Builders look east
New scheme for housing development in Russia presents vast opportunities for ailing Polish construction sector
By Kamil Tchorek
The Polish construction industry has new business opportunities in Russia, thanks to a recently introduced financing mechanism that will allow Polish financial institutions to bankroll the development of badly-needed housing in Russia's provinces.
Recent bilateral talks in Moscow have led to an agreement under which Polish banks will be able to lend an estimated $100 million to Russian banks for housing construction. As part of the agreement, Polish construction companies will be offered the opportunity to partake in a variety of building projects. The credit export insurance agency KUKE will act as guarantor for the Polish lenders.
Marek Bryx, deputy minister of infrastructure and president of the State Office for Housing and Urban Development, has been in talks with Russian Deputy Prime Minister Vladimir Yakovlev. Representatives of KUKE, the Polish Bank Association, BRE Bank, BWE and Budimex's Russian division have also been invited for talks in Moscow with Gosstroj, the Russian Federation's state committee for construction.
The new housing scheme, which will see specific projects proposed to Polish builders by Russian authorities, is made possible by recent mortgage reforms in the Russian Federation. "President Putin started this process with a request that his administration double the amount of new housing units in Russia within the next few years," said Bryx. "The Russian government thinks that developing commercial housing on the strength of the mortgage system can fulfill this aim. Poland is the first country to take advantage of this."
Mariusz Chabrowski, Director of Budimex's central European office, is clearly pleased. "Budimex's turnover is around $800 million, of which $60 million-$70 million represents our Russian market. The freeing up of the Russian market through legislative change, bilateral agreements and more opportunities for borrowing is exactly what we need to be able to expand in Russia. We have been waiting for this for a long time and what is happening now is the first small step in the right direction."
Bryx spoke optimistically about the success of this scheme because it is meant to provide equal opportunity for both Russian and Polish interests. "For Russian banks, the main problem in developing the residential sector in Russia is lack of suitable finance, given that the mortgage system is in its infancy," Bryx said. "This has had the material effect of a lack of construction funding, which chokes housing supply. We can help them out, and benefit from it."
"This is the first financial agreement of its size between Poland and Russia since the 1998 Russian financial crisis," said Eugene Boronovsky, the economic advisor at the Russian embassy in Warsaw. "It is a good sign for the next five years, during which we will see ever more agreements like this, of increasing size."
Gosstroj, in conjunction with Russian local governments, will be responsible for finding suitable sites in Russian provinces for the Polish construction firms, which will be presented with case-by-case project proposals. One potential stumbling-block is the complexity of administrative procedures required by Russia's local governments.
"One purpose of the letter of intent that I co-signed with Vladimir Ponomarev, the deputy minister of Gosstroj," Bryx continues, "is to avoid the problem of the slowness of the bureaucracy. The intention is that Polish firms working under this agreement will be given priority, and will not have to wait a long time for the notorious paperwork to be completed."
