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**** - The stage identified solely with regard to St. Petersburg, when during the period of preparation of celebration of the citys 300th anniversary the housing prices overshot expected values.

Data of Table 19 allow the conclusion that over 16 years of the contemporary history of the market clearly splits into two stages, so far as the housing price dynamics are concerned.

The first stage (since June 1990 through June 2000) accounts for 10 years for Moscow and 8 9 years for other cities. The second stage has now been in progress in Moscow for more than years already and over 6 years in other cities. The first decade of the legal estate market involved the markets start and take-off, transition to stabilization, which was followed by the 199899 crisis. In mid-2000, when the housing market hit the bottom in the wake of the August 1998 crisis, the first stage of the unstable, fluctuating advancement of the market was over. Over the next 7 years and until now the market has witnessed a constant price rise, with its rates fluctuating occasionally (up to a complete stabilization).

Meanwhile, like the city of Moscow and Moscow oblast, other cities also passed through roughly the same stages: the start and take-off of prices (until 1995), stabilization (though 1997), crisis (until 2000), post-crisis renewal (until 2001), stabilization-2002, the oildriven growth, stabilization in 2004, mortgage and oil back-upped growth of 200506, transition to stabilization (the late 2006), stabilization of 2007, and the start of a new growth.

All the cities displayed the following peculiarities:

- asynchronous beginnings and ends of individual stages;

- some peculiarities in the way individual stages developed.

Below we provide charts of price indices in the cities of the samples relative to December 2001 (Fig. 1). They show that over the first three years (200204) the price indices accounted for 2.02.3, while over six years (20012007) 5.06.0.

RUSSIAN ECONOMY IN trends and outlooks Fig. 1. Housing Price Indices in Moscow and Russias Cities by December The above curves allow one to identify a regularity in common for all the cities, that is, the price rise persisting since 2001.

Another regularity of the long-term development of the price situation on the regional markets is engendered by their asynchronous progress, namely, at the beginning of each stage of growth, as regions lag behind the capital locations in terms of the start of price rise, there occurs fractionation of price trends (divergence of the curves). The first case was noted for the periods of 199095, 199899 (under the price downfall) and is seen on the graph on the summer-to-autumn 2003, on the autumn 2005 and on the late-2007 intervals; the second case in 199697, on the late 2000 the early 2001, on the early 2005, and on the late 2006 intervals.

During the periods of the greatest market fractionation, the value of correlation between the peak and minimum price rise indices accounted for: in June 2004 and October 2006 1.81.9, while in the periods of the greatest consolidation: in June 2005 and December 2007 1.21.3.

In the late-2007, there once again occurred consolidation of the trends, which testifies to the general start of a new stage of growth in the price rise rates for housing in Russias cities.

The data show that a long-term price rise on developing markets is wavelike, rather than sustained. It is accompanied by cyclic fluctuations of monthly growth rates between zero and 10 12%, whose period accounts for 2.53 years. During a year prices begin to grow, pass the peak of their growth rates and once again stabilize, while over a given period prices grow 2.5 3.5 times.

Such a behavioral pattern is explained primarily by an intense backwardness of offer from the aggregate effective demand a phenomenon characteristic of developing markets.

Given that Russias population needs housing badly, in the conditions of a sustained rise in effective demand it is possible to avoid next doubling and tripling of prices only under a considerable boost given to the volume of housing construction, placement of new housing in operation and a far greater offer on the market, which necessitates the governments targeted efforts.

Section Institutional Problems 5. 4. 3. Housing as the National Priority Program The year of 2007 saw implementation of the national project entitled Affordable and comfortable housing to the citizens of Russia in progress. According to preliminary data, new 60.4m sq.m. of housing were put in operation in 2007, which is 19.4 up vs. 2006 (Table 20). These figures also overrun the 2005 increment of (16%). Overall, as many as 714 Thos.plus apartments were built in 2007.

