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Russian construction industry afflicted by the global economy crisis

10-23-2008 04:55 PM CET | Industry, Real Estate & Construction

Press release from: PMR Publications

In the second half of 2007 and the emergence of the global credit crisis, property developers began to encounter problems in finding financing for their projects. Banks became more stringent and selective in lending to both corporations and individuals. In Russia, the impact has been less significant than in other CIS countries and this is reflected by the healthy growth figures in the value of construction works completed in 2007 and the first half of 2008.

According to the “Construction Sector in Russia 2008 – Development Forecasts for 2008-2011” report recently published by PMR, a research and consulting company, many Russian developers have not had to rely on borrowings at all, and have been able to complete development projects using only their own funds. Another reason is that infrastructure development projects dominate the structure of construction output in Russia, and the completion of these projects is largely financed from the state coffers.
As a result, in 2007 the year-on-year increase in construction output matched the
2006 figure of 18.2%, and reached €94.1bn. This was followed by an even higher increase of over 22%, in H1 2008, when construction output reached €48.9bn. However, PMR expects the impact of the international liquidity crisis to deepen in the Russian construction industry. “The growth rate for the whole of 2008 will thus be lower than in 2007, and this will be followed by a further slowdown in 2009.” says Robert Obetkon, the author of the report and a construction market analyst at PMR.

Construction activity in Russia is not spread evenly across the country but is concentrated in several regions, particularly in big cities and areas where natural resources are being extracted. Moscow accounted for 14% of total value of construction works last year, followed by St. Petersburg and the Moscow Province (7% each). The ten leading regions accounted for 50% of total construction output in Russia last year.
Among the regions with the largest construction activity, the value of construction works
increased most rapidly last year in the Yamal-Nenets AD (by 51%). In the Irkutsk Province and Bashkortostan Republic, growth rates exceeded 30%, whereas, in St. Petersburg, it was 21.6%, in the Moscow Province 16.1%, and in the city of Moscow, a mere 2.4%.

Last year, the total floor space of housing completed increased by 20.6% versus
the 16.1% growth noted in 2006. Housing construction reached almost 61 million m2, over 4 million m2 more than the figure planned by the government in the “Affordable Housing” National Project. In 2008, the programme envisages the construction of 63.1 million m2 of housing space, 70.6 million m2 in 2009, and in 2010, as much as 80 million m2. In H1 2008, housing construction stagnated, experiencing an increase of just 2.9%
compared to a rise of over 34% rise in the analogous period of 2007. This was caused by
a dramatic fall in residential construction in major cities and regions, which account for most of the total residential construction in the country. “Nonetheless, PMR predicts that in 2008 approximately 66 million m2 of housing will be built in Russia.” says Robert Obetkon.

Non-residential construction experienced rapid development last year, with the number
of non-residential buildings put into operation having grown by nearly 50% and their
total floor space by as much as 77%. This was mostly thanks to the growing development of commercial buildings, which account for over a third of all non-residential buildings completed, and whose total number increased by 50%. Their total floor space increased by 140% and amounted to 23.5 million m2.
Despite the on-going problems with liquidity, surveys carried out on a quarterly basis by CEA among managers of construction enterprises show that business confidence in the construction industry remains positive. There are, however, fewer decision makers in construction who expect that construction output and the financial standing of construction companies will improve in the near future.
The average capacity use rate in Russian construction in Q3 2008, 69%, had increased in comparison with the previous quarter and matched the record level of 69% noted in Q4 2007.
The prohibitive costs of building materials, high taxes and fierce competition remained the factors most frequently cited by company executives as hampering business in the construction industry. The number of builders complaining about expensive building materials increased in Q3 2008.


PMR (www.pmrcorporate.com) is a publishing (www.pmrpublications.com), consulting (www.pmrconsulting.com) and market research (www.research-pmr.com) company providing information, advice and services to international businesses interested in Central and Eastern Europe. With highly skilled staff, top ranked web sites and over ten years of experience, PMR is one of the largest companies of its type in the region.

PMR Ltd.
ul. Supniewskiego 9, 31-527 Krakow, Poland
tel. /48/ 12 618 90 00, fax /48/ 12 618 90 08
marketing@pmrpublications.com
www.pmrcorporate.com

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