A legal conflict over infrastructure contributions for construction is driving up housing prices in Ukraine

A legal conflict over participation contributions for construction begun after 2021 is driving up housing prices and holding back investment activity, say the Ukrainian Developers Association.

The abolition by Law No. 132-IX of the practice of participation contributions for projects, whose construction began after January 1, 2021, was supposed to help lower housing costs and stimulate investment activity. But de facto the industry has faced a practice where communities demand, including through the courts, the payment of participation contributions also for projects whose construction permit was obtained before this date, while the construction itself began later. In particular, the Department of Economics and Investments of the Kyiv City State Administration (KCSA) is the plaintiff in 152 court cases on recovering participation contribution funds from construction customers.

Nordica Residence residential complex | Photo: RIEL

As of March 1, 106 such cases are pending in courts of various instances for facilities commissioned in 2020-2022, worth about UAH 1.59 billion.

“In 2019, the authorities officially acknowledged that the infrastructure contribution had turned into a source of corruption, and therefore Law No. 132-IX on its abolition was adopted. It was a matter of principle for the state: to eliminate the quasi-tax on real estate that was in effect paid by homebuyers. Such a decision helped lower housing costs and was meant to become a tool for stimulating investment activity in the sector. Despite the clear official position of the Ministry for Development of Communities and Territories of Ukraine, the authors of the law abolishing the infrastructure contribution and the relevant committee of the Verkhovna Rada, the prosecutor’s office and local authorities continue to ignore the provisions of current legislation,” Yevhen Favorov, Chairman of the Board of the Ukrainian Developers Association, told Interfax-Ukraine.

A fixed real estate tax proves more effective for community development

The Chair of the Verkhovna Rada Committee on the organization of state power, local self-government, regional development and urban planning, Olena Shuliak, one of the authors of Law No. 132-IX, stressed that even at the stage of abolishing the infrastructure contributions, communities had a compensatory alternative, namely the fixed real estate tax. This instrument has much greater potential for addressing infrastructure needs, is easier to administer and carries far fewer corruption risks than the infrastructure contribution did.

“In fact, the share of infrastructure contributions in local budget revenues was very small — about 1%; these funds were not used to build new kindergartens, schools and other infrastructure, and their intended use was not monitored. Hence, we have the real estate tax. I would not say it is a universal compensator, but at the moment we can see that, in terms of figures, it already exceeds the contribution many times over. Thus, in 2020 it amounted to UAH 5.7 billion, in 2021 — UAH 7.8 billion, in 2022 — UAH 7.1 billion (and that despite the war), in 2023 — UAH 9.1 billion, in 2024 — UAH 10.7 billion, and in 2025 (as of now) — UAH 4.3 billion. As for infrastructure contributions, we see the following figures: in 2020, revenues from the contribution amounted to UAH 1.4 billion, in 2021 — UAH 572 million, in 2022 — UAH 134 million, in 2023 — again UAH 134 million, in 2024 — UAH 199 million, and in the current year (as of now) — UAH 159 million,” Shuliak said.

Seven residential complex | photo: Stolitsa

She stressed that the infrastructure contribution had long been an ineffective instrument, which is exactly why it was abolished by law.

“But this does not mean that communities have no right to defend their interests in court when it comes to cases covered by the old legislation. Indeed, certain communities, in particular Kyiv, remain active in legal disputes over infrastructure contributions — these are situations where facilities obtained permits before 2020 but were completed later. In such cases, the legal basis for lawsuits is most often Article 1212 of the Civil Code of Ukraine, on property retained without legal grounds. As for other communities, we currently have no centralized statistics on the number of lawsuits,” Shuliak said.

At the same time, in her view, if an agreement on paying the infrastructure contribution had not been concluded before the law abolishing it took effect, such charges are unfounded.

Regarding projects where the participants have changed in the meantime, she noted that if the new construction customer builds under a construction permit issued to the previous customer before January 1, 2021, there are no grounds for it not to pay the infrastructure contribution. But if it obtained the construction permit after January 1, 2021, the infrastructure contribution is not paid.

“If the construction customer is implementing an entirely new project — in terms of function and so on — then in this case it is more expedient to terminate the previous permit and obtain a new one. That way, the new permit will be obtained after January 1, 2021, and the construction customer will have no obligations to pay the infrastructure contribution,” Shuliak recommends.

A conflict of norms: the permit was obtained before the abolition of the infrastructure contribution, and construction began afterwards.

Comfort town residential complex | photo: KAN Development

According to experts of the Developers Association, a legislative conflict was identified when the infrastructure contribution was abolished, creating a legal gap in the regulation of the relevant legal relations. This was directly acknowledged by the Supreme Court in its ruling of July 20, 2022 in case No. 910/9548/21, which states: “Law No. 132-IX does not regulate the issue of the infrastructure contribution where construction of a facility began after January 1, 2021.” At the same time, by giving its own interpretation of these legal relations, the court effectively departed from the essence and intent of the legislator, which was to completely eliminate the infrastructure contribution as a quasi-tax on real estate.

