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. Last Updated: 07/27/2016

Prosecutors Probe Property Prices

MTThe Prosecutor General's Office began investigating Friday whether collusion was behind soaring apartment prices.
The Prosecutor General's Office is looking into possible price collusion among construction companies in the Moscow and St. Petersburg markets.

The prosecutor requested that the Federal Anti-Monopoly Service investigate whether collusion among construction companies was contributing to the runaway rise in apartment prices in these areas, the prosecutor's office said Friday in a written statement.

Such collusion would hurt one of President Vladimir Putin's four national projects: affordable homes for Russian citizens.

Besides the Federal Anti-Monopoly Service, the Interior Ministry and prosecutors from Moscow, the Moscow region and St. Petersburg were asked to investigate local construction practices.

According to IRN.ru, an analytical agency for real estate, the average home price in Moscow grew by 50.5 percent in the first half of 2006. The average price per square meter in June was $3,359.

Earlier this year, First Deputy Prime Minister Dmitry Medvedev called on the anti-monopoly service to break the stranglehold of local construction companies on housing. "Serious efforts are needed to de-monopolize local construction markets," Medvedev told Rossia state television.

Residential construction has dropped 30 percent since a 2005 law requiring developers to finance more of the construction costs without relying on homeowners in the early stages, said Nikolai Koshman, head of the Russian Builders Association.

Last week, Igor Artemyev, head of the anti-monopoly service, told reporters that up to 70 percent or 80 percent of land was allocated to developers without public auctions in the first three months of the year, according to a transcript of his comments from the Federal News Service.

But Artemyev said he believed the Moscow construction industry was "competitive."

"It is not monopolized in the sense that the anti-monopoly legislation reads into it. There are many companies. No single company can be safely said to be dominant in the market. The same is not true of the building materials market, where there are dominant companies," Artemyev said last week.

Real estate experts say artificially high prices paid for construction materials such as steel and concrete significantly boost the price of new developments in the capital.

Diana Al-Sabunchi, a construction manager at Cushman & Wakefield Stiles & Riabokobylko, said quality construction companies were "limited" in number.

"We see a significantly increasing need for Western-level design and construction professionals, who are capable of delivering projects within the foreign customers' time, quality and budget expectations," she said.

David O'Hara, general director of DTZ, a real estate advisory firm, said that in the realm of commercial real estate, large Western construction companies had plenty of projects to choose from and did not always need to go to the expense of seeking contracts through competitive tenders.

"They have no desire to participate in a tender process if they feel that the developer has already pre-selected a construction company," O'Hara said Monday.

O'Hara said he saw a lack of competition, rather than price collusion, as the real problem in the Moscow construction industry.

"The issue of collusion in Moscow is probably no different than it is in New York or London," O'Hara said, adding that he "couldn't really see it happening on a major scale here."