Yevhen Favorov: The construction industry is in critical condition. Millions of people may be left homeless

Source: Apostrophe

The Ukrainian Association of Developers has issued a resonant statement that the primary real estate market is on the verge of a major collapse. Housing construction may come to a complete standstill, and the available "squares" may rise in price due to a significant shortage. The reason is pressure on builders by some officials, politicians and other individuals who, ignoring the legislation in this area, block construction.

Since the Association includes the country's largest construction companies, this statement resonated with the public. We talked to Yevhen Favorov, Chairman of the Ukrainian Association of Developers, about what is happening in the real estate market and how to overcome the crisis.

- Yevgeniy, the statement of the Association of Developers almost talks about the destruction of the construction industry. However, conflicts with activists, pressure from law enforcement, and the cancellation of decisions and documents were constant, and the industry was still operating. What has changed?

- Let me give you a few examples to understand what we are talking about. We won't go far, let's take Kyiv. Gostiny Dvor, Poshtova Square, a number of mansions, a house with insects, Reitarska, Kitayivske Horodyshche...

There are dozens of them in the capital alone, and if you take such cities as Lviv, Odesa, and Dnipro, there are hundreds of them. What is the connection between them?

Many of these projects are frozen, dilapidated, and cannot be used. First of all.

Secondly, there is a complete inconsistency in the legal actions of state and local authorities, officials at various levels, law enforcement agencies, and sometimes some courts in relation to all of them.

Third, for many unfinished projects, the state and the city made decisions on the basis of which investments were made. After that, under pressure from individuals, these decisions were either canceled or new, opposite ones were adopted. Of course, this was done illegally.

And fourth , a number of facilities are being "fed" by a handful of pseudo-activists at the hands of politicians, which is why, in particular, these buildings are frozen. An important emphasis here: I'm not talking about all activists, most of whom really represent the interests of the community. We are talking about those for whom activism is a way to make money, not a sincere concern for the city.

- A number of construction companies are accused of destroying monuments...

- We know that some developers have different approaches and values. That is why we do not want to generalize and talk about specific situations and specific people.

If someone is committed to constructive work and is ready to talk to the point, we are always open to dialogue. But only if the interests of business are taken into account. For this purpose, public councils exist by law, and they should invite designated and independent experts for an objective assessment. If the council makes a decision that restricts the rights of the owners, they should be compensated for their losses. If the decision is made in favor of the project, it should be final.

"The developer will not buy the property, the business understands all the limitations and risks"

But in most cases, when we hear the word "monument," it's just banal speculation. People interested in blocking business operations and artificial resonance arbitrarily assign the status of "cultural heritage" to buildings that do not officially have it.

- But there are clear government decisions that establish the status of a monument, right?

- Rather, we are talking about the so-called "newly discovered monuments" and some objects of the nature reserve fund. In most cases, it's the same thing: a business buys real estate, which later suddenly gets a certain status that restricts the rights of its owner.

What happens in reality: during the years of project preparation under the control of state and local authorities, these buildings remain quite ordinary. All this time, businesses have been faithfully paying millions of hryvnias for land use and spending money on project development. But as soon as construction finally begins, a wave of so-called activism hits the project. Protesters, individual deputies, and law enforcement officers suddenly appear and claim the importance of the building or territory. In other words, at first the developer is issued all the documents required by law, but then they are canceled under pressure from the "street."

"Central and local authorities are fighting with each other. And business suffers"

Buildings that have been given a chance for a new life have been abandoned for years, and unfinished buildings are proliferating in cities while developers fight back in court.

What is the result? Ukrainians lose out: they cannot get housing. And these are hundreds of thousands of people.

The community loses: there are no budget revenues, and the city's appearance deteriorates. And the city itself loses objects that could decorate it.

If a business loses money, the buried money depreciates.

The state loses - no business will engage in such lawlessness. The winners are a couple of loudmouths and their political sponsors.

Covid and the war have shaken the construction industry, and a handful of pseudo-activists, politicians, and an army of officials can finish it off. We know how good politicians and politically connected people are at lying. And people don't want to delve deeply into complex expert issues: if someone shouts "monument," it must be a monument.

There is a manipulation of public opinion: talk about the alleged protection of heritage or the environment is being used as a purely political process. We see central and local authorities fighting with each other. And as always, business suffers. Ambitious young people are hiding behind activism to increase their own visibility for their future political careers.

"If nothing is changed, there will be only pseudo-activists and decision-makers, clay and sticks"

Therefore, the essence of our statement is an appeal, in particular, to local authorities to stop bending under pressure from politicians and public scammers, ensuring consistency and predictability of actions of local and state authorities.

Without solving these problems, the construction industry will decline, and millions of Ukrainians will be left without their own homes. The current situation in construction is already forcing companies to leave Ukraine. Some members of our association are quietly either already building or starting projects in European countries - Hungary, Poland, Slovakia, and the Czech Republic - where entrepreneurs are valued and supported. If nothing changes, even more developers will leave the country. Only pseudo-activists, decision-makers, clay and sticks will remain. As you can imagine, you can't build housing with such a company.