Table Placement of New Housing in Operation in Russia in 1999Growth rate, % Year M. sq.m. of housing To the prior year To 1999 32.0 104.2 105.2000 30.3 94.7 100.2001 31.7 104.6 104.2002 33.8 106.6 111.2003 36.4 107.7 120.2004 41.0 112.6 135.2005 43.6 106.3 143.2006 50.6 116.0 165.2007 60.4 119.4 199.Source: Rosstat, the authors calculations.

In all, the 2007 housing sectors performance appears fairly impressive more specifically, the annual growth rates of placement of new housing in operation have accelerated over the past two years; the actual output (56.3m sq.m.) overrun the planned results; the volume of housing placed in operation practically doubled vis--vis the 2000 bottom point and nearly hit the values of registered in 1990 (67.1m sq.m.)95. In contrast to 2006, individual developers posted an advanced growth rate (nearly 29%) of placement of new housing in operation, which enabled them to increase their share in the overall volume of placement of new housing in operation up to 42.6% vs. 39.5% reported in 200506. The implementation of the program of house building for the military jointly funded by the federal and regional budgets (each providing Rb. 15 bn. in targeted allotments) in Moscow, Moscow oblast, St. Petersburg, Leningrad and Kaliningrad oblasts has also been a success.

Given all the success in implementation of the national housing project, it should be emphasized that the pace of placement of new housing in operation slowed down in 2007: in the 1st quarter the volume of house construction grew over 1.5 times, by results of the 1st half year by some 35%, between January and September less than by one-third (all vs. the respective periods of 2006). The final 2007 increment fell short of hitting 20%, or proved to be roughly at 10% less than originally expected96.

Such a situation can be explained by two factors. On the one hand, happy with the results, government may be interested in having certain reserves that would ensure a positive dynamic in 2008. On the other hand, the 2007 stabilization of housing prices after their rapid At this point, it should be noted that the 1990 values were not record-breaking, as in 1988 the respective result was 72.3 m. sq.m, and in 1989 a. 71m sq.m.

In mid-January 2008, at a meeting in Tyumen on the national project implementation in Ural Federal Okrug D.

Medvedev informed that the envisioned 2007 result in house-construction was to be 66 m sq.m.

RUSSIAN ECONOMY IN trends and outlooks rise in 2006 meant that the previous catalyst of house construction has been lost. That is why one is unlikely to expect a price downfall due to the slowdown of rates of growth in offer.

Production of construction materials progressed in 2007 across the overwhelming majority of items. Meanwhile, there still persist notable imbalances between the output of ceramic and sanitaryware items, which exceeded the 1990 level, on the one hand, and the output of other construction materials, which remained at a level lower than those of 1970 and 1975.

This can be exemplified by cement production. In 2007, its volumes grew at 9.4% and finally overrun that of 1970, but they still are far inferior to their 1980 and 1990 levels.

Meanwhile, it was cement prices that were growing at an advanced rate last year. According to the Rosstats official data, in December 2007 they grew at more than 70% vs. December 2006, thus setting a record compared to other construction materials. The same situation was noted in 2006, but the price increment was under 25%97.

Such price rise rates demand for adoption of a special sector development sub-program, which includes establishment of 50 new cement plants (construction of 14 of which is in progress already), allocation of raw materials sites, a free relocation of cement and specialized transport, and activation of private-public partnership mechanisms. The government, of course, is in possession of such standard market mechanisms as the customs and antitrust regulation, which presently have proved to be clearly insufficient98.

In addition to problems of provision of the house-building sector with resources and development of its material and technical base, the list of urgent problems includes allocation of sites for construction and making housing genuinely accessible for citizens. Only 8 regions voluntarily and in full honor their obligations with regard to allocations of sites under construction, while most construction projects are in progress on the sites developers had received prior to introduction of legal provisions that require their compulsory assignment by auctions results.

As concerns accessibility of housing, in its recent report, the Duma Committee for industry, construction and science-intensive technologies argues that the 20052006 price rise for housing at 20% exceeded the growth rate in citizens average incomes99. Huge groups of the population have found themselves in between high requirements to the current income level and financial sufficiency the mortgage procedures demand, on the one hand, and tightening requirements to the possibility for getting an apartment from the state under a typical queue for improvement of the housing conditions.

