Fall in real disposable income in Russia to decisively discourage residential construction in 2015More information on this topic is presented in the PMR report:
- October 2015
- Delivery: PDF
- Pages: 257
- Forecasts: 2016-2021
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As indicated by the results of PMR’s latest report, entitled “Construction sector in Russia H2 2015. Development forecasts for 2016-2021”, the total floor space of residences listed in official records over the first eight months of 2015 increased by 10% to 44.8 million m², regardless of the sharp deterioration of macroeconomic conditions since mid-2014.
Furthermore, the number of new homes registered in Russia between January and August 2015 rose by 12% year on year to 590,000. The total floor space of newly listed residences was the most substantial amount during the period in question since 1990.
According to PMR, the notable increase in home registration activity in Russia during the first eight months of 2015 must be assessed cautiously, as it consists to an important extent of dwellings completed in late 2014 and 2015, along with many residential properties completed a long time ago but listed in official records mostly in Q1 2015 in accordance with Federal Law No. 93-FZ of 30 June 2006, entitled “On the simplification of the registration rights of property ownership”. This is commonly described as a “dacha amnesty”. In part, this law was intended to legalise the construction of houses built without the requesting of a building permit, to establish the delivery of technical specifications for residential homes and to organise the registration of garden houses and their technical specifications, along with property deeds. The “dacha amnesty” was initially planned for the period 2006-2010 but was later extended until 1 March 2015, and the public rushed to benefit from it in late 2014 and early 2015 in particular. Meanwhile, the deadline has been moved. The most recent revision was in March 2015, with the period being extended until March 2018.
According to the Federal Service for State Registration, Land Registration and Cartography, in H1 2015 approximately 163,512 detached houses were listed in official records in Russia based on the “dacha amnesty” edict, and this is about 36,634 more buildings (+28.9% year on year) than the number recorded in the corresponding period of last year. As estimated by PMR, this expansion most likely contributed an extra 5 million m² of residential space. At the same time, the total floor space of detached houses of individual builders listed in official records in Russia in H1 2015 was 4.6 million m² more than in H1 2014. From this calculation it is safe to assume that the 10% advance in the total area of detached houses registered by individual investors in Russia between January and August 2015 in year-on-year comparison was achieved exclusively because of “dacha amnesty” properties, which are typically houses completed years ago but officially registered only recently.
As indicated by PMR, the total amount of housing space officially registered in Russia in January-August 2015 increased by 10% year on year, with companies activating 9.5% more space than in the equivalent period of last year and individual builders accounting for a 10.5% upsurge. The result emphasises that, regardless of the sharply deteriorating economic environment in 2014, the residential construction activities of companies did not fall sharply last year. According to PMR, residential construction output remained flat in real terms last year, with developers opting to finish projects with a high completion level in mid-2014 but preferring to cancel or delay most projects which were at the preparatory stage. Preliminary data presented by Rosstat reveal that between January and August 2015 the production of cement contracted by 9.3% year on year, that of ready-mixed concrete was reduced by 14.7%, and that of assembled reinforced concrete products by 15.7%, although there was only a 5.2% reduction in the production of ceramic bricks.
According to PMR, the residential construction activity in Russia in 2015 will be discouraged mostly by the more than 3% contraction in real disposable personal income and by the deteriorating fund-raising environment for companies, rather than by the contraction of the mortgage market. The more than 3% reduction in real disposable income will bring the population to the level of purchasing power which it had in 2011-2012. Furthermore, Sberbank and the VTB Group control more than 70% of the mortgage market in Russia, but since July 2014 these lenders, along with several other state-controlled banks, have been gradually cut off from raising long-term international funding. In the same time, the increase in the interest rate is not considered that dramatic, as between 2011 and 2014 it hovered between 12% and 13%, whereas in 2015 the rate will most likely average 13.5-14.0%. Furthermore, in March 2015 the government decided to offset the proportion of the interest rate on mortgage loans in excess of 12% (with the borrower supporting 12% and the state making up the difference). However, even though the mortgage support incentive was approved on 13 March 2015 and is fully operational since April, banks in Russia granted only less than 59,000 mortgage loans to population each month during April-July 2015, which is not markedly more than the result achieved in the first two months of the year: 43,020 awarded in January and another 49,035 loans were granted in February.
More information on this topic is presented in the PMR report:
Construction sector in Russia H2 2015. Development forecasts for 2016-2021