Moscow Investment digest September 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.
Moscow Plans to Conclude Third Offset Contract
Under the terms of the contract, the production of medical devices for ostomy patients will be created in the capital.
“We plan to launch in Moscow the production of medical devices for ostomy patients. Stoma, as a rule, is a consequence of cancer – a hole in the body that requires special care, often for life. We want to produce more affordable Russian counterparts. By the end of the year we will hold a competition among investors. Ready to provide tax benefits, land or premises. This will be our third offset contract: when the city creates the conditions for production, and the investor – goods for state needs. The two previous contracts were concluded in pharmaceuticals,” – said Sergei Sobyanin, Moscow Mayor.
The term of the contract is 10 years. The volume of investments over three years will be one billion rubles. Investing will be carried out in two stages, taking into account the varying degrees of complexity of the manufacturing processes of products. The project will be implemented at the expense of the supplier-investor.
The manufactured products will be supplied for urban needs for eight years. All products will necessarily be tested by the Moscow Health Department.
Foreigners Increased Their Investment in Moscow
The accumulated foreign direct investments in Moscow in Q1 2019 have increased by 6.2%. They amount to USD 238.4 bn as of April 1, 2019 according to the Bank of Russia.
Moscow is currently accommodating half of all foreign direct investments in Russia. The largest investors in Moscow are companies from European countries (Germany, Finland, France, Italy, Austria, Sweden), as well as investors from the USA and Asian countries (Singapore, Japan, Turkey, South Korea).
Most often, foreign entrepreneurs invest in companies engaged in financial and insurance activities, in the field of trade, in the industry and high technology sectors, in real estate. Foreign business has recently shown a greater interest in R&D, real estate, transportation and storage.
“Moscow offers investors a wide range of support measures. All of them are available to foreign business along with domestic. To support new investment projects in industry, the city provides benefits for income tax, property tax, land tax and land rent. This ensures a 25% reduction in the regional tax burden,” – said Alexander Prokhorov, Head of the Moscow Department of Investment and Industrial Policy.
In addition, entrepreneurs who localized production in the territory of the Moscow Technopolis Special Economic Zone (SEZ) can reduce the regional tax burden to 47%.
“The growth of investment attractiveness of the capital of Russia for foreign entrepreneurs is also facilitated by high-quality information support,” – said Leonid Kostroma, Head of the Moscow Investment Agency. – On the Moscow Investment Portal, you can find detailed information on investment projects being implemented in the capital, measures to support industry, tenders for the sale and rental of city property, tax regimes and benefits, and much more. More than 25% of website visitors are foreigners, which indicates the interest of foreign business in the Moscow market.”
Moscow Industrial Export Increased by More Than 19%
The export of the key industrial sectors demonstrated a positive trend in the first seven months in comparison to the same period of 2018. The machine-tool export went up for example by more than 11% and amounted to USD 3.6 bn. The Moscow chemical industry export increased by 5% and reached USD 1.2 bn. The textile industry export grew by 9.47% and was USD 289.1 m.
“Moscow shows a significant increase in exports. In the first seven months of 2019, Moscow's industrial exports amounted to about $ 10 bn and increased by more than 19% compared to the same period last year. I note that metropolitan enterprises were able to increase their export volume by more than $ 2 bn in one month - in the first six months, exports amounted to $ 7.9 bn. In total, the export of industrial complex products for the first seven months of 2019 from Moscow was carried out in 170 countries. The key importers of our products are Great Britain, the USA, Germany and the EAEU countries,” – said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
Moscow Returned Pre-Crisis Positions in Financial Activity Ranking
“In September 2019, Moscow went up by 17 points – from 88th to 71st place – in the Z/Yen Group Global Financial Activity Ranking. In fact, the Russian capital reached the pre-crisis level of 2014 before the introduction of international sanctions against the Russian Federation,” – said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
In September 2013, the Russian capital occupied 69th place in this ranking. The ranking is based on a survey of three thousand financial experts around the world. The Moscow progress proves the efficiency of investment climate improvement programs.
Moscow Investors Can Calculate Land Rent Costs for Large-Scale Project
The rent rate approach has changed for the land plots provided for large-scale projects. The new calculation method will consider exact properties and feasibility indicators of facilities under construction. As part of the implementation of large-scale investment projects, entrepreneurs without tendering rent land from the city for 6 years, building social and industrial facilities.
According to the innovation, the increased rental rates payable in the first year of the lease of the site will depend on the building density and will range from 25% to 100% of the cadastral value of the site. It is possible to provide installments to pay increased rental rates for up to 6 years. In the second and subsequent years of construction, the rental rate will increase from 1.5% to 8% of the inventory.
The method will help the investors to calculate the land rent rate before implementing large-scale investment projects. If earlier, after the decision of the Urban Planning and Land Commission on the provision of a plot for rent, it was necessary to wait for a market assessment of the plot, not knowing the size of the lease payments, now all preliminary calculations can be done independently and, accordingly, take into account the economic indicators of investment projects. To carry out such calculations, it is enough to know the cadastral value of the land and the rate provided for by resolution No. 273-PP.
