Construction industry in Russia continues to grow

In the second half of 2011, activity on the Russian construction market finally picked up, with civil engineering work and residential construction as the main two drivers of growth. Despite the unfavourable and challenging global economic sentiment, the industry is expected to continue to expand, with growth fostered by increases in spending on infrastructure development and healthy demand for residential properties.
The continuing sovereign debt crisis in Europe and the global economic uncertainty have aroused fears of a double dip recession in many developed countries. This has had an effect on the Russian economy, which is, itself, in a relatively healthy condition, supported by high energy commodity prices on the world markets. The GDP growth rate for 2011 and the growth expected in 2012 are, however, more modest than those witnessed six months ago, with forecasts having been substantially reined in by all major financial institutions. This has prompted some companies in Russia to reconsider or postpone their investment plans, with the result that construction activity has not been as robust as it could have been had the global economic environment been more favourable.
The country’s construction industry is, however, continuing to recover, and business sentiment among Russian builders has been improving in recent quarters. Most construction companies saw an increase in their order portfolios last year. In Q1 2012, the value of projects completed in Russia increased by 5.2% to RUB 793.9bn ($26.5bn), which means that last year’s pace has been maintained in early 2012.

In order to address the extensive needs of the population in terms of improvements in living standards, the government is implementing a residential construction support programme – the 2011-2015 Housing programme, which follows the Housing 2002-2010 project. The programme envisages a 50% increase in annual housing construction levels, to 90 million m2, by 2015. Beyond this programme, in 2016, residential construction levels should reach 100 million m2, and this is expected to increase to 140 million m2 in 2020 (approximately 1 m2 per person per annum).
One of the key factors which should lead to an increase in housing construction levels over the next few years is the planned simplification of the procedures associated with the construction of residential property. Once these changes have been implemented, the average time from the start of the procedures to the beginning of the construction work is expected to be reduced from 946 days to 367. Once this has been achieved, the time will be reduced again, to 180 days.
The Russian authorities are certain that 67 million m2 of housing will be built in the current year, almost 3 million m2 more than the record 2008 figure. In the first quarter of 2012, 111,800 new housing units, with combined floor space of 9.8 million m2, were built in Russia, a 5.7% increase in comparison with the first quarter of 2010.

The construction industry in Russia continues to be driven, to some degree, by large, complex projects, with substantial investment outlays planned. These include:
– the construction of the Vostochny Kosmodrome, which has just begun and is due to be completed in 2020
– the development of the Northern Caucasus – the modernisation and development of infrastructure, the development of special economic zones and tourism in the region and new cultural and educational facilities between now and 2025
– the creation of the Russian “Silicon Valley” in Skolkovo
– the Energy Industry Modernisation through to 2020 Programme
– the preparation and organisation of the 2014 Sochi Olympics, the 2013 Kazan Universiade, the 2016 World Hockey Championship and the 2018 FIFA World Championship
– the development of greater Moscow over the next 10-15 years, including the construction of roads and other infrastructure, along with 45 million m2 of offices and 60 million m2 of housing.
These six government programmes and mega-projects alone are worth almost $1tr. However, there are many opportunities for construction companies in Russia, not only in the extensive landmark projects but also in smaller projects and tenders across the country.
This press release is based on information contained in the latest PMR report entitled “Construction sector in Russia H1 2012 – Development forecasts for 2012-2014”.