BELARUS
REAL ESTATE MARKET REVIEW ANNUAL REPORT, 2013
Accelerating success.
BELARUS REAL ESTATE MARKET CONTINUES TO RECOVER
Dear Reader,
BELARUS
ANDREY PAVLYSHKO
Partner, Managing Director Colliers International, Belarus
ANDREY ALESHKIN
Partner, Director Brokerage Department, Belarus
2012 was a post-crisis year for the Republic of Belarus. Therefore, it was characterised by an increase in economic activity of business entities, the recovery in household incomes, which were eroded by the devaluation of the Belarusian ruble, and, as a result, the recovery of the consumer market. This was immediately reflected in the increased demand for commercial real estate. The recovering labour market created the demand for new office spaces. Some companies were looking for office spaces of 14-17 thousand sqm, while no interest in such spaces had been reported on the rental market even during the pre-crisis period. The demand for office premises exceeded the commissioning rate of new spaces. As a result, nearly all premises available on the market, irrespective of their condition, were snapped up and the vacancy rate decreased rapidly. The situation on the warehousing market was the opposite of what had been reported during the previous year: in 2011, many tenant companies were optimising their warehousing spaces and reducing the number of rented facilities; meanwhile, 2012 saw a considerable increase in demand and new objects were being snapped up after the minimum market positioning. Professional logistics operators were the most active tenants, and the demand was highest for large premises with areas starting from 5,000 sqm. The retail real estate market development scenario was similar. The small number of newly commissioned spaces amid the increased growth of retail chains and the entry of new players onto the Belarusian market resulted in the decreased vacancy rate and the increased rental rates for high-quality spaces. 2012 was a relatively moderate year for the hotel real estate segment in terms of the commissioning of new objects, but the developers of new hotel projects remained active and reported the completion of the preparatory works for the 2014 Ice Hockey World Championship. 2012 also saw the opening of the first apartment hotel in Belarus; this segment of hotel real estate had not been developed in the country previously. A number of new projects and agreements with international hoteliers regarding the operation of some objects were also announced.
REAL ESTATE MARKET | ANNUAL REVIEW 2013
| BELARUS |
CONTENTS
Economic Overview
4
Office Market
6
Retail Market
9
Hotel Market
14
Industrial Market
18
REAL ESTATE MARKET | ANNUAL REVIEW 2013 | BELARUS | ECONOMIC OVERVIEW
Economic Overview 2012 was the year of economic stabilisation for the Republic of Belarus following the 2011 crisis. Even though the inflation rate remained high, it was five times lower compared to the previous year. After a nearly three-fold devaluation in 2011, the national currency remained stable in 2012 and even strengthened somewhat against the main global currencies: the Euro and the US dollar. GDP growth amounted to 1.5 per cent. Foreign trade increased in 2012. Positive dynamics of export were observed throughout the year, and despite a small decrease in the second half-year, the foreign trade balance was positive in the end of the year. Salaries and the real income of the population increased. As a result of the devaluation of the ruble, the average salary in euros amounted to EUR 206 in November 2011. Meanwhile, the figure went up to EUR 385 in November 2012 and exceeded the rate reported in the pre-crisis period last year (EUR 351). This increase had a positive effect on the development of the consumer market in Belarus. Belarus ranked 58th in the Doing Business 2013 report prepared by the World Bank and the International Finance Corporation (IFC). The country demonstrated especially good results in the areas of property registration (3rd place) and registration of enterprises (9th place). Belarus was included among the world’s leading reformist countries, ranking third among the top ten reformists. Belarus also ranked 153rd in the Index of Economic Freedom 2012, up from the 155th position in 2011. The international rating agency Standard & Poor’s revised the country’s short-term and long-term sovereign credit ratings from C to B-. The outlook on Belarus was revised to ‘stable’. The country remained in the 54th position in the Legatum Prosperity Index 2012 rating.
KEY MARKET INDICATORS / YEAR 2005
2006
2007
2008
2009
2010
2011
2012
2013f
24.2
29.4
33.0
41.0
35.8
41.2
42.6
49.2
52.5
9.4
10.0
8.6
10.0
0.2
7.6
5.3
1.5
8.5
Industrial Production, % yoy
10.5
11.4
8.7
11.5
-2.8
11.3
9.1
5.7
9.3
Unemployment Rate, % avg*
1.5
1.2
1.0
0.8
0.9
0.7
0.6
0.5
0.7
GDP current prices, bln EUR GDP growth (real), % yoy
Total central government debt, % of GDP
35.0 2.0
1.6
4.5
5.9
17.1
19.6
42.4
31.5
PPI, % yoy
12.1
8.3
16.2
12.8
14.5
13.6
149.4
21
11
CPI, % yoy
10.3
7.0
8.4
14.8
13.0
9.9
108.7
21.8
12
Fiscal deficit, % of GDP
-0.7
2.2
-1.5
1.9
-1.0
-2.4
-0.3
-0.1
0.0
Export, bln EUR
12.7
15.65
16.3
22.5
15.3
22.5
29.3
34.85
38.0
Import, bln EUR
13.3
17.7
18.5
27.0
20.6
28.1
33.3
35.15
37.6
Current Account, bln EUR
0.4
-1.2
-2.1
-2.5
-5.3
-5.60
-3.9
-1.9
-1.5
Current Account, % of GDP
1.7
-4.1
-6.6
-8.0
-9.76 1,635.
-11.7 1,069.
-8.3
-4.1
-2.7
362.3
596.4
960.0
1,559.1
0 6,121.
9 7,187.
1,095.8 11,699.
878.9
1,913.1 2,155.1
2,161.6 2,146.2
3,318.6 2,144.7
4,542.9
9 2,791.
5 2,979.
4
9,668.9
3 2,684.2
8 2,714.8
6 2,897.2
2,136.6
8 3,893.
5 3,954.
4,623.4
8,335.8 10,713.
9
8
8
3,143.0
0
1
6,432.0
0
FDI, mln EUR Cumulative FDI, mln EUR BYR/USD avg. BYR/EUR avg.
1,500.0 12,000.0 9,150.0 12,000.0
Source: Colliers International; Central Statistical Bureau * In Belarus, the unemployment data includes only those citizens who are officially registered at the labour exchange. The real unemployment rate is higher, and the Ministry of Labour and Social Security has recently admitted this fact.
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REAL ESTATE MARKET | ANNUAL REVIEW 2013
| BELARUS ECONOMIC OVERVIEW
The Decree No. 150 of the President of the Republic of Belarus ‘On some issues related to renting and gratis using of property’ came into effect on 1 April 2012. It fully liberalised pricing in the privately owned commercial real estate rental market and introduced the concept of the basic rental amount to be used in lease relations with state or municipal real estate objects. During the first ten months of 2012, the gross foreign debt of the Republic of Belarus totalled USD 32.966 billion. This accounted for 58.6 per cent of the GDP. Meanwhile, the external debt of the state administration bodies totalled USD 12.779 billion. The per capita foreign debt amounted to USD 3,485, down by USD 110 compared with January 2012. Gross inflows of foreign direct investment decreased by 21.8 per cent in 2012 compared with 2011. Debt instruments were the main form of attraction of direct investments (88.8 per cent of the total amount of direct investments). Meanwhile, 47.3 per cent of direct investments were made in trade.
5 | COLLIERS INTERNATIONAL
REAL ESTATE MARKET | ANNUAL REVIEW 2013
| BELARUS | OFFICE MARKET
Office Market OVERVIEW BUSINESS CENTRES LAUNCHED IN 2012
Project
Port, 2nd stage, 1st start-up facility Nemigoff Antares Zebra No name Alliance Offices in the Galileo multipurpose centre
GLA, sqm
Class
Developer
В2
A1 Development
В2 В2 В2 В2 В2
В2
7,800
Parking
5,000
Freliajseksim
4,795
Lanex Plus
4,500
n/a
4,350
IDC Group
3,540
BNK-Holding
2,100
During 2012, only a quarter of all business centres scheduled that year were actually launched: only 7 out of 23 objects entered the market. It must be noted that some objects showed a high level of construction readiness by the end of the year, and they may be launched in the first half of 2013. Among the objects scheduled in 2012 by developers, some were expected to be postponed because of low activity level at the construction sites. The number of launched speculative business centre objects was small. Development in the built-to-suit segment was more interesting. For example, the headquarters of Belarusbank, with a total area of more than 35 thousand sqm, the largest office real estate object, was launched in 2012.
SUPPLY AND NEW PROJECTS
Total:
32,085
Seven new objects with a total GLA of more than 32 thousand sqm were launched in 2012. There was a high probability of launching at least eight other office real estate objects, but the developers did not manage to complete the projects by the end of the year. Such objects are expected to be officially launched during the first half of 2013.
Source: Colliers International
In total, 28 objects are scheduled to be launched in 2013. Such objects include business centres that were postponed from 2012, as well as those that were initially scheduled for launch in 2013. If a considerable number of these projects are successfully launched, then the amount of new office premises that may enter the market in 2013 could reach a total GLA of up to 249 thousand sqm GLA.
DYNAMICS OF SUPPLY OF OFFICE SPACES IN MINSK Sqm (000s)
800 700
Similar to previous years, most of currently implemented business centre projects scheduled in 2013 are in the B2 class. The main reason for the lower rating quality of such office objects is the construction method: developers usually use a shared-equity construction scheme. As a result, objects have dozens or even hundreds of owners and low levels of management and services.
600 500 400 300 200 100
Large projects with a GLA exceeding 10 thousand sqm constitute a considerable part of projects scheduled for 2013. The GLA of two such projects exceeds 20 thousand sqm.
0
Built-to-Suit
New Construction
Total Stock
Source: Colliers International
DISTRIBUTION OF COMMERCIAL OFFICE SPACES IN MINSK BY CLASS
6,2%
During 2012, the structure of the office market in Minsk did not change significantly, since only a small volume of new office space was commissioned, and they did not have a serious impact on the market. With the exception of one office building, all commissioned business centres belonged to B2 class. As a result, the share of A class offices, which is the least developed segment in Minsk, decreased slightly, while that of the B2 class, the most developed segment in the market, went up. The market of built-to-suit objects was more dynamic and interesting in 2012. New large office buildings were developed as a result of activity of banks. Two such objects accommodated the headquarters of banks. Those objects represent high-quality office buildings and, just like commercial business centres, correspond to B1 class.
Class A 31,4% Class B1 62,3%
BelVEB Bank headquarters office is interesting in that it was initially planned as a commercial business centre within the framework of the Slavianski Kvartal complex. However, as the parent company of the developer, BelVEB Bank later made the decision to use the object for its own headquarters.
Class B2
A number of built-to-suit objects are expected to be launched in 2013. Two of them, namely the offices of the Belarusian Potash Company and the National Olympic Committee, are considered important for the market. Source: Colliers International
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REAL ESTATE MARKET | ANNUAL REVIEW 2013
| BELARUS | OFFICE MARKET
DEMAND The demand by companies for premises increased notably in 2012. After the 2011 financial and economic crisis, businesses started operating more actively and increased their staff size, which had decreased as a result of job cuts and frozen vacancies.
