City Rejects Social Projects

City Rejects Social Projects

Published: December 19, 2012 (Issue # 1740)


City Hall says if developers want to build housing, they should build schools and kindergartens at their own expense.

City Hall is refusing to finance social facilities in new housing projects, as officials believe that too much housing is currently being built in the city.

No budget funds will be allocated for the construction of schools or kindergartens in new housing projects simply because the owner of the plot of land has decided to build residential real estate on it; if companies want to build, they should build social infrastructure as well, and then hand it over to the city for public use, said deputy governor Igor Metelsky at a press conference earlier this month.

According to Vyacheslav Semenenko, an advisor to the governor, the budget has already allocated 600 billion rubles ($19 billion) to construction projects that have already been approved. The city will fulfill its commitments to these projects and to those on areas of land bought at auction, said Metelsky.

However, City Hall has no plans to start selling off plots of land intensively, at least for the coming year. “A similar number of plots of land will be put up for auction as were this year, or perhaps more,” said Metelsky. This year, sales of land plots were sporadic occurrences.

There is too much housing being built in the city as it is: 57 million square meters is planned to be built, including six million square meters by 2015, said Metelsky. The market simply cannot sustain that volume, he said. According to Metelsky, St. Petersburg needs no more than three million square meters of new housing per year. Last year, 2.7 million square meters were built.

In projects where public infrastructure will be built at the developer’s expense, prices may rise by approximately 15,000 rubles ($500) per square meter, Metelsky said. The market will determine the prices, but current profit norms leave more than enough room for developers to “tighten their belts,” he added.

Construction costs, taking into account the cost of the land and mains systems, comes to 50,000 to 60,000 rubles ($1,600 to $2,000) per square meter, said Semenenko.

It’s a dangerous sign when officials start to speculate about proposals and profit trends in business, as these questions cannot be the subject of regulation, said one developer on condition of anonymity. “Schools and kindergartens are the direct responsibility of the government. What are our taxes going toward otherwise?” he said.

Dmitry Uvarov, director of marketing at Normann construction group, said that his company “is not overjoyed at this initiative.” A reappraisal of construction costs will be carried out, but any adjustments to prices will probably not be significant; customers won’t be getting any richer,” said Uvarov. He said it could not be ruled out that developers would find it easier to work in the Leningrad Oblast and could refocus their work on areas neighboring St. Petersburg.

If City Hall has decided to stop funding social infrastructure, then it simply will not be built, since for companies this kind of expenditure is fraught with losses, said Sergei Vetlugin, general director of Glavstroi SPB construction company. Building social infrastructure at the expense of apartment buyers will not work out; increasing the price of housing will only scare them off, he said. Vetlugin estimated the cost of building one kindergarten with a capacity of 180 children at 180 million rubles ($5.8 million).

It is not possible to raise the price of housing to cover additional costs incurred by building schools and kindergartens, since prices are determined by buyers’ purchasing power, which has a limit, added one developer.

The Swedish developer NCC will build a kindergarten instead of one of the planned residential buildings in its Eland complex in the Leningrad Oblast, as demanded by regional guidelines. It will be necessary to reduce the number of apartments in the complex by 300, said a spokesperson for NCC.

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