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In addition to the novelties whose effect should manifest itself in the medium term, there emerged certain factors that started boosting the offer volume up since the summer already; those factors were: a slowdown of the price rise on the sec ondary market, which compelled sellers to go to the market, while investors to fix their profits by selling earlier bought apartments, among others.

Banks reacted by softening their requirements to the mortgager and many banks even reduced the amount of the first installment to zero. That also helped at tract new mortgagers and, given the renewal of the rise of the volume of offer in the Section Institutional Problems 3rd quarter in concomitance with a simultaneous slowdown of the price rise for housing, the volume of mortgage transactions and their proportion in the overall volume of MIELs operations renewed its growth.

The prospects for the housing policy in the city of Moscow will be determined by Resolution of the city government of January 23, 2007 # 24 PP On the me dium term housing program Affordable housing to Muscovites for the period be tween 2007 and 2009 and the order for 2010.

Its main avenues imply:

- protectionist measures towards Muscovites who are keen to buy housing;

- reducing the maximum length of queuing for improvement of housing condi tions to 10 years;

- attraction to implementation of the housing policy of credit institutions and mar ket professionals;

- getting families with children involved in programs that suggest an onerous ba sis, providing them, at the same time, with an additional social support, includ ing linking up the housing purchase price with the use of mortgage and install ment of date of debt repayment with the time during which the family has spent queuing for housing, and softening requirements to participants in the Afford able housing to young families program;

- creation of the local civilized market for apartments rent and exchange, includ ing provision of assistance to those in the queue who have resorted to apart ment rent from private individuals.

It is the first avenue that appears most problematic and hardly doable.

According to the Program, while announcing a tender on allocation of a site to build the so called budget housing, the city authorities will take into account the percentage of apartments the developer would be ready to sell to Moscow resi dents and what should be a beneficial price at which he is going to sell apartments to the Muscovites who are officially registered as being in need for improvement of their housing conditions, have stayed in the queue and can realize their right just once. Basing on this, the city authorities are going to grant the rights for house building. If the real developer is discontented with the arrangement, the city gov ernment will take 80% of apartments (while the regular quota is 40%), thus leaving a meager 20% to him to go to the market. According to the Moscow city officials, they are guided by the aspiration to guarantee the genuine Muscovites rights, as the local market is presently dominated by outsiders who often buy housing for investment purposes.

This arrangement can entail certain negative consequences: a fall in the volume of construction of the budget housing, for a part of investors would zero in on the elite segment, which is not subject to such Draconian regulation; the real estate de velopers plummeting profits; renewal of the price rise for housing and the rise of various variants of re selling the beneficial housing to the very outsiders with a con sequent emergence of various legal conflicts, as the Moscow governments intents in the form they are fixed in the announced program to a certain extent conflict with the effective law, to say nothing of a great deal of corruption they may trigger. In prac RUSSIAN ECONOMY IN trends and outlooks tice, implementation of this particular avenue, as well as the others, will greatly de pend upon concrete mechanisms of economic stimulation of real estate developers.

In all fairness, such mechanisms may be quite sound, thus helping, provided they are introduced by separate legal acts, dumping any negative consequences.

It is envisaged that the 2007 volume of construction of housing for the queu ing and young families eager to improve their housing conditions upon the oner ous, albeit beneficial, basis should make up 370,000 sq.m. vs. 260,000 sq.m. re ported in 2006. Overall, by all the 2007city housing programs it is planned to construct some 2m sq. m. of housing (with 400,000 sq. m. to be given away to the queuing), which, given the envisaged volume of placement of housing in operation in the city (4.7 4.8m sq.m.) should account for some 40% of its volume. The city government has ruled to allocate RUR 5.8 bln. from the local budget for subsidies on construction and purchase of housing.

5.5.4. Stages of development of housing in Russia While monitoring the housing market in the capital cities (Moscow and St. Pe tersburg) since the early 1990s143, the dynamic series of average monthly prices for apartments give a chance for an objective examination of the markets behavior and main regularities of its advancement. Table 25 shows that the past 16 year long history of the market allows identification of two notable stages of price dy namics. The first stage (between June 1990 and June 2000) had lasted for years, while the second one, which started since mid 2000, has been lasting for more than 6 years already.