STRUKTURE OF DEMAND FOR OFFICE SPACES IN MINSK IN 2012
Under 100 sqm
19% 10%
100 - 250 sqm 22%
250 - 500 sqm 22% 500 - 1000 sqm 27%
1000 and more sqm
Source: Colliers International
According to the number of requests, the share of companies that require spaces up to 100 sqm decreased in 2012, even though the demand for small spaces in Minsk was the highest in the previous year. Demand for medium-sized offices of 100-250 and 5001,000 sqm was nearly equal. Demand for large spaces increased as well. Such changes occurred despite the fact that the participation of companies in shared-equity construction projects is typical for the Belarusian market. Companies that require offices of several hundred or thousand sqm dominate in shared-equity construction projects. Requests for office spaces of 10-12 and 14-15 thousand sqm that were submitted by several companies last year may be mentioned as distinctive cases of unsatisfied demand. At the current stage, the office real estate market in Minsk is unable to satisfy the needs of such tenants.
RENTAL RATES DYNAMICS OF RENTAL RATES
Rental rates for A class premises increased in H1 2012 as a result of the commissioning of the new business centre Velcom in the end of 2011. As the object was outstanding among other objects available on the market in terms of quality, its owners set the highest rental rates in the city, which exceeded the previous existing highest rental rates by 20 - 22 per cent.
50 45 40 Rental Rates (EUR)
35 30 25 20 15 10 5 0 2008
2009
Class B2
2010
Class B1
2011
2012
However, the market was not ready for such level of supply, and the demand for those premises was very low. As a result, rental rates were reduced in Q3 2012. Hence, the highest level of A class supply went down from EUR 45 per sqm in H1 2012 to EUR 37 in H2 2012. The lowest rental rates went down as well.
Class A
Source: Colliers International
DYNAMICS OF VACANCY RATES OF OFFICE SPACES 60%
50%
40%
Rental rates for offices in the categories B1 and B2 remained stable. This segment of the market is less prone to hikes and possible exceptions. However, as a result of the limited supply, a slight growth tendency was also observed here. Rental rates in B class premises are expected to increase slightly in 2013. The rates in B1 premises are expected to increase due to the small number of objects in this class, as well as the intention to get closer to the lower level of rental rates in A class premises. Rental rates in the B2 class are expected to increase because of the overall deficit in office supply, especially in the lowest priced segment. Thus, the increased demand amid the insufficient supply may be balanced by an increase in prices. In theory, however, the growth of rental rates may be stopped by the actual commissioning of all projects scheduled for 2013. However, developers operating in the Belarusian market typically fail to meet announced commissioning deadlines. Therefore, many objects are unlikely to enter the market in 2013.
30%
20%
VACANCY 10%
Vacancy rates of A class premises increased in 2012 due to the commissioning of a new business centre of the mentioned class, as well as the presence of vacant premises at another operating business centre. The volume of vacant rental spaces decreased by the end of the year, which leads to the forecast that there will be a considerable decrease in A class vacancy rates in 2013.
0%
Class A
Class В
Source: Colliers International
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REAL ESTATE MARKET | ANNUAL REVIEW 2013
SPECULATIVE BUSINESS CENTRES SCHEDULED FOR LAUNCH IN 2013 Project
Class
Developer
GLA, sqm
Projects implemented without use of shared-equity construction scheme В1 Biznes-Centr No name 25,930 Stolitsa В1 Grad Story Futuris 15,394 Invest В1 No name IBA Group 11,000 No name
В1
RM-Investment
8,200
В1
Lekt Sinar
7,700 5,992
No name
В1
Zalka
4,300
No name
В2
Minsk-City
2,500
No name Farenheit
В1
Projects implemented using the shared-equity construction scheme В2 Royal Plaza Rubyrose Int. 23,000 Volna Time No name Klever Park No name Domashevs kiy
В2 В2 В2 В2 В2 В2 В2
Solo ForumPlaza Port, 2nd stage, 3rd start-up facility Tivali-Centre No name Park-Plaza, 2nd stage No name ValeoCentre Pokrovsky No name Optima
Sigmapolius
18,345
IEPU
15,000
Ofisinvest
10,000
| BELARUS | OFFICE MARKET
Offices in business centres of B1 and B2 classes were less prone to tenant turnover, since the volume of the commissioned spaces was insignificant and did not keep up with the growing demand. Nearly all vacant spaces in business centres in Minsk were occupied during 2012. Therefore, vacancy rates may be estimated only with a permissible error of 2 - 4 per cent, which includes unattractive premises that are unacceptable to tenants. As most of B2 class objects were built using a shared-equity construction scheme, many such premises are held by the owners, and are not available on the free rental market.
TENDENCIES AND FORECASTS • • •
• •
The volume of commissioned office spaces will increase, due in large part to the considerable number of projects that were postponed in 2012; Rental rates in B2 class premises are expected to increase; There is a high probability that the upper limit of rental rates in B1 class offices will increase. Such rates will be moving closer to the lower rental rates of A class premises; Vacancy rates in A class premises will decrease; New business centres will be filled as a result of deferred demand.
27
Fishman Group Ingrado
7
10,996 14
9,700
36
21
Belspetsproekt Studencheskiy Dom
19 4
9,525
1
9,200 8,300
11
A1 Development
В2 В2 В2 В2 В1 В2
9 32
29
15
5
31
20 33
40
7,800
27
6
16
34
11
24
24 10
В2
28 1 4
26
В2
В2
2 13 9
42 15
37 23
35
3
78
В2 Delorm
41 13
23
Festivalny Centre
7,500
Techinmash
6,700
IV-Invest
6,000
HTP Administration
5,200
IDC Group
3,850
22
6 44
18
12
30
2 3
6
5 5
16
2 39 46
22 17 8 2518 25 20 4
45
3,100
Lankorma
4,500
ElitStroyTechM ontazh
2,500
В2 No name Source: Colliers InternationalLeskomplekt
19
8 | COLLIERS INTERNATIONAL
17
21
26
12 3 38
Map data (c) OpenStreetMap (and) contributors, CC-BY-SA
Existing Developments Source: Colliers International
7,400
10
14 43
7
Источник: Colliers International
Promstroy Trust
1
Completions in 2012
Declared for Completion in 2013
REAL ESTATE MARKET | ANNUAL REVIEW 2013
| BELARUS | RETAIL MARKET
Retail Market DYNAMICS OF RETAIL TURNOVER IN REPUBLIC OF BELARUS
20
140%
18
120%
16
100%
14 billion EUR
12
80%
10 60%
8 6
40%
4
20%
2 0
0% 2005 2006 2007 2008 2009 2010 2011 2012
Percent of previous year
Billion EUR
Source: National Statistical Committee of the Republic of Belarus Ministry of Trade of the Republic of Belarus
DYNAMICS OF THE CHANGE IN MODERN RETAIL SPACES IN MINSK
OVERVIEW Unlike in the previous year, the consumer market was stable in 2012 and underwent neither stages of consumer rush, nor periods of decreased consumption. Meanwhile, market development was positive and the consumption of non-food products prevailed over the consumption of food products, which shows an improvement in consumer moods. The overall growth rate of the retail turnover demonstrated positive dynamics. In part, this was determined by the recovery of the financial income of the population to the pre-crisis level after the drop caused by the devaluation of the national currency in 2011. The growth rate of the retail turnover in euros amounted to 12 per cent in 2012. The volume of retail turnover through all market outlets was the greatest in the last few years and exceeded EUR 19 billion. The normalisation of the financial income of the population, the stability of the national currency and the activity on the consumer crediting market had an effect on the positive structure of consumer spending; the spending on non-food products exceeded that on food products, though the difference was not significant. At the same time, the food retail segment saw an increase in demand for higher quality products. An important event last year was the coming into effect of the Decree No. 150 of the President of the Republic of Belarus of 1 April 2012 ”On some issues related to renting and gratis using of property”. The decree spelled out the concept of the basic rental amount for state and municipal objects and, more importantly, waived the administrative control of the formation of rental rates at privately owned retail real estate objects. Previously, the state controlled the pricing and owners of shopping centres were required to justify the prices. On some occasions, the state had to intervene in order to artificially prevent the price growth. Retail chains were developing actively in 2012. For example, Euroopt chain, one of the leaders of the Belarusian food retail segment, increased the number of outlets from 68 at the end of 2011 to 123 at the end of 2012. Other chains were also increasing the number of outlets and entering new formats. For instance, the largest format of stores of the Sosedi chain before 2012 was the supermarket. In 2012, the chain launched a pilot hypermarket as an anchor tenant at the ALL shopping centre. The market saw the process of chain consolidation and several facts of mergers and acquisitions were reported. As a result, the Ministry of Trade of the Republic of Belarus made the decision to take seriously the issue of applying anti-monopoly measures in the retail market. According to preliminary information, chains will be prohibited from holding a market share of more than 30 per cent in one residential area.
800 700 600
(000) sqm
500 400 300
SUPPLY AND NEW CONSTRUCTION
200 100 0 2006 2007 2008 2009 2010 2011 2012 2013 (f)
Total stock
New construction
Forecast
Nine new retail real estate objects important to the market were commissioned in 2012. Among them was Zamok, a large shopping and entertainment centre. Another launched object was the shopping and entertainment centre Galileo. However, the Galileo centre has not started functioning yet, as tenants are still preparing to open their shops. The first stage of the Zamok shopping and entertainment centre was commissioned in 2012: it includes 31.8 thousand sqm out of a total GLA of more than 93 thousand sqm. Only the first floor is currently functioning, where a food hypermarket and a domestic appliance supermarket are located.
Source: Colliers International
It should be noted that the Nemigoff shopping centre was commissioned and launched in 2012 as a part of the shopping and office complex at 3 Nemiga St; this object, which had been initially announced under the name of Slavianski, was expected to enter the market back in 2008. Therefore, the format of the object was already outdated by the time of launching.
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REAL ESTATE MARKET | ANNUAL REVIEW 2013
DISTRIBUTION OF NEW PROJECTS SCHEDULED FOR COMPLETION IN MINSK IN 2013 BY AREA
| BELARUS | RETAIL MARKET
Another important event of 2012 was the construction readiness of the shopping and entertainment centre Galileo (the object had been initially announced under the working name of Avtovokzal Centralny). However, since the object will be fully functioning only after the shops will be opened in Q2 2013, this object is not included in the 2012 data. The object is planned to accommodate shops of new retail chains that are not yet present on the Belarusian market. Among other retail real estate objects of modern formats launched in 2012, the commissioning and launch of two objects is worth mentioning: namely, the ALL shopping centre, the anchor tenant at which is the Sosedi chain with a pilot hypermarket, and Hippo hypermarket.
11
A large-scale reconstruction of the Stolichny Shopping Centre, former Stolichny supermarket, which was closed in 2008, was successfully completed in December. With a GBA of 2.3 thousand sqm, it is not a very large object, but it has been a significant and symbolic object in the history of the Minsk retail market since the 1960s.
