Construction market: expectation of a catastrophe or a happy ending?

Construction market: expectation of a catastrophe or a happy ending?
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Should we expect the collapse of the housing construction market in the next two years?

The head of the Office of the National Association of Real Estate Developers (NOZA) and a director of the Institute for the Construction Industry Development, Kirill KHOLOPIC, recounts the latest trends in the field of housing construction.

Recently, at a session of the Committee for the Construction Enterprise of the RF Chamber of Commerce and Industry, the issue of housing construction by household cooperatives was discussed.

It is no coincidence that this question has been raised, since housing construction by household cooperatives is dying. Thus in 2014, household cooperatives built no more than 400,000 m2 of residential housing, and the majority of these cooperatives are not genuine. Professional developers (for example, a notorious SU-155) have, to put it mildly, been cunning and exploited the given mechanisms with a view to evade compliance with the requirements of the law on co-funded construction.

— Taking into consideration that in 2015 the new regulations were adopted that toughened the requirements for household cooperatives (one cooperative can’t build more than one building, and there are also limitations on the number of stories), one could say that it looks very much as if the number of cooperatives will go down to zero soon and the cooperative movement is perishing, stated Kirill Kholopik.

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However, in the field of private housing construction, according to the expert, the situation is the reverse. In 2006 a “detached house amnesty” was announced, and as early as 2007 private housebuilding began to grow.

Nevertheless, the crisis has effected matters here too. In 2015, for the first time in many years, the volume of private housing construction fell: the market lost 1.5 mln m2 of private housing.

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The director of the Institute for the Construction Industry Development has drawn attention to the fact that, in 2015, professional developers built more than in 2014.

Altogether, they built 49.5 mln m2 of housing, thereby reaching the level of 1970. That is how much housing has been privately built in Russia this year.

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The Institute for Housing Development has been constantly monitoring the market of housing construction, analysing not only the data, provided by the Federal Statistics Service as well as by the municipalities, but also the developers’ plan, said Kirill Kholopik.

— The media often reports that the figures from the Federal Statistics Service are incorrect, that they are made up and are not honest, said Kirill Kholopik. — However, we can confirm that the figures on new housing from professional developers — 49.5 mln m2 — coincides with our data. Moreover, it coincides with the prediction which we made a half-year ago.

…whereas the projection for the current year, made by the NOZA experts, comes as a surprise.

— We see that developers, despite the grave situation regarding demand, have planned to put much more housing into operation in 2016 than in the previous year: 50.5 mln m2, emphasized Mr Kholopik. — However, in 2017 they intend to commission 33 mln m2, and in 2018 much less: just 18 mln m2. Thus professional developers are planning to sharply reduce the volume of new housing supply. However, the reasons for this are not quite clear.

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Jointly with RASC, specialists from the Institute for the Development of the Construction Industry have noted that developers have attracted citizen’s funds to the tune of 1.6 trn roubles. The money has already been invested in construction and credited to the developers’ account. This is apart from bank credit, which amounts to a considerable sum of money: about 600 bln roubles. A further 300 bln roubles is coming from the proprietary funds of the developers. That is why the termination of the construction will be a total catastrophe for many people, claims the expert.

— In June 2015 published an article which predicted that in 2015 developers will commission 50.5 mln m2 of housing, said Kirill Kholopik. — However, 49.5 mln m2 was in fact put into operation.

According to an expert, the difference of 1 mln m2 was because of the troubles which the SU-155 company had. In 2015 this company should have put into operation exactly 1 mln m2 of housing. However, it wasn’t commissioned.

— If this area of 1 mln m2 had been put into operation, our forecast would have been vindicated down to the nearest square meter, the director of the Institute proudly concluded.

According to him, at present there is a downward dynamic manifest in housing commissioning. Thus in 2015, for 7 months running, there was a decline in respect to the same period of 2014.

— We see that in October to December, it was lower than 10%. Apparently, the downward dynamic will drop below this mark, predicted Mr Kholopik.

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— Now what can we observe today? The head the NOZA office proceeded to the conclusions. — Monthly housing commissioning is down for 7 months running, whereas the developers’ plans remains the same as last year. This is an obvious imbalance.

Apparently, if the economic situation remains the same, many houses under construction, at least 10% of them, will be unfinished until next year. They just won’t be commissioned in time, claims the expert.

Another crucial point. Usually people talk about the developers’ liabilities to interest holders. Meanwhile, according to NOZA, today the population itself has twice the liabilities to developers, than the latter do to the former.

What does it mean? Having struck a deal on co-funding participation in the construction and even having taken out credit, the interest holder, as a rule, doesn’t pay out the full sum. He or she pays the apartment costs by installments, up until the completion of construction. This is especially evident in the regions, in the outback, where people are ridiculously short of money.

— This downward dynamic is connected with the low incomes of the population, said Kirill Kholopik. — We can see that over five consecutive quarters, that is 15 months, there has been a decline in the population’s income. That heavily influences the volume of housing construction.

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A decline in the population’s incomes adversely affects the number of concluded contracts for construction co-funding.

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Until the first quarter of 2014, there was a growth in the number of concluded contracts. Then, in the first quarter of 2014, this fell by 13%. When the program of state support was introduced, the situation stabilized. However, in the second quarter the decrease amounted to 0%, but in the third quarter, despite the state’s support, it was minus 20%.

On the whole, throughout the year the decrease was significant: it reached minus 20%. Instead of 850,000 construction co-funding contracts, just 690,000 were concluded.

Prepared by Yury IZMAILOV