The initial stage of  Integrated Urban Development  projects in the Urals has shown that the investors are able to make housing comfortable but as for affordability of the latter - they need active support of the government within the framework of state-private partnership

In the near future the top management of “Renova-StroyGroup” (RSG) will publish the results of contractors’ tender announced in February: the public will learn what companies will build Akademia City district in Ekaterinburg. The largest post-Soviet housing project envisages the construction of 9 mln m2 of housing and 4.2 m2 of non-residential real estate (See “We couldn’t even dream of it”, “Expert Urals” # 23 of June 19, 2006). It was implemented rather quickly: “Akademia City” was first mentioned officially over a year ago. But one project cannot play the key role in the market. Therefore it was important for us that it would not remain the only one in its way.

In November 2006 “RenovaStroyGroup” presented a IUD project on Chelyabinsk to the South Ural Governor Peter Sumin. It is planned to develop 668 hectares of land and build 3.1 mln sq.m of residential and 0.8 mln sq. m of non-residential real estate property. The project provides for the construction of electric power generating facility for 140 MWt and a heat generating unit for 230 GCal, main water pipe (5km) and a drainage system (7km), as well treatment facilities. Depending on the future dynamics of the housing demand the development sector may grow up to 1 thousand hectares and the residential area of up to 4 mln m2. Now designing works are carried out and the construction will start in 2008.

Perm will probably become the third city in the Urals where “Renova-StroyGroup” will start a big construction. According to our company managers and based on the situation in real estate market in Perm the initiation of a similar project (quantitatively not less than the one in Chelyabinsk) will be quite profitable. The Perm regional and krai authorities received proposals for the development of several prospective sites. The authorities will make a decision about time frames, possible terms and format of contest arrangement.

Not just construction site

“Renova-StroyGroup” has probably become the first Russian company and indeed the first company in the Urals which launched the large-scale projects of Integrated Urban Development. In fact it has the most elaborated theoretical basis of those issues. Actually the notion itself was brought to everyday life by “Renova-StroyGroup” specialists. They also participate in the development of standards for state-private partnership (SPP) in implementation of such projects which are carried on in Rosstroy now. Therefore in order to avoid systemic confusion we will assume the “Renova-StroyGroup” definition Integrated Urban Development.

In simplified way IUD differs from ordinary construction in quantity: “Renova-StroyGroup” specialists used to think that a full-fledged project is the construction of 3 mln sq. m of living space. After the recent meetings in Rosstroy it was resolved to specify the minimum standard of 3 mln sq.m. Less amount will not allow to implement what makes a qualitative difference of IUD from other types of development. According to Stanislav Pridvizhkin, director of “Akademia City” project, IUD offers the creation of attractive living environment for man due to its balanced town-planning concept: the accumulation of housing, working and recreational space, commercial and social infrastructure in one place. Infrastructure is paid special attention to: availability of parking space, kindergartens, public facilities, schools, transport and communal services must be considerably better than in existing communities both in quantity and quality.
Specialists of “Renova-StroyGroup” believe that this will be possible to achieve, first, due to the construction scale (the more the development area the less is the cost per sq. m, and therefore, per person), second, due to active state participation in the implementation of development projects. The last moment is the third characteristic feature of IUD. Compared to traditional development with the main infrastructural load on the project initiator, the IUD concept provides for the governmental support at every level, not just organizational, administrative, political, but also financial. In other words we are talking of state-private partnership principles.

IUDreaming

In the event one strictly observes the quantitative definition of 1 mln m2 there is few IUD projects in the territory of the Ural Federal Okrug. For example, VIZ Pravoberezhny in Ekaterinburg (developer – “Pravoberezhny” ASTS): 1.5 mln sq. meters of living space up to 2007.

But the majority of market participants claim that IUD is the future of the housing construction market and will soon become common practice. Trends do change. A couple of years ago a point and compact type of development prevailed but today’s market has been oriented to mid-size projects from a hundred thousand meters up. The development volume and the level of improvement are not up to standards stipulated by “Renova-StroyGroup”. Compared to point development this is undoubtedly a step forward – not GREAT IUDreams yet but mini-dreams.

Thus in Ekaterinburg PSK “Ural-Alliance” together with the managing organization “Olips” develops the micro-district “Sozvezdie” (Constellation) (22 houses, with the area of 8 being over 80 thousand meter). TPK “Ural obuv” is building “University” community o f 400 sq.m. (the first six-storeyed building will be commissioned in 2007). “Bazhovsky” Co-operative develops a micro-community with the same name for 150 thousand meters of living space).

The Tyumen construction company together with some local developers carries on construction of micro-district for 600 thousand meters in Tyumen: 60 percent of it is finished. “Vostochny-2” micro-district (about 3000 thousand m2 of housing). Another major project was initiated by the Tymen administration: low structures near Podyem station for young families (cottages and townhouses with a total area of 90 thousand sq.meters).