80,0% >10,000 sqm
2013 is expected to be rich in terms of retail real estate development in Minsk. Apart 5,000-10,000 sqm from the beginning of full-scale functioning of shopping and entertainment centres Galileo and Zamok, a third large shopping and entertainment centre, Arena City, will be under 5,000 sqm launched. It was initially expected to enter the market in 2012. The total area of the object is nearly 88 thousand sqm, while the GLA of the shopping and entertainment area exceeds 33 thousand sqm. The object had a high level of construction readiness in the end of 2012.
5
15,2%
4
4,8% Number of projects
Share in total projects' area
The probable completion of a number of large retail objects that were initially scheduled to enter the market in 2013 is quite high. More than 10 neighbourhood and district shopping centres are likely to be commissioned. In general, new retail spaces with a total GLA of more than 250 thousand sqm are expected to enter the market in Minsk in 2013.
Source: Colliers International
Two multi-purpose shopping and entertainment centres will undergo the active construction stage in 2013. These will be Galleria Pobediteley 9 in the centre of Minsk and Green City in one of the most populated suburbs.
MODERN RETAIL REAL ESTATE MARKET IN REGIONAL CITIES OF THE REPUNLIC OF BELARUS
Objects of large formats with GLA exceeding 10 thousand sqm are prevailing among the projects scheduled for completion not only in terms of the total number, but also in terms of the total area.
250 000
GLA sqm
Projects expected to be completed in 2013 reflect the tendency observed during the past three years; the geography of such objects is gradually shifting from the city centre to suburbs. This is caused not only by the increasing deficit of land plots suitable for project implementation in the city centre, but also by the growing interest of developers in residential districts where most of the population resides.
200 000
90 800
150 000
100 000
REGIONS
66 400
49 824 114 700
50 000
68 400
22 000 28 600 60 450 59 200 64 500
0
Brest
Vitebsk Gomel Grodno Mogilev
Total stock
New construction
Source: Colliers International
10 | COLLIERS INTERNATIONAL
The retail real estate market was developing very actively in some regional cities during the last few years. Such areas mostly included cities and towns with more than 100 thousand inhabitants. The rate of development of the modern retail real estate market in regional cities is comparatively uniform. Retail spaces are slightly bigger in Vitebsk as a result of the commissioning of large objects like the Korona shopping centre and the Marko-City multi-purpose complex. Other large objects are currently being constructed in Vitebsk. Compared with the overall situation in the regions, the retail infrastructure in Brest is well developed. Large new shopping centres Korona and Euroopt are operating in the city. Sovetskaya Street in Brest has probably the most developed segment of street retail in the entire country. The Grand Fashion House company is expected to launch its shopping complex on Kuibysheva Street this year. In terms of its format, the object is very similar to a fashion centre. A number of other projects are currently in various stages of implementation.
REAL ESTATE MARKET | ANNUAL REVIEW 2013
STRUCTURE OF DEMAND FOR SPACES IN MODERN SHOPPING CENTRES BY THE NUMBER OF APPLICATIONS
| BELARUS | RETAIL MARKET
In 2012, the city of Gomel was leading in terms of large purchase and sales transactions in the retail real estate market. For instance, Eurotorg company acquired the Liniya shopping centre, the total area of which exceeds 13.5 thousand sqm, from Russia’s Liniya GRINN group. NP-Service acquired a 29.5 thousand sqm shopping centre with a multi-level parking facility from the local development company Novy Standart.
DEMAND
under 50 sqm
3%3% 22%
50 - 100 sqm
39%
100 - 300 sqm 300-500 sqm 33%
>500 sqm
The demand for small areas in retail galleries (up to 50 sqm and 50 to 100 sqm) still remains high. Individual entrepreneurs and domestic retailers from the category of small enterprises are interested in such areas. Such areas also attract chains selling expensive items, e.g. watch shops, jewellery shops, mobile phone shops and some others. Meanwhile, the development of the most successful chains present on the market as well as the entry of new market participants has increased the interest in areas of 300 to 500 sqm and larger, depending on the standards adopted by the companies. The number of applications for such areas is gradually increasing. Food retail chains became more interested in rental spaces. Such companies are interested in areas starting from 700-800 sqm and up to the hypermarket territory areas.
Source: Colliers International
RENTAL RATES Rental rates in rubles went up in 2012 due to the coming into effect of the Decree No. 150 of the President of the Republic of Belarus. For objects owned by the state or municipalities or of equivalent form of ownership, rental rates went up due to the introduction of the basic rental amount (BYR 54 thousand) instead of the previous basic amount used to set rental rates, which amounted to BYR 35 thousand by 1 April 2012. Since the exchange rate of the Belarusian ruble against the Euro remained relatively stable throughout the year, rental rates in euros at such objects increased as well.
RENTAL RATES Area
Rental Rates*
Up to 50 sqm
40 – 100
50 to 100 sqm
25 – 45
100 to 500 sqm
10 – 30
more than 500 sqm
7 – 19
* - EUR per square meter per month, VAT excluded Source: Colliers International
The rates at privately owned objects went up because the Decree No. 150 legitimated free pricing in this sector. As a result, the average rental rates in the city increased within a few months after the Decree had come into effect: rental rates for food product retail spaces went up from EUR 8 to EUR 19 per sqm; those for non-food product retail spaces increased from EUR 14 to EUR 25 per sqm. According to experts at Colliers International, the rates at some objects went up by as much as four times. The most noticeable increase in rental rates occurred in marketplaces and shopping centres of old formats, where individual entrepreneurs are the main tenants. Rate fluctuations were not so obvious at modern objects, where tenants are retail chain operators, because in such cases the tenants and the operators had been trying to agree on mutually acceptable rates since the end of 2011, after the situation on the monetary and financial market had stabilised. Price changes that occurred in 2012 can hardly be referred to as an increase in rental rates. The rates did not reach the pre-crisis level reported in H2 2010 and Q1 2011 at all shopping centres. However, there are objects that saw a considerable growth of rental rates. The increase of the rates for small premises was especially notable. The main reason for such an increase was not the aforementioned decree, but the stabilisation of the consumer market, the growing demand and, as a result, the increasing activity of the retailers.
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REAL ESTATE MARKET | ANNUAL REVIEW 2013
| BELARUS | RETAIL MARKET
VACANCY The increase in the amounts of rental rates did not result in a considerable increase in the volume of vacant areas. According to city authorities that monitored the situation at shopping centres and marketplaces across Minsk during the first few months after Decree No. 150 came into force, only 0.01 per cent of all the tenants in Minsk refused to enter into new agreements or additional agreements appended to contracts still in force.
VACANCY RATES AT SHOPPING CENTRES IN MINSK
7,0%
6,0%
Experts at Colliers International notice that the vacancy rates did not increase at privately owned shopping centres either. There are objects on the market in which premises either are not being filled or are being positioned on the market for a long time before being filled. Such objects are of old formats.
5,0% 4,0%
3,0% New objects did not have a significant effect on the vacancy level because they did not have a large volume of vacant spaces to offer on the free rental market. The ALL shopping centre was the only exception, as it was a totally speculative project. However, the premises at this object were filled within some three months after opening.
2,0% 1,0%
0,0% 2007
2008
2009
2010
2011
Source: Colliers International
RETAIL REAL ESTATE OBJECTS SCHEDULED FOR LAUNCH IN 2013
2012
Rental spaces at large objects like shopping and entertainment centres Galileo and Zamok as well as Arena City, which is to be launched next, will have much influence on vacancy rates in 2013, because the filling of the object by tenants will peak during that period. Since the filling process continues, it is difficult to tell how many vacant spaces will remain at the object at the time of opening, but there will definitely be some.
Project
Developer
GLA, sqm
Arena-City* Koltso (1st stage) Zamok (2nd stage) Galileo
Triple Rostem
33,270 24,000
TabakInvest BNK Engineering TabakInvest
21,400
Tivali Centre
Festivalny Centre
20,000
Skala
Rapa Torg
17,000
А-100
А-100
12,200
• Rental rates will remain stable and will be increasing at some new projects;
Bonus
PIK - Invest
10,400
• The dynamics of the growth of retail turnover will be positive;
No name
Mortex BCZ
10,000
Euroopt
Eurotorg
10,000
Nemiga-5
Fart i V
9,900
• Retail companies will keep acting as developers;
Grand Fashion Mall Euroopt
Autobiznes
8,700
• Anti-monopoly regulation of retail trading activities will be toughened.
Eurotorg
8,000
Slavianski Kvartal
6,200
Vitalur
Vneshekono mstroy Vitalur
No name
Lankorma
4,900
Vitalur
Vitalur
4,000
А-100
А-100
2,475
Vitalur
Vitalur
2,250
Korona-Uruchje
Source: Colliers International
12 | COLLIERS INTERNATIONAL
20,400
TENDENCIES AND FORECASTS
• A number of construction projects with GLA of more than 20 thousand sqm will be completed;
• Objects launched in December 2012 will start functioning on the full scale;
20,300
• New foreign chain operators will enter the Belarusian market;
5,000
• The geography of presence of some retail chains will be expanded. Retail operators will be active in the markets of regional cities;
• The volume of investments in the retail sector and retail real estate will increase;
REAL ESTATE MARKET | ANNUAL REVIEW 2013
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| BELARUS | RETAIL MARKET
19 37
1
2
11 4
6 47
7
17
51 45
7
16
16 17
41 6
22 31 53 34
5
52
50 6
1
23 55
30 3 48
Zebra
18 9
9 54
1.
3
8
10
20 33
32 24
39
27 36
26 25 (
13 28
44 7
12
phase)
39
5 14
40
15
1
8
29
49
9 10 11 13 12 46 4 3 42 14
15
35
8
18 2 43 5
2 19 20
21 13 | COLLIERS INTERNATIONAL
Map data (c) OpenStreetMap (and) contributors, CC-BY-SA
REAL ESTATE MARKET | ANNUAL REVIEW 2013
| BELARUS | HOTEL MARKET
Hotel Market OVERVIEW
OPERATING CERTIFIED HOTELS IN MINSK Star Rating 5*
Name
Number of Rooms
Operator
Crowne Plaza Minsk
115
Princess Group (IHG) Hotel Europe
5*
Europe
67
4*
Victoria
169
Stolitsa
4*
Minsk
252
Hotel Minsk
3*
Dom Moskvy
14
Dom Moskvy
3*
Orbita
210
Hotel complex Orbita
3*
Planeta
306
Hotel Planeta
3*
Sputnik
136
Minotel
3*
U Fontana
3*
Yubileynaya
3*
IBB
18 239
41
Hotel U Fontana Hotel complex Yubileiny Johannes Rau International Centre for Education and Exchange Hotel complex Tourist
3*
Tourist
3*
Garni
49
Minotel
2*
Zvezda
94
Zvezda
202
In 2011, the possibility to strip the Republic of Belarus of the right to host the event was being discussed and the risk remained that the championship in Minsk would be cancelled. However, on 18 May 2012, the Helsinki Congress of the International Ice Hockey Federation (IIHF) approved Minsk as the host city for the 2014 World Championship. Documentary approval of Belarus as the host country of the 2014 World Championship had a positive effect on the moods of investors and developers and added new dynamics to the construction of hotels and the development of related infrastructure. 2012 saw the active development of hostels and the hospitality business sector, which was new to Minsk. Only two hostels had been operating in Minsk previously, and both were launched in 2011. Meanwhile, four new hostels were launched in 2012, two of which belonged to the same owner. 2012 was also characterised by the development of yet another hotel real estate segment in Minsk: Comfort apart-hotel with 134 apartments, the first of its kind in Belarus, was opened in March. Marriot and Accor chains officially confirmed their intentions to operate on the Belarusian market in 2012. Marriot showed interest not only in the Minsk market, but also in the markets of regional cities like Brest. Meanwhile, it was also announced that the Rezidor SAS chain refused to operate the hotel based in the complex of the National Olympic Committee headquarters, and the municipal company called Stolitsa joined the project as the operator. The hotel was named Victoria Olymp.
