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- to help new institutions of the housing market infrastructure thrive. These insti tutions include those involved in insuring mortgage loans, credit bureaus, and improvement of the system of state registration of the rights for real estate and account of real estate objects (enhancement of transparency, reliability and in formational accessibility, lower costs of and shorter timelines for servicing);

- to set strict territorial planning procedures, along with introduction of town planning regulations and kinds of the permitted use of real estate at the level of municipalities;

- to ensure ransition towards the possibility for real estate developers to acquire property rights for formed sites at an auction and prior to the start of the con struction and investment process. This measure should enable them to attract credit resources for construction of housing on security of the sites and the cur rently constructed housing.

The aforementioned medium term Program notes that if these problems are resolved, it would allow the populations effective demand for housing to expand substantially and to increase offer of housing by means of boosting the volumes of house building, and to ensure affordability of housing to main groups of the popula tion.

The measuring tool and main indicator, which should help judge the level of success in the Program implementation, should become an increase in the annual volume of placement of newly built housing in operation from 41.2m sq. m. in up to 70 80m sq.m. in 2010, given a triple (from the current 9% up to 25 30%) rise in the proportion of the population with incomes sufficient for buying a standard apartment using their own and credit resources.

The Governments action plan on implementation of the Program with respect to formation of the market for affordable housing provides for development of a whole series of legal acts, including amending Federal Acts On mortgage securi ties (in the part of specifying procedures of identification of the size of a mortgage backing, exclusion of privately owned assets from the composition of the mortgage backing, as well as payment of premiums on mortgage backed obligations and mortgage participation certificates), On mortgage, On state registration of rights for real estate and transactions with it (in the part of improvement of procedures of registration of title transfer by mortgages, and harmonization of the civil with the land law). The action plan also provides for amendments in the law, which concern regulation of securitization of financial assets and improvement of the procedure of allocation of sites for construction.

As concerns implementation of the national project in regional terms, it is pos sible to notice that volumes of placement of newly built housing in operation soar practically across the whole country. Out of 88 regions only 7 ones reported a fall in this respect (Kostroma, Samara, Irkutsk oblasts, Adygeya, Nenetsky, Evenk and Section Institutional Problems Chukotka autonomous okrugs). By contrast, the respective indicator grew over 1.times in Ivanovo, Kaliningrad, Murmansk, Novosibirsk oblasts, Altay Republic, Ust Ordynsky and Aginsky Buryatsky autonomous okrugs.

Of 15 regions whose cities were represented in the housing price dynamics sample over 2004 06 (Table 20) the growth rates of placement of housing in op eration were in excess of the average nationwide ones in 5 regions (Moscow, Tver, Penza, Novosibirsk and Omsk oblasts), while in another 3 regions (Rostov, Sverd lovsk, Tyumen oblasts) they roughly equaled to the latter. At the same time, in 7 re gions (Moscow, Saint Petersburg, Bashkortostan, Udmurtia, Perm krai, N. Nov gorod and Ulyanovsk oblasts) the respective indicator was below the average nationwide one, with Moscow and Saint Petersburg being at the bottom of the list (3.4% and 4.5%, respectively).

5.5.3. Implementation of the national project in the capital region Whilst considering the situation in the house building sector in Moscow and Moscow oblast in the nationwide context, it is worthwhile noting that the concentra tion of the house building operations in the capital region has remained practically unchanged (Table 23).

Table Volumes of Placement of Housing in Operation in Russia, City of Moscow and Moscow Oblast in 1999Across Moscow and Russia Moscow Moscow oblast Moscow oblast, total As % of As % of place As % of place year placement Thos. ment across ment across Thos. sq.m. sq.m. sq.m. across Rus sq.m. Russia as a Russia as a sia as a whole whole whole 32017 3052.5 9.55 2728.6 8.5 5781.1 18.30296 3342.3 11.0 2610.9 8.6 5953.2 19.31703 3690.6 11.65 2827.8 8.9 6518.4 20. 33832 4274.1 12.6 3414.8 10.1 7688.9 22. 36449 4443.0 12.2 4136.4 11.3 8579.4 23.41040 4578.6 11.15 5738.2 14.0 10316.8 25.43609 4644.3 10.6 5271.4 12.1 9915.7 22.50173 4804.5 9.6 6433.5 12.8 11238.0 22.Source: Rosstat, authors calculations.

