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Another interesting question is about the decision CalPERS fund needs to make in Mart April of 2007: whether to invest or not in Russian issued securities Our assumption is they will authorize investment at Russian capital exchange. This could have become an important positive sigh when Russias overall perspective as an emerging market is being evaluated. After all, Clod Frollo could not resist Es meraldas beauty.

5.5. The Housing Market Last year, the housing market was advancing against a fairly favorable back ground formed by the countrys positive socio economic development.

The macroeconomic situation in Russia was influenced by deceleration of in flation rates, predictability of the RUR exchange rate, a continuous de dollarization of the economy, solidification of the national budgetary system, and high growth rates of GDP. Last year, the advancement of the economy on the whole and the real estate market in particular was fueled by high oil prices, while the private sector boasted a record breaking value of the indicator of net import of capital.

The above processes were complemented by a vigorous advancement of the stock market and the market for mutual investments, which also had a certain ef fect on the housing market. With the USD exchange rate depreciating, interest rates on bank deposits low, while investment in real estate (including share partici pation) remaining risky and inaccessible, quite a great part of the population trans formed their savings in securities and became participants in mutual investment funds (MIFs).

This novelty was also steered by growth in the number of IPOs, which became fashionable among large companies with a government stake in them (such as Rosneft in 2006 and Sberbank and Vneshtorgbank 2007). They attracted quite a fraction of the populations savings, which otherwise potentially would be spent on housing. Evidently, individuals, as a rule, are keen to maintain a conservative, low Section Institutional Problems interest strategy, which manifests itself in a direct (thus bypassing intermediaries and mutual investors) ownership of a stake in a company with the dominating gov ernment participation, which they regard as an additional safeguard for their in vestments.

By contrast to the stock market, the one for mutual investments is partially re lated to the housing. According to the National League of Managers, as of October 2006, there were as many as 610 MIFs in Russia, which attracted 300,000 private investors. The total volume of their assets accounted for RUR 404.9 bln., of which 64.9 bln (16%) falls on closed end mutual investment funds which, since their rise in 2003, have channeled their funds to real estate, including housing121. The number of the closed end mutual investment funds doubles annually. According to the data on the ten months of 2006, of 158 MIFs registered since the start of the year most were CEMIF, though in terms of cash inflow rates they somewhat lagged behind regular MIFs. The average size of a CEMIF tends to decline (RUR 634m. as of the end of the 3rd quarter 2006, while that of a regular one tends to grow (RUR 266m., as of the same date)122. The threshold to enter a CEMIF has been decreased, which makes them more accessible for private individuals.

The profitability rate of CEMIfs depends on their profile and relevant risks. It is leasing funds that operate in the area of real estate lease that reported the least profitability rates. By contrast, development and construction funds that build housing using attracted private resources boast a far greater return rate, while mortgage funds that operate with such instruments as encumbrances continue to hold their specific niche on the market. Interestingly, the Mortgage Loan Housing Agency has also started operations with encumbrances. So, being connected with the housing market, CEMIFs can become its competitors, thus diverting funds from the main segment of actual deals in the natural form. Hence, the factor of de velopment of the financial markets (in a broad sense) should be undoubtedly taken into account while estimating prospects for development of the housing market over the years to come.

The current stability of the macroeconomic parameters has given a positive signal to operators and consumers on the real estate market.

5.5.1. Overall situation on the housing market and price dynamics in 2005The data of Table 20 can form a general characteristic of the situation on the housing market. The Table provides average offer prices for apartments in Russian cities in late 2004, 2005 and 2006 (in USD equivalent), calculated on the basis of the data supplied by certified by the Russian Realtor Guild analysts of the real es tate market123.

