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- land (land plots)

9,0

1.0

30,4

8.2

0,6

0.3

2,3

1.1

1,8

0.8

Data source: the RF Goskomstat.

The official statistical data show that in2000, similarly to the entire period of 1995-1999,the residential property transactions reigned supreme in theintermediary real estatemarket, accounting for 93.3% of the total number of said transactions. Ascompared to 1999, thecompleted residential property transactions had grown almost by 15%.Nevertheless, accordingto the official statistics, the residential property market performance still had not regained itspre-crisis level of 1997, accounting for about two-thirds thereof.

In 2000, the non-residential segment ofthe real estate market demonstrated a marked progress, with the number ofrelevant transactions growing 2.2 times. The indices of 1997 had practicallydoubled, while the share of these transactions within the total number ofcompleted intermediary real estate transactions had approximated 6%, which was three times morethan in 1997.

By contrast, the share of landtransactions had dropped below 1%, approaching the level of 1998. The absolutenumber of land transactions in 2000 reduced by over 20% as compared to1999.

It would be relevant to wonder about therole of intermediary services in the real estate market, as a type of economicactivity in Russia.

The answer to this question may be derivedfrom the RF Goskomstat data about the principal performance indices ofservice-providing organizations, after the conversion of said indices into therelevant foreign currency equivalent at the average annual exchange rate (Table 22).Such adjustment of data collected in late 1990-s, a period characterized by amacroeconomic instability, is reasonable not only for the technical reasons ofconvenience of datapresentation, but also due to the high rate of dollar-paid services provided bythat market (intermediary services in real estate transactions, auditingservices, advertising).

The RF Goskomstat defines the scope of theabove activities as follows:

Intermediary services related to realestate transactions include the selection ofpossible options, theformalization of all the documents required for the conclusion of suchtransactions, thelegal counseling providedby lawyers and experts of real estate agencies to the contracting parties onall the pertinent issues. Real estate transactions include the purchase and sale, rent,lease, privatization, donation, and inheritance of immovable property.

Audit isunderstood to mean the registration of commercial operations for thebenefit of organizations;preparation, analysis and authentication of financial accounts; and theformalization for legalentities and individuals of the income tax forms.

Advertising isunderstood to mean the creation and publication of clients'advertisements inperiodical printed editions, newspapers, on the radio and television, on streetposters, the shop windowdesign, the representation of clients in mass media, the lease ofadvertisingspace.

Table 22

Net proceeds from the sale of goods,products and services (net of VAT) by major types of market services and theturnover of commodity exchanges in 1995-2000, in the dollar equivalent (mln UDDollars)

1995

1996

1997

1998

1999

2000

Intermediary services in realestate transactions

26,1

67,0

156,1

147,4

106,5

135,5

- including from the principal lineof business - %

23,2

88,9

47,6

71,0

111,2

71,2

133,1

90,3

98,2

92,2

125,1

92,3

Auditing services

129,2

127,3

164,9

116,5

144,4

130,0

Advertising agencies

74,4

137,5

192,2

159,3

226,4

206,7

- including from the sale ofadvertising services - %

60,3

81,0

101,2

73,6

157,7

82,0

120,2

75,5

162,6

71,8

83,1

88,6

Turnover of commodity exchanges (net of futurestransactions)

367,4

908,6

511,7

239,2

133,1

177,6

Data source: the RF Goskomstat, theauthor's estimates.

As it follows from Table 22, theperformance indices of this sector of services, as registered by officialstatistics, feature very modestly against the other types of market servicesthat emerged in the 1990-s.

In 1995-1997, prior to the financialcrisis, the revenues from intermediary services in the real estate market (inthe foreign currency equivalent) fell significantly short of the profit derived byauditing and advertising companies, to say nothing about the salesproceeds of the commodityexchanges. However, in 1997 said revenues became commensurate with the revenues of auditingcompanies and the proceeds of advertising agencies from the sale of advertisingservices proper, although the revenues derived by intermediary companies from their principalline of activities in the real estate market still fell short of the latter.

In 1998, i.e. during the financial crisis,real estate intermediaries demonstrated a higher adaptability to the crisis environment. Theirrevenues in foreign exchange equivalent dropped less than by 6% (showing even a 20% increase ofrevenues from the core line of business). In comparison, the revenues ofauditing companies fell nearly by 30%, the revenues of advertising agenciesreduced by 17% (their proceeds from the sale of advertising services proper went downnearly by 25%), and the sales proceeds of commodity exchanges fell by over 50%.During that period, the share of the core business revenues within the totalrevenues of intermediary companies, having dropped to 70% in 1996-1997, exceeded 90% and continued to grow inthe next two years.

Nevertheless, the negative impact of thefinancial crisis caught up with the real estate market a year later, in 1999.The total proceeds of companies engaged in that line of business fell by nearly28% (almost pro rata to the core business revenues). By contrast, the revenuesof auditing companies grew 1.24 times, and the revenues of advertising agenciesincreased more than 1.42 times (with the proceeds from the sale of advertisingservices growing 1.35 times). The revenues of the commodity exchanges continued todecline.

