General Director of Ecodolie Speaks at the Information Telegraph Agency of Russia

On July 28, the Information Telegraph Agency of Russia held a press conference dedicated to low-rise economy-class residential housing development in Russia.

Among the speakers there were President of NAMIX, Chairman of the Committee of the Public Chamber of Russia for Social Issues and Demographic Policy, Vice-President of NAMIKS Mr Sergey Milushkin, General Director of Ecodolie Management Company Konstantin Filippishin, and Marketing Director with Knauf Jorg Lange.

Ms Yelena Nikolayeva, President of NAMIKS, outlined general trends and interest of the Russian Government to this issue:

- According to our analytic research in all Russian regions, a vast majority of Russians dream of living in their own home and owning land. A response to people’s dream of a good life in comfortable conditions shall be adequate. At a meeting in Novoye Stupino, it was quoted that low-rise housing development accounts for 51.9% in total economy residential real estate. It indicates that a trend has changed drastically from high-rise to low-rise development. A considerably large part now accounts for industrial residential properties. It is arranged in locations with integrated development where large communities are being built. At the meeting in Novoye Stupino, Chairman of the Government Vladimir Putin supported this concept, and special programs were adopted for developing economy-class housing.  Now we have an understanding of what priority areas are available in each region. At the National Low-Rise Development Agency, associates do things that seem illogical at first sight. We have to deal with red tape that has been developing for a long time due to many reasons. Efforts in this area have just started to give results. We have long talked about cooperatives, and though in a shorter version this law was signed by President of Russia Dmitry Medvedev on July 18 regarding a capability of providing land to the Russian Housing Development Foundation free of charge. According to 161 of the Law, the Russian Housing Development Foundation may provide land free of charge to cooperatives established by certain groups of citizens. In particular, the establishment of a cooperative for young scientists was announced in the Novosibirsk Region. Law 161 allows the Russian Housing Development Foundation to provide land free of charge, and now we can raise the issue of developing infrastructure. To be fair, Mr Putin promised that in the near future connection to utilities will be free for developers and residents. It is particularly important that in the near future this issue will be solved for families with many children. It is also an interesting trend worth mentioning. It is an important incentive to stimulating birthrate in the Russian Federation.

Ms Nikolayeva said that in the near future 25 billion rubles will be additionally invested in residential development promotion. Vnesheconombank will provide 50 billion rubles for affordable mortgages. Joint mortgage programs will be implemented by the Housing Mortgage Lending Agency and the Bank for Development and Foreign Economic Affairs. According to Vladimir Putin, the goal is to provide mortgage to consumers at 5-6%. As soon as mortgages are available at this rate, rapid development of economy class residential construction will become possible.

Mr Konstantin Filippishin, General Director of Ecodolie, talked about a successful experience of developing a large site:

- Our company was founded three years ago by Baring Vostok Capital Partners for investing in low-rise economy-class integrated residential development projects. Based on the projects being developed in the Kaluga and Orenburg Regions, we can say that the revolution mentioned today by Ms Nikolayeva has taken place. These projects became successful due to support of federal, regional and municipal authorities. For instance, in Ecodolie-Orenburg a detached home with all utilities is currently priced at 2 million. A townhouse costs around 1.5 million, and apartments in a three-storey building start at 700 thousand rubles.  It is a new lifestyle with world’s best practices in planning and energy efficiency. These were the first projects for which we developed two mortgage products with the Housing Mortgage Lending Agency and Sberbank allowing purchasing a home with land and communications at the stage of construction. Seeing the success of these projects, the European Bank for Reconstruction and Development has become our largest intuitional investor willing to support infrastructural projects. Expenses for infrastructure were sponsored through regional co-financing programs of federal authorities. Gas suppliers and power companies through their investment programs cover expenses for networks on the site. Due to the above, the net cost of our homes per square meter is 30,000 rubles. Our homes have become popular, and the region received a vast plot of 400 hectares for development in the next decade.

