30% discount. In October 2018, the city put up premises for second auction at a discount for the first time: investors were offered 16 facilities.
Moscow will put up for auction 1,500 premises for sale
“In 2019, 1,500 city premises will be put upfor auction. In the course of bidding, we expect a significant increase in the number of auctioned facilities at least by 30 percent against 2018,” Vice-Mayor of Moscow for Economic Policy and Property-Land Relations Vladimir Efimov said.
Since the beginning of 2019, 133 purchase agreements for a total area of 16,800 sq. m and RUR 899 m have been concluded with the winners of the city auctions for real estate sale. The number of contracts concluded since the year start grew by 25% against the same period of the last year. The purchased premises are mainly located in the Central (the Basmanny and Khamovniki areas), South-Eastern (the Lefortovo area) and North-Eastern Administrative Districts.
More than 400 real estate items with a total area of 68,000 sq. m and an initial cost of more than RUR 3 bn are currently being auctioned. Until the end of May 2019, investors will be offered another 94 items to purchase at the auctions, including 57 parking spaces located in multi-apartment residential buildings or registered in the same household as such buildings, 36 non-residential premises and 1 building.
Year to date, the city has leased 6.3 ha of land for construction
Since the beginning of 2019, the city has sold 24 land plots with a total area of 6.3 ha at public auctions. The plots are mainly located in the Eastern, Troitsky and Novomoskovsky Administrative Districts. According to the auction results, the total amount made RUR 107.7 m, which is 25% higher as compared to the same period last year. Most of the land plots rented since the beginning of the year were intended for the construction of individual housing (14), as well as sports and recreation complexes and social facilities at a reduced rental rate of 1.5% of the land plots cadastral value (9).
During the next 1.5 years, the auction winners that have concluded land lease agreements with the city, will have to build capital construction facilities at the rented plots, after which they will be able to switch to long-term land lease for 49 years or become the owners of the rented plots by purchasing them from the city.
By the year end, about 80 land plots with a total area of 58 ha located in the Eastern, Southern, South-Western, Western, and Troitsky Administrative Districts, as well as in Zelenograd, will be put up for auction.
The Moscow Digest archive is available at the Moscow Investment Portal.