Rental housing prospects in Belarus

3000 rent flats to be built in Minsk by 2015, mayor says

From now on Belarusians will be able to rent public housing. At the moment, only existing public housing can be used for this purpose, but by the end of the year two 16-storey houses for rent will be built in Minsk. Soon, similar buildings will be erected in each district of the capital as well as in regional centers. Minsk mayor Nikolay Ladutko announced an ambitious plan to build about 3000 of such flats in Minsk by 2015.

In Europe rental housing market has been in place for decades, while Belarus is starting promoting this type of housing from scratch. How many rental flats must be built in the capital and regions to meet the demand and lower the current prices for private housing rental? What will be a monthly payment for a typical rented apartment? What mistakes made by European countries Belarus should avoid? About these and other issues we talked to Alexander Gorval, head of the housing policy department of the Ministry of Architecture and Construction of Belarus, Natalia Kukharchik, head of the legal sector of the Ministry of Housing, Alexander Avramenko, head of the housing policy department of Minsk Executive Committee, Gennady Kalenov, chairman of the International Association of Real Estate Management, and Valentina Senchikhina, deputy director of the real estate agency Tvoya Stolitsa (Your Capital).

About 40,000 flats for rent in Minsk

R: Minsk has the largest waiting-list of people whose living conditions need improving – 270,000 (it means that the highest potential demand for rent apartments is observed in the capital). Thousands of students and tourists come to study and relax in the main city of Belarus every year. All these are factors that determine high demand for rental housing. How many apartments for rent are there in Minsk and what is the average cost of rent?

V. Senchikhina: There are about 40,000 flats to rent in Minsk. Over the past five years, the number of rental apartments has increased because much housing is being built in the capital.

R: How would you describe the current demand for rental housing in the capital: stably high or moderate?

V. Senchikhina: I wouldn’t say that demand stays the same all year round as this market is subject to seasonal fluctuations. Demand usually rises in the second half of July and remains high until the beginning of October. The reason is clear: students, young families and young professionals come to Minsk at this time of the year. Last spring one-bedroom economy class flat cost $200–220, while in August it was almost impossible to find such a cheap apartment.

R: Given that, would it be right to state that it is housing owners who dictate their terms to the market?

V. Senchikhina: That’s true, especially in the periods of high demand.

R: Will the balance of power change after thousands of new flats for rent are constructed in Minsk?

V. Senchikhina: If an alternative to commercial rent appears, it will push the prices down.

A. Avramenko: Let me show you a table comparing prices for public and commercial housing with identical characteristics. To rent a two-room apartment in Golodeda street, 11 costs 707,000 rubles a month plus utility payments (about 270,000 a month). All in all, a tenant will pay about 980,000 rubles a month. A commercially rented apartment in a house in the same street costs 2,241,000 rubles – 2.5 times more expensive.

Flats to rent to be built in satellite towns

R: At the moment, 100 apartments in nine districts of the capital are rented by those whose living conditions need improving. Meanwhile, the demand is 10–11 people per apartment. How many new rental hosing does Minsk objectively need?

A. Avramenko: This question is very simple and very difficult. There are many people who need housing, but not necessarily all of them will want to rent an apartment before they buy one. On the other hand, there are people who are not on the waiting list who would eagerly rent a flat. At this stage, we only can approximately estimate the total number. Yet, it is already clear that the demand will be really high. 10-11 people per flat is a very conservative forecast, at times the demand can reach 23-30 people. Mind, that presently the number of people who are aware of public rental housing is very small. The pace of construction will also depend on the capacity of the city. There are very few vacant sites left, so rental housing will be built in the satellite towns as well.

R: What authority will be in charge of rental housing construction in Minsk?

A. Avramenko: Capital Construction Departments of the city districts and the Capital Construction Department of Minsk City Executive Committee. They will have to borrow funds from banks to finance construction.

Workers anchored by real estate

R: Now that we have covered the situation in the capital, let us discuss how rental housing is promoted in the regions. How many multi-storey houses for rent will be built in Belarus by 2015 in line with the new housing policy plan?

A. Gorval: The plan is to build by 2015 600,000 sq m of rental housing across the country. This is just 11,000-12,000 flats. Time will show if this is enough or not. There is another important point. If we compare the price of rental housing with the cost of construction of apartments even using soft loans, we will see that the former is much more affordable. There is a whole group of people who cannot purchase homes, even with a soft loan, not to mention the commercial. Rental housing would solve the housing problem for these people.

R: Will rental apartments be built mostly in big cities?

A. Gorval: Not necessarily. It will depend on the needs.

N. Kukharchik: As of January 1, 2012 there are 855,000 people on the housing waiting list. Of course, the demand is not even everywhere. For instance, not all commercial apartments in the regions are inhabited. Perhaps, they do not all modern conveniences.

R: How long would be a payback period for rental houses?

A. Gorval: Objectively, the payback period is quite long – 25-30 years.

Most Germans rent apartments rather than purchase them

R: Belarus’ rental housing market is still rudimentary. Therefore, it is important to use international best practices while developing this segment. Gennady Kalenov is a person who knows a lot about rental housing in Germany. Mr. Kalenov, why, in your opinion, is rental housing market much more developed in the West than in our country?

G. Kalenov: Citizens of the former USSR countries felt nostalgia for property. Our German colleagues believe that almost free privatization of housing in the post-Soviet countries was a generous gift of the government to the population. Germany never saw anything like that. After the reunification of Germany, if someone wanted to own a flat he or she had to buy it at the market value. Having made this gift, the government forgot to put in a manual. And today it creates a lot of problems. For example, in Germany the issue of modernization of the old panel housing is widely discussed. It is impossible to make it coldproof: the state has no money to finance renovations. Mind that this is Europe’s leading economy! In a couple of years Belarus will see the same: it will be owners of apartments in a house who will pay for reconstruction. That is why Germans prefer to rent housing, not to own it.

R: Do you think that mass construction of rental housing will bring down the prices for commercial rent in Minsk and the regions? It is clear that in the coming 5-7 years demand will exceed supply.

G. Kalenov: I think that about 30% of people who currently own housing could easily turn into tenants. But the process will take a long time.

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