MOSCOW INVESTMENT DIGEST November 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.
Investment in Moscow Went Up Almost by 11%
“The investments in fixed capital in Moscow amounted RUR 1.6 tn for the first three quarters 2019. It is by 10.6% higher than in the same period last year”, informed Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations. Over the nine months of this year, the share of off-budget investments amounted to 75.1%, which is 2.3 percentage points higher than for the same period last year. In the structure of financing investments in fixed assets, the share of own funds increased from 57.7% to 59.7%.
The investments in fixed capital in Moscow had more than doubled in comparable prices from 2010 to 2018. Moscow is currently getting 14% of all investment in fixed capital and ca. 50% of all foreign direct investments in Russia.
The investment growth in fixed assets in Moscow is largely due to the support measures provided by the Moscow Government to business. Thus, actively investing companies that have been granted the status of a technopark, industrial complex, and anchor resident of a technopark can reduce the regional tax burden by 17–25%. A similar mechanism applies to new investment projects. Today, 105 Moscow enterprises are entitled to various privileges: 49 industrial complexes, 36 industrial parks, 10 anchor residents, 9 investment priority projects, 1 manufacturer of motor vehicles.
Technopolis Moscow SEZ is #1 in Investment Attractiveness Ranking
The Association for the Development of Clusters and Technology Parks of Russia together with the Ministry of Economic Development of Russia formed the 3rd National Investment Attractiveness Ranking of the technology innovative special economic zones (SEZ). Among the industrial sites of the technical-innovative type, the first lines were taken by Technopolis Moscow, Dubna and St. Petersburg. Technopolis Moscow SEZ and Dubna for the first time divided among themselves the first and second places.
“We are actively working to develop the capital's special economic zone, and the results achieved are not only appreciated by residents (their number is growing), but are also confirmed by ratings. Non only tax preferences, but also the Technopolis Moscow modern infrastructure and the quick utility connection are attractive for businesses”, commented Alexander Prokhorov, the Head of the Moscow Department for Investment and Industrial Policy.
9-Month Revenue of Technopolis Moscow SEZ Residents Amounted to RUR 14 Bn
From January to September of this year, the revenue of residents of the Technopolis Moscow SEZ amounted to RUR 14 Bn. Moreover, in this period of time over RUR 5 bn of investments have been attracted and 540 jobs have been created. In three quarters 19 companies have gained the Technopolis Moscow SEZ residential status, the declared volume of their investments will be RUR 14 Bn, more than 1,600 jobs will be created.
To date, more than 140 high-tech companies are localized in the territory of the Moscow SEZ, of which 62 are residents, another 27 are in the process of obtaining status. The accumulated volume of investments exceeds RUR 50 Bn, of which 25 Bn falls on companies with resident status.
The products of residents and participants of the SEZ conquer not only Moscow and Russian, but also foreign markets. Since the beginning of the year, companies exported goods worth RUR 200 m. Benefits allow businesses to invest more and increase the competitiveness of their products, including abroad. Among the residents of the SEZ, 80% of companies are representatives of small and medium-sized enterprises.
Moscow Got Unique Agricultural Complex
The first urban vertical farm in the capital RusEco operates on Kashirskoye Shosse in the building of a former tobacco factory. It not only supplies products to the Moscow market, but also saves the nature. The enterprise will produce up to 7.5 tons of pure oxygen per day when it starts operating at full capacity.
In March last year, the building of the former Liggett-Ducat tobacco factory was acquired by RusEco, which implemented an innovative project for a city vertical farm - the first industrial agricultural complex within the MKAD. In July of this year, the first stage of RusEco farm opened in a reconstructed production workshop. The total sown area is 6.8 he (68,000 square meters), which corresponds to about 10 football fields. It accommodates 280,000 trays. Over a year and a half, about RUR 5 Bn were invested in research, construction and launch of production. The second phase of the farm will be introduced next year in the territory of the former multi-level parking.
Now the farm employs 284 people, of which 35% are former employees of the tobacco factory. 30% (77 workers) live in areas adjacent to the farm. It is planned that in the future, 700 people will be employed in the production.
Two plots for “French” nursing homes will be chosen in Moscow
The sites for the two centers for helping older people, which the French company Orpea plans to build in Moscow, will be determined next year. “Orpea will place its center on the territory of the medical cluster in Skolkovo. In parallel, the company intends to build two centers for helping older people in the city,” said Marat Khusnullin, Deputy Mayor of Moscow for Urban Planning and Construction.
The construction of the center in Skolkovo will begin next year. “We understand that due to market demand in the coming years, other large foreign companies may come to Moscow with such projects,” added the Head of the Stroycomplex. According to him, the market for the construction of centers for assistance and care for the elderly in the capital will be actively developing: the creation of specialized institutions for the care of elderly people is in demand, and there are still few such institutions.
