Residential boost in Russia

By Sandy Guthrie31 July 2012

A 5% growth in Russia's total construction output in 2011 was slightly ahead of the modest growth rate experienced in 2010.

The figures come from economic research company Buildecon, which said the dynamism in the construction industry was above the rate of GDP (gross domestic product).

It said residential construction showed the most drive, while civil engineering grew at a more modest rate, though growth is being predicted in this sector. In value terms, non-residential construction also saw moderate expansion.

After a slump in 2009/2010 and as a result of improving results of the second half of the year, 2011 saw a residential construction output hike in terms of floor space, almost reaching the level of 2008.

Buildecon expects a further increase during 2012, both in the construction of one-family houses and in building blocks of flats, although it said it would be at a more modest rate than in the pre-crisis years.

When comparing the cost of home construction and prices of new homes, Buildecon identified two different periods. In the first, demand for new homes pulled house prices up at a much faster rate than had been experienced previously. This brought more players to the field, resulting in higher completion figures, though with a time lag between the start of work and completion.

This period was over in 2007 and 2008, and since then building costs have been gradually converging on house prices. Buildecon said that until 2011, house prices were able to grow only marginally, while building costs had been increasing continuously. This adjustment process could lead to a balanced market, it predicted.

Non-residential

Non-residential construction recorded a slight growth in 2011, both in real and value terms, it said. However, the growth of what it termed "market-based" construction within the subsector - projects such as commercial and office buildings - showed a more impressive, even double-digit development in real terms. And hotel construction also showed signs of activity.

Buildecon said the commercial segment was characterised by the biggest number of new buildings, representing about a third of all new non-residential buildings.

The second biggest group of non-residential buildings was that of industrial and agricultural buildings, accounting for another third of total new buildings - both in terms of number and of floor space.

Investors have begun to broaden their activities beyond the boundaries of Moscow and St Petersburg, although Buildecon felt there were still huge possibilities in these regions.

Previously postponed projects played a major role in the positive growth trends, as many were resumed in 2011. The general level of publicly-financed non-residential construction also increased slightly in 2011, although construction for educational purposes showed a spectacular increase.

Buildecon forecast a further slight development in non-residential construction during 2012 supported by the improved results of the Russian economy, the stabilising state budget and a definite political will for modernisation.

Civil engineering comprises the biggest part of Russia's construction output, and Buildecon predicted substantial growth rates in 2012. It said infrastructure investments were fuelled partly by the general economic growth, the social development and the deeper integration into the global economy.

Civil engineering projects will also benefit from major international events taking place in Russia during this decade, it said.

However, the high level of infrastructure depreciation itself pushes investments forward, and state programmes and state companies have a major role, according to Buildecon.

It said that prioritising regional development helped infrastructure projects as well. However, it felt that investment from the private sector lagged behind in Russia's transport infrastructure, and that corruption remained a key barrier to progress in this field. Nevertheless, civil engineering would see considerable growth, it predicted.

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