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Living on the Eastern edge

Opr./edited TC 11 February 2020
Living on the Eastern edge
A mistranslated sign - and Freudian slip - on a Russian building site

RUSSIA/BELARUS The number of residential developers at risk of bankruptcy increased by almost 80 pct in Russia last year while the number of companies declaring bankruptcy grew by 22 pct, reveals Russian business daily Kommersant.

The Russian residential sector’s main problems include new regulations on financing residential projects. A similar upheaval is faced by the residential sector in Belarus. In Russia creditors reported their intention to pursue bankruptcy proceedings against 350 developers last year – 77 pct more than a year earlier, according to construction market analysis agency RASK, which also revealed that more than 1,400 projects with a total of ​​9.9 mln sqm are under construction. Out of this, 184 residential developers building 839 projects with a total of ​​4.5 mln sqm have already declared bankruptcy. In 30 pct of the cases, it was developers’ clients that initiated the bankruptcy proceedings. In 19 pct cases, it was partners of residential developers that submitted such applications. Only 5 pct of such proceedings were initiated by the developers themselves. The problem has been most endemic among smaller players – more than half of those at risk have portfolios of projects with a total area of ​​less than 10,000 sqm.

The analysts agree that the crisis facing the sector is down to reforms to the regulations on financing residential projects – since the beginning of 2019, developers can no longer directly accept payments from buyers but only through banks and escrow accounts. Funds are then paid to the developers as the construction work progresses. However, financial institutions only provide such accounts to the largest players, so smaller ones have been deprived of their primary source of current investment financing – buyers’ payments. They usually cannot afford high-interest investment loans.

The growing number of bankruptcy petitions was also clearly influenced by the Russian government’s recapitalisation of the state fund that returns the contributions to buyers from bankrupt developers – the fund currently has reserves of RUB 32 bln (around EUR 450 mln) for this purpose.

In Belarus, meanwhile, a draft presidential decree has recently been announced establishing a 5 pct limit for residential developers in terms of the funds obtained from customer payments or residential bonds. According to Belarusian experts, only state-owned companies will be able to cope with such restrictions, and only those with large project portfolios and not investing in development and modernisation. It can therefore be expected that the sector in Belarus will also face a wave of bankruptcies, which will be followed by a fall in the supply and a rise in prices of homes.

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