Investors Will Build 2 Industrial Enterprises in the Capital
“Tenants of the first land plots intended for the construction of industrial enterprises were determined, the initial annual rental rate for which was 1.5% of the cadastre instead of the market one. Both sites are located in Central Chertanovo, the winners of the auctions will be able to build industrial complexes with a total area of more than 50,000 m2,” said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
The winners of the auctions were EcoServiceTrans and Rusvtorresursy, which offered maximum prices for land plots of 2.4 he and 1.2 he – RUR 3.5 m and RUR 1.8 m, respectively. In the near future, the Moscow Government will conclude land lease agreements with investors for 7 years and 4.5 years.
In April 2019, a resolution was adopted according to which urban land plots intended for the construction of industrial and industrial facilities should be put up for auction at an initial rate of 1.5% of the cadastral value. Prior to the adoption of the resolution, according to the results of the last two years, of the total number of plots put up for auction for the right to lease and intended for the construction of industrial facilities, only 10% were sold. Therefore, the capital has introduced measures to stimulate the development of production capacities.
Moscow Signed First Additional Agreements with Investors to Construct Offices and Retail Facilities beyond Third Circle Road
In July 2019 Moscow introduced new incentives to construct commercial facilities beyond the Third Circle Road (TCR): it was decided to introduce a zero fee for changing the permitted purpose use of land plots when constructing commercial facilities beyond the Third Circle Road (except for hotels, apartments and residential housing).
“In order to develop urban infrastructure outside the Third Circle Road, the city has reduced for investors the size of the fee for the first year of the lease term for land plots intended for the construction or reconstruction of commercial facilities. And at the moment, 13 first additional agreements have been concluded with investors, under which new city facilities will be built. The payment for the first year of the lease term under these agreements will amount to RUR 126.3 m, the cancellation of the increased rate for the first year of the lease term for land plots will reduce the cost of construction for investors by RUR 1.77 Bn,” said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
Due to additional agreements drawn up to change the purpose of providing 13 land plots with a total area of 22.6 he, new offices, shops and shopping centers will appear in the North-Eastern, Eastern, Western, Northern, North-Western districts, as well as in the south-east of Moscow. The total construction area will be 231,800 m2.
New Transport Technopark to Be Created in Moscow
A transport technopark will be created in Moscow – it will be an engineering center to manufacture and to service tram cars, to do innovative developments in electric passenger transportation. Production is planned to be organized on the basis of the Krasnopresnensky tram depot on Tvardovsky street. The project will create about 300 jobs.
Every day, over 600 trams works on 45 routes. More than 400 cars have been purchased since 2010, 300 of them are trams of the Vityaz-Moscow series. Under a contract between Mosgortrans State Unitary Enterprise, Metrovagonmash OJSC (Transmashholding JSC) and PK Transport Systems LLC, the entire capital should receive 390 such trams. Deliveries will be completed in 2020. By the end of 2019, Mosgortrans plans to announce an auction for the purchase of another 240 new-generation railcars (110 three-section and 130 single-section). It is expected that they will be delivered before 2022.
Trams arrive in Moscow under life-cycle contracts (LCA): service and repair are carried out by the manufacturer throughout the entire life cycle of wagons (30 years). This approach to the purchase of rolling stock allows the carrier company to fully focus on its main responsibility - ensuring quality and safe transportation of citizens. LCA allows you to save on equipping repair areas, purchasing tools and retraining personnel to repair new equipment. There are advantages to the life cycle contract for the supplier: it allows for long-term and predictable capacity utilization.
Income from Personal Income Tax in the Budget of Moscow Increased Almost by 11%
Income tax on personal income (PIT) to the capital budget in January – September 2019 amounted to RUR 727.8 Bn. Compared with the same period of 2018, they increased by 10.7% (RUR 70 Bn). The tax on personal income is the first largest item in the income of the city budget. The personal income tax share in the total budget revenues of Moscow is 39%.
“The positive dynamics of personal income tax revenues is the result of an increase in salaries, as well as an increase in the staffing of enterprises. For eight months of 2019, the average monthly accrued nominal wage in Moscow increased by 8.7% compared to the same period in 2018, which is higher than the inflation rate. The average number of employees increased by 1%,” said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
“Of the total income from personal income tax, 91% (RUR 664.6 Bn) is accounted for by taxes paid to citizens by tax agents – organizations and individual entrepreneurs,” said Denis Tikhonov, the Head of the Department of Economic Policy and Development. “Their volume for the first nine months of 2019 increased by 11% compared to the same period in 2018.”
Moscow Produced More Metal Structures
“Moscow companies produced by 48.7% more metal structures in the first three quarters of 2019 than in the same period last year. The total value of shipped metal structures amounted to RUR 238.1 bn,” said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
In Moscow, 13 large and medium-sized companies work in this area. «Moscow companies manufacture metal structures for the metro construction, for street stages and raised platforms, for the Russian aerospace industry. Investments in fixed assets of large and medium-sized enterprises manufacturing finished metal products in Moscow are growing: in January-June 2019, they amounted to RUR 1.8 bn, and the average monthly salary in January-August increased by almost a quarter compared to the same period last year. years – up to RUR 81200,” added Alexander Prokhorov, the Head of the Moscow Department for Investment and Industrial Policy.