- What is the current state of the real estate market?

- Even before the war, we were almost the last in Europe in terms of housing per person - only 23 square meters, not to mention the absence of social housing as a phenomenon. After the devastation of the war, things got even worse. 2 million families lost their homes, and the pace of construction has halved compared to pre-war levels. At the current rate, it will take at least 20 years to provide housing for these people alone. People will not wait. They will simply leave for Europe. Therefore, the government must immediately take responsibility and create conditions for the resumption and development of construction.

- The monuments you mentioned are apparently found only somewhere in the central districts of large cities. So we are talking about specific isolated cases. Can they affect the state of the entire industry?

- First, this applies not only to buildings, but also to land plots that are limited to artificial statuses. There are dozens of them in Kyiv alone. By the way, we have analyzed more than fifty court cases and found that in 93% of cases, the courts side with the law. Developers defend their rights. But the process can take years, sometimes decades, during which time the project is actually stopped. And if you don't build this house and don't get your investment back, you may not have the funds for another one. Those who try to "light up" from the blockade know this as well.

- You also mentioned pressure from law enforcement. What kind of problems arise due to the actions of law enforcement agencies in relation to the construction industry?

- We conducted a study among EBA member companies and analyzed nearly 200 criminal cases. And we found out that most of them do not even relate to the direct operation of the business.

Law enforcement officers are mostly interested in land and permits, where there may have been violations by officials. However, in 90% of cases, they block accounts, seize property, and interrogate construction companies rather than those who may actually be guilty.

The average duration of such cases is 4 years, despite the time limits set by procedural law. And only a little more than 30 out of 200 go to court. The remaining 85% are endless pressure on business: law enforcement officers come again and again with new procedural actions, delaying processes and keeping companies in a state of uncertainty. This creates chaos and prevents normal operations. We see cases being opened on the initiative of individuals based on documents issued decades ago, one of the most egregious cases being 17 years old.

But it's interesting that not a single official has been brought to justice in all this time. If the state cancels something, does it mean that it was issued with violations? If there were violations, then someone exceeded their authority and should be held accountable. But today, there is not a single official who has been punished, not a single court verdict. Instead, all responsibility is shifted to business.

By the way, pseudo-activists often do not even hide their ties to law enforcement, and in tandem with them they "nightmare" businesses. While some are creating problems, others are imitating vigorous public interest advocacy and building careers.

- How do the problems you mention in your statement affect the industry, as well as the cost and quantity of new housing?

- Unrealized projects mean hundreds of jobs lost in related industries, general contractors, architectural firms, design organizations, the construction industry, etc. Time and effort cannot be returned, but if the state issues permits that give businesses the green light to start a project and invest, and then cancels these documents under pressure from pseudo-activists, it should at least compensate them for the money they have lost. According to the Constitution, the state is obliged to protect property rights. If it cannot properly exercise its powers and ensure legal certainty, there is only one way out: compensation for losses.

When construction projects are stopped or delayed, developers lose out. They still have to pay for equipment rental, land lease, and construction site security - these costs do not disappear while the construction is stopped. It can take years to resume work, and all these additional costs are added to the final price of housing, making it more expensive for buyers.

"Who will restore the housing destroyed by the Russians? Bloggers or pseudo-activists? Hardly"

And this situation has other consequences: banks are not ready to finance construction projects because the risks are too high: today there are all the building permits, and tomorrow they may be canceled under pressure from politically motivated groups. Because of this, investment projects in construction cannot be used as collateral - they are difficult to assess, because tomorrow, under the influence of external pressure, the purpose of the land may be changed or the lease agreement may be canceled, etc.

The lack of systematic project financing and mass mortgages deprives buyers of the opportunity to purchase ready-made housing. Without such mechanisms, construction is financed at the expense of businesses, buyers, and investors, which limits the number of new projects and increases construction time. This reduces the opportunities for citizens to purchase housing on favorable terms, delays the commissioning of new apartments, and exacerbates the shortage of affordable housing.

As a result, people are left without affordable housing. Such unpredictability for investors does not exist in other countries, where the rules are transparent and stable, allowing banks and businesses to work for development. In Ukraine, however, chaos and uncertainty slow down the economy, making it impossible for the housing sector to develop steadily.

- In your opinion, how can the situation be improved to prevent a shortage of housing and rising prices due to this shortage?

- Important! No one is demanding any special conditions or preferences. We are asking for a normal legal framework and its observance. By all parties with severe punishment for violators. There are rules. There is the law. They cannot be rewritten because some bloggers wrote it. We are at war! Outside the windows, there are ALMOST TWO MILLION (!) homes destroyed by Russians. These are millions of people without homes! Who will build it for them? Bloggers or pseudo-activists? I doubt it. We need stable and predictable rules that will actually protect the rights of businesses and investors, allowing them to work effectively.

There is no need to draft a new law or adopt a bunch of new regulations. Political will is enough. It's just a matter of respecting and implementing the law.

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