Plus, the official statistics report that the number of families (including the singles) that received housing and improved their housing conditions is on the decline. Thus, in 2006, i.e.

after the start of implementation of the national projects, there were 139,000 of such families (or 4% of those considered to be in need for housing) against 151,000 in 2005 (in 2000, there were 253,000 of such families). In parallel with that, there was noted a drastic reduction in the Sotsialno-ekonomicheskoye polozhenie Rossii, 2007 god. M., Rosstat, p. 176. Some experts even greater figures. Thus, while addressing the International Investment and Construction Forum, Mr. N. Koshman, President of the Association of Builders of Russia (ABR) maintained that cement prices grew at 140% and predicted in they would soar up to Rb. 10,000/t. see: A. Demin. Naraschivaem temp. In: Rvartirny ryad, 29 Nov. 5 Dec.

2007, No. 48 (671), p. 10. The ABR head earlier referenced the price rise for 1 t. of cement from Rb. 1,139 in January 2006 up to 7,000 in the autumn 2007. see: Tsementnaya stradatelnaya. In: Kvartirny ryad, 410 Ooctober 2007, No. 40 (663), p.1.

Domnin S. A. Evrocement slushaet, da tseny povyshaet. In: Kvartirny ryad, 1420 Feb. 2008, No. 5 (680), p.1.

Domnin S. Rano otbivat ladoshi. In: Kvartirny ryad, 410 Oct. 2007, No. 40 (663), p.10.

Section Institutional Problems number of families listed in such queues, which can be attributed to the promulgation of the new Housing Code. In 2005, the respective figure fell by 19% and by another 8% in 2006. In all fairness, it should be noted that this tendency appears characteristic of all the period of market reforms, but it had been smoother before100. More specifically, the contraction in the number of citizens lining up for the state-granted housing in 200506 proved to be greater than in the four prior years (200104).

As in the first year of the national project implementation, the attempt to ensure accessibility of housing for a broader array of citizens likewise implied bolstering the mortgage system. By the autumn 2007 the government had succeeded to slightly lower mortgage interest to 1111.5% (vs. 12% reported in 2006)101 and to increase the loan term up to 16.3 year (vs.

13.8% in the late-2005). The mortgage program was granted the budgetary support totaled Rb.

260bn in 2006 and Rb. 206 bn. in the 1st half 2007102.

But in the summer 2007 the mortgage crisis in the US regalvanized earlier cited great doubts of adequacy of this particular instrument to Russias current realities. The US mortgagers mass refusals to repay their loans triggered liquidity shortages in the US banking sector, which until then had been a major source of funding for mortgage loans in Russia, as it had disbursed loans to the Russian banks, who had gladly capitalized on the opportunity to compensate for the lack of a huge volume of long money in the country. As a result, the banks cracked down on mortgagers, including tightening their solvency procedures and suspending programs for those of them who fell in the bracket of highly risky ones. Many banks abandoned zero-purchase-money programs and slightly raised their interest rates.

At the end of 2007 experts voiced up preliminary losses the Russian mortgage system suffered due to the US subprime market crisis. Thus, Ms. T. Nikitina, Director General of the International Real Estate Mortgage Academy noted a 7-fold fall in the increment rate of mortgage contracts vs. 2006. According to Mr. A. Skomorokhin, Director General of KUI Yamal, the system was running short of some USD 2bn, which axed the number of potential mortgagers at 50100,000. Mr. V. Belov, Director General of Fousborne Home company, argued that the rise in interest rates or discontinuation of delivery of this kind of financial services affected banks that had been holding some 23% of the market, while average weighted interest rates soared by 0.2% in USD and 0.7% in Rb.

Given the above, the impact of the US subprime mortgage crisis on Russias housing situation should not be overestimated, as the role the instrument plays in the country has been quite limited so far (the volume of mortgage loans in Russia accounts under 1% of GDP, while in the US it is over 50% of GDP). Most players have maintained that the US crisis would exert its adverse effect on Russia for no longer than 69 months. For example, Mr. A.

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