Moscows proportional weight in the overall nationwide volume of house building fell by more than 1 p. p., thus sinking below 10%, however, the proportion of Moscow oblast has grown. As a result, the 2006 aggregate proportion of the city of Moscow and Moscow oblast accounted for 22.4% vs. 22.7% reported in and 23 25% registered between 2003 and 2004.

RUSSIAN ECONOMY IN trends and outlooks Table Volumes of Placement of Housing in Operation in the city of Moscow and Moscow Oblast in 2000By Moscow builders in In the city of Moscow the city of Moscow and In the city of Moscow (by the data of the Mos In Moscow oblast year beyond it cow city government) Thos. As % to the Thos. As % to the Thos. As % to the Thos. As % to the sq.m. prior year sq.m. prior year sq.m. prior year sq.m. prior year 2000 3530.2 104.8 3342.3 109.5 33342.3 2610.9 95.2001 3821.5 108.3 3690.6 110.4 3706.1*# 110.9 2827.8 108.2002 4469.6 116.9 4274.1 115.8 4310.9* 116.3 3414.8 120.2003 4703.2 105.2 4443.0 103.9 4441.9* 103.0 4136.4 121.2004 4794.7 101.9 4578.6 103.1 4576.8* 103.0 5738.2 138.2005 5224.1 108.9 4644.3 101.4 4644.3 101.5 5271.4 91.2006 5320.7 101.8 4804.5 103.5 4804.5 103.4 6433.5 121.Note. * built in the city of Moscow by local construction companies, # there is alternative 2001 data, that is, 3,824.9 Thos. sq.m., thus the pace of increment relative to 2000 can be estimated at the level of 114.4%.

Source: Rosstat, authors calculations.

In 2006, the house building sector in Moscow has certainly advanced, as after a fall in the pace of its increment in 2005 it has returned to the 2003 2004 indica tors (the increment in the placement of housing in operation accounted for 3 4%).

By contrast, its activity out of the city slightly fell, as the pace of increment in placement of aggregate volumes of housing by Moscow builders in Moscow and outside the city (1.8%) was roughly twice as lower vs. the respective index in Mos cow (3.5). In Moscow oblast, the construction complex has recovered from its 2005 slump and advanced vigorously by boosting volumes of placement of housing in operation at more than 21%, thus bouncing back to the growth indicators char acteristic of 2002 03. Interestingly, in the total volume of housing put in operation it was multistory housing whose proportion was on the rise in this respect, and the volume of apartment sales of (60,000 units) grew by nearly 15% vs. 2005. As the city of Moscow is now scarce of sites available for house building, Moscow oblast displays a good potential in this regard140.

In the city of Moscow, the local government approved a local three year pro gram of mortgage development for 2005 08. The program was approved by Reso lution of the Moscow city government On measures on development of mortgage in Moscow of Nov. 8, 2005, # 881 PP. As well, with its Resolution # 994 PP of Dec. 13 2005, the Moscow city government approved the second stage of another program entitled Affordable housing to young families.

Today, the Moscow city authorities test two optional types of social mortgage for local residents in need for improvement of their housing conditions. The first variant provides for a purchase of housing whose building will be commissioned by the city government at the production cost. The other variant rests upon a gratis subsidizing of the first installment, which, complemented by a bank mortgage loan and an individuals own cash, should enable the latter to buy an apartment at the market.

Chernyshov P. Ekonom klass menyaet propisku. Kvartirny ryad, 1 7 Feb 2007, # 4 (627), p.Section Institutional Problems Responding to problems that arose in conjunction with the co financed con struction, on June 22, 2006, the Mayor of Moscow signed Resolution # 1120 RP On additional measures on protection of rights of the citizens that participate in the co financing of house building in the territory of the city of Moscow. Its main provisions suggest imposition of restrictions on sales of housing until the construc tion of a house is complete, along with the investors obligation to form a stock of unsold housing amounting to 15% of the overall area of the house, and introduction of a model contract on the citizens participation in co financing of house building in the territory of the city.

The aforementioned legislative novelties by the RF government and the Moscow Mayors office, and a general improvement of the macroeconomic situation in the country generate necessary conditions for expansion of mortgage in the city, thus enabling the parties concerned to overcome the crisis situation noted in late 2005.

