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Development Sector in 2018, Important Decisions and Expected Challenges in 2019

Brief Analysis of the Market – In 2017-2018 the Georgian legislation introduced a lot of new and strict regulations in the development sector. Changes touched both construction permits and construction process in itself. The market turned out unready for the new regulations and there is nothing surprising, because the new regulations only repeat foreign standards artificially, without fundamental examination of the Georgian market. On the other hand, the Authorities have incorrectly chosen the punitive policy for efficient introduction of these regulations. Moreover, the Government in itself turned out unready for a number of issues. The  process of adoption of the land use general plan was full of challenges and the city hall offices were paralyzed.

All these factors have affected the development sector and negative statistics have not delayed. For example, according to Geostat, the National Statistics Service of Georgia, according to the 2018 September indicators, the number of construction permits issued all over Georgia declined by 4.9% year on year. The number of construction permits for new multiapartment buildings declined by 35% and the statistics for acceptance of buildings into exploitation declined by 16%. At the same time, paralyzed construction sector turned out one of the key reasons for declining economic growth paces in Georgia. According to the August indicators, economic growth constituted only 2%, instead of the forecast 4.8%.

Tbilisi Land Use General Plan – The general plan is to be fulfilled by 2030 and it comprises three key concepts for Tbilisi development: green City, Compact City and Well-Integrated City. The new general plan calls for tripling the green cover in the capital city to satisfy the European minimum standards, under which the green cover per person makes up 15-18 square meters. Compactness implies urban development preferably within the city, without further expansion of Tbilisi borders. According to the authors of the general plan, Tbilisi has similar resources, because there is a free space of 8000 hectares in the form of abandoned factories and plants and unemployed land plots. The general plan calls for arranging new subway lines leading to Lilo Fair and Tbilisi airport, arranging three transport corridors to connect Kakheti Highway with Didi Dighomi, Didi Dighomi with Maghlivi and Maghlivi with Ortachala. The plan also calls for building bypass railroad. It is noteworthy that experts talk about technical defects of the general plan and its financial challenges. For example, one of the key defects named by architects is the fact that there are no standards for composing a map. Namely, methods for preparing a map (scales, colors, meanings and so on) cannot satisfy any international or domestic  general standards.

Financial components have not been calculated and identified either to determine how real it is to fulfill this general plan based on the Tbilisi budget. For example, according to experts, 2 billion USD is required to build a new subway station as part of the general plan. There is no budget for this and other expenditures and therefore, there are substantiated questions about feasibility of the goals indicated in the general plan. The general plan fails to satisfy zonal changes in privately-owned land plots and this is detrimental for private property owners, because their land depreciate because of  narrowing construction potential. The document says nothing about legal interest of private property owners. Therefore, Tbilisi City hall disapproved the general plan several times and returned the document to the authors for revision, however, in the end, the city hall approved the general plan and submitted it to the Council for approval. According to the City Hall, the general plan will be approved in January 2019.

 Legislative Amendments Enforced in 2018 – The first memorable decision that the Government passed in 2018 is related to artificially increased penalty sanctions for this or that violations and in general, tightened supervisory policy. For example, unlicensed construction projects. Namely, penalty sanctions on land plots owned by the state  and local self-governments rose to 25 000 GEL from 10 000 GEL. New illegal construction projects or/and reconstruction works in private ownership, with III and IV-class parameters, will be subjected to 20 000 GEL penalty. Fines have also increased for implementing works by violation of the project parameters: namely, fines for the III and IV-class buildings will be 10 000 and 15 000 GEL. Penalty sanctions were particularly tightened against violation of safety standards in the working process and the fine amount rose to 30 000 GEL from 3 000 GEL. It is also important that previously, before imposition of penalty sanctions, developers were warned verbally. After the amendments, the developer will be fined upon detection of the first violation. A total of 272 buildings were examined in the first quarter of 2018 and the developers were fined for violation of safety norms, while the municipality passed decision on suspending construction works in case of 120 buildings.

Along with penalty sanctions, the fee for obtaining construction permits has also increased. Previously, the fee was calculated  based on the space of development (K-1) and the fee constituted 1 GEL per square meter, whilst under the current standards, the fee is calculated  based on coefficient of the intensity of development (K-2) and the fee per square meter makes up 4 GEL. For example, the fee for one-floor building has grown about 4 times, while for multi-storied buildings the fee increased four times for each new floor.

One more legislative amendment obliges developers to obtain the so-called dendrology conclusion and transport conclusion in the process of obtaining construction permits on the territory of Tbilisi. Namely: for the purpose of approving the land plot for construction works, the submitted application must be attached an expert’s conclusion about description of green plants and their qualitative assessment on the due land plot. And at the stage of agreeing the project, the developer must agree with the city hall the greening project under K-3 coefficient. At the same time, the developer is obliged to place a separate information desk indicating information about greening project.

As to transport conclusion, the construction permit seeker must own a road traffic organizing scheme indicating transport/road infrastructure  of the project site and the scheme must also  demonstrate a connection with the research territory (excluding II-class buildings). It is also mandatory to assess the influence of the designing solution on the research transport/road infrastructure (excluding buildings and structures or/and nightclubs, storehouses, production and industrial facilities, museums, libraries, religious buildings with no more than 6000 square meter space).

