Thanks to a major reform in the real estate business, to be introduced by the Kyiv City Administration as of Jan. 1, Ukraine will go up three to five points in the World Bank’s Doing Business rankings next year. That’s according to EasyBusiness, a think tank that estimates Ukraine’s place in the rankings based on World Bank methodology.
On Nov. 15, Kyiv City Council passed new legislation relating to shared participation payments for developers – a mandatory fee all developers pay into the city budget, the revenues from which are directed at developing city infrastructure. The payment should be around 4 percent of a building’s overall value, no matter what its function.
But in the past, the city budget received almost no shared participation payments because the system for collecting the tax was so corrupt, according to Olga Balytska, a former DLA Piper lawyer turned Samopomich council woman, who initiated the reform.
“They would just bribe,” Balytska told Kyiv Post.
According to Kyiv City Administration statistics, developers owe about Hr 1.8 billion ($72 million) in unpaid contributions. Annual revenues from contributions currently stand at only around Hr 160 million ($6.4 million).
The new legislation has made the process of making shared participation payments electronic, closing many of the previous loopholes, and reducing the number of documents developers have to submit. Now developers will be charged four percent of the value of the property, regardless of its function.
From January there will be an online registry where officials, members of the public or potential investors can track who has paid shared participation, and how much.
“This is important because if I was looking to invest in a building and I saw that they hadn’t paid shared participation, I would think twice,” said Balytsk. “It could mean that either there is something dodgy about the developer or that you might have to pay yourself.”
For 2017, Kyiv City Administration is offering a 50 percent discount to encourage people to use the new system.
Ukraine’s predicted rise in the respected world rankings is partly down to a technicality, however. Doing Business calculated the construction points in the ranking based on Kyiv city and not the whole of Ukraine. The reform would push Kyiv’s construction ranking up by 40 points, which is estimated to improve the country’s ranking by three to five points overall.
This year Ukraine went up three spots in the Doing Business ranking, from 83rd to 80th place. Mykhailo Obolonsky, a co-founding partner of EasyBusiness who supported the initiative, told Kyiv Post that according to their calculations, Ukraine should have gone up by 10 points.
The World Bank didn’t reflect all the changes that had taken place in 2016, said Obolonsky, citing the de-monopolization of court executors, improvements in property legislation and the protection of minority shareholders, who used to be discriminated against. Obolonsky put this down to the fact that this year the World Bank did not make a field trip to Ukraine.
Obolonsky said, however, that EasyBusiness’ estimates for next year do not include improvements made by other countries.
The reform was also supported by the Center for Economic Strategy, the Reanimation Packet of Reforms, the European Business Association, the American Chamber of Commerce, the Committee on Real Estate and Construction, and the Bar Association of Ukraine.