SUPPLY AND NEW CONSTRUCTION
1,912
Total
Ever since 2009, the development of the hotel real estate market in Minsk has been related to the preparation of the city for the 2014 Ice Hockey World Championship (hereinafter – the 2014 World Championship).
A total of 30 hotels with 3,319 rooms, including the Robinson Club hotel that was opened in Minsk suburbs in 2011 and the Comfort apart-hotel, are currently operating in Minsk. The hotels can accommodate approximately 4,400 guests.
Source: Colliers International
Operator
14 hotels in Minsk that have a total of 1,912 rooms are officially certified for 2- to 5-star ratings. Hotel Tourist has been certified for a three-star rating too. To achieve that, in the period between 2005 and 2012 nine floors of the hotel were renovated, including full replacement of furniture and plumbing equipment.
Hotel Comfort
President Hotel (5*) and the reconstructed Poliot hotel were expected to start operating by the end of 2012. However, neither of the two hotels was launched.
PROJECTS CONPLETED IN MINSK IN 2012
Star Rating
Name
Apart-hotel
Comfort
Number of Rooms 134
3*
Garni
49
Source: Colliers International
Minotel
The hotel on Zamkovaya Street, constructed using city budget funds, had also been previously declared to be launched in 2012. However, by the end of the year the construction was only about 40 per cent complete, and the Minsk city authorities announced it was looking for a private investor to be able to complete the construction works. Neither the potential investor, nor the possible construction completion time, was known by the end of the year. The situation with the one-star hotel on Yakubovskogo Street, the first of its kind in Minsk, was unclear. The hotel was launched in the end of December 2011. However, it was not operating during the entire year of 2012. Meanwhile, as a real estate object, the hotel is officially planned to be launched in the beginning of 2013.
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| BELARUS | HOTEL MARKET
Therefore, just two new hotels with a total of 183 rooms were actually launched in Minsk during 2012.
ENTRY OF FOREIGN TOURISTS TO THE REPUBLIC OF BELARUS
34 projects (including those announced in the end of 2012) are currently in various stages of implementation and construction readiness in Minsk. 12 to 15 announced projects may actually be completed before the beginning of the 2014 World Championship.
140 000s
120
Sites earmarked by the Minsk City Executive Committee for the construction of hotels remain reserved and investors are still interested in them. Therefore, the development of new projects to be completed in 2015-2016 may be expected in the future. The total number of ongoing and potential projects in Minsk is estimated at 46.
100 80
A number of new hotel construction projects were announced in 2012. Some of them are currently at the level of declarations of intent and have not been designed yet. Some others started being constructed immediately upon announcement. Among new participants of the hotel development sector, Lada OMS Engineering is especially worth mentioning. After the completion of the Comfort apart-hotel project, the company announced the beginning of implementation of two other hotel real estate projects adapted for international operator Accor, which owns Novotel and Mercure networks.
60
40 20 0 2007
2008
2009
2010
2011
2012
Source: National Statistics Committee of the Republic of Belarus
Adjustments to the previously announced projects were voiced as well. For example, the number of rooms in the project of a hotel located in the multi-purpose complex at the intersection of the Pobediteley Ave. and the Narochanskaya St. was reduced from 264 to 130. Some market participants start noticing yet another problem related to the rapid development of the hotel market in Minsk, and that is professional personnel. At least 3 thousand qualified staff members are expected to be needed in the 2013-2014 period. There is a risk that due to the lack of well-trained personnel, the vacancies will be filled by staff with a high-turnover, which will negatively affect the quality of services.
TOURIST ACTIVITY BY COUNTRY
DEMAND AND PRICES 3% 2% 2% 2% 1% 2% 3%
CIS
7%
Lithuania Poland
According to the statistical data provided by the State Border Committee, 6.13 million foreigners visited Belarus in 2012. 4.3 million of them visited the country on private or business visits or as tourists. Minsk was visited by 400 thousand foreigners, mostly on business visits.
Latvia Germany
Italy UK
78%
Turkey Other countries
More than 118.7 thousand people visited Belarus as members of organised tourist groups in 2012. Just like previously, medical tourism, especially the segments of health resorts and dentistry, remain popular with foreigners, being very attractive in terms of the price to quality ratio. Hunting tourism tours are also popular; such tours generated 50 per cent more revenue in 2012 compared with the previous year. In 2012, market participants also noticed that the visiting of farmsteads and gaming establishments is becoming popular with foreign tourists, and especially with citizens of the Russian Federation. ACCOMMODATION PRICES AT MIMSK HOTELS, PER DAY
Source: Colliers International
Star Rating
Standard Room
Double Standard
Deluxe
Apartment
5*
240 - 270
260 - 310
330 - 370
550-1400
4*
138 - 143
159 - 184
222 - 247
437 - 615
3*
67 - 86
87 - 125
99 - 201
214 - 367
Source: Colliers International
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REAL ESTATE MARKET | ANNUAL REVIEW 2013
DYNABICS OF THE AVERAGE HOTEL OCCUPANCY IN BELARUS AND MINSK 70
| BELARUS | HOTEL MARKET
Residents of the CIS are prevalent among the foreigners visiting Belarus due to the absence of a visa regime. Citizens of a number of remote foreign countries also enjoy a visa-free regime with Belarus, but they visit Belarus not as actively because of their remote geographical location. In 2012, Belarus issued 450 thousand visas to citizens of countries that have a visa regime with Belarus, including the EU Member States. Hotel accommodation prices in Minsk remained virtually unchanged in 2012 compared with the previous year; on the one hand, accommodation costs did not decrease, and on the other hand there was no point for hoteliers to raise the prices, since prices at Minsk hotels were higher than those found at most capital cities of Central European countries. As a result, the situation in which potential hotel clients prefer private apartments available for short-term rental is typical for Minsk.
% 65 60
55 50
However, prices increased slightly in the segment of three-star hotels at the end of the year; the Garni hotel was launched in September, and the prices of certain types of rooms at the hotel were above the market average.
45 40 35 30 2005 2006 2007 2008 2009 2010 2011 2012 Belarus
Minsk
Source: National Statistical Committee of the Republic of Belarus
In December 2012, hoteliers were offered a draft memorandum stipulating the pricing at Minsk hotels during the period of the 2014 World Championship. The main purpose of the document was to reach a corporate agreement not to raise the prices of hotel services by more than 10 per cent compared with the current level.
OCCUPANCY RATES According to the results of 2012, the number of guests at the hotels in Belarus and Minsk is expected to go up by 2.5 to 4.5 per cent compared with the previous year.
DYNAMICS OF THE CHANGE IN MODERN RETAIL SPACES IN MINSK 000s
450
The positive dynamics of the growth of the number of guests led to good occupancy rate results. The average occupancy rate in Minsk was 68 per cent, while the national average was 43 per cent. Occupancy rates were the highest at inexpensive hotels without a star rating as well as at two-star hotels. The average occupancy rate of such hotels reached 96 per cent.
400 350
The three-star hotel Garni, which was launched in September, reported the occupancy rate of more than 90 per cent during the first months of operation.
300 250 200
Just as in previous years, the number of foreign guests exceeded that of the local guests.
150 100
TENDENCIES AND FORECASTS
50 0
2006 2007 2008 2009 2010 2011 2012
Foreigners
Local
Source: National Statistical Committee of the Republic of Belarus
• Within the framework of preparation for the 2014 Ice Hockey World Championship, construction works in projects scheduled for completion before the aforementioned event are becoming more active;
• The number of announced new projects at sites reserved for hotel construction will decrease;
• The integration of Belarusian hotels into international booking systems will continue; • Developers will keep attracting major international operators to the projects; • International operators are expected to show interest in projects developed in regional cities of the Republic of Belarus;
• The level of competition on the market of hotel services will remain moderate in 2013 due to the completion of most of the announced projects by the end of the year.
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| BELARUS | HOTEL MARKET
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5 7
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30
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REAL ESTATE MARKET | ANNUAL REVIEW 2013
| BELARUS | INDUSTRIAL MARKET
Industrial Market OVERVIEW
DYNAMICS OF THE LAUNCHING OF MODERN WAREHOUSSING FACILITIES IN MINSK AND MINSK DISTRICT
700
Sqm (000s) 600
500
Construction work on 23 large warehouse real estate objects was undertaken at 22 sites in the Republic of Belarus in 2012. 15 such projects were located in the territory of the Minsk Region. When taking into consideration both new objects and existing objects that are undergoing modernisation and development of warehousing infrastructure, a total of 48 projects are being developed in the country. Rapid high-quality development of modern logistics infrastructure is important for Belarus because of the need to implement the action plan aimed at improving the country's rating in the World Bank's Logistics Performance Index. This fact is not a mere formality for Belarus; the development of logistics infrastructure and the improvement of the country’s position in the mentioned rating opens up many new prospects for Belarus in the global goods movement system. This is especially important considering the location of the Republic of Belarus between the EU and the CIS, the country’s participation in the Customs Union with Russia and Kazakhstan, and the transition of trans-European corridors No. 2 and No. 9 through the territory of the country (west to east and north to south). The prospect of Belarus in the European logistics system was mentioned in the ”European Industrial & Logistics: A Long-Term Review” report of the central office of Colliers International in the EMEA region, according to the results of extensive research of the European logistics market, which was carried out together with the company’s partners.
400
EUROPEAN LOGISSTICS CENTRES IN 2020
300
200
100
0 2006 2007 2008 2009 2010 2011 2012 2013
Expected Construction New Construction Source: Colliers International
Source: Colliers International
According to the conclusions made by European researchers, Minsk and Belarus have all chances to become potential centres of distribution in Europe, potentially being incorporated into the global regional logistics system by 2020. In order to realize this possibility fully, both the state and business community need to develop the logistics infrastructure in Belarus to similar levels as in established logistics centres throughout Europe, especially since other regional logistics centres are expected to emerge in the East, and they may either add to the Belarusian vector or become its rivals.
