Moskovsky Komsomolets
Analysts recommend buying property while market stagnates
The 2008 global economic crisis is to blame for the decline in housing construction, say real estate analysts. They recommend investing in real estate now while the market is stagnant.
Russian builders commissioned 3.7 million sq. m. of housing in July, down 32% year on year, according to Rosstat. Last year construction slowed as well.
“They are currently finishing new buildings that broke ground two or three years ago, during the recession, when developers suspended many projects,” explained Oleg Repchenko, head of IRN market analysis center, adding that construction has picked up in 2010.
The Moscow Region retains market leadership with 9% of the total new housing nationwide, due to its proximity to Moscow and to significantly lower prices – the average difference reached $340 per sq m. The Krasnodar Territory holds second place with 7.9% thanks to the booming Olympic construction.
When construction drops off, prices rise, especially on the resale market. However, recent statistics are ignoring this rule. In the Moscow Region prices rose by a mere 0.4%, while rapidly growing Tyumen showed record growth at 10.6% on resale prices over six months. In Moscow, prices are growing unevenly, with little regard for the volume of new housing on the market. According to IRN, a recent ban on new construction in the city center pushed up the prices in old Stalin-era buildings rather than in new developments simply because their prices had dropped the furthest during the recession. New buildings in the suburbs showed the fastest price growth.
This suggests that the market is stagnating but also that prices are balancing out. According to Repchenko, most Russians are simply short of money to buy property now. Despite a 13.2% increase in salaries, real income declined 1% because food, fuel and utility costs have been climbing rapidly. A mortgage loan will not help, not with the current interest rates. A buyer ends up paying twice the initial price or more. But prices could rise on the expectations of the elections, Repchenko warns.
Still, analysts recommend buying property now. First, property purchase chains are easier to carry through in a stagnant market. Second, banks may tighten mortgage conditions once they accumulate strong mortgage portfolios. Third, in times of global instability, basic necessities and items with intrinsic value come to the forefront, such as food, housing and gold. While food and gold are overpriced, property has yet to regain its pre-crisis levels. Property can also be rented out, although in Russia it yields no more than 3.5%-5% a year, against 7%-10% in developed countries.
But in Russia its value is likely to increase, especially in the Moscow Region where 10% of the country’s population lives. On average, local residents use 19 sq m per capita, even less than the rest of Russia (22 sq m), Europe (35 sq m) or the United States (65 sq m). As Moscow residents’ wealth grows, they will start buying apartments, probably small and inexpensive ones in the suburbs. This segment should be the target for those who wish to generate investment income from property.
Vedomosti
Sochi Olympics bill could grow by 1.5 billion rubles
Abkhazia wants 1.5 billion rubles ($52 million) from Russia to rebuild waste treatment plants in Sukhumi, several federal officials told Vedomosti. A letter requesting this money was sent in April and was signed by the republic’s president, Sergei Bagapsh, who died a month later. Dmitry Peskov, press secretary for Russian Prime Minister Vladimir Putin, said he was unaware of the request.
The waste treatment plants in Sukhumi are in bad shape, says an official familiar with the letter: corrosion is eating away at the metal structure and the concrete is crumbling, the result of the recent hostilities. The plants lack mechanical and electrical equipment, and there is no overland infrastructure or power grid. Abkhazia and southern Russia form a single ecological unit along the Black Sea coast, so the absence of waste treatment in Abkhazia threatens to pollute the Russian part of the sea as well.
Abkhazian authorities are using Sukhumi’s proximity to Sochi to leverage their argument for support, given that the area has to meet tough environmental standards for the Winter Olympics in 2014, implied an official who participated in a discussion on the issue. In its Olympic bid, Russia committed to abide by the zero waste principle: there should be little waste and all of it should be recycled.
Abkhazia has been trying to restore the plants on its own, said a representative of the Sukhumi administration. This year, for example, it will spend 500 million rubles on collectors. Additional financing would help resolve the problem faster, but even without it, the first stage of the reconstruction will be completed next year, he said. Alexander Adleiba, deputy head of the Abkhazian president’s administration, and a spokesman for the Sochi 2014 organizing committee have declined to comment.
Abkhazia is unlikely to get the money, a federal official said. Russia allocates about 2 billion rubles annually for the republic to modernize its tourist infrastructure, including waste treatment plants, and this is about half of its total revenues, says an Audit Chamber official. The republic’s influence on the pollution of the Black Sea near Sochi has not been studied, but the situation is difficult even without it, he added. A spokesperson for the Russian Finance Ministry could not say whether there were plans to provide additional support to Abkhazia.
The request smacks of blackmail, joked Igor Nikolayev, a partner at FBK auditing firm. There can be little doubt about the quality of treatment plants after the long conflict which is the biggest environmental disaster, said Alexei Kiselev, coordinator of Greenpeace Russia’s toxic waste campaign. But he advised against exaggerating Abkhazia’s influence on the Black Sea area: “The Abkhazian economy is based on subsistence farming, and the scale of pollution there is not the same as in Sochi.”
Nezavisimaya Gazeta
Russian airliners may be piloted by foreigners
Russia’s largest airlines have officially announced the beginning of a personnel shortage despite monthly salaries of over $10,000 for experienced pilots. Pilot training has been cut by 90% in recent years, while the country’s growing air fleet demands thousands of new pilots who are nowhere to be found.
Foreign companies are pressing Russia to lift the ban on the hiring of crews from other countries. But it appears the government will do it itself – under the pressure of a pilot shortage.
AviationCV.com, a Lithuanian aviation headhunting company, predicts that in the next 20 years Europe and the former Soviet republics will need 102,000 new pilots. This estimate is based on the rapid growth of air passenger miles and the high demand for new aircraft.
Boeing forecasts that in the next 20 years Russia and the former Soviet republics will purchase up to 1,080 new planes. These purchases will be prompted by the need to replace outdated narrow-bodied and regional airliners with new-generation models.
Russia’s Deputy Transport Minister Valery Okulov estimates that Russian airlines will require 1,600 to 1,800 new passenger jets by 2025. Over 10,000 pilots will have to be trained to fly them.
Skaiste Knyzyite, general director of AviationCV, says: “The Russian aviation market is one of the most dynamic in the world, and so a pilot shortage is predictable. Unlike western countries, Russian airlines are not allowed to hire foreign crews, so the situation in Russia today could be described as a ‘pilot hunt.’ The airlines are doing their best to win over pilots from each other by offering better terms.”
Yelena Fyodorova, a spokeswoman for VIM-Avia, says: “Soviet flying schools used to train about 2,500 professionals a year, while now the figure is down to just above 200. The average age of pilots in Russia is now over 40 and the current situation in Russian flying schools does not lend itself to filling the gap in personnel.”
Civil aviation experts confirm that the shortage of flying personnel is a problem not only in Russia but also in the rest of the world. “Globally, passenger miles are increasing by 6% a year, but in Russia they are growing by 20% to 30%. Hence the pilot deficit in the world and in Russia,” explains Rafail Aptukov, vice-president of the non-profit partnership Bezopasnost Poletov (Flight Safety).
Russia itself is partly to blame for the shortfall: inadequate financing for basic pilot training. As a result, Russian airlines have to lease foreign-owned jetliners with crews or retrain ground engineers as pilots on their own.
“Currently, government policy allows Russian airlines to hire only Russian and Belarusian citizens. But sooner or later Russia will allow foreign pilots to be employed in Russia, even if with some restrictions,” AviationCV general director says.
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