Russian officials are normally quick to report the positive developments in the areas of their responsibility. The filed of construction is not an exception.  According to the Rosstroy’s (Ministry of Construction) latest figures, the newly built floor space in Russia will reach 40 million square meters this year. In Moscow itself, forecast issued by the City Building Department for 2006 is

5 M sq.m. In Russia overall, the growth in the 1st half of the year was 10 percent: Rosstroy claims that during the same period 15.7 M sq.m were built in the country.

 

However, these victorious reports don’t show the reverse side of the coin. The thing is, demand for dwelling in Russia reaches 150 M sq.m annually. In the 3^rd Quarter of the year the average sale price in Russia grew up by 7.2%, up to $760 per square meter.  High mortgage interest makes the apartments unaffordable for the majority of potential buyers.

 

And they are not only the wishful apartment buyers who are unhappy with the situation. The developers feel themselves uneasy either.

 

Analysts of Media Storm group estimate that in 2007-2010 the newly built floor spacing will be decreasing by 5-10 percent (in comparison with the 2006 figures) annually. In Moscow region, in particular, the newly built floor space had already decreased on 8 per cent in 2005.

 

Experts name several factors responsible for the slowdown of the construction growth. They point at inadequate growth of construction materials output, increase of raw materials price, shortage of experienced architectures, engineers and quality evaluators.

 

Hence, the cost price of concrete has risen from $200-240 per cubic meter (in 2004) to $320 (during three quarters of 2006).  Coupled with steady growth of energy price, these factors add to the final cost of housing construction.

 

Another problem that curbs speedy housing construction is aging infrastructure. New high-rise buildings are being tied to the existing pipe and electric grids whose capacity has already been close to its physical limits. Therefore, developers have to invest into building of new infrastructure; that, in turn, increases final cost price of the construction.

 

To make the things even messier, the existing federal laws (e.g., Of Dwelling Construction Shared Investments) increase the developers’ risks in favor of private investors. Administrative Code of Russia demands that a developer must obtain a set of various licenses and permits (on excavating, cable laying, siding works, metal parts assembling – to name just a few) before starting a construction proper.  Ministry of Construction, State Architecture & Construction Watch, regional governments issue their own orders often contradicting each other.  

 

Little joy for the developers brought the recently announced establishment of another bureaucratic body in charge of building and investment control, Stroyinvest. Its nominal objectives are to help the developers pull their investments off the black market, make IPOs, ease the use of financial tools. However, says analyst of Benefit Engineering, new structure will be governed by Alexander Ryabinin, notorious for his hard-line approach to the business owners. His “assistance” may bring about even more expenses for the construction businesses.

 

Analysts of Novaya Ploshad agency say, all these factors lead to the situation where the market will shrink due to both the bureaucratic and the “physical” reasons. That means the cost price growth (currently 20-35% per annum) outstrips the retail housing prices (12-17% per annum), so pulling the developers’ profits downwards, and thus pushing the smaller businesses out of the market.

 

Most analysts agree that more attractive situation for the developers in the nearest future may be found in the Russian regions rather than in the capital. In some regions (Sverdlovsk, Khabarovsk and Chuvash Republic) there is overproduction of construction materials due to the low demand. Many regions may show the sharp growth of housing development as a result of so-called “low start phenomena”. In 2006, housing construction growth takes place in 57 regions of Russia. So President’s Putin targets for housing building in 2010 have not, perhaps, built on sand.