Russian Construction Market 2009

1. Russian Construction Market 2009 Peter Teslenko, Trade Commissioner Canadian Embassy, Moscow Construct Canada 2009 Toronto 1 December 2009

2. Russian Construction Market 2009 Affordable Housing National Project - Key Issues: • 3.2 bn sq. m of housing in Russia – 60% of Russians want to improve housing conditions • Most people need better housing, but can’t afford to buy – 100 mn sq. m of dilapidated housing • No long-term mortgage lending system • Housing construction not sufficient to cover needs of population – 1.57 bn sq. m of new housing needed to cover demand

3. Russian Construction Market 2009 • No efficient system of providing land for housing construction – Gov’t is trying to find solution – Fund for Support of Housing Construction established • No territory planning and urban planning documentation – Most plans adopted 20 years ago, outdated – PM Putin demanded that regions speed up territorial master plans • Quality of housing services low, communal infrastructure dilapidated

4. Russian Construction Market 2009 Sector Indicators: • Jan-Sep 2009 – 35 mn sq. m of new housing commissioned – Total may reach 52 mn vs projected 74 mn • Recession on market – More noticeable in large cities, such as St-Petersburg (15.7% drop) and Moscow (3.3% drop) • 70-80% of construction firms in dire financial situation – 83% of construction projects stalled • Single-family housing construction growing – in Moscow Region by 20% as compared to Jan-Sep 2008 – across Russia by 5.6% • Single-family share grew by 3% and reached 54.6% of Russia total – 19.1 mn sq. m built across Russia • Single-family boom – drop in land and building materials prices – e.g. as compared to Jan 2009, building tiles – by 30%, cement – by 20%, concrete – by 18%, bricks – by 10%

5. Russian Construction Market 2009 • Around 53 mn sq.m of new housing expected instead of projected 80 mn • Within next 7-10 years – up to 1bn sq. m of dilapidated housing stock to be replaced – 1/3 of existing total • Construction sector going through hard times, scope of construction reduced significantly, especially high-rise • Low-rise becoming priority – on Nov 13 State Duma passed amendments to Federal legislation to provide Gov’t financial support to regions through Fund for Municipal Housing Reform to re-settle tenants from dilapidated dwellings into new low-rise

6. Russian Construction Market 2009 • Low-rise 56% of total construction now – less than 40% 3 years ago • Low-rise “economy” housing as tool to reduce housing deficit • Gov’t aims for 30 thou Rub (1.1 thou CAD) cost of sq.m • Lower risk of non-completion • Lower cost of sq. m • Cost-effective operation and maintenance • Helps support SMEs and use of local resources, both human and production

7. Russian Construction Market 2009 Pressing issues: • Legal base for low-rise housing development • Development of infrastructure for new housing • Introduction of cost-effective and energy-saving technologies

8. Russian Construction Market 2009 • Lack of financing – loans 5-6% more expensive • Only two major banks, Sberbank and VTB, continue to finance investment projects • Mortgage loans – around 20 banks only vs over 300 at end of 2008 • 130 bn Rubles (4.7 bn CAD) worth of mortgage loans issued in 2009, 6 times less than in 2008 • Lack of “long” money for massive housing construction

9. Russian Construction Market 2009 Government is taking steps to mitigate crisis: • Financial support to banks • Federal Fund for Support of Housing Construction established – federal land to be allocated for new housing construction via Fund - in 2010 to accommodate 10% of new housing, in 2010 20%, starting in 2012 30% • Land sales at auctions started in September 2009 – now controls 1,033 plots covering over 1mn ha – Fund will also ensure access to low-cost credits to developers to build economy housing

10. Russian Construction Market 2009 New Development – Self-Regulation in Construction Sector • Jan 2010 – no more construction licences • Self-regulating organizations (SRO) to replace gov’t control – will certify that members are eligible • As of now 260 thou licenses for construction – by now 81 SROs established, incl. 44 construction, 33 design, 4 surveys – up to 8 thou companies out of 260 thou

11. Russian Construction Market 2009 • Obstacles: permits for land; undeveloped energy and transport infrastructure; low purchasing capacity of population; insufficient mortgage lending • Industry suggests to develop national program Wood Home as part of Affordable Housing National Project

12. Russian Construction Market 2009 Sochi 2014 Olympic Project • Minister Day led DFAIT-organized Trade Mission to Sochi in June 2009 – mission allowed Cdn companies to learn about Russian infrastructure market, meet potential business partners and prepare for Sochi 2014 opportunities • 30 companies – 51% construction and building materials, 33% services, 15% transportation • 7 expecting to sign agreements with local companies over next 6-12 months • SNC Lavalin already present in Sochi – jointly with Russian Railways implementing project to construct and maintain transportation facilities for 2014 Games and railway expansion of Olympic coastline • Opportunities for Canada – infrastructure development, transportation networks, sports facilities and housing • Canadian experience with Calgary and Vancouver Olympics - advantage

13. Russian Construction Market 2009 • Krasnodar Region to provide 1 bn 500 mn Rubles (70 mn CAD) to support construction sector • Up to 1 bn Rubles in 2009 to subsidize low-rise housing • Opportunities for Canada – construction technologies, know-how, urban planning, architecture/design, engineering services and project management

14. Russian Construction Market 2009 • Russian Green Building Council created in May 2009 under aegis of World Green Building Council • Planning to develop national green building standards within 2-3 years • Will be based on Russian specifics and foreign experience – Russian LEED • Room for Canadian inputs