A mighty tool to clear the capital’s urban space to give room to implementation of new approaches to the local development policy will be provisions of Federal Act of 12.12.No. 427-FZ “On introducing amendments to Art 2 and 3 of the Federal Act “On implementation of the Land Code of Russian Federation” and individual legislative acts of Russian Federation” which provide for the following critical amendments.
A contract of lease of a public or municipal land lot located within the limits the of city of Moscow or St. Petersburg and concluded prior to 1 January 2011 for the sake of construction, reconstruction of real estate objects may become subject to early termination unilaterally by a respective public agency or local self-government body3, where there has occurred a substantial breach of terms and conditions of the agreement of lease of such a land lot and or a substantial change of circumstances from which the parties to the agreement proceeded while entering into it.
The list of cases of the substantial breaches which may form the reason for a unilateral termination of such contracts by a public agency or local self-government body, include the following ones: (1) failure to honor obligations with respect to construction, reconstruction of the real estate object within the timelines provided for by the agreement, or (2) where there are no such timelines stipulated in the said agreement, for the term of which the permit on construction, reconstruction of the said object was granted, in the event the degree of the construction completion of the real estate object as of the last day of such a term is under 40% of the overall volume of its construction, reconstruction provided for by design documentation approved following the procedure established by the RF law; (3) an absence, upon expiration of 5 years from the date of conclusion of the said contract of permit for construction, reconstruction of the real estate object, construction of which is provided for by the said contract, in At this point, it should be noted that the Rosstat data also evidence that in 2011 in the territory of the city of Moscow, including the area of Lubertsy Fields, as much as 2,107.300 m of total area of housing was placed in operation (106.9% to the 2010 figures), or roughly 300,000 m more than in the aggregate table across all Russia’s regions (1,805.200 m). No earlier published data on the aggregate placement of housing in operation over a number of years, including the housing built under the Moscow Government’s program beyond the city’s territory, were available.
Boykova M. The epoch of construction minimalism.-In: Direct Investment, No. 12 (116), 2011, p.99.
The contract of lease of such a land lot is considered terminated upon one month from the date of dispatch by the government agency or local self-government body of the contract termination notification. Prior to expiration of the said timeline, the party to the contract may forward the said agency/body its objections in writing with regard to the termination of the contract. In that case, the contract is deemed terminated since the date of dispatch of the notification of confirmation of the earlier made decision.
Section Institutional Issues the event the contract in question does not provide for a date of completion of construction, reconstruction of the said object.
A material change of circumstances, from which the parties to the contract proceeded while entering into a contract of lease of the land site, under which the government agency or local self-government body is permitted to unilaterally terminate the contract, is termination of another agreement between the said agency/body and a public or municipal institution or unitary enterprise which provides for construction, reconstruction of a real estate object on such a land site leased per the said contract.
Provisions introduced with respect to investment contracts appear analogous to the above, except for a slightly reworded formulation of the material change of circumstances from which the parties thereto proceeded while entering into the contract and which allows its unilateral termination by the state. The material change of circumstances is the impossibility to fulfill obligations with regard to completion of construction, reconstruction of real estate objects due to the impossibility to allocate a land plot s per the law, as well as due to existence of a real burden or encumbrance with respect to titles held by third parties which prevent its construction, reconstruction.
Approved in September 2011, the city of Moscow’s state program “Housing” for the medium term (2012-16) provides for construction over the period in question of 12.7m m of housing at the expense of all sources of financing, including 3.8m m-at the expense of budget funds. So, average annual figures should make up some 2.5m m and 0.8m m, respectively, or less than those reported in the crisis 2009, to say nothing of the pre-crisis H2 2010.
Together with continuation of already existing programs of improvement of housing conditions (free allocation of housing, social mortgage, installment sale, resettlement of slum, rundown and morally obsolete housing and the one subject to demolition), the new accent in the City Hall’s policy should become expansion of the housing fund for lease (construction of commercial and unsubsidized residential property) and major overhaul of the existing housing in a volume nearly twice in excess of the one of newly constructed housing (23.5m m). The City Hall should also fulfill obligations with regard to provision of housing (with account of various payments) before 88,000 families (208,000 people)1.
Prospects of expansion of housing construction in the capital region will be in many ways driven by effects from the decision to expand Moscow to South-West made on the federal level in the summer of 2011.
The ambitious plans to develop the so called ‘New Moscow” suggest building in new territories some 60m m of housing and 45m m of office space (particularly to accommodate tobe-relocated plethora of government agencies and a financial center). The holistic approach to development of newly acquired city territories provides for creation of more than 1m highly qualified job opportunities and provision of housing to 2m Muscovites, and construction of office space and social, cultural and household objects. At the same time, the density rate in the newly developed areas is envisaged to be lower than within the Moscow Ring Road, particularly thanks to low-rise housing constructed with the use of modern technologies. It is planned to allocate huge funding out of the federal budget for the project implementation.
The factor of Moscow’s expansion has already strongly affected the state of the real estate market in the capital region. Once announced, the future change of the metro’s limits immedi Resolution of the Government of Moscow of 27 September 2011 No. 454-PP.
RUSSIAN ECONOMY IN trends and outlooks ately caused a spike of previously unseen activity on the real estate market, with mass media fanning the boom.
