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. Last Updated: 07/27/2016

Cement Weighs Down Housing Boom

Itar-TassA man carrying cement at a construction materials market. Medvedev said that demand was outstripping supply.
Shortfalls in the country's cement and building materials industry could hold back the rate of real estate development, First Deputy Prime Minister Dmitry Medvedev said.

Commenting on the government's long-term home construction plans during a trip to the Tula region Wednesday, Medvedev highlighted the importance of the sector and potential indirect effects for the rest of the industry. "Russia is on the cusp of a building boom," Medvedev said. The state is set to review its strategy for the sector in the next few weeks.

Medvedev said the government was aiming to boost construction rates to 1 square meter per citizen per year.

"The production of building materials is only now with difficulty fulfilling the needs for the development of the residential sector," Medvedev said.

Although domestic cement production has risen by 20 percent in the last six months and brick production by 14 percent, Medvedev said that with construction rates even higher, demand was outstripping supply.

Over the past few years, the country's cement industry has boomed spectacularly on the back of the current construction surge. As housing and commercial building increased by 89 percent from 1998 to 2006, cement production has grown by 140 percent from 22.7 million tons to 54.7 million tons over the same period, an industry report released in August by the CentreInvest Group said.

According to government estimates, 85 million tons to 90 million tons will be required by 2010 to meet the requirements of the government's affordable housing strategy, the report said. By that time, the production shortfall is expected top 25 million tons.

Inadequate supply is also leading to increasing prices. According to CentreInvest Group estimates, cement prices rose by 28 percent in 2006. Over the next four years, cement prices look set to jump to $130 per ton from the current price of around $80, the report said.

"The stabilization of prices is our most basic task and can be solved by reconstructing current production and creating new production," Medvedev said, citing a 15 percent price rise so far this year.

"Prices for materials and especially cement have been growing permanently for many years, and this summer was not an exception," said Pavel Yakimchuk, a project manager at CBRE Noble Gibbons.

All the major players on the domestic market have announced plans to increase production radically over the next few years. The top nine cement companies in the country control 85 percent of the market, with Eurocement Group accounting for over 40 percent of the industry.

Emblematic of the higher targets, minor player German firm Knauf, whose Novomoskovsk plant was visited recently by Medvedev, has promised to double its production in Russia over the next five years, the company said in a statement.

Andrei Petrov, a partner at Knight Frank, denied that problems with building materials were currently holding back development or that costs were prohibitively expensive for large-scale developments. Nowadays, the biggest costs in Moscow are land plots and hooking up to utility grids, Petrov said.

"To create a concrete frame for a building is not the biggest cost," Petrov said, estimating that it would constitute from 20 percent to 25 percent of the entire expenditure. "Sometimes people spend more money on the lobby."