By Maxim Mazin, Marina Sokolovskaya
The Government has decided to support the construction industry as the locomotive of the national economy that could pull it out of the crisis. Despite the planned reduction in budget spending, the Cabinet is hoping to avoid expenditure cuts in support of the construction industry. This was the topic of discussion at the Government meeting convened yesterday by Prime Minister Vladimir Putin.
"In 2008, over 61 million square meters of housing was constructed, which is equal to the 2007 level. Our task is to maintain these levels of construction for 2009," said Putin.
He also instructed the Cabinet members to ensure that measures are taken that will allow people to take advantage of the falling housing prices. "The current period may turn out to be beneficial for the public, provided that we make decisions that will lead to a real reduction in housing prices," Putin said.
PUTTING STAKE IN THE HOUSING INDUSTRY
The Government's decision is understandable: each new job in the construction industry creates 12 additional jobs in related industries. By supporting the supply side in the construction market, the Government is trying to kill two birds with one stone: stimulating economic growth and lowering housing prices. Speaking in the Duma yesterday, Regional Development Minister Viktor Basargin said that housing prices would fall by 10%.
Prices, however, will go down not because of Government policy, but as the result of a general economic slowdown: construction materials are becoming cheaper. Still, there is no breakthrough yet. Basargin told MPs that the Government sponsored project "Affordable Housing" had yet to start working.
The number of families that can afford new housing has increased from 17% to 18% over the last three years. Bureaucratic inefficiency is also undermining the success of the project.
Putin criticised the Ministry of Defence yesterday for being too slow with utilising the funds allocated by the Government for purchasing military personnel.
Nevertheless, the programme can boast some achievements. The housing stock has increased by 5.5% between 2006 and 2008 and has reached the level of 3.118 billion sq m.
Per capita housing stock has increased by 4.9% and makes up 21.9 sq m per person. The annual volume of new housing completion has increased by 40% during the same period, totalling 61 million sq m according to the Prime Minister.
According to Mr Basargin, the Government is working on a series of measures aimed at supporting certain categories of citizens, including measures to allocate additional housing funds for young families in the amount of 10 billion roubles. Under the funding scheme, the federal Government will provide 40% of the housing cost to cover the down payment; 10% will be covered by the young families, and the remaining 50% will be covered through a mortgage loan, said Mr Basargin. The Ministry predicts that thanks to the additional funding, some 36,000 young families will be able to purchase new housing in 2009.
Mr Basargin also said that the Ministry is considering the possibility of "extending the application range of maternity capital in the housing market." Starting this year, maternity capital will be available for use towards mortgage payments.
The Government's measures in support of housing construction should be elaborated in the shortest possible timeframe. Housing prices have already started going down. Based on the information provided by the "Real Estate Index" centre, apartments in Moscow lost 15% of their value at the end of 2008.
Experts believe that the Government decision to support housing construction during the crisis is justified, as it will stimulate demand for construction materials and machinery.
"There are not many mechanisms of such support. The most important one is the availability of affordable mortgages. However, there are certain Russian realities that should be taken into account, specifically corruption and lack of transparency in the market. This makes the task very difficult to implement," said Vladislav Kochetkov, Finam expert.
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THE FOUNDATION OF STATE SUPPORT
At the meeting, Putin spoke of the measures that the Government had already taken to support the mortgage market. All of them, however, are largely aimed at assisting current mortgage holders, rather then bringing down prices or providing incentives for housing purchases.
The registered capital of the Agency for Housing Mortgage Lending has been increased by 60 billion roubles. The measure allowed the banks to continue providing mortgages, even though the number of issued mortgages decreased compared to the previous year and a half.
Secondly, the Government has launched debt restructuring and payment extension programmes for the mortgage debtors who lost their jobs. Thirdly, beginning in 2009, tax deduction for individuals buying or building housing has been increased to 2 million roubles. The maximum tax savings will increase from 130,000 roubles to 260,000 roubles. The new deduction rate is also applicable to purchases made in 2008.
Finally, starting this year, the maternity capital can be used for mortgage payments immediately after the birth of the second child without waiting until the child has reached 3 years of age.
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WHO WAS PRESENT AT THE MEETING
Deputy Prime Minister Alexander Zhukov, Deputy Prime Minister and Minister of Finance Alexei Kudrin, Minister of Economic Development Elvira Nabiullina, Central Bank Chairman Sergei Ignatiyev, First Deputy Central Bank Chairman Alexei Ulyukaev, Deputy Minister of Regional Development Sergei Kruglik, General Director of the Agency for Housing Mortgage Lending Alexander Semenyaka, and General Director of the Federal Fund for Housing Construction Alexander Braverman.