LLC “Kamskaya Dolina” in Perm is another project that has entered its technical and economic designing stage in the territory of former Red Barracks. The town-planning documentation has been already prepared. About 118 thousand sq. meters of housing is planned to be built. Another interesting project – “Prikamye Gates” (developed by “Prospect” company) provides for the development of 500 thousand sq. meters in the area of Kamsky bridge.

All the above projects besides housing itself envisage the construction of commercial property and social infrastructure objects. Developers re-orientate for larger and complex variants (development of city quarters, micro-districts). It is just one step towards the construction of the entire districts.

From point – to plane

Stansilav Pridvizhkin is sure: in order to have more and active IUD projects it is necessary to create a standard basis which will clearly identify the standards of sharing the responsibility between investors and authorities. “The issue of responsibility zones” is a money issue. It is necessary to clearly specify what share of infrastructure costs the project initiator undertakes and what part goes to federal, regional and municipal budgets. This role distribution must be maximum standardized so that the companies which want to enter the market with IUD project will clearly realize what kind of support from the state they can count on and calculate the project costs more accurately”. Now the issue is being studied in Rosstroy. The “Renova-StroyGroup” is presented in the model “Role distribution in state-private partnership IUD projects” (See p.?). It is not clear whether Rosstroy will approve of the model or it will be changed.

Smaller-scale developers have some more problems hampering the initiation of IUD projects. They are traditional problems. The first one is lack of land plots. Its acuteness is decreasing: the authorities of the largest Ural cities are rather busy in town-planning and allotment of territories for mass housing construction in the suburbs or beyond the city boundaries. Thus, in Sverdlovsk region besides “Akademia City” another 1.3 thousand hectares of land have been allotted for the construction of 3.8 mln sq. m of housing between Novo-Sverdlovskaya power station and Berezovsky town; this year the project documentation is planned to be prepared (See “Trebling the City” “Expert Urals” # 43 of November 2006). In Tyumen the territory of “Lesobaza” is considered to be prospective for the development (micro-district Tura). Its potential is about 1 mln sq.m of housing. And in Perm more attention is paid to an alternative way of finding the land for housing construction – transfer of industrial and social objects from the city center. Thus, according to PTDN Realty Group the candidates for transfer are confectionary plant, mental hospital and prison.

Finally, this year’s amendments to Town-Planning Code must come into force where the procedure alternative to auctions is specified to get the land for socially significant projects of housing construction – resolutions of town-panning commission. The IUD projects will definitely be considered such objects, therefore the access of large developers to land will be simplified.

Energy deficiency is another issue. Though it is not easy but still possible to find power resources for a detached building, it is next to impossible to find those for micro-district. In the event of transfer to IUD the problem will be solved due to the scale of construction. In implementation of really large projects (1 mln m2 and more) it is more economically appropriate to build an on-site power plant on the investors’ expense (that is why nearly all “Renova-StroyGroup” projects envisage the construction of power generating units).

The effect of large-scale construction reduces the deficiency of financing. The large project launched by a well-known developer with the support of local authorities will enjoy the public confidence. It means that it will be easier to get credit including the credits of foreign banks where they are less expensive and longer; secondly, more opportunities appear to use alternative procedures – project and investment financing, unit investment funds, public borrowing procedures.

In general, there are no insurmountable barriers for mass IUD development. And this process has already started.

A step closer

How can we estimate this tendency? Absolutely positively. IUD projects can provide for a significant growth of commissioned housing volumes (e.g. “Akademia City” will give Ekaterinburg 35 percent of the annual housing commissioning in the first years of apartments sale and 100% at reaching the target production capacity). Due to the volumes the load (charge, infrastructure construction) per meter decreases, that is at the beginning the investors will make extra profit and then with the growth of supply and competition they will be able to reduce the price.

Integrated Urban Development can balance the city infrastructure and solve a number of social problems (See “Facing the Problems”). The object quality and standard of living in new communities is higher than in the areas of “compact planning” (See diagram “IUD compared to the traditional types of development”). Finally, IUD expansion will allow one to investigate the issue of bona fides or lack of bona fides of developers. Large developer while arranging contract work tenders will not admit a “black sheep” in the flock. Unlike the authorities he will not come down to administrative and political speculation about “bona fides”. One should not be afraid of market cornering due to project agglomeration: owing to specific character of IUD, the projects will be initiated by the developers who as a rule do not have their own building capacities. So the builders will have enough work and the volumes will still increase.

Of course in reality it will not be so smooth. For objective reasons the social and economic effects of the development of new large communities have not been sufficiently studied. Some pitfalls are always revealed in the course of construction. For example, migration from the “old” city to the “new” one. With relation to intra-urban infrastructure relief this is a positive phenomenon. But one should consider the following: the population will migrate from the old town in a non-uniform way. In the first place and mainly the capable and the well-off will migrate from the areas which are less prosperous and prestigious. The latter will gradually become more marginal and turn into “underprivileged areas” of the city.

We won’t be able to avoid side-effects. Nevertheless re-orientation of professional real estate market players to new territories development will become the second important step (after mass mortgage development) towards a distant and suggestive goal – notorious “affordable and comfortable housing”.