Table Stages of Advancement of the Housing Market and Their Length in the Capital Regions in 1990 Name of the stage Moscow St. Petersburg Moscow oblast June 1990 December 1991 Start and take off March 1995 May April 1995 June 1994 Stabilization August 1998 * October 1998 ** September 1998 November 1998 Crisis June 2000 October July 2000 November 2000 July 2000 Post crisis recovery December 2001 January 2003 February January 2002 March 2002 Stabilization August 2002 July February 2003 Jubilee growth August September 2002 August 2003 August 2002 Oil driven growth June 2004 July 2004 September July 2004 July 2004 October 2004 September Stabilization July 2005 July 2005 July 2005 August 2005 October 2005 September Speculative growth June 2006 September 2006 Transition to stabili July 2006 September 2006 September 2006 zation December 2006 December 2006 December Note: fluctuating stabilization (with rollback) asymptomatic stabilization (with creep up).

The respective observations in Moscow started in June 1990s, in St. Petersburg December 1991, while the data on Moscow oblast are available only since July Section Institutional Problems The main content of the first decade of existence of the legal real estate mar ket became the start and take off of its prices, followed by the transition to stabili zation. While in Moscow the transition to stabilization displayed its fluctuating nature, along with an overrun and the fall to the level of USD 1,000 1,100/sq.m., the respective process in St. Petersburg was asymptomatic, with a creep up and a gradual growth up to USD 600 650/sq.m. Then both markets faced the 1998 crisis.

In mid 2000, the real estate market of the Moscow region found itself at the bottom of the post crisis cycle, thus signifying the end of the first stage of an un stable, fluctuating advancement of the market. At the time, the average price for housing was: in Moscow USD 640/sq.m., in St. Petersburg and Moscow oblast USD 335 350/sq.m. The next six years, up to date, the market has witnessed a constant price rise, with some short term changes in the growth rates (up to a full stabilization).

The recovery stage of the market in the capital regions had been over by late 2001. At the time, the prices hit the pre crisis level (some USD 1,000/sq.m. in Moscow and USD 470/sq.m. in St. Petersburg and Moscow oblast). The market headed for stabilization, which was pretty short in Moscow and Moscow oblast.

Since mid 2002 Moscow and, a bit later, Moscow oblast began to experience a price rise that we call the oil one, as research conducted in early 2003 exposed a strong statistical correlation between world oil prices and the price rise in the city of Moscow144. By contrast, there was no price stabilization in St.Petersburg, which can be attributed to the inflow of budget and private investment due to the celebra tion of the citys 300th anniversary in May 2003. The gradual growth had been last ing until mid 2003, followed by the transition to the stage of oil growth.

The price rise discontinued in mid 2004, against the background of growing tensions between the state and business. Interestingly, the price stabilization took place in all the three regions practically simultaneously, while the new phase of price rise began at different times.

More specifically, Moscow saw the start of the price rise in the 1st half 2005. It consequently took an increasing pace (8 10% a month) through the 1st half 2006, followed by the reverse tendency in the 2nd half of the year. In Moscow oblast, the price rise began in September October 2005, with a consequent acceleration of its rates up to 12 14% until September 2006 and the fall to zero in December 2006. In St. Petersburg, after the boom in the house building sector in 2003 and the conse quent oversaturation of the primary market in 2004 the stabilization (and even a slight decline) phase lasted until spring 2006 and it was then replaced by 10 12% monthly growth rates until November December 2006.

As concerns other cities represented in Table 20, they demonstrated price dynamics similar to that of the city of Moscow (Fig.18 and 19). Differences in the growth rates and lack of synchronism with regard to advancement of the price See: Rossiyskata ekonomika. Tendentssii I perspektivy (Vypusk 24, 25). M., IEPP. 2003. 2004;

Sternik G. Prognoz razvitiya rynka zhilya Moskvy do 2005 goda. Otchet AEKSIP, April 2003, www.realtymarket.org RUSSIAN ECONOMY IN trends and outlooks situation on markets of different cities are determined by different levels of their socio economic development, investment attractiveness, including the distance between each of them and Moscow, transport accessibility, the intensity of the conflict between regional authorities and mayors of the regional capital cities, among other factors.

Regions entered the stage of oil growth roughly a year later then Moscow did, that is, between the summer and autumn 2003. The phase ended up in some cities (N. Novgorod, Rostov, Tver) in summer 2004, and in spring summer 2005 in other cities (Ekaterinburg, Novosibirsk, Perm, Ufa).

