Gabriel Ballesteros
Partner
Ballesteros Mureddu
Manuel Mureddu
Manuel Mureddu
Partner
Ballesteros Mureddu
/
View from the Top

Developers Face Social, Political Headaches

Tue, 11/01/2016 - 10:21

Q: How are the discrepancies between environmental and land management policies affecting developers?

GB: The obstruction of the real estate project in Cancun’s mangroves is a popular example of the challenges developers face when it comes to governmental and community approval of projects. The original developer had been authorized by municipal authorities to begin construction but lacked the obligatory approval of another agency. The whole situation demonstrates a great disconnect between governmental levels and agencies. The municipal governments, in general, can approve projects without notifying the federal government, which can later deny approval. Ecological planning programs are taking shape but they contradict land management programs. Companies also point out the incongruence of the Urban Development Program that labels ecological zones as land that can be used for housing. Businesses have no way of finding information about these changes and the situation is causing ecological and urban law to collide.

Q: What needs to be done to bridge the gap between public needs and private sector ambitions?

GB: It is not uncommon for the public sector to approve projects proposed by private companies and allow them to begin, only to later stop the entire project. Social discontent occurs when projects do not effectively include communities in the planning and development process and this can hinder continuity. The instability highlights the significance of understanding the needs of both citizens and the private sector. Political parties grant a considerable chunk of their attention to elections and when they find themselves in an unfavorable position, they start blocking major development projects to regain public support. In other cases, they will encourage the construction of ostentatious projects to get the attention of voters even if those projects are not ideal for the area’s urban development.

MM: It is not extraordinarily challenging to understand the regulatory framework that surrounds infrastructure. Companies often encounter unseen environmental problems midway through construction that could have been avoided with an in-depth analysis of the law. Contingencies should be planned for any project but this route forces companies to stray from their original plans and budget.

GB: Developers face consequences such as legal sanctions when they do not carry out the proper studies from the outset. As a result, they are forced to find ways to reach their established targets and comply with their financial obligations despite project adjustments. At the same time, they cannot risk losing the trust of investment funds. It is at this point in the project that developers are most tempted to make decisions that lead to dishonesty.

Q: How can social and political issues be avoided?

GB: Creating dialogue with municipal and state governors no longer ensures that developments will be completed because ecological groups are ramping up pressure on the government. It is becoming increasingly difficult for companies to find loopholes. If a company submits a change of land use request, SEMARNAT publishes this information on its website to ensure transparency.

MM: To avoid many of these issues, companies must carry out a thorough legal analysis that covers every possible aspect that could affect development. Businesses mistakenly think that this simply involves the granting of licenses by urban authorities when in reality it implies a number of environmental, urban development and registry analyses. By not doing this, developers risk having their projects halted. Many are so anxious to reap profits they overlook significant steps and end up increasing the total cost of the project. The most effective way to look at these types of situations is by understanding that officials are temporary but laws are forever.