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Suspended Construction Projects and Annulled Licenses – Road to Full-Bloodied Tbilisi?

Building standards should be tightened. Visual standards should be also introduced» – these pre-election statements were made by the current mayor of Tbilisi.

Starting summer 2017 Kakha Kaladze has been assuring Tbilisi residents that his mayorship will bring ecologically cleaner and more advanced capital city. Chaotic construction works will be ceased. Licenses will not be issued for construction works on playgrounds, public spaces and parks. It is difficult to put forward arguments against similar plans for the capital city development, however, the decisions taken in the first months of  Kakha Kaladze’s mayorship has raised  questions and discontent in the development sector. Moreover, people appeared, who complain about encroachments on property rights after introduction of stricter regulations.

Enforced and Planned Regulations

One of the sensitive amendments for development sector came into force in late March 2018. Under the amendments, penalty sanctions on violation of construction safety norms, illegal construction works and violation of the project parameters have considerably increased.

According to the previous law, verbal warning was given against the first violation. The second violation was fined by 3 000 GEL  and this amount used to grow for each new violation. And now, under the amendments, the first violation will be fined by 30 000 GEL. If the investors continues construction works despite suspension decision, they will be fined by 50 000 GEL.

A lot of other regulations are expected to come into force in development sector.

According to planned regulations, those wishing to obtain a building license should prepare a corresponding dendrological plan and agree it with the city hall. Moreover, municipal service for transport and ecology becomes obliged to participate in the processing of issuing a building license.

At the same time, Kakha Kaladze has instructed heads of due municipal services to prepare a bill of amendments imposing a 700 GEL fine on construction companies for cut trees. Moreover, Parliament of Georgia has already received bills of amendments calling to raise tax on building licenses.

According to the amendments, the fees set by Tbilisi Council will be calculated not due to the project-determined space, but due to the K-2 ( intensity of construction works) coefficient space. To put simply, today the value of construction works on a square meter is 1 GEL, despite the number of floors, while according to the proposed bill, the tax amount will be calculated due to the number of floors. For example, if a 10-floor building covers 800 square meter space, the company  pays 800 GEL. After enforcement of the amendments,  the company will pay 8 000 GEL. Moreover, the top margin price  per square meter will be 4 GEL and companies will have to pay 32 000 GEL in the same building.

 Temur Bolotashvili, head of municipal service of architecture, says that today’s system is unfair and current tax amount is inadequately low.

“For example, individual owners  constructing a one-floor building and the company building a multi-storied structure on identical space pay the same amount of tax.  Therefore, top margin of the fee will be introduced and each municipality will have to determine a specific tax. The fee must be commensurate with administrative expenses and the whole developed world follows this principle”, Temur Bolotashvili said.

Suspended Projects

People and companies, who have planned construction projects near Lisi Lake remain in absolute unclear situation. In late March Tbilisi Mayor released decision on temporary suspension of construction works in the mentioned zone. Moreover,  over the past 4 months the city hall rejected about 600 applications for licenses. The city hall also rejected construction works regulation plans in Dighomi Chalebi.

Statistics: According to Tbilisi City Hall architecture service, starting November 1, 2017 through February 28, 2018, a total of 1408 construction licenses were issued in Tbilisi. For comparison: a total of 1626 licenses were issued in the same period of the previous year.

«This creates unstable environment», representatives of development companies say.

A part of developers assert that inflexible and stubborn position of the new mayor does not enable them to plan business activities.

Redco project manager Malkhaz Kunelauri noted the regulations are expected to increase apartment prices. Developers are trying to maintain prices, but if this process continues, they will not be able to maintain current tariffs, he said.

“Each new similar amendments is one additional strike to the whole construction business plan, which has become more expensive in various directions – including currency exchange, taxation on advanced payments, signing contracts in GEL, increased fines, new regulations on greening. If this tendency is continued, we will receive the moment, when we will not able to maintain prices. At this stage, we are waiting  final rules of the game. It is difficult when you make a business plan and unforeseen regulations appear in the process. This situation creates instable environment. Seemingly, the municipality officials are not determined ultimately which way to follow. Building licenses are rejected, the fate of general plan is unclear. All details are unclear. In this situation it is difficult to draw up a business plan.

I do not object to environment protection measures and regulations, but the situation should be improved in both directions – population and development companies”, Kunelauri said.

“This is the most primitive method”, lawyers talk about increased fines.

Aleksandre Kamushadze, director for GLCC law company appraises development sector tendencies in the capital city. His company provides legal services to more than 35% of real estate and development businesses in Georgia.

Messages about plans for tightening regulations already create problems, as development companies have suspended a lot of new construction projects because of unclear future, Kamushadze said.

“Over this period the Authorities has offered no initiative that would encourage development sector in any form. They create impression that development sector is a certain evil and all efforts should be exerted to fight against it, as fast as possible and as efficiently as possible. Fivefold growth in fines and fees is an evident populist decision, as well as restriction of development companies to obtain licenses, introduction of such technical requirements and standards, which work only in certain and advanced countries of Europe. Similar tendencies are hazardous and will bring nothing good to the country. Along with tightened regulations, it is also necessary to introduce counterweight preferences to maintain the balance and life to the development sector”, Aleksandre Kamushadze said.

Imposition of fines with the aim to change this or that habit is the most primitive and superficial methods and consequently, it is the least efficient method.

When developers are getting ready to promote their projects amid new regulations, the Authorities continues thinking about introduction of new and new regulations. It is difficult to say whether these regulations will make Tbilisi a lively and greened city. Kakha Kaladze will have to answer this question after completion of his term.

Maia Chanturia