Investment Deduction Will Start from the New Year
The mayor of Moscow signed the law on investment tax deduction, adopted earlier by the Moscow City Duma. The benefit will begin to operate on January 1, 2020. “Since 2023, due to changes in federal law, the preferential income tax rates established by the regions will expire. Therefore, the Moscow Government has worked out the introduction of an alternative support option – an investment tax deduction for income tax,” explained Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
The right to investment deduction will be granted to companies located in the capital and received the status of a Moscow investor. To determine the maximum investment tax deduction, the profit tax rate is set to be credited to the city budget: 12.5% for organizations that have received the status of a Moscow investor of the first category and 8% for organizations that have received the status of a Moscow investor of the second category. The standard income tax rate credited to the capital budget is 17%. The requirements for the status of “Moscow Investor” and the procedure for obtaining it will be determined by the City Government. Support using the new mechanism will be provided to actively investing industrial enterprises.
Due to the amount of tax that is credited to the budget of the subject, you can write off up to 90% of investments in fixed assets. The unused amount of regional benefits can be used for 7 years. Due to the amount of tax that is credited to the budget of the Russian Federation, it is possible to write off up to 10% of investments in fixed assets, but the transfer of the unused amount of benefits to subsequent periods is not provided.
Moscow Will Launch Job Creation Support Program
“The city has a big demand from large system investors who are engaged in the construction of housing in Moscow. Each year they pay about RUR 17–20 bn for changing the type of permitted use of land intended for the construction of residential facilities. Therefore, we made a decision and are now preparing an appropriate regulatory framework according to which investors who are constructing housing in Moscow may not pay a fee for changing the type of permitted use of land, provided that these savings and their co-financing funds are doubled in size for the construction of industrial and office objects,” explained Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
Thus, each ruble of the city will attract two rubles of private investment in the construction of industrial and office facilities. Thus, the construction cost will go down by additional 30% and more jobs will be created, the Deputy Mayor noted.
Moscow Faces Highest 5-Year Demand for City Property
Over the nine months of this year the highest number of bidders have participated in the city auctions of non-residential city property – over 2,500 bidders. A year earlier, 1,400 people participated in city tenders, in 2017 – a little more than 1,000, and in 2015 – only 973 applicants.
Real estate from the property treasury of the capital, as well as premises under the economic management of state unitary enterprises and joint-stock companies, are put up for auction. The objects are located in different districts of the capital, they are different in area – this diversity has affected the increase in competition
“The smallest space purchased by the winner of the electronic auction this year was 9 m2 and was located in the city center, in the 2nd Kazachiy Lane. The largest area is almost 1,500 squares. Commercial premises were popular in all districts of the capital, due to which the level of competition at such auctions increased from five participants in 2015 to seven in this”, said Gennadiy Degtev, the Head of the Moscow Department for Competition Policy.
Winner of Electronic Auction Will Open College
Lot is located in Kapotnya. The winner of the auction will become the owner of two buildings with a total area of 3,400 m2 and a land area of more than 10 acres. The nearest metro station is Lyublino.
“One object includes three objects at once - two buildings and a land plot. The documentation suggests that the winner will open an educational institution here. The total area of the objects put up for auction along with the adjacent territory is quite large. This gives the investor the opportunity to use not only the buildings themselves, but also the land for educational needs,” said Gennadiy Degtev, the Head of the Moscow Competition Policy Department.
Both buildings are in satisfactory condition, have access to the necessary utilities. The initial price of a single privatization object is RUR 122.4 m. Applications for participation are accepted until December 11. Bidding will be held on December 19.
14 Commercial Premises Put Up for Auction
“14 commercial premises put up for city auctions. Application for participation is possible from late November to February next year. The area of free-use facilities ranges from 500 to 2,000 m2. Based on these characteristics, the winners of the auctions will be able to open both the retail object and the office space,” said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
Most of the lots put up for auction in the Northern and South-Western Districts - three in each district. Each of the Eastern, Western and Central Districts have two facilities available for entrepreneurs. In Zelenograd and the Moscow Region – one at a time.
“Cooperation with the city has several advantages. Firstly, it is a guarantee of a direct and transparent transaction, and secondly, the opportunity to purchase an object at a competitive price,” said Gennadiy Degtev, the Head of the Moscow City Competition Policy Department.
79 Lots with Urban Land Put Up for Public Auction
Currently, applications are being received for participation in 79 land lease auctions with various functional purposes. Most of the offers are now available to participants interested in individual housing construction. Such facilities are located in the Troitskiy, Novomoskovskiy and Eastern administrative districts. Several proposals include the construction of household facilities, retail outlets, industrial complexes and car service. You can view all available offers on the Moscow Investment Portal.
Competition at auctions for renting urban land is stable – up to 4 participants per lot. Actively involved in the bidding are both individuals and large investors. Particularly cooperation with Moscow is relevant for the latter. This is due to the fact that the number of places intended for commercial development in the capital is quite limited. And renting land through city auctions gives such an opportunity, and at the same time, the price for a plot for commercial development is “in the market”, starting already from RUR 188,000. If we talk about individual housing construction, then the initial price is RUR 86,000.
Press Conference of The Head of The Moscow Department for Investment and Industrial Policy Alexander Prokhorov