A number of serious issues were voiced by NAMIKS Vice-President Sergey Milushkin:

- We have been traveling around the country attending opening ceremonies of various residential communities. In many regions as confirmed by the meeting, local authorities are in favor of low-rise residential development. We participate and help arrange public-private partnership in developing large land plots. A good example is the Svetlorechensky settlement in Yekaterinburg opened just recently. It represents 20 construction technologies from 20 various companies. The Yekaterinburg authorities intend to monitor energy efficiency of these homes in the winter which we also insist upon and encourage. It will show the benefits of advanced technologies as compared to standard brick homes and concrete structures. For instance, a 20 cm sandwich panel wall is as energy effective as a 70 cm brick wall. It lowers construction and energy costs.

Mr Milushkin also talked about modern programs for developing comfortable and affordable residential real estate for lease. Such projects are being implemented jointly with the Ministry for Regional Development in the Kaluga Region. Employees of new enterprises will be able to rent a small apartment from eight to twelve thousand rubles, and companies will pay rent allowances to their employees. The municipality is also willing to subsidize residence for their employees. With subsidies an employee will pay around 4,000 rubles to rent an apartment. This trend supported by the Prime Minister will give homes primarily to young families and to people moving from one region to another.

Mr Jorg Lange, Marketing Director with Knauf in the CIS, expressed his views of Russia’s real estate market:

- All foreigners developing business in Russia pay close attention to Strategy 2020. The plan to build 140 million sq.m. of residential real estate by 2020 was announced a decade ago. Today however this plan seems more realistic to me as I was a part of task groups preparing for the Government ways to implement the program and making suggestions on how to actually reach that goal by 2020. I believe that Russia’s production facilities are not currently sufficient for real estate development on such scale. According to various estimates, they range from 80 to 100 million sq.m. of residential real estate. We need to find ways to increase production facilities of the construction industry. That is where we come in. We intend not only to build plants to manufacture concrete structures but also develop innovative productions and modernize existing plants to produce up-to-date construction materials. I agree with Mr Milushkin that we need to build affordable housing at a price of 30,000 rubles per square meters for middle class as the upper class mostly has real estate. We should also remember about energy efficiency. For instance, we offer a new sandwich panel system with 70 kWh per square meter as compared to 130-150 kWh.

To complete the discussion, the speakers answered most pressing questions from the press. In particular, Ms Nikolayeva said that a Russian middle class family will be able to afford housing in the near future due to joint efforts of the government offering special programs for certain groups of consumers, municipal authorities actively developing industrial clusters and leaders in the development sector. According to Ms Nikolayeva, Sberbank intends to offer mortgages at a rate of 8%. Action is also taken to reduce housing costs. Even today there are developments in the Moscow Region where houses are built at 45,000 rubles per square meter, and in the regions participating in programs of the Russian Housing Development Foundation, Stimul and the Housing Mortgage Lending Agency, apartments and homes may be purchased at the price of the Ministry for Regional Development of 30,000 rubles per sq.m. With support of the Russian Housing Development Foundation, the Housing and Utilities Fund and other establishments, in the next five years the price of residential real estate even in Moscow may be lowered to 35,000 rubles per sq.m. In addition, leasing real estate (rental property will develop at a rapid pace) will become a good alternative to purchasing an apartment or a home.

Ms Nikolayeva and Mr Filippishin pointed out that effort of the Russian Housing Development Foundation resulted in less red tape for integrated developments. Large areas were involved in development, and many plots were granted free of charge to certain consumers – families with many children and cooperatives of scientists. It is important that this land has the engineering infrastructure which reduces final housing costs. “The more land is offered with infrastructure, the closer developers will be to consumers”, said Ms Nikolayeva. To close the press conference, the President of NAMIKS invited journalists to make press tours in Russian regions where due to the agency’s efforts, low-rise residential construction is developing at a fast rate.

Mr Alexander Krapin, General Director of AA RWAY, attended the event.

Last year over 58 million sq.m. of residential real estate was commissioned in Russia. The current goal is to commission 142 million sq.m. by 2020 with over 60% of commissioned real estate being in low-rise developments. To attain these grand goals, a lot of current issues need to be addressed thus participants of the discussion talked about changes in the general trends in the development industry, using vacant areas for development, providing infrastructure at the expense of Russian constituent territories as well as development of the system of affordable residential properties for lease and other topics.