Construction Market Suffers Due To Lack Of Funding
Russia’s Housing market sector appears to have been hit hard by the recession. House construction in Russia dropped dramatically; the reasons behind this have been associated with large developer debt and cuts in government funding.
For the sector to rise again it needs government subsidiaries and a new wave of demand, which is unlikely to occur given the state of the mortgage market. Russian banks have increased interest rates and made it generally harder to borrow.
The Russian government is doing its best however its promised a massive cash injection and a large amount of support to the mortgage agency. It is also doing its best to pressure banks into lower interest rates. However the best method around this is for the government to lower inflation rates which will naturally decrease interest rates.
Graduates Straight To Unemployed Queue
Over 400,000 graduates from school and University will finish this month many of which will go straight into unemployment. The Russian national jobs agency declared that now is the worst possible time to be looking for a job.
An example of this is that 5 years ago a top degree in business would give a starting salary of $170,000 in banking, however now candidates lack job experience and are often left unemployed.
Unsurprisingly the worst hit area is banking and finance however figures show massive drops across the board, with Russian unemployment nearing 10%, excluding the many people who don’t or haven’t registered as unemployed. So unfortunately for now it looks like the graduates will just have to battle it out or wait their time for a job.
Recession Leads To Cheaper Office Space
Real estate in Moscow is in terrible decline as over 20% of office space is being left vacant despite massive price cuts. Market research suggests that in the first quarter of 2009. Real estate activity in relation to offices is down as much as 45%.
The massive decline comes even more as a shock as Russia seems harder hit than many of its European neighbours who have experienced 20% and not 45% drops in activity.
The market has picked up a lot more competition especially in lower grade properties as they are cheaper. A central location with landmark views used to be most popular amongst businesses and was near impossible to gain but now they are readily available.
Millionaire Fair Held In Russia Despite Recession
Moscow recently hosted the world renown Millionaires fair even despite a report from Merrill Lynch stating that the wealth of the worlds top earners has fallen by a fifth .
The overall number of millionaires in Russia has dropped by a third overall due to the recession. The risky stock market is driving rich individuals into making more risky investments than usual and loosing more money. This has lead to an increase in the amount of people investing in commodities such as Gold.
A number of investors are also ignoring the traditional options of investing in coins and memorabilia and investing in Jewellery and art instead as it is thought that they hold their value better.
However Russia’s big spenders have earned an image as good businessmen with high quality asset management and therefore most reports lead towards the view that they will be fine in the long run.
Despite the recession, Merrill Lynch estimates that appetite for risk-taking is slowly returning. But far from what it used to be. Its estimated that over the next four years the wealth of the rich will grow by only 8% annually.
Bureaucracy Halts IKEA Russian Investment
IKEA the major shareholder in the world furniture market, has stopped further Russian investment due to “the unpredictable character of administrative procedures in some regions."
Issues such as power bills and road construction have damaged the relationship between IKEA and Russia in the past leading to the IKEA management stating that they will finish projects that are under construction but will not be starting new ones.
This is despite a massive past investment by IKEA in Russia, the company has invested about $4 billion to date, including a store which was planned to open in November 2007, but has been delayed 8 times.
Ikea’s global director for Russia and CIS Per Kaufmann, said that uncertainty about the Russian business environment and regulatory framework is a bigger disincentive than the economic downturn. So Ikea’s future in Russia is looking shaky but is still going, for the moment.
Megafon Posts Huge Net Profit Despite Recession
Megafon has posted a Net Profit of 11.1 billion roubles. Megafon is currently Russia’s third largest mobile phone operator.
The net profit reported is up 20.2% from last year with Revenues also climbing 11.7% from 2008. Showing the businesses ability to not only increase revenue streams but also to cut costs.
The CEO of Megafon was thrilled with the figures and said that it was down to strong management combined with hedging and rising yields from free assets. The latest figures mean that Megafon has outperformed a number of rivals and has established its dominance as a major company for years to come.
Russian Retail Adventure For HSBC
One of Europe’s biggest lenders is one of the few foreign lenders that is taking a chance in the local Russian market and retail lending
The Bank started its first retail branch in Moscow and has plans for three more. The new outlets target Russians able to deposit at least $2400. The Head of International Business at HSBC has said that the Russian middle class have escaped the recession relatively untouched.
A recent survey suggested in three years, there will be approximately 30 million people in Russia earning over $20 000 a year. If the survey proves to be correct, it will make Russia a very attractive market and the market could see a whole host of foreign investors.
HSBC have stated that now is a good time to enter the market due to low costs in everything from real estate to advertising but leading analysts have stated that not many foreign lenders have spotted the opportunity.
Many Russians have stated they find established foreign names more reliable than domestic private lenders. This is mainly down to the retail deposits in foreign banks having increased greatly over the past six months.
Opel Deal Hangs In the Balance
General Motors has stated it wants to keep the right to buy back Opel’s shares. This recent statement is giving the Sberbank-Magna consortium doubts about the deal to buy GM's European operations.
Earlier Sberbank’s deputy CEO did not say that the deal was by any means complete. This raised further speculation about a possible Opel acquisition by a Chinese company. The talks with GM are currently continuing.
GM had this to say on the issue;
“The deal can’t be cancelled as it has not yet been concluded. If the new terms are sufficient for our bank, the deal may be agreed in September, while the preliminary agreement may be signed in July.”
Russian Prime Minister Criticizes Rising Supermarket Prices
The Russian government may soon control retail prices in Russia. A new piece of legislation on retail business in Russia to be finalised in the next ten days.
According to a recent survey, 75% of Russians view growing prices as the countries biggest problem. The supermarkets were highlighted as a main problem in the issue
Russia's Prime Minister interrupted the Cabinet meeting on Wednesday and made an unexpected visit to a Moscow's supermarket to check the prices for certain grocery items. After returning to the White House, Putin called for a joint effort to control food prices.
The reasoning behind the issue is that in the economic situation many people have received slashed incomes however at the same time food prices have stayed the same and in some cases even risen. Which the Russian Prime Minister has classed as “Social Injustice”