Krol N. Investor spit, a denezhki idut. Kvartirny ryad, 1 7 February 2007, # 4 (627) p. Udvoyenie PIFov//CNIP. Stroitelstvo, Nedvizhimost, Investotsii, Proekty, # 02 (02), December 2006, p. Computations were made on the basis of the data provided by G. Sternik and the noted certified by RRG analysts of the real estate market, including: A.Beketov, A. Sapozhnikov (independent ana RUSSIAN ECONOMY IN trends and outlooks Table The Dynamics of the Average Offer Price for Apartments in 2004$/ sq.m. Index December December December City (region) December December December 2005 / 2006/ 2006 / 2004 2005. 2006 December December December 2004 2005 Moscow 1953 2658 4828 1.361 1.816 2.S. Petersburg 1083 1180 2593 1.090 2.197 2.Moscow oblast 908 1121 2522 1.235 2.250 2.Ekaterinburg 882 1062 2415 1.204 2.274 2.Ufa 766 997 2074 1.302 2.080 2.Izhevsk 1837 Novosibirsk 748 1012 1658 1.353 1.638 2.N. Novgorod 579 720 1650 1.243 2.292 2.Tymen 864 1600 1.852 Rostov on Don 656 861 1550 1.313 1.800 2.Perm 680 882 1430 1.297 1.621 2.Tver 542 688 1370 1.269 1.991 2.Omsk 518 676 955 1.305 1.413 1.Penza 543 890 1.639 Ulyanovsk 405 486 859 1.20 1.768 2. Shakhty (Rostov oblast) 480 Towns in Moscow oblast Khimki 1237 1589 3254 1.285 2.047 2.Odintsovo 1128 1474 3228 1.307 2.190 2.Krasnogorsk 1050 1365 3071 1.300 2.250 2.Podolsk 832 1081 2461 1.299 2.276 2.Ramenskoye 753 979 2215 1.300 2.263 2.Solnechnogorsk 697 902 1922 1.294 2.131 2.Naro Fominsk 705 843 1901 1.196 2.255 2.Serpukhov 571 695 1317 1.217 1.895 2.Mozhaysk 486 604 1110 1.243 1.838 2.Quite predictably, it was the capital regions (the city of Moscow, Moscow oblast and S. Petersburg) that were leaders between 2005 and 2006 in terms of absolute prices for housing prices, with Ekaterinburg following them closely. The leading group was followed by regional centers and towns located in Moscow oblast, where leaders were the towns in the closest proximity to Moscow (Khimki, Odintsovo, Krasnogorsk). In these towns, the Dec. 2004 price level (over USD 1,000/sq.m.) was already greater than the average one across the region, and it consequently overrun the price level of S. Petersburg in late 2005 and 2006.

In 2005 it was only Moscow oblast, Ekaterinburg and Novosibirsk that have overcome the psychologically critical barrier of USD 1,000/sq.m. In 2006, these localities were joined by the overwhelming majority of the cities presented in the sample in Table 20, except for Omsk, Penza and Ulyanovsk. In S. Petersburg, lysts), V. Lutskov, L. Kazimir, N. Ascheulova (AKTS MIEL Nedvizhimost( Moscow and Moscow oblast)), M. Bimon and S. Bobashev (Bulleten nedvizhimosti (S. Petersburg)), M. Khorkov, A. An tasyuk (Ekaterinburg), A. Stepanova (SUN Expert (Ufa), A. Cheremnykh (UK ASSA Story (Iz hevsk)), P. Smelov, M. Vysotskaya (Sibakademstroy Nedvizhimost), E. Ermolaeva (RID Analitik (No vosibirsk)), A. Chemodanov (Triumph (N. Novgorod)), V. Troshina (LEX (Tyumen)), A. Chumakov (Titul (Rostov on Don), R. davletshina (Perspektiva konslating (Perm), V. Kaminsky (TITAN (Tver)), S. Taruta (Omskmedia (Omsk)), S. Blinkova (IKPKG Zhilye (Penza)), E. gamova, N.

Yarsina (Tsentr nedvizhimosti), M. Isaeva (Zolotoy klyuch (Ulyanovsk)), G. Eydlina (Rielty (Shal hty, Rostov oblast)) Section Institutional Problems Ekaterinburg, Ufa and Moscow oblast (as a whole) and Podolsk and Ramenskoye the prices overstep the mark of USD 2,000/sq.m., while in Khimki, Odintsovo and Krasnogorsk 2,000 and 3,000, and in the city of Moscow USD 3,000 and 4,000/sq.m., accordingly.

It should be noted that in Moscow, Moscow oblast, S. Petersburg, N. Nov gorod and Tver prices are still quoted in USD, while Ekaterinburg and Rostov on Don have witnessed de dollarization of the housing market. As concerns other lo cations presented in the sample, prices are still quoted in RUR there.

By the end of 2006 the housing prices posted grew more than twice in N.

Novgorod, Ufa, Ekaterinburg, S. Petersburg and Moscow oblast (not only across the region as a whole, but in its most remote from Moscow towns, such as Serpuk hov and Mozhaisk). In the towns in question, as well as in Tver, Tyumen, Moscow, Rostov on Don and Ulyanovsk, the price increment ranged between 70 and 100%.

A more moderate price dynamic was noted in Penza, Novosibirsk, and Perm (64%). Finally, the smallest rate of the price rise for housing was noted in Omsk (41%).

Such a rapid price rise has continued at least for two years, and in all the cities in question the 2006 growth rates were greater than those of 2005. As a result, be tween 2005 and 2006 the housing prices grew more than twice in all the cities of the sample (except for Omsk, where the price rise accounted for 1.84 times). The group of cities with the greatest growth rates (2.6 3 times) includes N. Novgorod, Ekaterinburg, Ufa, Moscow oblast (as a whole and most its towns, except for Ser pukhov and Mozhaisk). The lowest growth rates were noted in Perm and Ulyanovsk (roughly 2.1 times). Meanwhile, Tver, Moscow, S. Petersburg, Rostov on Don, Serpukhov, Mozhaisk and Novosobirsk found themselves somewhere between the poles, as the price rise there over the two past years accounted for 2.2 2.5 times.

