A couple of weeks ago Prime Minister Yulia Tymoshenko made the sensational announcement that the Cabinet of Ministers has lowered housing construction costs by nearly 50 percent and canceled a number of taxes and fees.
According to the head of Ukraine’s government, only around 50 percent of housing costs are actual expenditures on construction materials, works, etc. The rest consists of “colossal extra charges and illegal exactions that comprise another powerful system of taxing developers.”
The prime minister said that the fee for transferring houses and apartments to the city constitutes between 7 and 20 percent; 2 percent for transferring housing for social use; 10 percent is the share of the development of the social and transport infrastructure; and 5 percent consists of payments to the municipal budget for the development of construction. In addition, fees for the development and improvement of the material and technical basis of the fire service form 2.5 percent of all construction costs; another 10 percent is paid by developers for connections to the electricity grid.
Prime Minister Tymoshenko emphasized: “A total of 49.5 percent of construction costs consists of illegal charges introduced by means of unlawful legislative acts. Today we have abolished these exactions, leaving a minimum that is absolutely necessary.” From now on such fees will amount to four percent for apartment buildings, she added. The government has also lowered taxes on non-residential real estate: 5 instead of 37.5 percent. With this move the government wants to give fresh impetus to the stagnating construction industry.
Will the government’s calculations be effective? The Day asked several experts in the field for their comments.
COMMENTARY
Oleksii HOVORUN, deputy director general of strategic development and marketing, TMM:
A construction company spends up to two years waiting for land to be allocated and purchased, drafting the real estate project, and getting construction permits. Even if a piece of real estate is in the early stages of construction, fees are included in the cost price according to the old standards. So it is not entirely correct to say that prices will go down once this decision starts being implemented, considering the construction cycle lasts between two and three years.
If the development fees are reduced, prices are not likely to drop sooner than three years from now. On the other hand, during this interim period other factors will affect the price of every square meter, including an increase in the cost of construction materials and wages, the need to build engineering structures in accordance with established technological standards. It should be stressed that the cabinet’s decision may have absolutely no effect on the level of development fees in view of the capital’s legislative status, whereby such standards are defined on the municipal level.
Lev PARTSKHALADZE, chairman of the board of the XXI Stolittia Company:
This government decision will not lower housing prices substantially, but will help to prevent a sharp increase. Apartments are now being sold, where all taxes were paid according the old standards. Apartments where payments were made according to the new standards will be available in 12 or 18 months. This, of course, will also affect their prices.