As a reminder, between 2001 and 2005 the situation on the mortgage market was characterized by a rapid rise in the volume of mortgage transactions141. Banks continued to lower interest rates and undertake other measures to improve loan conditions, while the population began overcoming specific prejudices and ap peared more apt to apply for mortgage loans.

Notwithstanding the above, by late 2005 the number of transactions involving mortgage loans accounted for 50 80% of the number of approved loans, while real estate agencies reported a contraction in the share of mortgage loans in the overall number of transactions involving real estate.

To cite a specific example, MIEL Nedvizhimost, the biggest operator on the real estate market, reported that between early 2003 and the 2nd quarter there occurred a 10 fold rise in the volume of mortgage transactions up to 9% of its overall volume of transactions involving apartment purchase/sales. But since the 2nd quarter 2005 the process has discontinued and until the 2nd quarter 2006 the volume of mortgage based transactions was stagnating in absolute terms, followed by a 6.9% decline in the 4th quarter 2006. In parallel with that, the length of the con duct of such deals began to extend (up to 4 months), as the time costs of the search for an apartment was growing, and in the 3rd and 4th quarters 2005 they ac counted for 1.69 months and 2.3 months, respectively (vs. 1.46 months reported in the 2nd quarter 2006).

Some research142 demonstrated that the deceleration of the process can be attributed primarily to a catastrophic contraction in the volume of offer of apart ments on the market and the rise of shortages, because of which sellers refused to work with mortgagers.

The reasons behind the contraction in volumes of new house building primar ily lie with effects of the 2004 microcrisis on the market for newly built housing, which was caused by the outflow of buyers, property developers melting re sources and their decreasing capability to continue construction and repay loans.

See: Rossiyskata ekonomika. Tendentssii I perspektivy (Vypusk 27). M., IEPP. March, 2006.

Sternik G.M., Lutskov V.M., Korobkova M.V. et al. Rynok nedvizhimosti Moskovskogo regiona.

Analiz razvitia i prognoz na 2006. Analitichesky centr MIEL Nedvizhimost, Moskva, 2005. 49 p.

RUSSIAN ECONOMY IN trends and outlooks As well, because of the nearly simultaneous banking micro crisis, banks found themselves short of liquidity and had to cut down volumes of loans disbursed to the real estate developers. The situation further aggravated between 2005 and early 2006, owing much to scandals with real developers scheming. Desperate as they were, private co investors that suffered from fraudulent operations held numerous rallies in Moscow and some towns in Moscow oblast.

The mess in the house building sector further grow upon promulgation of Federal Act #214 in April 2006, when construction companies found themselves unready to operate in newly established conditions and not only abandoned new projects, but had to freeze those already in progress. Hence, contraction in the vol ume of construction and offer of housing and restrictions on sales of newly built housing using mortgage mechanisms, except for the objects the permit to con struct which had been granted until April 1, 2005.

The contraction of offer on the primary market for housing triggered a fall in the number of objects for sale on the secondary market (from 35,000 apartments in March 2005 down to 12,000 in January 2006 in the city of Moscow, and from 12,000 to 6 7,000 in Moscow oblast, accordingly).

The situation drove prices higher at a constantly accelerated pace, which be came notable since May 2005. That in turn increasingly limited the citizens possi bility to benefit from mortgage loans, for while the client was completing the mort gage loan procedures with the bank, the apartment he had picked went up in price, thus making his attempts vain.

The MIEL Nedvizhimosts 2006 forecast of the dynamic of volumes of mort gage transactions suggested that a favorable macroeconomic situation, easier ac cess to bank loans, improvement of the legal base, on the one hand, and the con tinuous decline in the volume of offer (despite the fall of its rate), coupled with rising prices, on the other hand, should contribute to growth in the volumes of mortgage based transactions of the Company at no more than 10 30% compared with the prior year (vs. the 96% growth in 2005 to 2004 and 331% in 2004 to 2003).

The growth in an absolute volume of such operations has renewed only since the 3rd quarter 2006, with the growth rate accounting for 21% vis vis the 3rd quar ter 2005, while the proportion of transactions that involved mortgage in the overall number of transactions with apartments was on the rise yet since the 1st quarter 2005 and reached 17% in the 3rd quarter 2006.

The aforementioned legislative novelties have contributed much to the rise in the volume of the transactions in question.

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