May 25, 2017 / 3:05 PM / 7 months ago

Developers sidelined in Moscow's $50 billion building bonanza

(This May 25 story corrects cubic metres to square metres in paragraph 9)

By Svetlana Reiter and Katya Golubkova

MOSCOW (Reuters) - Russian developers who had hoped to be able to co-invest in Moscow’s planned $50 billion program to resettle almost a million residents will only be involved as contractors, the city’s deputy mayor told Reuters.

Residential property developers, which include firms such as PIK (PIKK.MM), LSR (LSRG.MM) and Etalon (ETLNGq.L), have been hit hard by Russia’s economic downturn, with some struggling to sell apartments they have built and burdened with debt.

Sales fell by as much as 30 percent in 2015 and although the market started to recover last year, Moscow’s resettlement plan, which aims to move almost a tenth of its population out of ageing low-rise apartment buildings known as “khrushchyovki”, had been seen as a potential lifeline.

In previous smaller city programs, real estate companies were able to sell some of the flats in a block in exchange for building it and had hoped this approach would be used again.

“There will be no developers... Those who have construction facilities can take part in a tender and in the event of victory will get an order as contractors,” Marat Khusnullin said of the plan to move people into new homes.

Acting as contractors will deliver margins several times lower for property firms than if they were developers.

Deputy Mayor of Moscow Marat Khusnullin poses for a picture during an interview in Moscow, Russia, May 17, 2017. Picture taken May 17, 2017. REUTERS/Maxim Shemetov

Pavel Bryzgalov, director for strategic development at Lider, one of Moscow’s biggest real estate companies, said his firm was interested in acting as a contractor but would want to be able to act as co-developer too.

“Its important for the development companies to have the option to offer part of the flats for the sale,” Bryzgalov said.


    Khusnullin said 15.1 million square meters - or some 350,000 flats - would be demolished and replaced with 20 million square meters of new residential space under the 15 year program.

    Thousands of Muscovites protested against the scheme on May 14, with some living in buildings scheduled for demolition saying they do not want to move unless they have guarantees about where they will be resettled.

    Moscow has said it will spend 300 billion rubles ($5.33 billion) from its own budget during the first three years. The estimated cost of the whole project is around 3 trillion rubles which should also come from the city’s funds, Khusnullin said.

    He did not comment directly on whether Moscow would need to raise debt, but asked if Moscow would seek help from the federal budget said: “So far, the city budget allows us to implement such a program.”

    Some developers had hoped they could sell unsold apartments to the city as part of the resettlement scheme, but Khusnullin said Moscow does not plan to buy any, as the city can offer only around a half of what developers would ask for them.

    “We don’t have the cash to buy at such a price,” he said.

    Additional reporting by Olga Sichkar; editing by Alexander Smith and David Evans

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