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REAL ESTATE MARKET | ANNUAL REVIEW 2013
ОСНОВНЫЕ СКЛАДСКИЕ ДЕВЕЛОПЕРЫ В 2012 г. (ПО ОБЪЕМУ НОВОГО СТРОИТЕЛЬСТВА)
4
| BELARUS | INDUSTRIAL MARKET
The expediency and attractiveness of this segment of commercial real estate developers is worth mentioning separately. According to information from Beltamozhservice company, the owner of two transportation and logistics centres, workload of the company’s transportation and logistics centre in Brest exceeds 100 cent (the company has to look for additional spaces to meet clients’ demands); workload of the object located near Minsk, which was launched later, reaches 72 cent, and the profitability of logistics services stands at 80 per cent.
for the the per the per
The analysis of the first year of activity of the transportation and logistics centre revealed that the estimated project payback period may be decreased from 8 to 5 years. Therefore, the payback period of the Schitomirichi transport and logistics centre, a new large object scheduled for launch in 2013, is estimated at 6 years.
77 205
The recent Decree No. 284 of the President of the Republic of Belarus on 21 June 2012 simplified the documentation procedures and eased the requirements for wholesale and warehousing of alcoholic beverages, alcohol-containing products and tobacco products; this decree, in turn, has simplified the activity of logistics operators.
9 68 755
SUPPLY 1
New industrial real estate objects, including warehousing logistics objects, were being actively launched in 2012.
4 800
Number of projects
% GBA of projects
13 new warehousing complexes with a total area of around 140 thousand sqm were launched in the territory of Minsk and the Minsk Region during the year.
above 10 000 sqm 5 000 - 10 000 sqm under 5 000 sqm Source: Colliers International
MODERN WAREHOUSING COMPLEXES LAUNCHED IN 2012 Developer
Type
Belvingeslogistik (Belintertrans) BLT-Logistic, second stage Vladprodimport
Logistics Centre Logistics Centre Logistics Centre Distribution Centre Logistics Centre
Eurotorg MZBN
GBA, sqm 19,300 20,770 19,340 10,795 10,000
Logicom Import Ltd.
Warehousing Complex
9,750
Ernis
Distribution Centre Warehousing Complex Logistics Centre Warehousing Complex Distribution Centre Logistics Centre Warehousing Complex
9,055
Grand-Elite Minsk Kristall Evrokad Belrusinvest, Second Stage Amazon-Kolorit Victoria-91 Total:
Source: Colliers International
19 | COLLIERS INTERNATIONAL
8,000 7,300 6,700 5,950 5,600 4,800 137,360
Just as in previous years, companies of the built-to-suit segment were the most active developers in the warehousing real estate market in 2012. However, during the previous years, such objects were usually small and aimed at covering the existing demand of companies for warehousing spaces. Meanwhile, projects developed in 2012 were focused on quality and technological equipment. For instance, the Minsk Kristall trade and logistics centre is a unique object in its own way; being 24 meters high at the highest point, it allows eight-tier storage, has autonomous water supply and heating systems, and features fully automated transport operation management. Not all announced objects entered the market in 2012. However, this year was well ahead of the previous ones in terms of the amount of launched warehousing spaces. In 2012, developers had planned to launch modern warehouses with a total area of more than 240 thousand sqm. However, the first stages of the biggest logistics complexes, including Prilesye and Schomyslitsa, as well as some smaller objects were not completed. Projects and start-up facilities in projects that postponed their launch dates are likely to be launched in 2013 because the construction readiness of such projects is quite high. Therefore, more than 240 thousand sqm of new warehousing spaces may be launched in 2013. A number of projects scheduled for launch in 2014-2015 were also announced in 2012. For example, Eurotorg Company, which operates Euroopt, one of the biggest retail chains in Belarus, announced the construction of new warehouses. The need to build new warehouses arose because two of their existing warehouses that were launched near Minsk in 2010 and 2012 are unable to satisfy the needs of the rapidly growing network. As a result, the company is currently building a 23 thousand sqm logistics centre in Baranovichi, Brest Region, and may also build another large object in the Minsk Region. The Belintertrans Company, which operates the logistics centre in the Valozhyn District, intends to build a large transportation and logistics centre near the Khatezhino village in the Minsk District. For this purpose, it established the authorised company M-LogisticCity; more than 55 thousand sqm of warehousing facilities will be built in the territory of 15 ha.
REAL ESTATE MARKET | ANNUAL REVIEW 2013
DISTRIBURION OF PROJECTS SCHEDULED FOR 2013 BY AREA
| BELARUS | INDUSTRIAL MARKET
Transportation and forwarding company InterTransEkspeditsiya intends to build its own transportation and logistics centre in Dzerzhinsk. Another logistics operator and developer, the Belrusinvest group, will start building a new 18 thousand sqm logistics centre in 2013.
4 51%
The objects scheduled for launch in 2013 preserve the tendency of the increase in the number of projects with large areas and the prevailing of such projects over the small ones. However, medium-sized objects with areas of 10 to 20 thousand sqm are popular; they are prevailing in terms of the number of such objects and constitute a considerable percentage of the total volume of spaces.
6
DEMAND 44%
2 5% Number of Units
% GBA of Units
20,000 and more sqm 10,000-20,000 sqm
Unlike the crisis year 2011, 2012 saw a clear normalisation of the demand for warehousing spaces. The demand from consumers for spaces in new warehousing and logistics complexes launched in 2011-2012 was stable. What is especially important, the demand for large spaces was high, and the main tenants were professional distributors and logistics companies: in some objects, the tenants were affiliated with the owners, while other objects were rented out to third-party operators. For example, an area of 6,000 sqm at the BelVingesLogistic logistics complex was rented out to foreign limited liability company ALIDI West, a regional subsidiary of Russia's ALIDI Group. The remaining spaces were operated by its subsidiary L-BIT Group.
5,000-10,000 sqm Source: Colliers International
DISTRIBURION OF PROJECTS SCHEDULED FOR 2013 BY AREA
The entire complex of Techstroyresurs company, including warehouses and administrative and residential premises, with a total area of 15,811.5 sqm was rented out to the limited liability logistics company Kompaniya FSK Logistic, a subsidiary of the Russkie Sladosti limited liability company, which was previously located at the Novinki complex owned by BLT-Logistic. Limited liability company European Fastening Technologies became the new operator of the mentioned complex. Meanwhile, BLT-Logistic focused on running a new complex in the Obchak village with a total area of more than 41 thousand sqm. The complex was launched in two stages in 2011-2012.
25,0%
50,0%
25,0%
Professional logistics companies
Distributors and retail trade representatives were also active in the rental market. For example, the entire warehousing complex with administrative premises with a total area of 7,000 sqm, built by Evrokad in Bolshoi Trostinets, was rented by Patio, the operator of the 5 Element chain of domestic appliance supermarkets. Companies within this segment as well as manufacturing companies were also the most active in the built-to-suit segment. In 2012, the main tendency in the rentals market was as follows: professional logistics companies became the main tenants instead of food product distributors, who dominated in the warehousing rental market previously. Another typical feature of 2012 was that the demand for large warehousing premises was not satisfied; as a result, the demand for spaces in objects to be launched in the short and medium term is likely to be high.
Non-food products Food products
RENTAL RATES
Source: Colliers International
Following the drop and the subsequent rise observed in 2011, rental rates stabilised in 2012. However, the range of rental rates for objects of comparable quality expanded slightly, partially because of certain cases when tenants rented large spaces and even the entire new objects (resulting in a drop of rates), and partially because of owners’ attempts to raise the rental rates for small spaces above the market level.
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| BELARUS | INDUSTRIAL MARKET
12
There are no obvious preconditions for a drop in rental rates in 2013, as some of the objects expected to be launched this year are built-to-suit objects, and others are being built through shared-equity construction projects, which reduces the total volume of rental spaces. There is also a high probability that not all of the planned projects will be completed this year.
10
Therefore, the market will not be oversaturated with new warehousing spaces in 2013, and the rental rates will remain on a considerably high level.
DYNAMICS OF RENTAL RATES
EUR
8
VACANCY
6
Following the post-crisis normalisation of economic activities of Belarusian companies, by the end of 2011 the vacancy rate in the market of warehousing spaces stopped growing and started showing signs of decrease. This process continued throughout 2012.
4
2 2007 2008 2009 2010 2011 2012 Class B
The launch of a considerable volume of new spaces did not result in increase of the vacancy rate: the supply was being immediately absorbed due to the deferred demand that occurred in the previous year.
Class A
Source: Colliers International
DYNAMICS OF VACANCY OF WAREHOUSING FACILITIES
10,00% 9,00% 8,00%
The supply was increasing only upon the launch of some new objects. However, rental spaces were being positioned on the market for a very short period of time and were removed from the supply within 1.5 to 3 months. While small spaces were still available on the market, the demand for spaces of several thousand sqm was often not satisfied. The situation did not change by the end of the year, since several new objects were launched at that time, causing the supply to increase. Some spaces may also become available to market participants within built-to-suit objects after their owners make final decisions regarding the necessity for spaces to meet the needs of their own businesses. For instance, at the end of the year, the Minsk Soft Drink Factory offered for rent 3,200 sqm of warehousing spaces in its complex with a total area of 10 thousand sqm. Meanwhile, Vladprodimport rented out some of its spaces to the retail chain operator Euroopt.
7,00% 6,00% 5,00%
TENDENCIES AND FORECASTS FOR 2013
4,00%
• There will be moderate growth of supply in the rental market as a result of the launch of new objects;
3,00% 2,00%
• The first objects in large logistics parks that are currently under construction will likely be launched;
• The current level of rental rates will remain unchanged; 1,00% 0,00%
• The demand for the services provided by customs warehouses and terminals, including the demand from non-residents of the Republic of Belarus, will increase because of the activity of the Customs Union of Russia, Belarus and Kazakhstan;
• Activity of developers from the built-to-suit segment will remain high; • The market will see implementation of projects adapted for subsidiaries of logistics Source: Colliers International
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companies and logistics companies affiliated with the developers.
REAL ESTATE MARKET | ANNUAL REVIEW 2013
| BELARUS | INDUSTRIAL MARKET
3 15
19
12
7 5 12 4 2 10
6
4
11 9
3
1
21
17 8
10 2 7 11 14 11 9
13 1
1
8 12
8
4
9
7
10 22 20
3
5
2 18
13
5 6
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6
BELARUS Legal Real estate in Belarus can be purchased in two ways – via an asset transfer deal or via a share transfer deal. Asset deals and share deals relating to real estate are both commonly used in practice.
