Dmitry Moskalenko: ‘There will appear shopping malls that won’t be able to service their debts’

Profitability of the industry of shopping malls reduces

The Russian Council of Shopping Malls asks to change the tax system for malls. As the management of the council writes in an address to Vladimir Putin, the industry needs a moratorium on property and land tax till the end of the year, and in the future these mandatory payments are offered to be deduced from enterprises’ capital.

Up to 25% of commercial turnover of Russian shops is on the territory of shopping malls today. Nevertheless, every year the profitability of the industry reduces, the authors of the letter indicated. “Every year, the revenue and profitability of the industry decreases, but taxes don’t fall, while some even grow according to schedule, regardless of the state of the economy, both in the country (region) in general and in the economic entity, a shopping mall in particular.”

It is stressed in the address that property and land taxes, especially amid some tenants’ exist, seriously hit the pockets of shopping mall owners and some of them end up at a loss. “Nowadays property and land tax became key financially intensive and significant for the industry. Considering that they can hold up to 20% of the company’s capital, such taxes started to play a principal, if not a destructive, role in the financial and economic activity of companies.”

The address reads that the bankruptcy of big shopping malls too leads to the loss of jobs. Moreover, the specifics of cadastre evaluation that impede successfully running a business often lead to losses.

“The cadastre cost is defined in specialised subdivisions of regional administration (according to a mass evaluation, without considering individual parameters of each of the evaluated facilities/areas) and often don’t comply with the cost of facilities and areas. This brings to an obvious overuse of such a tax and provides ground for the operation of a series of companies and people ‘helping’ to make sure the cadastre cost goes down,” the council emphasised.

As a rule, it takes 2-3 years to reconsider the cadastre cost, as the council said, this doesn’t give the industry of shopping malls a chance for survival because the review has never brought to a fall in this cost in the last seven years. “Moreover, the real situation in the economy developed in different directions. As a result, the cadastre cost of shopping real estate facilities can significantly exceed the price the market offers and real deals are sealed with.”

Moskalenko: “This is a critical situation for shopping malls”

Shopping mall owners asked not to collect the given taxes till the end of the year to avoid mass bankruptcies and closures of shopping centres:

“To adopt a moratorium on organisations’ property and land tax until 31 December 2022 with the possibility of extending the moratorium to the next year (years) to determine its economic indicators at the end of 2022. When calculating property and land tax to determine them as percentage of enterprises’ capital in their key activity. To fix the upper cap on property tax to 4% and land tax to 1% of the capital.”

President of the Russian Council of Shopping Malls Dmitry Moskalenko told Realnoe Vremya that some shopping malls across the country already turned out in a tough situation.

“Regions group of companies’ Island of Dream indoor entertainment park is the epitome of how passed to a bank. There weren’t such landmark facilities because shopping malls started to recover after the pandemic. Anyway, they did differently in different regions. For instance, Volgograd has an example of a shopping mall where 70% of the tenants are companies that announced a suspension of operations in Russia. This is a critical situation for shopping malls. However, even if we compare today’s situation when some brands exited from Russia with the situation during the pandemic. The difference is that today shopping malls aren’t closed. They continue operating. The difference between a severe disease and death is that a severe disease is anyway life.”

In Dmitry Moskalenko’s opinion, if the measures offered in the address aren’t taken, the situation will get worse, owners of shopping malls won’t be able to repay credit.

“70% of tenants in some shopping malls announced suspension of operations in Russia”

The answer to the address to the president hasn’t been received yet, said the president of the council, however, they are looking forward to it. However, the general situation isn’t very pleasant for shopping mall owners, the Council of Shopping Malls doesn’t see prerequisites for a return of tenants who suspended their activity. Conversely, it is assumed the trend for brands’ exit will go on.

Earlier, Realnoe Vremya wrote that Polish retailer and clothing producer LPP managing five brands — Reserved, House, Cropp, Mohito and Sinsay — announced the sale of its Russian office to a Chinese consortium. The stores that had closed across the country resumed the work.

Director of Regional Service Development, Co-Director of CORE.XP’s retail department Mikhail Rogozhin stressed in his column for Realnoe Vremya that the brands that left don’t really want to lose the Russian market and will try to look for ways to return to it anyway.

According to him, it is hard to say how the situation will unfold if the moratorium isn’t adopted. “In the address, the owners provide some numbers regarding the facility’s budget, but this is the average. Perhaps they deliberately increased them to make it look scarier. The question here is for developers more who are aware of details more or management companies. I know that it is a significant burden, but I cannot say how significant.”

In any case, the experts admit that the industry of shopping malls needs support. Marina Malakhatko, senior director, head of CORE.XP’s retail department, thinks that preferential loans can help.