In-Depth: The State Won’t Help Soon

Constructers are waiting for the arrival of real money into their accounts, and there will not be any, possibly, until the end of the first quarter of 2009. Both the federal and local authorities have money. But there is the impression that they are in no rush to spend it. The problem here is not in the lack of action from the direct instructions of statesmen, but in the system of budgetary financing which by definition is not capable of curing the crisis.

When we hear that the authorities are ready to support the construction business by buying the end-product (apartments), we just can’t imagine the monetary flow goes, from acceptance of a federal law on the budget to transferring the funds to the bank account of the builder.

How it works

Transparency developed by the Ministry of Finance of the Russian Federation in terms of financing has been reached, above all, by strict reporting and the responsibility for the realization of allocated money resources.

In practice it looks something like this:

1. A federal department prepares a project of its budget. Simply speaking, a summary application to purchase in their interests goods and services, including apartments.

2. To form its expenditures a federal department requests information on the need for funds from its internal structures that are responsible for purchasing housing. These needs should not exceed the capacity of the construction market in the specified city. Otherwise the internal structure will not realize the received money and will be responsible before a federal department, and, in turn, before the Ministry of Finance of Russia.

3. Having created a summary budgetary application, the federal department sends it to the Ministry of Finance which prepares a project of the federal law on the budget in view of not only its needs, but also the capacity of the profitable part of the budget. The passed law comes back to the Ministry of Finance to make limits of budgetary financing for specific ministries and departments which, in turn, divides the received budgetary funds between its internal structures in each federal department.

Only then does the money appear in the account of the real buyer of housing (a structure of a federal department). The internal structure should then conclude a contract with a builder on the purchase of apartments within the limits of the allocated budget, to receive these apartments and transfer money to the builder. As a rule, the whole process from gathering applications from internal structures to the transfer of money to the account of the real buyer of the housing takes about half a year. A correction of budgetary obligations and estimates of expenditures is undertaken according to a similar scheme and in approximately the same time length.

But, the most important thing to note is that the possibility for federal and local money resources to be directed here depends first of all on the actions of builders.

What builders want

First of all they want to have a guaranteed commodity market for their product (apartments). But the authorities of any level and a real buyer of housing (a legal entity representing the interests of the authorities) are not the same thing. And there is a time lag of 3-6 months between the promises of authorities to invest in a building complex by repayment of housing and the actual repayment. But that is not the main thing.

Logically, the volume of applications for money resources should not exceed the quantity of goods in the market. Otherwise the allocated money will not be used due to an absence of goods in the necessary amount. Besides, budgetary funds are distributed between departments and their structures, rather than between regions. Thus, there is no control over the volumes of goods in the market when distributing money resources. Also the total volume of allocated money to internal structures of various departments for the purchase of housing in a specific region may not equal the volumes of the market. When departments do not know the volume of vacant premises in the market, they will probably not want to request significant additional funds to purchase housing in 2008. In fact if money has not been used by the end of the year, they will have to answer to the Ministry of Finance for wrongly forecasting their expenditures.

An increase in budgetary applications for 2009 is also doubtful. In what regions, for which prices and how much will builders offer their goods to the authorities in 2009? Do public organizations that unite professional real estate market participants of Russia have an answer to this question? Looks like no.

Inevitable partnership

You sometimes hear "private-state partnership" but in practice it is almost never seen. Business was considered a protectorate of the state as a certain burden for itself and for the free market. However the time is coming when without such partnership business will not survive.

However, unions between business and authorities already exist. For example, the Moscow authorities are buying practically all panel housing built by house-building factories for the needs of the city. From a tactical point of view, it is unprofitable for builders to sign contracts with the city at a fixed price without taking into account varying market conditions, especially during periods of rising prices in real estate. But strategically such partnerships guarantee stable profit even during periods of falling prices.

Unfortunately, despite the presence of Russian public building organizations, there are no such partnerships at a federal level. Initiatives of the state on organizing interaction with the building business is more likely to be incidental than systematic.

But private-state partnership assumes, above all, the initiative of business, not the authorities. Rather than complain about a lack of money, the business community should bring real offers of cooperation, their possibilities and experience to the authorities. Especially as the authorities do not have problems today but builders do and they have to solve them themselves.