The mentioned conclusion will play important role in perception of urban development process and healthy development. On the other hand, it is noteworthy that preparation of these conclusions is related to serious expenditures, especially transport conclusions, which require several tens of thousands of GEL. Additional problem is that only 1 or 2 organizations can prepare full and qualified conclusion and developers have to wait in queues for a long period.

In 2018 Government adopted the Georgian law on Labor Safety, which applies to the works with excessive hazards and heavy and harmful environment, including to construction works. The mentioned law bans the construction works without registration at the registry of economic activities of the mentioned category. The registration process is carried out by National Agency for Public Registry (NAPR) and the developers are obliged to register the ongoing activities on each construction site and indicate the type of activities.

Under the law, the employers are obliged to shape maximally safe environment, prevent available working risks and ensure protection of life and health of employees or other bodies in the working space, as well as to register, examine and submit reports about accidents and industrial diseases, under the applicable law. I addition, the employers are obliged to hold periodical training instructions for the employees about labor safety issues and peculiarities of the works to be fulfilled.

The same law determines the responsibility measures and mechanisms against violation of labor safety norms: warning, penalty, suspension of works. In case of violation, the borrowers will be notified about the violation and they will be given a reasonable time for eradicating these violations. The size of the fine depends on not only heaviness of the violation, but whether the violator is a physical body or legal entity or VAT payer or not, as well as what time has passed for the 12 calendar months for the total amount of VAT-taxed operations and so on. Thus, the amount of fines ranges from 100 to 50 000 GEL. Instruction for suspension of the working process is the heaviest factor, which runs, for example, when the construction site demonstrates critical misappropriation, that is, creating essential hazard to human life or/and health and which must be removed immediately.

Legislative Amendments to Come into Force in 2019 – Starting January 1, 2019 the employer that employs workers for the works with excessive hazards, heavy and harmful conditions, is obliged to appoint an accredited specialist with due experience and qualifications in labor safety. If the number of employees is 20 or less, the employers are is entitled to act as  safety specialists themselves provided they will pass a special accredited program. If the employers employ 20 to 100 workers, they are obliged to appoint at least 1 labor safety specialist, but if they employ more than 100 workers, the employers must set up a labor safety office with at least 2 labor safety specialists.

Starting 1, 2019 the employers are obliged to provide accident insurance for employees in the working period. Regretfully, both development and insurance sectors are not ready for the mentioned regulation. It is interesting how this norm will be enforced in practice, while it is introduced imperatively on the market and the law does not provide corresponding solutions.

Starting January 1, 2019, government resolution N476 on Determination of Technical Regulations on Construction Products will come into force. The resolution regulates: standards to be taken into account by distributors and importers in the process of placement of products on the market, including the distributor’s obligations to ensure such conditions for transportation and storage of products so as construction products maintain durability, while importers must ensure placement of such products that meet the requirements described in the declaration; As to harmful products, the owner is obliged to ensure both collection and recollection from the market and supply of due information to both entrepreneur and supervisory body;

One of the most important legislative acts, the basic part of which is to come into force on June 3, 2019, is the Code for Planning of Georgian Space, Architectural and Construction Activities. The Code determines key requirements for an architectural project and buildings. Namely, buildings should be designed and built to ensure their long lifespan. In the exploitation period the building must satisfy the assigned functions, as well as requirements for human health protection, environment safety and accommodation. An architectural project must meet the aesthetic parameters determined by the municipality. In case of high public interest, the municipality is authorized to oblige the developer to prepare an architectural project and announce a competition to this end. It is also mandatory to take into account structural steadiness of buildings, their reliability, firefighting standards, hygiene, health and environment protection, adaptation for persons with disabilities and so on. Special attention is paid to the law requirements for energy efficiency and use of renewable energy at buildings.

Under the Code, on condition of use of land plot for construction projects, the developer may be obliged to repair the main infrastructural networks and transport lines, if the planned construction works are expected to expand or/and damage them. It is important that during unpermitted construction works, started prior to the law enforcement, the developer, besides the penalty payment, must submit a conclusion on compliance of the ongoing construction project with technical regulations, with the aim to get construction license. This signifies that new construction standards and regulations will apply to unlicensed construction projects and the developers will not be able to avoid responsibility through only single-time fines.

The Code differentiates three types of construction supervision: a) public supervision; b) technical supervision and c) safety supervision. Under the Code, certification has become mandatory for an architect, constructor and responsible engineer.

Conclusion – Ultimately, we can conclude that  the year of 2018 has brought essential changes in the development sector and no less noisy, novelties and challenges are expected to come in 2019. In General, we should positively appraise the key objectives of legislative amendments, which call for reasonable urban development, upgrading safety standards, quality control, protection of interest of employees and consumers, making accents on energy efficiency and renewable energy, care for urban greening and so on. On the other hand, all issues should be comprehensively examined before introduction of new projects to persuade legislators that  the sector is ready to accept this or that novelty and they can be enforced in reality. Moreover, instead of punitive and frightening mechanisms, the government should give preference to the market promotion and positive stimulating methods. When innovations are introduced through changing the mindset, not by frightening, we will receive more efficient results and this is the strategy oriented on far plans. We hope that the development sector will maintain one of the leading positions in the Georgian economic progress. 

Aleksandre Kamushadze

Construction Law Expert