Asset Transfer Deals Main Steps Usually the sale of real estate by one party (seller) to another party (buyer) would be completed within 2-3 months following these main steps: 1. The parties agree on the main terms of the deal (eg full information about the real estate object, purchase price, payment mechanism, deadline for signing the final agreement). Sometimes, in the case of a larger real estate transaction, the agreement between the parties on the main terms of the deal is reproduced in a letter of intent or a preliminary purchase agreement concluded by the parties. Due diligence of the real estate may be performed before the transaction. 2. If the real estate is subject to a right of first refusal to acquire the property by local authorities, the seller offers the local authorities to exercise their right. The offer contains the same conditions as agreed between the seller and the buyer. Local authorities have up to 5 working days to decide. If the real estate is in joint ownership, the seller offers the co-owner to exercise its right of first refusal to acquire the property. The co-owner has up to one month to decide. 3. If a third party with a right of first refusal acquires the property, then the purchase agreement is concluded with that party. If a party with the right of first refusal declines acquisition then the seller and the buyer sign a purchase agreement in at least three copies. 4. All copies of the signed agreement must be registered with the Unified State Register of Real Estate, Rights thereto, and Transactions therewith (the Real Estate Register). Registration is performed on the basis of an application signed by the representatives of both parties. In the purchase agreement the parties are free to authorise one of them to sign the application on behalf of both of them. 5. After registration of the purchase agreement with the Real Estate Register, registration of the transfer of the title to the property may be requested. Registration of the title may also be requested together with registration of the agreement, unless otherwise provided by the purchase agreement. It is common for the seller to require payment of the full price prior to the transfer of real estate to the buyer and registration of the buyer’s rights in the Real Estate Register. Under current law, as a general rule, real estate is considered to be mortgaged by the seller if it was transferred to the buyer but has not been fully paid. 23 | COLLIERS INTERNATIONAL
Main Benefits and Drawbacks
limited scope of due diligence investigation since the review concerns only the target asset; agreements on supply of utilities and other services must be assigned to the buyer or new agreements signed with service providers; in some cases possibility of exercise by the local authority of its right of first refusal to buy buildings situated within the respective administrative unit; and foreign individuals and legal entities cannot own land plots (except for foreigners who inherit land plots).
Transfer of assets of a unitary enterprise features certain peculiarities. A unitary enterprise is an organisational form of commercial legal entity established by one shareholder (founder). All assets of a unitary enterprise are considered the property of the founder and assigned to the unitary enterprise under business management. The authorised capital of a unitary enterprise is not divisible into shares. Assets of a unitary enterprise can be transferred either individually (asset transfer) or as an asset complex (a kind of share transfer). An enterprise as an asset complex is considered as real estate. Hence, a unitary enterprise as an asset complex, transactions involving an assets complex and rights to it must be registered with the Real Estate Register. Transfer of an asset complex requires subsequent amendments to the articles of association of the unitary enterprise and state registration of the amendments. The buyer of an asset complex (new founder of the unitary enterprise) assumes responsibility for the whole company including any matters that occurred before change of ownership, so that extensive due diligence is recommended.
Share Transfer Deals Main Steps The main steps for share transfer deals are: 1. Initial agreement on the transaction. This involves the understanding by both parties of the sale process. At this stage, the parties may sign a Letter of Intent (usually non-binding) that will in general state the understanding of both parties on the subject of the sale and the potential price (including price calculation). The parties may also sign a confidentiality agreement to prevent leak of valuable information. Usually at this stage a due diligence of the target company starts. Depending on the volume and business activities of the target company, the buyer performs legal due diligence, tax due diligence and financial due diligence, as well as other diligences that are less common – technical, environmental, and others. The aim of the due diligence is to identify potential risks having negative consequences for the business or share value of the target company. Results of the due diligence can lead to decrease of the purchase price, change of the transaction structure or even to a decision not to proceed at all. 2. Pre-emptive rights of shareholders If the seller sells a share in a limited liability company, additional liability company or closed joint stock company, the seller should first offer the share to other shareholders and the company itself. The shareholders and company itself should waive their rights to acquire the share prior to sale of the share to third parties. The share may be sold to third parties at the price and on the same conditions as offered to the shareholders and the company. 3. Obtaining consent of the antimonopoly authority to the transaction. In certain cases the consent of the antimonopoly authority (Department of Price Policy of the Ministry of Economy of Belarus or departments of price policy of municipal authorities) is needed before the transaction is even signed. Examples include transactions where the buyer and the target company operate in the same commodity market and all the following conditions are met: (i) the intended transaction relates to acquisition of shares of the target; (ii) the buyer and the target perform their activity in the same commodity market; (iii) the buyer’s activity covers more than 30 % of a certain commodity market; (iv) the buyer is a legal entity or an individual entrepreneur. The antimonopoly authority has one month to issue its consent for carrying out the transaction.
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1.
2.
3.
Agreement on terms and conditions of the transaction. If the results of the due diligence were satisfactory, the shareholders and the company waive their right of first refusal to acquire the share and the consent of the antimonopoly authority was obtained, the parties start work on the transaction documents. Depending on the complexity of the transaction, negotiations on the terms and conditions of the transaction documents can take from several weeks to several months. Closing the transaction. When the parties have agreed on all terms and conditions of the transaction agreements, signing of documents takes place. The time for closing is required to perform acts required for closing so that the title to the shares and control of the target company can be transferred from the seller to the buyer on the closing date. These include eg obtaining shareholders’ and company waivers, consent of antimonopoly authority, obtaining payment for shares, plus performing other acts stipulated in the share transfer agreement. Registration of changes of shareholders The amendments to the articles of association reflecting new shareholders of limited liability companies must be registered with the Unified State Register of Legal Entities and Individual Entrepreneurs (the USR). Registration takes one day. A change in the shareholders of open and closed joint stock companies is registered by the depository who enters new shareholders in a special shareholders register. No amendments of the articles with USR are required to formalize changes of shareholders of these companies.
Issues to Take Into an Account A share transfer of a company holding target real estate features the following: the buyer, on completing the transfer of shares, assumes responsibility for the whole company including any
matters that occurred before change of ownership; due diligence investigations are more extensive as a share transaction transfers the entire company (with all known and unknown rights and liabilities) as opposed to due diligence of target real estate only; ownership of shares is transferred either as of the date the company is notified of the share purchase agreement (for LLC) or as of the date of transfer of shares to the account of the buyer, held with a depositary (for JSC); and VAT is not payable.
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Title to Real Estate, Real Estate Register Land plots can be held by legal entities (including those with foreign investments) in Belarus on the following titles: right of ownership, right of permanent use, right of temporary use. Individuals and Belarusian and foreign legal entities can also lease land plots. Land plots, transactions, and titles to them must be registered with the Real Estate Register. Buildings, agreements with respect to buildings, and titles to buildings are also registered with the Real Estate Register. Lease agreements and lease rights to buildings need not be state-registered. The Real Estate Register stores information regarding the legal status of real estate, including encumbrances. The real estate information contained in the Real Estate Register is publicly available. However, a list of all real estate objects owned by a particular individual or legal entity is unavailable to third parties. General Land plots can be acquired as a result of allocation as decided by local authorities or as a result of a transaction. Transfer of a building involves transfer of title to the land plot to the new owner of the building. If the underlying land plot is leased, then the rights and obligations of the tenant of the land plot are transferred to the new owner of the building. An acquisition may be invalidated upon a claim by the buyer if the building is leased and the acquisition agreement does not contain information about it. Change of Ownership Change of ownership requires registration of the transaction, transition, and accrual of the right to real property with the Real Estate Register. The period for registration is usually seven working days as of filing all necessary documentation with the Real Estate Register. Fast-track registration procedure takes two working days.
Form of Agreements Transactions with real estate require written form. The transaction should be certified by a notary or the registrar of the Real Estate Register, if an individual is a party to the transaction (except for individuals acting in the capacity of individual entrepreneurs and having a seal). A transaction with real estate requires registration with the Real Estate Register, except for lease agreements of buildings and constructions. Lease agreements of buildings and constructions require written form.
Language Requirements No specific requirement exists under Belarusian law to use only the official state languages (Russian Belarusian) in agreements on real estate. However, the Real Estate Register may register only documents Russian or Belarusian. Hence, foreign language documents require a translation either certified by a notary signed by the parties. A bilingual agreement is also possible, but sometimes finds resistance on the part registrars.
or in or of
Due Diligence Before carrying out any real estate transaction, it is advisable to research, for example, ownership, history, encumbrances, and lease agreements. The results of research may help to set the final purchase price reflecting the value of the real estate. Some information is publicly available and can be obtained independently; other information requires involvement of the seller.
Rights of First Refusal Local authorities enjoy a right of first refusal to acquire certain buildings and other real estate located within their territory. The list of such buildings and other real estate is determined every year by local authorities. In practice this right is exercised very rarely. However, sale-purchase agreements may be registered with the Real Estate Register and ownership transferred to the purchaser only after the local authority has decided not to exercise its right of first refusal. 26 | COLLIERS INTERNATIONAL
Restrictions Restrictions on Acquisition of Real Estate Restrictions on real estate acquisition in Belarus apply to land plots and buildings. A foreign legal entity cannot own a land plot. A foreign citizen or person without citizenship may own a land plot only in cases of inheritance. Commercial buildings and constructions can be owned by foreign legal entities and individuals.
Encumbrances Real estate may be encumbered by servitudes, mortgages, lease rights, gratuitous use, and other encumbrances that should be considered in purchase and use of land plots and buildings.
Property Management Maintenance of real estate is usually carried out by the owner. In the case of joint ownership, owners may establish an owners’ association.
Lease Agreements General General terms for lease agreements are laid down in the Belarusian Civil Code. Terms of lease are subject to agreement between the parties. Lease agreements should specify the description of leased objects (inventory number, location, area) and the rent. Duration and Expiry of Lease Agreement The duration and expiry of a lease agreement are usually fixed in the agreement. Belarusian law lays down some general rules under which lease agreements may be for a definite or indefinite term. The Civil Code sets grounds for termination of a lease agreement by the court at the request of a party. The parties may agree additional grounds for termination by the court or unilaterally. Lease Payment and Accessory Expenses (Utilities) The amount and the currency of lease payment (rent) are subject to agreement between the parties. However, several restrictions apply to property owned by the state or companies with state share. Maintenance and utilities (such as water, gas and electricity) are usually paid by the tenant in addition to the rent.
Distressed Assets Purchase Acquisition of distressed assets may be a feature if a company that owns real property faces financial difficulty and needs emergency funds to cover debts. Distressed assets purchase is not specifically regulated in Belarus. However, the following issues should be taken into consideration. Time for closing a transaction with distressed assets is usually shorter as the selling company is under pressure to receive funds to settle with its creditors. Consequently, due diligence time frames may be shorter. At the same time, due diligence is especially required as risks related to distressed assets are higher (eg the property may be mortgaged or seized by a creditor). The risk is that insolvency proceedings may commence against the seller after disposal of distressed assets to a buyer. Under the Belarusian Law on Insolvency, transactions by the seller preceding insolvency may be held invalid. For example, a transaction may be held invalid if it took place within six months, one year, or three years before commencement of insolvency proceedings, depending upon the circumstances and grounds involved. Sometimes distressed assets are sold at a low – even nominal – price. This option should be thoroughly assessed, as the transaction may be held to be fictitious (eg intended to cover up a gratuitous transfer). This may mean that the transaction is held invalid and may also entail tax consequences (charge of profit tax plus penalties). 27 | COLLIERS INTERNATIONAL
ESTONIA, LATVIA, LITHUANIA, BELARUS TAX* SPECIAL NOTES
ESTONIA Estonia offers a unique CIT system as resident companies pay no income tax for retained or reinvested earnings. Income tax at a gross rate of 21% is deferred to the moment of payment of dividends, gifts, fringe benefits, non-business expenditure and excessive capital reductions. Personal income tax of residents, however, uses a more common approach, and tax is charged annually.
