Gutenborg Project Contributes To Construction Sector Recovery

The announcement of a 780,000m² new residential development in Saint Petersburg reinforces our forecast for Russia's residential and non-residential construction industry of 5.5% real growth over 2013. Following a slump in homebuilding between 2008 and 2010, 2011 witnessed a relative surge in activity which was largely sustained through 2012. Strong house price performance in Russia's major cities suggests that demand will remain robust for the medium term, and developers will benefit from the country's inherent supply shortages.

Stable Growth In The Horizon
Residential And Non-residential Building Industry Values Real Growth (%)

This US$1bn-plus contract has been awarded to the British company Mace. Appointed as delivery partner by SPb Renovation, Mace is responsible for the project, design, cost, and construction management, in addition to technical supervision. The Gutenborg project will provide housing for 25.000 people and it will include 15,600 apartments, three schools, five kindergartners, a polyclinic and supporting roads, transport and utilities infrastructure.

Construction sector growth in Russia is driven by increased demand for housing and modernisation of existing infrastructure. In fact, this was the core of Mace's previous commission from SPb Renovation. In 2012, Mace assisted SPb Renovation with programme management procedures for 22 projects to modernise a significant proportion of St Petersburg's housing. As a result, previously neglected areas of the city were significantly transformed. The Gutenborg project constitutes a substantial opportunity for Mace to consolidate its presence in the Russian market and potentially expand further to the east.

Saint Petersburg's housing market is currently dominated by inexpensive small and medium-size apartments. Demand concentrates in large-scale development projects where prices have been increasing slowly since 2012 - a trend that is expected to continue throughout 2013. Also, increasing demand for houses is reflected in the growing popularity of mortgages - about 50% of sales are financed through this scheme.

The growth in residential building is also supported by the government's promise to reduce the cost of middle class housing by 20% by 2018. This policy is complemented by the assignment of certain amounts of government land to developers free of charge, provided that firms cap prices for the constructed units. In order to fund these projects, the country's two largest banks have agreed to provide subsidised loans for both homebuyers and homebuilders. According to Prime Minister Medvedev, the aim of these policies is to double residential construction over the next five years.

This article is tagged to:
Sector: Infrastructure
Geography: Russia

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