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. Last Updated: 07/27/2016

PIK Wins $1Bln Housing Contract

PIK Group, one of the country's largest residential construction companies, announced Monday that it had won contracts worth more than $1 billion from City Hall to provide much-needed affordable housing around the city.

The money comes at a crucial time for PIK, as big developers have been forced to shelve some projects amid the global credit squeeze.

"These [contracts] provide for over $1 billion of municipal funds to be invested by the City of Moscow in housing construction projects," the company said in a statement posted on its web site on Monday.

According to the terms of the transaction, city authorities would purchase residential buildings from PIK at retail prices ranging from $2,900 to $3,400 per square meter in parts of the Moscow region, including the Mytishchi, Novokurkino and Yaroslavsky districts.

Up to 30 percent of the buildings have already been completed, while the rest are slated for completion by the end of the year, the statement said.

Last week, City Hall announced a $2 billion bailout plan to help key developers under strain as the global financial crisis continues to hit home.

Deputy Mayor Yury Roslyak, who made the announcement, said the city was in talks to buy land and apartments from construction companies in need of cash before the end of the year.

Roslyak's spokesman, Leonid Bratkin, said Monday's $1 billion deal was separate from Roslyak's $2 billion bailout plan but that it was a first step toward realizing City Hall's housing program.

But even as real estate companies reel from the liquidity crunch, Mayor Yury Luzhkov told an investment forum in Vienna on Friday that the global financial crisis had not had an impact on the city.

"The City Hall would not fail to discharge its social responsibility to execute programs that would improve the lives of Muscovites," Luzhkov told the Moscow-Invest-2008 forum, Prime-Tass reported.

"In part, the construction of residential buildings would continue at the same pace."

As part of a national affordable housing program, City Hall committed itself in June to provide up to 1 million square meters of subsidized housing to thousands of Muscovites before the year ends, something not even the raging financial turbulence could derail, analysts said.

"City Hall is under pressure to deliver on its promise to sell apartments to low-earners who have queued for years for apartments," said Boris Derevyagin, the deputy director of the Real Estate Market Indicators analytical center.

"The deal with PIK Group is the first step because Moscow government currently needs about 2.5 million square meters of apartment spaces to fulfill its social goal."

With the credit crunch pushing mortgage lending rates to 25 percent, few developers could hope to sell completed projects, and analysts said City Hall's move was a welcome relief for PIK Group.

"The $1 billion contract won by PIK is nothing other than a bailout for a company struggling to cope with the spillover from the international financial crisis," said Oleg Borisyonok, an analyst with real estate developer KomStrin.

"A recent financial statement by PIK Group indicates that the company is in dire financial straits mainly because of the company's accumulated borrowings for real estate development."

It would have been be disastrous to leave PIK Group, a major developer of low-cost residential buildings in Moscow, to its fate at a time of financial uncertainty, Borisyonok said.

PIK Group, the first residential builder to go public in Russia, was founded as a mortgage company in 1994 by billionaire Kirill Pisarev.

Last year, the company sold a 15 percent stake to raise $2 billion, the largest real estate share issue in Europe.

Alfa Bank's real estate analysts, Yelena Mills and Alexei Kryuchkov, who visited several local construction sites on Oct. 16 to assess the current rate of construction activity, concluded that the credit squeeze had led to a slowdown in construction activity throughout the city.

"Given the current liquidity crunch, developers are clearly prioritizing the delivery of revenue-generating projects in order to maximize operating cash flow," Mills and Kryuchkov wrote in a research note on Monday.