LATVIA
LITHUANIA
BELARUS As an alternative to the general system of taxation businesses may use the simplified taxation system (STS) and pay a unified tax imposed on gross revenues, provided that the established requirements on gross revenues within one calendar year and number of personnel are met. Gross revenues are considered to be the amount of revenues received during the taxation period as the result of sales of goods (work, services), property rights and nonoperating income. Depending on circumstances, the main tax rates under the STS are 3% (if the STS with payment of VAT is used); and 5% (if the STS without payment of VAT is used). Certain taxpayers and certain activities are subject to special taxation treatment. Eg, special taxation regimes are provided for residents of SEZ, residents of a High Technology Park (HTP), businesses carrying out their activity in small towns. The information provided below mostly concerns the general system of taxation
RENTAL INCOME
Rental income of 15% (equal to CIT) applies resident corporates does to taxable income based on not trigger CIT. annual financial profit or loss adjusted for taxation Rental payments by purposes. Estonian corporates to Estonian natural persons Individuals earning rental or non-residents are income pay 24% PIT on the subject to Estonian 21% profit (individuals with no or withholding tax. immaterial expenses can pay 10% on the gross rental income).
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15% CIT applies to net Rental profit is taxed at the income. general CIT rate of 18%. Reduced rate of 5% CIT applies to small companies with: - income less than LTL 1 million (approx. EUR 289,620) in 1 calendar year; and - less than 10 employees.
Individuals earning rental income pay 12% PIT on the profit. If an individual rents an apartment to some individual and the income from renting
THIN There are no traditional CAPITALISATION thin capitalisation rules, i.e. substantial debt financing at market rate interest is tax-neutral.
Two tests are applied: - the first is based on a 4:1 debt-to-equity calculation; - the second compares the interest rate paid with a rate of 1.2 times the statistical average of short-term loans by Latvian banks in the last month of the taxation period. Any excess interest calculated under either method is not deductible, and if both methods result in non-deductible interest, the higher amount is nondeductible. Non-deductible interest cannot be carried forward and is lost as a deduction. Financial and insurance institutions are not subject to thin capitalisation rules.
Deductions: all customary expenses incurred in relation to earning rental income. Exception: nondeductible expenses falling into an exhaustive list, e.g. fines, penalties, dividends, gifts.
obtained during a calendar year does not exceed a certain amount, then the rate of PIT is fixed. The exact fixed amount of PIT is determined by local authorities depending on the location of the apartment within the limits provided in laws.
Interest and currency exchange losses on debt in excess of a debt/equity ratio of 4:1 are non-deductible for CIT purposes if debt capital is provided by a creditor that: - directly or indirectly holds more than 50% of shares or rights (options) to dividends; - or - together with related parties holds more than 50% of shares or rights (options) to dividends, and the holding of that creditor is not less than 10%.
Thin capitalisation rules were introduced on 1 January 2013. These rules limit the deductibility of interest on loans to related parties and apply if the lender is: - a foreign company that directly or indirectly owns more than 20% of the authorised capital of a Belarusian company; or - a Belarusian company which is an affiliate of such a foreign company. The debt-toequity ratio is 1:3.
Exception: if a taxpayer proves that the same loan could exist between unrelated parties, thin capitalisation does not apply. Company Law: the interest rate on shareholders' loans may not exceed the average bank interest rate current in the location of the lender's business. Financial institutions providing leasing services are not subject to thin capitalisation rules.
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Exception: These rules do not apply to banks, insurance companies and companies which during the tax period received lease payments in an amount more than 50% of total revenues received from the sale of goods (works, services), property rights and income from operations of leasing (financial leasing) of the property.
DEPRECIATION AND LOSSES
Depreciation: A unique CIT system operates so that depreciation is entirely an accounting matter and any restrictions do not trigger CIT.
Depreciation Buildings and constructions are depreciated at a specified tax rate of 10% using the reducing balance method.
Depreciation Buildings are depreciated using the straight-line or double-declining method (for certain types of assets).
Land is not depreciable.
Land is not depreciable.
Losses: A unique CIT system operates in relation to losses so that losses can be carried forward without limitations.
Losses Losses arising before and including the 2007 tax year can be used for the following 8 years. Losses arising in 2008 and later tax years may be carried forward indefinitely.
Losses Tax losses can be carried forward for an unlimited number of years as long as they are set off against income from the same type of activity (Exception: losses from disposal of securities can be carried forward for 5 years only and can only be offset against income from sale of securities)
Taxpayers registered in SEZ or Free Ports with losses arising before 2005 may carry them forward for up to 10 years, and losses arising after 2005 may be Intra-group transfer carried forward indefinitely. losses allowed. Intra-group transfer losses allowed.
WITHHOLDING TAX
Dividends (without participation requirement), interest (not exceeding market interest rate) and royalties (payments within the EU and 25% participation) are not subject to withholding tax. Rental payments by Estonian corporate taxpayers to Estonian natural persons or nonresidents are subject to 21% withholding tax.
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of
of
Dividends are tax exempt Dividends unless payments are made From a Lithuanian company to “black listed” to a Lithuanian company – jurisdictions. 15% CIT to be withheld by the distributing company Interest: 0% – on unless the participation payments to unrelated exemption applies. parties; 10% – on payments to related parties; 5% – on From a Lithuanian company payments to related EU to a foreign company – companies (up to 30 June 15% CIT to be withheld by 2013, thereafter – 0%); as the distributing company of 1 January 2014, any unless the participation outgoing interest payments exemption applies. will be tax exempt unless paid to “black listed” Participation exemption jurisdictions. applies where: - the receiving entity holds Management and at least 10% of the shares consulting fees: 10%, can granting the same be reduced to 0% under a percentage of votes in the tax treaty. paying entity; - for at least 12 months. Royalties: 15% on Not applicable to literature or art; 5% in other cases; 5% on payments to related EU companies up to 30 June 2013; as of 1
Depreciation For the purposes of tax depreciation real estate objects are divided into two main categories: buildings and constructions, each of which contains a range of corresponding groups and types. Land is not depreciable. With regard to real estate objects the straight line depreciation method is used. Losses Losses can be carried forward for a period of 10 years. A taxpayer may not carry forward losses if it made a profit on its activities overall. A Belarusian company can carry forward losses only if total costs for the previous tax period connected with production and sale of goods (works, services), property rights, and nonoperating expenses exceeded the amount of revenues and nonoperating income. Dividends From a Belarusian company to a Belarusian company – 18% CIT which is withheld by the distributing company. Foreign companies that do not carry out activities through a Belarusian permanent establishment pay withholding tax on certain types of income derived from sources in Belarus. Unless otherwise provided by DTTs, withholding tax is imposed on the following types of income at the following rates: dividends and income from sale of shares in authorised capital of Belarusian companies – 12%; royalties (payments for use of property in Belarus or the right to use such property; fees for use of property rights to copyright objects, objects of related rights; payments for industrial property objects, including know-how) – 15%;
January 2014, outgoing dividends payable to FEZ. royalty payments tax exempt unless paid to Interest “black listed” jurisdictions. Paid to foreign taxable entities registered in EEA Rental fees on property or DTT country – nonlocated in Latvia – 5%. taxable.
Sale price of real estate located in Latvia or shares in “real estate companies”: 2% (a “real estate company” is a company more than 50% of whose assets comprise real estate directly or indirectly owned within Latvia). Latvian DTTs can reduce or eliminate payment of withholding taxes. Most payments to “black listed” jurisdictions – 15%, though the tax authorities may grant relief.
interest – 10%; freight and other charges connected with international shipping transactions and forwarding services – 6%;
other income (in particular, income from sale of real Paid to foreign entities estate located in Belarus; registered in other income from real estate countries – 10%. transferred in trust; income Exemptions: from supply of various interest paid on types of services) – 15%. government securities issued in international markets; - deposit interest; - interest on subordinated loans meeting the criteria set by the Bank of Lithuania. Royalties Paid to associated EU companies – no withholding tax applies.
0% for all payments to Paid to other foreign Lithuania. companies – 10%.
CAPITAL GAINS
Capital gains of resident corporates do not trigger CIT. Income tax is charged only on gains derived by a non-resident from sale of Estonian real estate or shares in a real estate company if the nonresident's holding in that real estate company is or exceeds 10% and more than 50% of the company's property is directly or indirectly made up of real estate located in Estonia in any preceding 2 years. No income tax is charged on a share deal if DTT allows taxation of capital gains in the seller's country only.
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PIT and CIT on capital gains applies to individual taxpayers and corporate taxpayers, both being subject to a 15% rate. However, capital gains from sale of shares held by a Latvian company are tax exempt, unless shares are held in a “black listed” jurisdiction.
Capital gains earned by Lithuanian entities – 15% CIT (capital gains are included in general taxable income). Capital gains from sale of shares in entities registered in EEA or DTT countries – exempt from tax if: - at least 25% of the shares in the entity were held; - for a period of not less than 2 years.
There is no specific concept of capital gains tax. Gains received by Belarusian companies from the sale of property are taxable at the 18% CIT rate Gains received by Belarusian companies from the sale of shares in Belarusian companies are taxable at the 9% CIT rate. Foreign companies that do not carry out activities through a Belarusian permanent establishment are subject to withholding tax on gains obtained from the sale of: - real estate located in Belarus – 15%; - shares in authorised capital of Belarusian companies – 12%; - securities in Belarus (except shares in authorised capital of Belarusian companies) – 15%.
REAL TAXES
ESTATE Land tax The rate ranges from 0.1% to 2.5% of cadastral value of land excluding buildings. The rate is set by municipalities by 31 January each year.
Real estate tax Payable by corporate owners or entities having legal ownership or control over use of Latvian real estate. Individuals are liable to tax on their residential homes and apartments.
An owner-user ofresidential land and building is exempt Tax applies at a rate of 1.5% from tax within some limits. of the real estate’s cadastral value and is levied annually. A rate of 1.5% applies to engineering structures and a 3% rate applies to uncultivated agricultural land. Subject to municipal regulations, derelict or unsafe buildings may be subject to a 3% tax. Local municipalities can set the tax rate ranging from 0.2% to 3% in regulations to be issued no later than 1 October of the preceding tax year. If this is not done, the default tax rates apply. Individual property owners pay the following progressive rates on their residential buildings and apartments: - 0.2% – for cadastral value not exceeding LVL 40,000 (approx. EUR 56,900); - 0.4% – for cadastral value from LVL 40,000 to LVL 75,000 (approx. EUR 106,700); - 0.6% – for cadastral value exceeding LVL 75,000.
