Academic journal article Journal of Real Estate Literature

Russian Home-Building in Transition

Academic journal article Journal of Real Estate Literature

Russian Home-Building in Transition

Article excerpt

Abstract

Since 1991, the reform governments of the Russian Federation and its constituent republics have allowed and, in varying degrees, encouraged the privatization of state-owned housing and new residential construction by private firms for private ownership. This study describes the emergence of private home-building enterprises engaged in two types of projects: (1) The completion and sale of multifamily dwellings started during the socialist regime and (2) development and marketing of single-family luxury housing on land at the urban fringe. It is based on surveys of private housing developers and secondary housing markets in seven cities of the Russian Federation, including Moscow and St. Petersburg. The surveys were conducted by Russian consultants in 1993 under the sponsorship of the U.S. Agency for International Development and the World Bank. At the time of the surveys, not all aspects of real estate development were yet conducted under private institutions. The developers' most important functions were arranging project financing from private sources (own funds, homebuyers' prepayments, bank loans) and marketing the dwellings, usually prior to completion. Municipal governments still controlled land allocations for new housing. Municipal enterprises were also responsible for providing access roads and utility connections, using their strategic position to exact fees, which account for a fourth to two-thirds of the total development costs. In Moscow and St. Petersburg, a substantial fraction of the completed dwellings were contractually assigned to the municipality for disposition and, in all places studied, additional units were sold to the developers' employees, suppliers, and city officials at a discount. Conditions that are necessary for further development of market-based home-building include (1) development of more market-oriented land policies by municipalities, (2) development of more rational and feasible fees charged to developers by cities, (3) modernization of utilities in cities, and (4) increasing developers' understanding of importance of market studies.

1. Introduction

Since 1991, the reform governments of the Russian Federation and its constituent republics and cities have allowed and, to varying degrees, encouraged the privatization of state-owned housing and new residential construction by private enterprise for private ownership. This study describes the enterprises that have been formed for the production and sale of new homes, their financial arrangements, the structure of development costs, and their relationships with municipal governments. It then discusses the remaining obstacles to market-oriented production of new housing by private enterprises.

State and municipal statistical systems provide very little information about the matters discussed in this study. The principal source of systematic data for this study was surveys conducted in 1993 jointly by the World Bank and the U.S. Agency for International Development in seven Russian cities where housing loans were contemplated. A survey of residential developers in each city provided details on the development enterprise and on its residential projects, both completed and in progress. Questionnaires were returned by ninety-eight firms and reported on ninety-five multifamily projects and seventy-seven single-family projects. About three-fifths of the data came from firms operating in either Moscow (thirty-six firms) or St. Petersburg (twenty-five firms). The other five cities are much smaller places. However, the data include reports on six to eight firms operating in each city, accounting for most of the residential building activity. Another survey in each city provided information about the secondary housing market, and some of the data about the annual volume of transactions on the secondary market are used in this study.

Table 1 summarizes market conditions in each of the seven cities in 1992 to 1993, when privatization of the housing sector had begun but was far from complete. …

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