Construction Reloaded

23.04.2010 — Analysis

"I reckon that the market has started to liven up, foreign companies are starting to come into not only the construction proper, but into the construction industry as well. For instance, at the moment we have the Swiss OMIA and Maxit, a part of the French Saint-Gobain Group, implementing projects here", Yuri Chumerin, the Director of the Union of Companies of the Construction Sector of the Sverdlovsk Oblast, pointed out.

Since September 2009 OIMA is working on the construction of the ground marble plant in Polevskoy. The capacity of the enterprise will amount to about 300 thousand tons of products per year. Some of its products will be exported to European countries and Turkey. Maxit will establish a dry construction mixes plant on the same site.

Moreover, according to Mr Chumerin, PERI is continuing to work in the Urals; PERI is one of the world's largest organisations specialising in the supply of concrete moulds and scaffolding. In Ekaterinburg the company participated in the construction of the third train of the Antaeus Business Centre.

Waiting two years for what was promised

Experts point out that the return of foreign investors to the Urals will not be too rapid. The financial crisis has delivered too powerful a blow to the construction industry, the market virtually froze due to the lack of funding which is why the investors' interest will be restoring gradually.

"Recalling to the experience of personal negotiations with Knight Frank, London, on the project of the construction of the "Technoborough in Crop Farming" I can reaffirm that our construction market is really interesting for foreign companies due to its high earning power. This applies to mid-term prospects, and not to the short-term plans, because the "thaw" has just begun and the real recovery will happen in two-three years time", RusBusinessNews was told by Alexey Kozyukov, the Director of API Land Fund of the Urals. 

It is worth mentioning that the "Technoborough in Crop Farming" project envisages the construction of industrial area, warehousing and logistics facility, trade and exhibition sector, and a business centre. It is planned to build these facilities on an area of 68.5 hectares. VUZ Bank JSC is the investor of the project. At the moment the negotiations are ongoing on the participation in the project of Knight Frank, the leading global consulting company in the high quality real estate markets.

According to Mr Kuzyukov foreign investors are more conservative than Russian and assess risks more carefully which is why so far they are still just looking. Only a few projects start working like, for instance, the 2009 deal between the Ural Mining and Metallurgical Company and METRO which purchased from the industrialists the plot for the construction of their next hypermarket. Some livening of the participation of Russian and Sverdlovsk Oblast banks in the investment into and crediting of construction projects would be a good signal for foreigners to start concrete actions. Because if Russian bankers do not start investing into local projects then how can we convince foreigners of their attraction? 

As well as the participation of the banks, authorities should also take steps for the increase of the investment attractiveness of the regions. "Many foreign investors today are not prepared to go into the regions as this is too risky for them. First of all, and this is a common knowledge, the construction market is extremely far from being transparent and a lot here depends on who you know, on connections with officials. Secondly, even Ekaterinburg market has some examples when foreign players encountered serious difficulties. Strabag, an Austrian company that declared itself to be a general contractor for the construction of the Akademicheskiy neighbourhood, can serve as an example, nothing is heard from them at the moment", commented a real estate expert Tatiana Shushakova, the Director for Development of Ekbrealty.ru. 

According to her the construction market, while being highly profitable, presents high risks to foreign companies. It is better to come to the Urals region with your business in partnership with a strong local player who already has certain strong links with representatives of authorities. It cannot be ruled out, however, that in the next year or two the situation will change as the Russian Prime Minister Vladimir Putin instructed the Prosecutor's Office to check the adherence to the city construction laws in the regions. He listed as priorities getting rid of the rigidity of the bureaucratic machine when approval of new projects takes years, and severing the shadow links between developers and authorities. 

According to Konstantin Selyanin, a stock exchange analyst, foreign companies will start coming to the market more actively in two years time when the situation in the market is back to normal. "When the demand for real estate starts to grow, when incomes of Russian people increase, then the Urals will be more attractive for foreigners", the expert believes. 

Maria Truskova