Despite the summer holidays and traditional tranquility in all the business sectors, July and August 2011 broke long-standing record in terms of demand for apartments on the primary market. Between the late summer and early autumn 2011, developers’ front offices were overstretched, and the pressure concerned both projects located in the new Moscow’s territory other areas in Moscow oblast, too. Between the summer and early autumn 2011, demand for apartments on the market for newly built housing in the areas adjacent to the city of Moscow increased 2.5 times, while the number of deals with newly built housing in the territories to be added to Moscow was momentarily up 4-fold and remained on a fairly high level through October 2011. Presently, the level of activity is lower than last summer, but remains fairly high nonetheless. Some decline in the boom of demand is noticed on the market for newly built housing both in New Moscow and other areas near the city of Moscow.
Because of the change of the city of Moscow’s limits by including therein a sizeable area south-west of the city and the subsequent record-breaking increase in demand, initially, prevailing sentiments on the local metro market were:
(1) anticipation of a rapid speculative price rise for real estate on the primary and secondary markets in the areas in question to make a fortune on rumors of inclusion of certain territories in the city of Moscow;
(2) anticipation of a mass increase in the number of new investment and development projects in the new Moscow’s territory and their entering the market any time soon;
(3) anticipation of some price adjustments on the Moscow city real estate market, particularly in the territories adjacent to the future Moscow areas.
That said, by results of the period in question, no drastic price rise for housing in the above territories was noted. For instance, some complex residential development projects saw average prices having added just 5 to 7% over the 3-4 month-long period. At this point, it should be noted that similar price rise rates were noted across all the projects located in the same region, except for a few projects where prices were raised by 20-30%. Those, however, were unique cases and out of the mainstream trend.
It is prospects of the project’s further development which will largely affect the atmosphere on the real estate market, the degree of consumer trust and demand. Disappointment of those who, spurred by discussions on Moscow’s expansion, have already invested in real estate in the new territories may emerge as a significant factor fueling a collapse of the market and the rise of mass claims to return private investments, which would mean sizeable losses for developers operating in New Moscow.
As to the general situation across Russia, in 2011, the nation’s leadership vowed to bolster availability of mortgage for some groups of residents by cutting the interest rate and the amount of the initial installment. Meanwhile, alternative to mortgage approaches to the housing problem, such as cooperative housing societies (CHS) and housing savings societies (HSS), and building-and-loan-associations (BLA), started drawing an increasingly greater attention.
One of the first steps in that direction became enactment of amendments to Federal Act of 24.07.2008 No. 161-FZ “On assistance to expansion of housing construction”.
Section Institutional Issues Presently, employees at regional and municipal educational, healthcare institutions were added to the list of groups of residents1 who, while establishing a HSS, have the right to apply to the Federal Fund for Assistance to Development of the House Construction (FFADHS) for a free land plot for a cooperative housing construction project. Such an arrangement generates certain preconditions for cutting down construction project costs, as the FFADHS’s principal vehicle nonetheless are auctions on land plots, which implies the market interaction between demand and offer, which clearly falls short of securing a greater availability of housing. Plus, HSS enjoy some tax benefits, while their members potentially have possibilities to influence progress in a construction project implementation (by electing the project management, having access to documentation, etc.).
While assessing this novelty, it is worthwhile to note first that an evident hurdle to the spread of the mechanisms in question remains the problem of a low level (relative to costs of housing) of labor compensations in the economy in general and in the public sector in particular. The challenge will inevitably arise under any organizational and legal arrangement (whether a share-based contribution while joining an HSS, or the amount of the initial installment while obtaining a mortgage).
That said, the alternative mechanisms bear certain risks. More specifically, by contrast with participation in a shared construction project, membership with a housing association does not necessitate a compulsory project declaration, obtaining a construction permit and registration of all transactions. HSS members may face expulsion, the need to bear subsidiary responsibility for the association’s obligations within the limits of a non-invested fraction of an additional contribution of each HSS member and cover possible losses by collecting additional contributions under the threat of liquidation of the HSS pursuant to its creditors’ claims2.
It is quite likely that the alternative vehicles have a long and winding road to travel, as far as the problem of improvement of their operational mechanisms is concerned, thus following the dependency path of shared construction projects back in the mid-‘2000s. The proportion of housing put in operation by HSSs in the overall volume of housing placed in operation in 2008-10 thus far has fallen short of exceeding even 1% (2000 – 2.4%, 2005 – 1.4%)3.
As well, problems of administrative barriers and monopoly in the housing construction sector have remained persistent, though the crisis has given rise to an ongoing process of shaping up of a new configuration of the construction market. Thus, in the early autumn of 2011, a co-owner of BIN-bank in tandem with “Sberbank Investment Ltd”, a Sberbank’s subsidiary, acquired JSC Inteco, Paritet and all their affiliated structures (though the Sberbank Investment’s stake is a symbolic 5%). The assets, which were not limited to construction and development, were acquired for as much as USD 1.2bn4.
6.6.5. The Home Loan Sector According to the CBR, over 11 months 2011, as many as 656 credit institutions disbursed 449,210 mortgage loans (ML) for a total of Rb 613,355bn, or up 1.95 times vs. the respective figure as of 1 December 2010. The number of ML as of 1 November 2011 evidenced the out The right in question was earlier granted solely to the federal-level public servants (including the military), staff of federal public enterprises and unitary enterprises, educational and academic research institutions.
Sanzhiev D. Associations may challenge mortgage //Economics and Life, No. 01 (9417) 13 January 2012, p. 19.
Russian statistical yearbook. 2011: Stat. comp./Rosstat, M., 2011, p. 461.
Inteco sold - In: Direct investment, No. 10 (114)á 2010, p. 72.
RUSSIAN ECONOMY IN trends and outlooks running of 2008 when 602 credit institutions extended, throughout the year, 349,502 ML worth a total of Rb 655.8bn; by volume of extended ML Q3 2011 practically caught up with Q3 2008 (!Fig. 25).