The stabilization was, as a rule, short, and a new phase of price rise began in mid 2005 and continues up to now (it is only Tver that displays some signs of stabi lization). In Penza, high price rise rates have been noted since spring 2005, in Ekaterinburg, Novosibirsk, N. Novgorod, Tver since summer 2005, Omsk, Ufa since the late 2005, and Perm since spring 2006. There have been no price fluc tuations in Ulyanovsk, where a gradual growth was in place until August 2006, and it was followed a rapid price rise at the monthly rate of 10 12%.

Figure 18 Dynamics of the Average Offer Price for Apartments in 7 Russian Cities in 2001 Section Institutional Problems USD/sq.m Izhevsk N. Novgorod* Tyumen Rostov Perm Tver* Figure 19. Dynamics of the Average Offer Price for Apartments in 6 Russian Cities in 2001 It is interesting to explore the dynamics of correlations between average prices for housing in different Russian cities and those in Moscow.

Table Correlation between the Housing Price Levels in 2001 2006, as % (Moscow=100%) 2001. 2002. 2003. 2004. 2005. 2006.

City (re Decem Dece De Decem De Decem gion) ber June mber June June cem June ber June cem ber ber ber Moscow 940 965 1096 1241 1610 1950 1953 2094 2658 (USD/sq.m.) St. Peters 49.9 54.2 53.6 55.6 52.2 56.2 55.5 52.5 44.4 38.8 53.burg Moscow 50.1 52.5 51.0 48.3 46.5 46.1 46.5 45.6 42.2 48.3 52.oblast Ekaterin 51.5 52.8 47.4 41.7 35.4 38.7 45.2 45.3 40.0 34.7 48.burg Ufa 36.6 32.3 39.2 40.2 37.5 38.3 42.Novosibirsk 48.0 45.6 39.6 40.4 32.5 30.7 38.3 41.6 38.1 28.5 34.N. Novgorod 32.0 36.7 34.7 30.9 28.4 27.4 29.6 29.0 27.1 21.9 34.Tyumen 36.7 32.5 27.5 33.Rostov on 36.8 39.5 37.7 35.0 30.7 30.9 33.6 35.8 32.4 25.1 32.Don Perm 43.5 38.4 35.9 30.6 25.5 23.3 34.8 37.9 33.2 26.1 29.Tver 28.5 31.8 28.6 26.3 22.4 27.2 27.8 27.7 25.9 25.6 28.Ulyanovsk 23.0 23.7 23.7 22.8 18.6 17.4 20.7 20.8 18.3 13.5 17. jct.oct.oct.oct.feb.feb.feb.feb.feb.iun.dec.avr.jun.dec.dec.jun.dec.jun.dec.jun.dec.avg.apr.apr.apr.avg.apr.oct.aug.aug.aug.RUSSIAN ECONOMY IN trends and outlooks While fluctuating over time, in Moscow oblast and St. Petersburg this correla tion has for long been within the range of 40 55% and 40 60%, respectively. Since mid 2005, once Moscow earlier than the others began a new stage of price rise, Moscow oblast and St. Petersburg experienced a dramatic fall in their levels rela tive Russias capital city. However, consequently, Moscow oblast (since early 2006) and St. Petersburg (since mid 2006) accelerated their housing price rise rates and, (given the declining rates in Moscow) have closed the gap and returned to the usual levels that roughly account for some 50% of Moscows.

In Ekaterinburg, the price level vis vis Moscow was fluctuating within the range of 35 and 55%, in Novosibirsk 30 50%, Ufa 30 40%, Perm 25 45%, Tyumen 25 35%, N. Novgorod 20 35%, Tver 25 30%, Ulyanovsk 15 25%.

Like in the capital regions, the lack of synchronism in changes in the pricing on the market led to the situation in which the range of price fluctuations in a given city relative to those registered in Moscow might reach considerable values. By late 2006 the average level was reached by Ekaterinburg and Tver, it was slightly exceeded by N. Novgorod and Ufa, while Novosibirsk, Perm, Rostov on Don and Ulyanovsk had not yet reached their average levels. No doubt, some cities have a certain capacity for a price rise similar to that noted in Moscow and Moscow oblast over the past 1.5 years, however, the realization of the capacity in question appears dependent largely on the nature and socio economic development at the local level and policies pursued by local authorities.

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