In 2000, the economic performance ofintermediary real estate companies significantly improved: the revenues rose by27% (including the same increase in the revenues from the core activities). Bycontrast, the revenues of auditing and advertising companies dropped by10%.

The aggregate revenues of real estateintermediaries in 2000 came out 13% less than in 1997, but the share of thecore business revenues had increased by 12.5% (although it was still 6% short of the1998 level). The auditing companies and commodity exchanges failed to reach theirpre-crisis revenue levels (79% and 35% respectively, as compared to 1997). On theother hand, the revenues of advertising agencies exceeded the 1997 level by 7.5% and 16% (from thesale of advertisingservices proper). The absolute revenues of real estate intermediaries werecomparable with those of auditing companies, just as in 1997, but fell by25-35% short of the revenues of advertising agencies and commodity exchanges.

Being aware of the latent nature of manyof the phenomena in the Russian economy in transition, it would be logical to assume that the RFGoskomstat data do not fully reflect the actual developments in the sector of new marketservices.

Annex4
Monetary policy in thecountries with economies in transition in the year 2001

After the currency crises of the 1990s,the mostly widely acclaimed has become the notion that the regime of currencyexchange rate has a right to exist in the form of corner solutions: either freefloating or currency board45. The latter variant willprobably become less popular in face of the recent events in Argentine in 2001which by the end of the year had developed into mass riots, thepresident’s andgovernment’sresignation and a default on the external debt. The free floating of a nationalcurrency’s exchangerate, in the opinion of some specialists, including the leadership of theIMF46, is linked up with the introduction of a regime based on directgoal-setting by the bodies responsible for monetary regulation of quantitativeinflation guideposts.

In the IET’s 2000 yearly review itwas shown47 that there exists a clear tendency not to resort to the use ofthe intermediate goals of monetary policy which can be observed in EastEuropean countries. Also it was pointed out that Hungary was planning to discontinuethe fixed exchange rate regime, while the monetary policy in Slovenia was based not only and notreally on the declared regime of targeting monetary supply. We also stressedthe growing popularity of targeting of inflation as a form of organizingmonetary policy. In the policy of these two countries in the year 2001 somemodifications occurred which deserve a more detailed consideration.

In June 2001 considerable changes tookplace in Hungary’smonetary policy. The first was related to radical liberalization of the systemof currency regulation and capital control. On June 5 at the session of theGovernment of Hungary it was decided to lift all the previously imposedlimitations on the operations with foreign currencies and to secure fullconvertibility of the forint. The corresponding decree was enacted on June 15.

We wish to remind here that until then inHungary there had existed numerous limitations on a number of operations. Asfor monetary and financial markets, we can point out that there was the needfor residents to apply for special permissions to attract funds. Thisrequirement encompassed credits, placement of securities, leasing and othersimilar operations. Non-residents were not allowed to purchase governmentsecurities with the time of maturity under 1 year.

The operations of purchasing foreignassets, including crediting non-residents by residents, in many instances weresubject to direct ban or special permission. A certain exception existed forauthorized commercial banks to carry out operations with short-terminstruments. Residents, with a few exceptions, were not allowed to openaccounts with foreign banks.

This reform, among other matters, revokedthe permitting procedure for opening accounts with foreign banks by residents.All the obligations of residents to repatriate currency incomings wereannulled. Resident legal entities were allowed to freely purchase foreigncurrencies for any purposes. Among important issues one should mention liftingthe limitations formerly imposed on short-term capital investments made bynon-residents. Of great interest is also the permission to freely effectcurrency payments in any transactions between residents.

Another important innovation is theintroduction of a new regime of monetary policy. On June 12 the Board ofDirectors of the National Bank of Hungary made the decision to switchover to the regime of inflation targeting. Even before that, on May 3, currencycorridor limits (forint/euro exchange rate) were expanded from +/- 2,25%to +/- 15%. The sloping corridor system had existed in Hungary since 1995,having demonstrated considerable resilience when the forint was attacked in1998.

The reason for this switching over to newforms of monetary regulation was the impossibility to achieve low inflationindices by means of a policy based upon currency exchange rate - since 1998 thelevel of inflation (CPI [consumer price index]) was about 10%, in April inrelation to the corresponding month of the year 2000 when it was 10.3%, in May- 10.8%.

Within the framework of the new regime,both medium- and short-term inflation targets have been established– in the years2004-2005 it is planned to achieve the level of 2%, in 2001 the plannedinflation level is 7%. Acceptable deviations from this index are 1%.

As a result of introducing this newpolicy, the forint to euro exchange rate went up (Fig. 15). The followingperiod of a decreasing rate has been associated with the problems emerging onthe financial markets of the third countries: Argentine, Turkey, Poland.

Fig. 15

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