VTB's subsidiary, the Dynamo management company, has decided to challenge the cadastral valuation of the real estate in the VTB Arena Park project. If Rosreestr agrees to a lower valuation, the company will be able to save 120-160 million roubles a year in tax.
VTB Bank's subsidiary, the Dynamo management company, has decided to challenge the valuation of its real estate within the VTB Arena Park project on Leningradsky Prospekt in Moscow. The company has commissioned an alternative valuation of the cadastral value in order to bring it "to the level of market value", according to data on the public procurement website.
The cadastral valuation of real estate matters for commercial properties and for the land on which they stand, because it is the base on which the tax is charged. Year by year, owners have to pay a larger tax. In Moscow the rate of tax on commercial real estate for legal entities is set for 2019 at 1.6% of cadastral value; in 2020 the rate will be 1.7%, and by 2023 it will rise to 2%. Land tax on land occupied by commercial real estate is 1.5%, Yulia Galueva, deputy general director for legal affairs at the National Legal Service Amulex, clarified.
Companies may challenge the value by applying to the commission at the Moscow department of Rosreestr. This is a standard procedure, and disputes are heard every year. The number of applications rose, however, after the new cadastral valuation of real estate in Moscow, which was completed in November 2018. As a result, the fourth quarter of last year accounted for 55% of all applications filed with the commission over the previous year. In all, in 2018 there were 3,600 applications to Rosreestr to change the value of properties, the press service of the Moscow department of Rosreestr told RBC. Positive decisions to reduce the value were taken on 20% of the applications.
The Dynamo management company intends to challenge the valuation of eight buildings with a total area of 56,000 sq m and of a land plot of 30.9 ha. Their current cadastral value is 26.7 billion roubles. The most expensive property is the land plot, on which the VTB Arena stadium stands among other things. It is valued at 21.3 billion roubles. The Dynamo management company had already tried to challenge the cadastral value of the land on Leningradsky Prospekt: in 2017 the company applied to have it reduced from 28 billion to 16 billion roubles, but Rosreestr refused.
The company does not yet plan to challenge the value of the stadium itself, which is currently set at 3.6 billion roubles. The most expensive buildings whose value it plans to have reduced are the Hyatt Regency Moscow Petrovsky Park hotel (31,000 sq m; cadastral value 3.6 billion roubles) and a business centre (9,000 sq m, valued at 1.1 billion roubles).
On the basis of the tax rates, the Dynamo management company will have to pay more than 400 million roubles a year for its properties. The company did not comment on how far it hopes to reduce the value of the properties. According to the Moscow department of Rosreestr, last year owners on average asked for the cadastral value of their real estate to be reduced by 44%, but the average reduction that resulted was 32%. If the Dynamo management company succeeds in reducing the value of the properties by 30-40%, that will allow the company to save 120-160 million roubles a year in tax.
The average figures of the new cadastral valuation in Moscow turned out to be 10% below the previous valuation, which was carried out in 2016, Kommersant reported, citing Consul Group's data. At the same time many commercial properties received a substantial increase in value. The Central Children's Store on Lubyanka, for example, was valued at 14.5 billion roubles, although its owner, Hals Development, had previously managed to reduce the earlier valuation from 16.6 billion to 9 billion roubles, and the value of the President Plaza business centre rose from 17.7 billion to 19.7 billion roubles.
"The mass-valuation method which the authorities apply always contains an error. It is impossible to value all real estate correctly by a mass methodology, so the cadastral valuation is actively challenged and will always be challenged for as long as this approach remains," notes Primaudit, the company that is revaluing the real estate of the Dynamo management company.
According to Alexander Verein, head of the asset valuation practice at Consul Group, the peak of applications challenging cadastral value may still lie ahead.
The bulk of applications challenging cadastral value come at the end of the year. In 2017, for example, when the previous state cadastral valuation came into force, a little over 3,000 properties were submitted for challenge in the first four months, while the last four months of 2017 brought 10,000 applications,
- says Alexander Verein.
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