On May 14, 2025, in case No. 320/44099/23, the Supreme Court finally confirmed that the changes to the procedure for raising and using infrastructure contributions adopted by the Kyiv City Council in 2019–2020 are unlawful and invalid. That is, with this ruling the Supreme Court confirmed that the regulatory basis that the city authorities had used since 2019 to levy the infrastructure contribution, conclude the relevant agreements or issue financial demands is unlawful, that is, illegal.

“Besides the legally unfounded position of the city authorities, one more important aspect deserves attention. The city is already receiving from developers and homebuyers billions of hryvnias in the form of engineering, transport and social infrastructure facilities that have been built and transferred into municipal ownership,” Favorov stressed.

Cities have received new engineering infrastructure worth billions of hryvnias, while the issue of taking social infrastructure onto the municipal balance sheet remains unresolved, experts noted.

According to calculations by the Ukrainian Developers Association, in just eight projects of five member companies in Kyiv, engineering, transport and social infrastructure worth more than UAH 5.6 billion has already been created. The total value of all the infrastructure that the city’s developers have built over the years of operation runs to tens of billions of hryvnias, Favorov said.

Many of these assets are transferred to the balance sheets of, among others, municipal enterprises, which not only receive them free of charge but subsequently also earn a stable income by charging residents for the maintenance of the newly built networks.

As for social infrastructure — kindergartens and schools — building norms require their creation, but de facto there is no procedure for transferring such facilities to communities.

Anna Laievska, commercial director of Intergal-Bud, described two precedents in which the company tried to reach agreement with the city authorities on educational infrastructure — a kindergarten within the Parkovi Ozera residential complex in the Dniprovskyi district and in the Yaskravyi residential complex in the Minskyi Massyv area.

“At Parkovi Ozera we offered to hand over to the city a turnkey, fully equipped kindergarten for 120 children, with furniture, dishes and toys. All that remained was to put it on the balance sheet and open it. At that time the infrastructure contribution was in force, the city was in dialogue with us, and possible options were discussed for crediting the kindergarten as part of the contribution or granting other preferences to the developer. But at the moment of signing the deed of acceptance and transfer, that is, essentially the legal handover to the city, it finally became clear that there was no legal possibility of crediting it as an infrastructure contribution. We had to take the kindergarten back through the courts,” she said.

A similar story happened with a kindergarten in the Obolon district. The district, while drafting its request, planned to take it onto the balance sheet, but later said there was neither a legal basis nor budget funds for opening a new educational institution. The company was advised to plan for a private operator right away, which is what happened.

“The current option is the only one possible — inviting a private operator to cooperate on the social infrastructure facilities that have been built, and it has drawbacks for everyone,” Laievska says.

For the developer, these facilities have an extremely low payback — 15 to 25 years. They are not commercially profitable, but they are needed for reputation. Residents would gladly choose municipal schools and kindergartens in the developer’s buildings, but instead their only option is to pay a private operator of the educational institution from UAH 15,000 to 25,000 per month.

As a positive example of cooperation with local authorities, Laievska cited Hatne. To address the social infrastructure issue, the developer invested in repairing and expanding an existing school.

But overall, the abolition of infrastructure contributions has not solved the problem of renewing cities. Ukraine still lacks a legal framework for transferring developer-built infrastructure to communities. In particular, Intergal-Bud has invested more than UAH 800 million in engineering infrastructure — collectors, road repairs, lighting, reconstruction of water pumping stations, electrical substations and more. This does not include social facilities and landscaping of adjacent green areas (Nyvky park, a lake and others).

But what is happening now — attempts to levy the infrastructure contribution retroactively — only worsens the already difficult situation of the most acute housing crisis in the entire history of independent Ukraine. According to experts of the Ukrainian Developers Association, such practices drive up housing prices, since they create a double, unpredictable financial burden on companies, which are forced to build these costs into the price per square meter.

“These costs cannot be forecast within a business model, because national legislation expressly prohibits the infrastructure contribution instrument. A separate responsibility in this situation lies with the country’s political leadership, which publicly reported to voters on abolishing the infrastructure contribution and improving the investment climate. In practice, however, this turned out to be a declarative gesture that was only partially given real legal effect. What we are seeing today directly contradicts the state’s declared goals of deregulation, supporting the construction industry and ensuring affordable housing,” Favorov stressed.

In the view of Developers Association experts, the situation can be fixed.

It is necessary to eliminate the legislative conflict and state clearly: for construction projects whose construction began before January 1, 2021 and which had not been commissioned as of January 1, 2021, and for which no agreements on paying the infrastructure contribution between developers and local self-government bodies were concluded before January 1, 2021, the infrastructure contribution is neither charged nor paid.

“This would correspond to the legislator’s original intent — to eliminate the quasi-tax and stimulate the development of the construction industry,” Favorov stressed.

The Ukrainian Developers Association was founded in 2023. The association’s members carry out projects that make up 26% of the Ukrainian market and 93% of the capital’s market.

Source: https://interfax.com.ua/news/economic/1081014.html