What was 2016 remarkable for in the Russian construction sphere?
At the end of December, the Minister of Construction, Housing and Utilities struck the balance of 2016 at a press-conference
At the meeting with journalists Mikhail Menn tried to look optimistic. The ministry’s forecast about putting in operation 77—80m m2 of housing in 2016 is likely to be confirmed. 20 bln roubles ($330m) have been allotted for 2017 to support the infrastructure; this will make it possible to lower the cost of the 6.36m m2 housing. Within the “Housing” federal program, 24,500 families (including 15,000 young families, migrants from the North, scientists and military men) received financial support.
One should not expect the minister to criticise his establishment. Experience has proven that any official, not only Russian, can put the best face on matters. However, we can’t say that the RF Minstry’s matters were poor last year and think it is useful to speak about some items.
State support of mortgage loan: to prolong or to cancel?
The issue of prolonging the program of the mortgage loan rates’ state financing for 2017 has been one of the most acute ones for the optimal functioning of the construction complex for the last two years. So far, the decision has not been confirmed and the program will act until March 1st.
As an aside, we see that the situation was similar at the beginning of 2016. In January 2016 the issue of prolonging the program was also discussed. As a result the program was prolonged, which made it possible to attract 1,300m roubles ($21.7m) of the population’s money to a real estate mortgage.
Many experts think that state support should be continued by all means and that the rate kept as low as possible. For example, Deputy Chairman of the Leningrad region government, Mikhail Moskvin, in an interview for our journal, suggested making it below 10%. .
Nickolai Tsiganov, President of the “Premier” GC thinks that the rate should not be higher than 7%. And famous economist Mikhail Khazin, claimed: «Make the mortgage loan rate 2%, and construction will bloom». “There is no sense to prolong the program as it is,” Mikhail Menn thinks, “But we have agreed that in case of any turbulence in the economy and a key rate rise, we shall be ready to react immediately and to switch on the same mechanism.”
According to the minister, the HMLA directorate’s forecast for 2017 is quite adequate: the state support of the infrastructure, electronic mortgage and securities being prepared by the HMLA at the moment will allow the mortgage loan rate decrease to 10% by the end of the year.
A lot will depend on the RF Bank policy, and it is very conservative at present. Constructors expected the CB to have decreased the key rate by the end of 2016, but it did not occur.
Meanwhile, it is quite concordant with the claims made by Elvira Nabiullina, Head of the CB, in September, 2016, that the rate is not likely to decrease fast, and the steps may make 0.25pp a quarter.
It is not clear yet how mortgages will behave in such conditions. One thing is clear, though: the cancelling of the state support will raise it by 1—2 pp, and if the construction minister now asserts that the rate has returned to the pre-crisis level (on the primary market — 11.5%), the reasons for such claims may not exist next year.
Self-regulation: to be or not to be?
Generally speaking, minister Menn paid more attention to housing construction and utilities. He only mentioned some topics but we cannot omit them as have been regularly writing on them on our pages during last year.
To begin with, there is the matter of self-regulation because its further reformation started in 2016. In actual fact, this is the last attempt to give it an opportunity to survive.
President Putin spoke about the importance of the problem at the State Council Presidium sitting, then the RF Ministry of Construction, Housing and Utilities together with NOSTROI (National Association of Builders) prepared a draft bill, 372-FL, which significantly changed the rules of the game in this sphere.
It should be mentioned that the document caused controversy among experts. Some constructors were seriously against the innovation, presuming that it will result in industry monopolization and a decrease in the quality of the work, while others supported the new law.
“The SRO establishment works poorly because its reputation is not appreciated highly in our country,” Mikhail Menn thinks. “The self-regulation principle reminds me of how a military unit should operate: one soldier is guilty while the whole unit is marching. And with us it is quite the opposite: many are guilty and nobody is marching.”
Our observer, Vladimir Gurvich, wrote about it in detail, summarizing that the state builds the SRO system for itself, not for the market. Accordingly, the future of the establishment is vague, and it is highly probable that 2017 will be the last year for SRO.
Technical regulation and price forming: back in the USSR?
“In 2016 we worked on 104 codes of practice (CP), 100 of them were adopted by orders of the Ministry of Construction, Housing and Utilities, 4 are undergoing expert reviews. 290 technical approvals were prepared and examined by experts, and 15 new CP came into force, minimizing special technical specifications. We actively work in the sphere of price forming, creating a base for monitoring all the resources involved in the construction process,” is all, in fact, the minister told journalists about the issue.
Meanwhile, the problems of price forming and cost estimates in the sphere of construction were rather hot. The discussion started at the beginning of 2016 with the Minstroy’s program, “400 days”, on the founding of price reforming.
The issue concerning technical regulation and price formation was discussed at the State Council, and the Government was charged to update the estimated normative base before September 1st, 2016.
The process started rather quickly. In June the State Duma adopted a number of amendments to alter the situation in the price formation system. And again there were hot discussions.
In particular, some specialists think that price formation should be based on the resource method, but it is a great responsibility for a regulator. And is there any guarantee that the price introduced in the information system is objective and commercial?
There is no consent inside the Government on the issue either: the RF Ministry of Economic Development issued a negative conclusion for the Construction Ministry’s draft bill, thinking that the latter contradicts the economic reality and draws the industry back to the Soviet time.
Nevertheless, a decision was recently taken to transfer the functions of price formation in the sphere of construction to a special structure, namely the RF State Expert Evaluation Department (Glavgosexpertiz
In this regard a number of experts fear that it may create a conflict of interests and cause the risks connected with certainty, objectiveness and possible corruption. Time will show, of course.
Construction development: where are we going?
Naturally, these were not all the issues discussed by the construction community last year. There was a lot of talk about the problem of hoodwinked co-investors and the complex development of territories, etc.
However, with respect to the industry as a whole, President Putin in his Address to the Federal Assembly charged the economic departments with working out a plan that will make it possible to gain higher economic growth rates than international ones. Does the RF Ministry of Construction, Housing and Utilities have such a plan?
Answering our journalist’s question about the plans for 2017, Mikhail Menn asserted that achieving the same results as in 2016 would be good for the industry.
“If the HMLA’s forecast comes true, and the mortgage loan rate decreases, we’ll achieve the same parameters,” the minister stressed.
To tell the truth, the plans are not very ambitious. The reason is that the construction ministry does not seem to have a consistent outline concerning how to develop the industry in the new economic reality, and there is no definite program about how to move ahead.
We see occasional attempts of correcting the situation here and there, but the time for reflexive reaction to arising problems and crisis phenomena has passed.
Having the President’s charge in view, the Ministry is likely to develop such a program this year. And we wish it success as the construction industry wealth depends on the authorities’ actions adequate to the new challenges.
Our next article will be dedicated to the results of the utilities sphere in 2016.