Land tax Payable by owners of private land for land other than forest land, roads of common usage and land owned by embassies.
Land tax Payable by companies and individuals who own or use land.
Real estate tax Payable by Lithuanian and foreign legal entities for real estate other than land in Lithuania. Tax base: market value of the real estate calculated against the results of mass valuation . Tax rates: 0.3%-3% of the value of the real estate. A precise tariff is set by the local municipality annually.
Real estate tax Corporate real estate tax is imposed on the depreciated value of buildings, constructions and car parking spaces owned or leased by companies.
Except for a limited number of cases, the tax Tax base: market value base is the cadastral value of the land calculated of the land, which can be against the results of found at the official website mass valuation. of the National Cadastre Agency http://nca.by/. Tax rates: 0.01%-4% of the value of the real Tax rates vary significantly estate. A precise tariff is depending on the cadastral established by the local value and functional use of municipality annually. land. Local government authorities may increase Payment: before 15 (not by more than 100%) November of the tax year or decrease (not by more concerned based on a than half) the tax rates for declaration provided by certain categories of the tax administrator. taxpayers.
Payment: before 1 February of the subsequent year. Advance payments are made quarterly where the A LVL 5 (approx. EUR 7) annual amount of tax minimum is payable for each exceeds LTL 1,500 registered item of real (approx. EUR 434). estate. Land lease tax Local municipalities have power to grant taxation reductions to specific categories of individual
Payable by legal entities and individuals for state or municipal land leased by legal entities and individuals.
If the landlord is a foreign company not carrying out activities in Belarus through permanent establishment, the taxpayer is always the tenant. The annual corporate tax rate is 1%. A 2% rate applies to incomplete real estate objects where the terms of construction are exceeded. Buildings and constructions in the process of reconstruction or modernization are not subject to the real estate tax.
Individual real estate tax is Tax rate: 0.1%-4% of the imposed on buildings, land value constructions and car parking spaces owned by Tax rates: 0.01%-4% of. individuals (including A precise tariff is set by individual entrepreneurs). the local municipality for each individual case.
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An individual that owns more than one apartment has to pay real estate tax. One apartment is exempted from taxation; other apartments are subject to real estate tax. The annual tax rate is 0.1%. Tax is calculated by the tax authorities based on the assessed value of the real estate object. The tax authorities send an individual written notice to taxpayers by 1 August of the relevant year. Local government authorities may increase (by not more than 100%) or decrease (by not more than half) the tax rates for certain categories of taxpayers, with the exception of the case when Regional (Minsk city) Councils of deputies increase, but not more than five times, the real estate tax rate on buildings and constructions, parts thereof, which are unused or inefficiently used.
VALUE TAX
ADDED Sale and rental of real estate Generally VAT-exempt without the possibility to deduct input VAT. However, VAT applies to: Leasing, letting or establishing a usufruct on multi-storey car parks or premises for parking vehicles; - real estate with new buildings, if transferred before 1st use; - real estate with reconstructed buildings, if reconstruction costs exceed at least - 10% of theacquisition cost (i.e. 110% of acquisition cost) and transfer is before 1st use after reconstruction; - building lots within the meaning of the Planning Act if the lot contains no buildings.
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Sale of real estate Sale of real estate Sale of land and used Sale of real estate (land buildings is VAT-exempt. and buildings) is generally VAT-exempt. Sale of unused real estate (buildings and Exceptions: constructions) and building sale of land for land (land granted a construction; building permit) is subject to - sale of land with new 21% VAT. buildings; and - sale of new buildings. In sale transactions, the Buildings are regarded as value of land (exempt) and new if they started to be unused buildings (taxable) used or were critically cannot be separated for improved less than 24 VAT calculation purposes. months before the sale (uncompleted buildings are The taxable value for the also regarded as new sale of reconstructed or buildings). renovated property is the Lease of real estate difference between its sale Lease of real estate is price and the value of the generally VAT-exempt property before except lease of dwelling reconstruction or houses. renovation.
Sale and lease of real estate Subject to the standard VAT rate – 20%.
An option is available to add VAT at a rate of 20% to the following: - leasing or letting real estate or parts thereof, except residential; - establishing ausufruct on real estate or parts thereof; real estate and parts thereof, except residential. Input VAT is recoverable if paid for VAT supply. The purchaser of an immovable has to adjust deducted input VAT within a 10-year period according to use of the property for taxable/nontaxable purposes. REAL ESTATE Costs incurred TRANSACTION Typically these include: RELATED COSTS brokerage fees, real estate valuation, bank fees, fees for legal due diligence and reviewing the sale and security agreements, notary fees and state duty. Sharing costs Sharing transaction costs is a matter for agreement between the parties. Usually, the buyer pays state duties for registering ownership, whilst notary fees are shared equally between the parties and the seller pays state duties for deleting old encumbrances (e.g. mortgages).
Real estate should be registered with the taxation authorities. Deducted input VAT should be corrected and over the next 10 years according to use of the real estate for VAT taxable and exempt transactions. Rental of residential premises to individuals is VAT-exempt, whereas lease payments for commercial property are subject to 21% VAT.
Optional taxation Lithuanian VAT payers have the option to tax the sale or lease of real estate if the buyer or lessee is another Lithuanian taxable person registered as a VAT payer or a diplomatic mission, consular office, EU institution, international organisation or office. This option applies for a period of not less than 24 months.
Costs incurred Typically these include: brokerage fees, bank fees, fees for legal due diligence and reviewing sale and security agreements, notary fees and state duty. Sharing costs Sharing transaction costs is a matter for agreement between the parties. Usually, the buyer pays state and stamp duties, whilst notary fees are shared equally between the parties.
Costs incurred Typically these include: brokerage fees, real estate valuation fee, bank fees, fees for legal due diligence, notary fees and state duty. Sharing costs It is up to the parties to agree how they will bear the transaction costs. Usually, the buyer pays for state and stamp duties, whilst notary fees are shared equally between the parties.
Costs incurred Costs incurred during purchase of real estate include state duty, payment for state registration, and (if applicable) translation costs, technical inventory costs, fees for legal due diligence. Sharing costs Sharing of costs incurred during purchase is a matter for agreement between the parties.
STATE AND TRANSFER STAMP DUTIES
State duty For registration of title to real estate – 2% of either the real estate purchase price or the cadastral value of the real estate, whichever is higher. However, duty is capped at LVL 30,000 (approx. EUR 42,700). Duty does not apply to mergers and other restructurings. A 1% duty applies to investments in kind of real estate in the share capital of a company; duty is capped at LVL 1,000 (approx. EUR 1,400). Stamp duty LVL 15 (approx. EUR 21) for registration of title and issue of a Land Book certificate.
State duty Duty for registration of transfer of title to real estate is calculated separately for each real estate object transferred or acquired and depends on the average market value of the real estate. Duty varies from LTL 10 (approx. EUR 3) to LTL 5,000 (approx. EUR 1,448) per object. Stamp duty None.
State duty The transaction is subject to certification by a notary or the registrar of the Real Estate Register, if an individual is a party to the transaction (except for individuals acting in the capacity of individual entrepreneurs and having a seal). Duty for certification of a purchase agreement by the notary amounts to BYR 500,000 (approx. EUR 45), by the registrar of the Real Estate Register – BYR 112,000 (approx. EUR 10). In the case of simultaneous registration of the purchase agreement and one real estate object payment for state registration amounts to:-BYR 320,000 (approx. EUR 29) for legal entities; and -BYR 110,000 (approx. EUR 10) for individuals. Stamp duty None.
State duty Is paid for registration of ownership and encumbrances in the Land Book. The amount depends on transaction value and is a fixed sum laid down by law. For instance, duty for registering a new owner of real estate at a purchase price of EUR 500,000 is approx. EUR 767. Notary fees and state duty are usually less than 0.5% of transaction value. Stamp duty None.
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NOTARY FEES
MORTGAGE
Fees are set by law. In sale transactions the fee for notarising the purchase agreement depends on the value of the transaction. For instance, the notary fee on sale of real estate for EUR 500,000 is approx. EUR 1,548 plus VAT. Notary fees and state duty are usually less than 0.5% of transaction value. Real estate purchase is often financed by a loan. Usually, a mortgage is established on real estate as security in favour of the bank financing the purchase. The mortgage agreement is usually concluded at the same time and in the same document as the sale agreement. If a mortgage already encumbers real estate before sale and the purchaser needs a mortgage for its own financing purposes, the existing mortgage is typically transferred to the bank financing payment of the purchase price. This transaction structure is more cost-efficient compared to deleting the existing mortgage and establishing a new one, since it saves on both notary fees and state duty.
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Fees for drafting the Land Book registration application and approving the parties’ signatures generally amount to LVL 65 (approx. EUR 92).
Purchase of real estate is often financed by banks, which require a mortgage over real estate. As with all encumbrances on real estate, a mortgage agreement must be registered with the Land Book. State duty for registration amounts to 0.1% of the loan amount, capped at LVL 1,000 (approx. EUR 1,423). Stamp duty and notary fees are the same as for title registration.
The notary fee amounts to 0.45% of the real estate transaction value, capped at LTL 20,000 (approx. EUR 5,792) for transactions that involve one real estate object and at LTL 50,000 (approx. EUR 14,481) for transactions involving two or more real estate objects. A mortgage is a security aimed at securing fulfilment of contractual obligations. A mortgage is created by executing a mortgage contract signed by the debtor, the creditor, the owner of the mortgaged real estate, and notarised. The notary’s fee for certification of mortgage agreement is capped at LTL 500 (approx. EUR 145) and at LTL 1,000 (approx. EUR 290) for perfecting a mortgage over an enterprise (as a pool of assets). In addition, costs for services related to notarisation of the mortgage and registration of the transaction with the Mortgage Register would be added (approx. LTL 500, i.e. approx. EUR 145, on average).
If a purchase agreement is certified by a private notary, the parties also pay a notary fee from BLR 100,000 (approx. EUR 9) to BYR 150,000 (approx. EUR 14) depending on transaction peculiarities.
A mortgage of real estate may be used as an instrument for securing liabilities (e.g. repayment of loan). However, the law lays down several restrictions. A building located on an owned or leased land plot can only be mortgaged with a simultaneous mortgage of the underlying land plot or right of lease. A mortgage of a land plot or right to lease a land plot may secure only repayment of a credit extended by Belarusian banks or a loan provided by the International Finance Corporation (IFC) or European Bank for Reconstruction and Development (EBRD). Belarusian banks may act as mortgagees only if they hold a licence from the National Bank to place attracted funds in their own name and for their own account on the condition of recurrence, interest payment and maturity. The President of the Republic of Belarus is entitled to determine other organisations which may be mortgagees of land plots and rights to lease land plots. Mortgages must be registered with the Real Estate Register.
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