Moscow Industrial Complexes and Technoparks Will Get 10-year Land Rent Preference
The Moscow department of city property will provide a discounted 10-year land rent rate to industrial complexes and technoparks. It will 0.3% of the cadaster value for industrial complexes and 0.01% for technoparks and industrial parks. Companies need to confirm their status once a year to get the preference.
Previously, supplementary agreements to lease agreements establishing or confirming such a benefit were concluded only for one year. Enterprises had to annually confirm their status as an industrial complex or an industrial park, and then apply for a service to the City Property Department.
“Now additional agreements to land lease agreements will be concluded for a period of 10 years. This will save Moscow technoparks and industrial complexes from the need to submit documents for registration of benefits every year. Enterprises will only need to confirm their status annually in a specially created city commission, after which the information will directly go to the City Property Department. If the status of enterprises is not confirmed, the benefit will be automatically canceled,” – said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
Maxim Gaman, Minister of Moscow Government, Head of the Department of Urban Property, said that since the beginning of 2019, following the provision of relevant public services, the Department of Urban Property has provided benefits to industrial complexes and technology parks under 16 lease agreements for land plots with a total area of 30.8 he. This allowed tenants to save 37.3 mln RUR.
Moscow Sets Preference Land Rent Rates to Construct Hotels and Rented Houses
The Moscow Government amended the Decree of April 25, 2006 No. 273-PP and sets preference land rent rates of 0.01% of the cadaster value for new hotels and of 0.1% of the cadaster for new rented houses. The land plot rent time is 49 years.
The investors are also free of the increased investment payment to change the construction purpose for the units to be hotels. Previously, such a payment, depending on the building density, reached 50% of the cadastral value of the plots.
To get a preferential rental rate for the entire construction period, the investor must conclude a placement agreement with the city. Under the agreement, the investor must build a building and use it for rent to individuals or as a hotel. Selling apartments in such buildings will be prohibited.
These measures will allow attracting new investments into the Moscow economy by reducing the cost of construction to 22% and shorten the payback period of the project. This initiative is also aimed at developing the tourism industry in the city.
Moscow Government Support: Franchisees Will Be Able to Apply for Subsidies
Moscow businessmen doing or planning to do a franchise business will be able to apply for a partial equipment cost reimbursement since September 2. The applications are to be submitted by November 1.
The decision to support small and medium-sized businesses that operate under a commercial concession (franchising) agreement was adopted in early August. Moscow businessmen can expect a support up to RUR 1 mln.
Thus, franchised businessmen can cover 25% of the costs of payments under a lease contract for foreign equipment and 35% for domestic equipment. By purchasing equipment at their own expense, Moscow franchisees can compensate up to a quarter of its value.
In addition, entrepreneurs can reimburse interest on loans: up to 7.25% within the key rate for the purchase of foreign equipment and up to 12.25% for domestic.
According to the Russian Franchising Association (RAF), today in Moscow there are more than 500 franchise brands. Franchisees are represented in such areas as medicine, education, catering, entertainment, travel, sports, consumer services, and trade.
Space of Former Brocade Factory “Will Go under Hammer”
Non-residential premises with a total area of about 200 square m in a brick building of the XIX century, which is a model of neoclassicism, will receive the winner of the auction.
Investors are invited to purchase an object located in the Basmanny district at the address: 22, Myasnitskaya street, bld. 1.
The unit can be assessed as a successful project for investment or personal business. It is a commercial building located in the basement and on the ground floor of a residential building, on the first line, next to the metro. The path to the nearest Turgenevskaya metro station takes no more than five minutes on foot. Also, the object has a separate entrance. The house is located at the intersection of Myasnitskaya Street and Bankovsky Lane. The premises are connected to all necessary utilities.
In the early 1860s, the building belonged to I.E. Sytov, the merchant of the first guild. In his possession Sytov set up a brocade fabric factory, and on the ground floor opened a store for their sale. The initial price of the lot is RUR 63.9 mln. Acceptance of applications for participation in the auction ends on October 9, 2019. Bidding will be held on October 17.
Exhibition space in the Old Gostiny Dvor art quarter will appear at the end of the auction
A commercial space of 337 square m in the Old Gostiny Dvor, will go to the winner of the auction. The object is in the operational management of the Moscow State budgetary institution of culture “Museum and Exhibition Association “Manege” and has a cultural and educational purpose. The auction winner will receive the right to hold exhibitions in the modern art space of the Old Gostiny Dvor. Prior to this, he will have to invest in repairs and furniture.
The object is located in the Tverskoy district at the address: Ilyinka street, 4. The path to Ploshchad Revolyutsii, the nearest metro station, takes no more than five minutes on foot. The building is recognized as an object of cultural heritage of federal and regional significance. Currently, a cultural cluster of artists' communities has been created here.
The starting price of the lot is RUR 6.3 mln. The initial rental rate for 1 square. m per year is RUR 18.7 thousand. You can apply for participation in the auction until October 11, 2019. Bidding will be held on October 17.
On the Moscow Investment Portal you can find more than 5 thousand objects put up for sale by the city: non-residential premises for sale and for rent, land, non-stationary objects, and many other.