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Overpriced Housing: Coming Back Down to Earth
3 September 2021
10:00—11:30
KEY CONCLUSIONS
Russia has a fast-growing housing market, which is reflecting the country’s rapid development

If we look at the market figures, we can see a growth in housing construction. According to the Ministry of Construction, Housing and Utilities of the Russian Federation, we can expect growth of 30% by the end of the year. So, housing is a fast-growing market. This is very important, and it’s a good thing, because Russia is a country which is developing at a rapid rate. And a developing construction market serves as a tangible demonstration of this — Valery Limarenko, Governor of Sakhalin Region.

The question of housing is probably one of the biggest priorities there is when it comes to the development of the Far East. It is, essentially, fundamental infrastructure which has an impact on the development of human capital and attracting resources and professionals — Gadzhimagomed Huseynov, First Deputy Minister of the Russian Federation for the Development of the Far East and the Arctic.

The Far Eastern Mortgage programme has helped build up solid demand for housing in the Far Eastern Federal District

We have been able [thanks to the Far Eastern Mortgage programme – ed.] to build up solid demand for housing. However, we have had some teething trouble, whereby demand has appeared in places where supply is lacking. Partly as a result, prices per square metre have increased — Gadzhimagomed Huseynov, First Deputy Minister of the Russian Federation for the Development of the Far East and the Arctic.

This [subsidized interest rates on mortgages – ed.] is a market mechanism providing guaranteed demand for filling escrow accounts — Nikita Stasishin, Deputy Minister of Construction, Housing and Utilities of the Russian Federation.

Currently, 51,000 flats are being constructed [in the Far East – ed.] in residential buildings, and 15,000 are on sale. Demand in the main is for the Far Eastern Mortgage programme... Looking at figures for 2021, 900,000 square metres of living space have already been constructed. This is 80% more than in previous years. <...> We [the DOM.RF development institution – ed.] have a separate division and a separate KPI for the Far East. It is completely separate, and we will develop a dedicated set of tools for the region. We have offices here, we will build a team and do everything — Vitaly Mutko, Chief Executive Officer, DOM.RF.

ISSUES
The high cost of housing and construction materials

People who buy housing need to keep up with this [high – ed.] price, and of course, there is a contradiction in this. Today we are examining this contradiction. How can we address issues surrounding the cost of housing? The market is accelerating the social processes we are seeing, whereby social benefits are offered, and a social mortgage is provided. Currently this is in the region of 6–6.5%, and 2% for young people in the Far East. So, demand is increasing, and if demand cannot keep up, then prices will rise accordingly — Valery Limarenko, Governor of Sakhalin Region.

Housing is expensive. Average prices in the Far East are 14–15% higher than the national average. We should also look at this as a challenge. <...> We are currently developing a set of tools, and could fall into another trap – a trap related to increasing demand on the housing construction market. Essentially, we could start building lots of new housing, and then find that the cost of construction materials is becoming a problem — Gadzhimagomed Huseynov, First Deputy Minister of the Russian Federation for the Development of the Far East and the Arctic.

Insufficient supply of housing in the Far Eastern market

There is indeed a shortage of housing when compared to the Russian average. It’s about 3%. In 2020 we built a total of 2.5 million square metres of housing. This year, we plan to construct 2.7–2.8 million square metres — Gadzhimagomed Huseynov, First Deputy Minister of the Russian Federation for the Development of the Far East and the Arctic.

The provision of housing in the Far Eastern Federal District is 10% below the Russian average... In total, 2.6 million square metres of housing in apartment buildings are built in the region. This accounts for less than 3% of the total in Russia. The region is vast, yet is home to just 8% of the population. Naturally, this is why we are seeing people move away from the region. This year saw a reduction of 41,000 [people – ed.] — Vitaly Mutko, Chief Executive Officer, DOM.RF.

The demand for housing is there. Much is said about the flow of people away from the region, and we constantly focus on that. But the issue is not stopping people from leaving, and neither should it be. Instead, the focus needs to be on people coming here. Staffing at federal law enforcement and security bodies is often at 50%. Why aren’t they coming? Because there’s nowhere to live – it’s impossible to rent a decent place — Sergey Nosov, Governor of Magadan Region.

SOLUTIONS
Encouraging competition and increasing the supply of real estate on the market can help reduce the cost of housing

What other methods could help rein in costs? Encouraging competition and industrializing construction — Valery Limarenko, Governor of Sakhalin Region.

By 2024 we need to reach the goal of 3.3 million square metres, as outlined in a decree issued by the President of the Russian Federation covering national targets to 2030. This is a fairly ambitious challenge for all of us – for the regions, for the Ministry for the Development of the Far East, for the Ministry of Construction, and for development institutions — Gadzhimagomed Huseynov, First Deputy Minister of the Russian Federation for the Development of the Far East and the Arctic.

Support for regional developers

Our future lies with regional developers, and for them to operate and be cultivated, so to speak. <...> There are plenty of excellent local developers which have their own production base, suppliers, and contractors. They are fairly innovative. There is Brusnika, for example [a Russian real estate development company headquartered in Yekaterinburg and specializing in the construction of multi-storey housing blocks – ed.]. It is an example as a genuinely innovative company, even though it is a regional one — Olga Arkhangelskaya, Partner, Head of Real Estate, Hospitality, and Construction Services, Head of the Transportation, Infrastructure and Government, and Public Group in the CIS, EY.

All these support measures taken by the government have of course paved the way to start developing large territories. For us [developers – ed.] margins are still an important factor, as are financial indicators and credit repayment rates. That is why it is important to us that these measures are in place, especially in areas where commercial demand has not fully taken shape — Alexey Almazov, Vice President, PIK Group.

Holding share auctions and implementing the Far Eastern Quarter programme

Today we have a fully appropriate mechanism in place which has proven to work in the Far East – share auctions led by our development institution DOM.RF — Nikita Stasishin, Deputy Minister of Construction, Housing and Utilities of the Russian Federation.

We have our Far Eastern Quarter project in place. This endeavour has involved working with every institute in the industry – primarily the Ministry of Construction and DOM.RF. <...> It [the Far Eastern Quarter – ed.] represents an amalgamation of all possible tools into a single project. We are able to offer construction companies working on comprehensive housing construction projects the chance to become an ASEZ resident. In so doing, they are able to benefit from tax breaks, and at the same time we take on the task of putting the utilities infrastructure in place in plots of land. We also take part in building the social infrastructure, which is also very important – the market demands it. In return, we get a reduced cost per square metre — Gadzhimagomed Huseynov, First Deputy Minister of the Russian Federation for the Development of the Far East and the Arctic.

The material was prepared by the Russian news agency TASS