War risk insurance in the construction industry is hampered by the lack of transparency of financial models, said Victoria Bereshchak, co-founder of the Partnership Mediation Institute, in a commentary to Interfax-Ukraine.
She noted that insuring war risks in the construction sector is much more difficult than in agribusiness, or large industry and energy. First of all, it is difficult to find financial institutions that are ready to provide guarantees and insure the property of developers.
“In residential real estate, this tool is hardly used, in particular, because of the difficult relationship between the market and potential insurers: they could not cooperate in peacetime due to legal issues and the lack of transparency of certain processes, in particular, the formation of financial capital of companies, and even more so in war,” Bereshchak emphasized.
At the same time, the expert noted that potentially, insurance of residential projects under construction will not greatly affect the cost.
“According to estimates, it is about 2-4% depending on the region (air defense protection of the city, density and number of attacks, potential and related risks with the war) and the size of the project,” Bereshchak explained.
For the commercial real estate segment, insurance is an important and necessary tool, especially for logistics centers.
The following military risks are most often considered in insurance:
explosion or direct hit of ammunition into an object containing explosives;
crash of military aircraft and/or remotely piloted objects or their parts onto the insured property;
military operations on the territory where the facility is located/construction is underway.
“Potentially (for commercial projects), we are talking primarily about cooperation with international financial organizations, the World Bank, and export credit agencies of other countries. I would also like to remind you that we have Law 3497-IX (draft law No. 9015), which significantly expanded the powers of the Expert Credit Agency to insure against military risks for investments of Ukrainian and foreign companies in Ukraine,” Bereshchak said.
Investments in the construction sector of Ukraine in the next three years could reach $2 billion, the founder and president of City One Development, Valeriy Kodetsky, told Interfax-Ukraine, commenting on the results of CC Forum Monaco Global Investment in Sustainable Development held in July.
“The world business positively evaluates the initiated reforms in the construction sector of Ukraine. However, the main measure will be not only nominal reform, but its real effectiveness. Forum participants predict that Ukraine will be able to attract up to $2 billion in the next three years with an annual progress of up to 20%,” Kodetsky, who was the only representative of Ukraine at this event, said.
According to the expert, the participants of the CC Forum estimated the investment potential of the Ukrainian construction industry at no less than $50 billion. At the same time, “powerful foreign investors” are primarily interested in the creation of new factories and production facilities, participation in large infrastructure projects and the implementation of projects in the commercial and residential real estate segments.
One of the important directions for the development of domestic development, according to Kodetsky, may be the reorientation of business processes towards the creation of a high-tech closed cycle for the production of modern construction equipment and materials that correspond to global trends in environmental safety and energy conservation.
“Thanks to foreign partners, for 10 years Ukraine can fully provide itself with everything necessary not only for the development of the construction sector, it is capable of reaching a new technological level. This is primarily about setting up the production of building materials through the introduction of energy-saving environmental technologies,” he said.
According to the expert, the annual demand of the Ukrainian market for float glass is more than 100 million square meters and almost 100% is covered by imports, and 80% of this volume is used in the construction sector.
Kodetsky said that in the near future, thanks to foreign investors, the construction of a float glass plant could begin, which could potentially satisfy up to 30% of the domestic construction market. The volume of foreign investments in this production could be more than $80 million with a payback period of five or six years. The profitability of the plant will be over 30%.
According to his forecasts, over the next two years, the growth of float glass production may reach 3-5% annually. The expert said that the estimated cost of domestic float glass will be 15-20% lower than exported, which will allow developers to redirect the released funds to improve the quality of construction projects, increase the level of builders’ wages, etc.
“The establishment of high-tech closed production processes will reduce the cost of building materials by 25-30%. Part of these costs can go to improve the quality of projects in various segments of real estate,” he said.
At the same time, the expert drew attention to the fact that effective reforms in construction will significantly reduce the “corruption burden” on developers, and the released financial resources could be reassigned to social responsibility programs, as well as to increase salaries in the construction sector.
“According to our calculations, salaries in construction as one of the main driving spheres of the Ukrainian economy in the next two years may grow by at least 30-40%,” Kodetsky said.
The president of City One Development recalled that now more than 1 million of our fellow citizens are forced to work in the construction sphere in Eastern Europe. Moreover, the “net” earnings of a builder, depending on qualifications, are on average 30-40% higher than in Ukraine. He believes that an increase in wages by at least a third can return up to 200,000-300,000 compatriots to the domestic construction market.
“The development of construction now depends on the effectiveness of the implemented reforms and the creation of opportunities for attracting foreign investment. It is the construction sector that can become a driving force for sustainable economic and social development of our state,” Kodetsky said.
In turn, Tetiana Shulha-Zabelska, Managing Partner of the Residential Estate Development Community (RED Community), said in a commentary that the main goal of the CC Forum was to determine the main directions of sustainable development of society and business in the face of the existing challenges of counteracting global diseases and epidemics, changes climate, migration and the like.
“As for the investment attractiveness of Ukraine, global business leaders almost unanimously consider Ukraine one of the countries with the greatest development potential and attractive for long-term investments,” she said.
According to Shulha-Zabelska, most of the investments (more than 40%) will be spent on the development of large-scale projects to create technology parks and facilities for the production of modern building materials. About 35% of the funds raised can go to infrastructure facilities, and 25% of investments will directly relate to commercial and residential real estate projects.
“The Ukrainian strategy for attracting foreign funds should be inextricably linked to global trends in sustainable development, the implementation of global trends in the construction industry, an increase in jobs with an increase in the income of citizens of the country,” she said.
City One Development is an investment and development company that provides a range of services in the field of creation and development of real estate facilities.
Founded in 2017, the RED Community brings together over 30 leading residential developers.
