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

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

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Construction established No territory planning and urban planning documentation – Most plans adopted 20 years ago, outdated – PM Putin demanded that regions speed up territorial master plans Quality of housing services low, communal infrastructure dilapidated

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%

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

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

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

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 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

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 %, starting in % 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

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

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

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

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

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