URBAN HOUSING IN BELARUS: MORE UNAFFORDABLE THAN

UNCLAS SECTION 01 OF 02 MINSK 000298

SIPDIS

SENSITIVE
SIPDIS

E.O. 12356: N/A
TAGS: EINV ECON PGOV BO
SUBJECT: URBAN HOUSING IN BELARUS: MORE UNAFFORDABLE THAN
EVER

REF: MINSK 283

Summary
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1. (U) Housing prices in Belarus have risen higher than in
any other sector of the country's economy. In addition to
higher energy and raw material costs affecting many
sectors, independent experts blame the government's tighter
control over residential housing and land. They also
believe the country's housing market is overheated by both
domestic and foreign investors, who have few other options
for investment in Belarus. End summary.

Housing Prices Skyrocket in 2007
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2. (SBU) In January-March 2007, prices for residential
housing in Minsk rose by 35 percent. Belarusian real
estate agents predict further growth in housing prices to
USD 2,000 and above per square meter, thus making the value
of the average two-bedroom apartment about USD 120,000.
Belarus? leading real estate experts agree that housing
prices may stabilize some time in summer or fall when
higher utility bills are likely to force low income
dwellers to trade in their bigger apartments for smaller
ones.

Soviet-like Policies Crimp Housing Supply
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3. (SBU) The current housing situation clearly reflects
and results from the country's Soviet style economic
policies. The GOB virtually halted its privatization
program, and Lukashenko tightened control over residential
property and vacant land (reftel). Unlike many of its
neighbors, Belarus continues the construction of subsidized
housing for young families and people whose living space is
less than 15 square meters per person. In addition, under
the law, people on the waiting list can apply for long-term
low-interest banking loans even to pay for subsidized
housing.


4. (SBU) General Director of housing construction firm
Aresa Service Sergey Korenko stated that Belarus
constructed 4.14 million square meters of housing,
approximately 70 percent of which was social. In
compliance with the 2006-2010 subsidized housing program
adopted by the GOB in December 2006, the share of social
housing will grow by 2010 to 80 percent. Nevertheless, the
waiting list has grown, especially in Minsk. Under the
law, the first owners of social housing cannot sell their
apartments during five years starting from the date of
their initial purchase. For example, in Minsk this reduces
the market of new residential housing to 4-5 thousand
apartments per year; not much for a city of nearly two
million.

Speculators and Construction Costs also Boost Prices
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5. (SBU) Yuriy Popov of Tvoya Stolitsa real estate company
told us that the price hike was also fuelled by speculative
investors, who wait to get the best price, thus further
reducing the supply. Higher energy and raw material
expenses this year also inflated the cost of housing
construction. Finally, residential housing in Belarus,
though expensive, is nevertheless much more affordable than
in Russia, Ukraine and some other neighbouring countries.
Thus, Belarus? relatively inexpensive real estate attracts
lots of foreign investors -- including from Russia, China,
Iran, and Slovakia -- further increasing the demand.

Housing the Only Safe Investment for Many
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6. (SBU) Residential housing remains one of the few areas
where Belarusians can still make investments legally and
safely with little to no risk of the tax authorities
inquiring as to the origin of money spent on the purchase.
Furthermore, starting in January 2007, individuals are no
longer allowed to sell and buy land for residential
purposes, unless a plot already has a finished fixed asset
on it. These administrative changes facilitated a dramatic
shift away from investments in land to housing projects in
Minsk and other major cities (reftel).

Comment
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MINSK 00000298 002 OF 002




7. (SBU) Sergei Kostuchenko, CEO of Priorbank, Belarus'
largest private bank, announced at a conference on March 30
that the country has 7,000-10,000 U.S. Dollar
millionaires. Some of them made their money in the shadow
economy and use residential housing to profitably launder
their income, driving up prices beyond the reach of most
Belarusians. Unless the GOB takes steps to liberalize the
housing market and the rest of the economy, making it fully
transparent, private housing will remain unaffordable for
most low and middle-class Belarusians. A more likely
development is the contraction of the housing market,
together with the rest of the economy, as the effects of
higher energy prices begin to be felt throughout Belarus.

STEWART