As a reminder, consumer prices grew by 9% last year. The USD average nominal exchange rate in December 2005 was 28.81 RUR, while in December 2006 26.29 RUR. Accordingly, the 2006 USD inflation rate in Russia accounted for 1.195. Thus, USD continued to depreciate in Russia, with the decline rates of its purchasing power growing notably (in 2006 they made up 16%, or twice as much vs. the respective index of the prior year (7%) and slightly over the 2004 index (15%). While considering the two year period (2005 2006), the RUR/USD depre ciation accounted for 0.94, the USD inflation index 1.286, and the USD purchas ing power plunged by more than 22%.

As concerns the index of the real housing price (less the USD inflation and the RUR inflation) (ISG124), the respective data and ratios are presented in Table 21 be low:

ISG is computed by the following formula: ISG=Ipr/Icp=Ip$/Ii$, where Ipr is price index for housing in RUR equivalent, Icp consumer price index, Ip$ price index for housing in USD, Ii$=Icp/Ir$i index of the USD inflation in Russia (relative to the consumer price dynamics, Ir$i index of depre ciation of RUR vs. USD RUSSIAN ECONOMY IN trends and outlooks Table The Dynamics of the Average Offer Price for Apartments in 2004Nominal price index IGS December December December December December December City (region) 2005 / 2006./ 2006 / 2005 / 2006 / 2006 / December December December December December December 2004. 2005. 2004. 2004. 2005 2004.

Moscow 1.361 1.816 2.472 1.265 1.520 1.S. Petersburg 1.090 2.197 2.394 1.013 1.838 1.Moscow oblast 1.235 2.250 2.778 1.148 1.882 2.Ekaterinburg 1.204 2.274 2.738 1.119 1.903 2.Ufa 1.302 2.080 2.708 1.210 1.741 2.Novosibirsk 1.353 1.638 2.216 1.257 1.371 1.N. Novgorod 1.243 2.292 2.849 1.155 1.918 2.Tymen 1.852 1.Rostov on Don 1.313 1.800 2.363 1.220 1.506 1.Perm 1.297 1.621 2.102 1.205 1.356 1.Tver 1.269 1.991 2.527 1.179 1.666 1.Omsk 1.305 1.413 1.844 1.212 1.182 1.Penza 1.639 1.Ulyanovsk 1.200 1.767 2.120 1.115 1.479 1.Towns in Moscow oblast Khimki 1.285 2.047 2.630 1.194 1.713 2.Odintsovo 1.307 2.190 2.862 1.215 1.832 2.Krasnogorsk 1.300 2.250 2.925 1.208 1.883 2.Podolsk 1.299 2.276 2.957 1.207 1.905 2.Ramenskoye 1.300 2.263 2.942 1.208 1.894 2.Solnechnogorsk 1.294 2.131 2.757 1.203 1.783 2.Naro Fominsk 1.196 2.255 2.696 1.111 1.887 2.Serpukhov 1.217 1.895 2.306 1.131 1.586 1.Mozhaysk 1.243 1.838 2.284 1.155 1.538 1.The greatest growth rate in the IGS 2006 value (over 1.9 times) was reported in N. Novgorod, Ekaterinburg, and Podolsk. In S. Petersburg, Ufa, Moscow oblast as a whole, as well as in Ramenskoye, Naro Fominsk, Krasnogorsk, Odintsovo and Khimki its value found itself within the range between 1.7 and 1.9. Tver somewhat fell behind this group, with the real local prices for housing posting the 1.67 rise. In Serpukhov, Tyumen, Mozhaisk, Moscow, Rostov on Don, the real prices for hous ing grew 1.5 1.6 times, while those in Ulyanovsk, Novosibirsk, Perm, Penza and Omsk less than 1.5 times. The smallest value of IGS (1.182) was registered in Omsk.

If one considers results of the two year period of 2005 2006, the real prices for housing grew more than twice in N. Novgorod, Ekaterinburg, Ufa and across Moscow oblast (except for Podolsk and Mozhaisk).

The ISG value was slightly below 2 for the housing markets of Tver and Mos cow. In all other cities presented in the sample (except for Omsk) the housing prices adjusted for inflation grew more than 1.5 times, while in Omsk the ISG value made up 1.433, thus making the city the lowest pole of the sample in terms of indi ces of nominal and absolute prices for housing. Atop the sample are Podolsk, Ramenskoye and Krasnogorsk, which have helped Moscow oblast to overrun the city of Moscow in terms of growth rate of housing prices in 2006. For reference, in 2003 and 2005 the situation was opposite, while in 2002 and 2004 both Subjects were even, so far as the housing price rise rates are concerned.

Section Institutional Problems Whilst considering peculiarities of dynamics of the housing market in the capi tal region, one has to note that it is in the process of transition to a new phase of its development, that is, stabilization.

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