Building trust, not just houses: what hinders development in Ukraine

Development is not just about square meters and new apartments in new buildings. It is also about a vision of the country's future, investments in people's comfort and urban locations that are a pleasure to be in. Ultimately, it is about encouraging citizens to stay in Ukrainian cities and return to them from abroad .

But today in Ukraine we face a paradox. Business is ready to invest, take risks, and look for solutions even in times of war. However, it faces barriers that are often invisible .

At one of the panel discussions during the Construction Congress, we talked about "bad governance" - management barriers in the real estate market that hide losses for business and the economy. Below, I will analyze several cases presented by developers and indicate what solutions are proposed.

Problem #1 - ignoring the consequences

A business starts a new project, buys a plot, develops a plan, and agrees on the number of floors. Suddenly, a year later, new restrictions appear. This is how introduced a new historical and architectural reference plan in Lviv. The goal of the project was noble; they wanted to preserve the historic environment. But before its implementation, no one analyzed all the consequences of the decisions. The document, for example, set a limit on the maximum building height of 20 meters.

It turned out that many new construction projects should be frozen because they do not meet the new standards. The city has actually stopped developing and has been in this state for two years now.

Problem #2 - regulatory unpredictability

Three years ago, UDP invested more than UAH 1.5 billion in the revitalization of the former Bolshevik plant in Kyiv. We developed a project and trained a team. But by the decision of the Cabinet of Ministers, the current mechanism of the DPT was recognized as no longer being able to be used to change the purpose of land. Since the new General Plan has not been adopted for many years, it is impossible to change the purpose of the land. This investment project is at a standstill, and who knows how long it will be waiting for the new General Plan.

As Andriy Semenov, the company's CEO, aptly noted, business schools teach how to deal with risks, i.e. "black swans," but there is no science of how to dodge the "black goose" that will come from the state.

Problem #3 - retroactive liability

Another developer had an equally interesting case. They started developing the territory in the same way, received all the permits and documents, and none of the regulators had any questions. Construction began, and it lasted for two years. Suddenly, officials of the Department of Land Resources of the Kyiv City State Administration, followed by the prosecutor's office, decided that they were no longer satisfied with the functional purpose of the land. Litigation ensued, and the land, even under the new buildings, was ordered to be "returned" to the city.

As a result, the billion hryvnias already invested may turn into losses, the company is spending money on defense and expertise, and it is still unknown how this dispute will end. Everything that was considered absolutely legal yesterday turned out to be not so today.

Systemic features

These cases are not exceptions; knowing the development industry from the inside, I can testify that this is a systemic feature of the market. The war obviously does not add stability to any business, but the government is not trying to provide it either.

If everything is left as it is, developers will continue to work "at their own risk," some new housing will be built, and a certain number of people will be able to buy real estate. However, foreign investors will continue to avoid Ukraine, scarce real estate will become even less affordable for ordinary families, and cities will be left with abandoned areas instead of new residential neighborhoods that could become points of attraction for citizens.

Today, the Ukrainian Association of Developers is actively working with the World Bank. We advise them on the problems of the industry. And we see a shift in the focus of international partners' attention. They are no longer interested in macroeconomics alone. They are asking for specifics

- How long does it take to build a house?

- How transparent are administrative procedures?

- Is there any real investor protection?

So what now?

At the same discussion panel, Natalia Kozlovska, Deputy Minister of Community Development, Territories and Infrastructure of Ukraine, to whom we are incredibly grateful for her openness to dialogue, gave many valuable tips that we are listening to. So what solutions do we propose?

1. Establish legal immunity for permits issued in accordance with the procedure. They should not be canceled retroactively, except in cases of direct fraud.

2. Reform the principle of decision-making: every decision should take into account the consequences. Changes to the General Plan, DBN, and height limits should be made in transitional stages, not introduced next Monday.

3. Ensure that officials are held accountable for abuse or inaction. And also for causing direct financial losses. And, of course, there should be responsibility of the other side - developers, designers, experts.

4. Deepening digitalization - automate the issuance of documents, eliminate the human factor as much as possible to reduce the points of corruption.

5. Create a permanent format of public dialogue. For the government to hear business and business to hear the government. There should also be a dialogue with communities, as this is the basis of modern urban development.

The country benefits from investments, businesses benefit from everything working, and people need a comfortable life. Therefore, all parties have a common goal. And the system should work to achieve this goal. Developers are ready to be part of the changes, but this requires a meaningful dialog not with the Ministry of Regional Development alone, but with all stakeholders.