President Dmitry Medvedev’s government has acquired almost 2.5 million acres, an area larger than Cyprus, to promote construction of single-family homes and move Russians out of Soviet-style apartment blocks, the official in charge of the effort said.
To achieve that goal, the government will have to change the way people think about housing, said Alexander Braverman, general director of the property fund Medvedev created in 2008 to help developers build homes.
“For a long time our people were trained to live in high- rise apartment buildings, and we have to admit openly that this habit remains,” Braverman said this week in an interview in Moscow. “We’ll have to create a program to stimulate demand, and we’ll begin this work in the near future. Call it the Russian dream. I think we can make this dream come true.
” Medvedev says ownership of single-family homes is the best way to expand Russia’s middle class, creating an engine for economic and demographic expansion. Billionaire Mikhail Gutseriev’s Mospromstroi and Alexander Lebedev’s National Housing Corp. are lining up to profit from the boom if the president succeeds in creating a market.
‘Cooped Up’ in Apartments
Seventy-seven percent of Russia’s 142 million people are “cooped up” in apartments, a legacy of Soviet policies that “excluded everything oriented toward the individual,” Medvedev said in April 2008 as he unveiled his home-building program. In the U.S., 67 percent of homes are owner-occupied, according to the Census Bureau.
At least 14 million square meters of housing will be under construction next year on land owned by the Federal Fund for the Promotion of Housing Construction Development, Braverman said. That will rise to 20 million square meters in 2012, or about 30 percent of residential construction volume.
“We think that people who have their own homes, driveways and careers are fundamentally different than those who don’t have these things,” Braverman said. “The person who has something to defend is a different kind of person.
” To overcome the legacy of Soviet collectivism, the fund plans an advertising blitz including TV, print and billboards to persuade Russians of the advantages of home ownership, he said.
Subsidized Mortgages
Medvedev’s plan looks like the “American dream” of home ownership turned upside-down, said Nadezhda Kosareva, president of the Institute of Urban Economics, a research group in Moscow.
“In the U.S. in the 1960s, the demand for homes came first and the government provided the rest, while in Russia the government is trying to push the idea from above,” she said.
Medvedev’s home-ownership drive has been hampered by mortgage rates that averaged 13.8 percent on 83.7 billion rubles ($2.6 billion) of loans since the start of the year, central bank data show.
To spur borrowing, the government is providing 11 percent home loans subsidized by the federal mortgage agency, Braverman said. Prime Minister Vladimir Putin said in February that rates are too high for many potential borrowers and the government will spend 250 billion rubles this year to reduce them. Medvedev insisted the homes built under the program be affordable, naming a figure of 20,000 rubles ($631) a square meter. Braverman later quoted a price of 30,000 rubles. The average May residential property price on Moscow’s secondary market was $4,406 per square meter, according to the Indicators of Property Market.
‘Terrible Need’
“There’s a terrible need for affordable housing in Russia,” said Nuri Katz, chief executive officer of Century 21 Russia. “The question is how much money the government can afford to give out to support the mortgage business.
” The government incentives aren’t likely to spur lending on a big scale, Katz said.
“It’s a simple real estate rule: Without the widespread availability of affordable mortgages, there will be no widespread availability of affordable housing,” Katz said.
Braverman’s fund has auctioned off the rights to develop 29 parcels of land nationwide, and plans 46 more this year. To attract developers, the fund guarantees it will buy as much as 35 percent of the homes built, Braverman said.
“We have no problem with demand” from developers, he said. “We strive to reduce risks on our properties, but the rate of return remains the same, so investors are interested. The enormous volume and potential of the market also makes us attractive.
Billionaire Builders
The fund is “absolutely open” to foreign investors, Braverman said.
Mospromstroi, the builder controlled by the Gutseriev family’s BIN Group, according to Forbes magazine, won auctions to develop more than 36 hectares near Moscow. Gutseriev’s fortune is estimated at $2.2 billion by Forbes.
National Housing Corp. has 10 plants with a capacity to make 20,000 prefabricated homes a year. Even so, Lebedev says he needs state aid.
“People can’t buy houses because they don’t have enough money,” Lebedev said in an interview. “I want to lower the price to make it affordable for them, but the company has to generate profit. I can’t do it alone.
” The number of middle-class Russians, those with monthly disposable incomes of more than $1,000, fell about 48 percent last year to about 13.6 million people, or roughly 9.6 percent of the population, Vladimir Osakovsky, an economist UniCredit SpA, said on May 20. The middle class will recover to its “pre- crisis peak” in 2011 and double by 2013, according to Osakovsky.
Lebedev, whose fortune Forbes estimates at $2 billion, said he has invested more than 200 million euros ($239 million) in the factories, and is looking for partners, including the state.
The fund “would be happy to work with him, but under the general guidelines” for all developers, Braverman said. “Our basic position is that we don’t build.”
