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demand. In August housing inventory in Moscow increased 22% y/y and 6% m/m to 1mn sqm, matching the record high. The build-up in inventory is a reflection of the YTD accelerated offer by developers and overall cooling in demand. In 2018 and 1H19, the number of deals on the primary market increased 47% y/y and 37% y/y, respectively, as clients rushed for housing prior to the regulatory changes and the introduction of escrow accounts from July (mortgage rates at the time were also appealing: 9.9%). The pace highlights artificial demand that did not correspond to a recovery in real incomes and in July primary deals were already down 11% y/y. Simultaneously, developers accelerated their pipelines to meet the exemption requirements from escrows based on completions (30%) and sales (10%). High inventories are likely to put pressure on prices that were still 5% higher y/y at RUB176,000/sqm in Moscow in August 2019. Prices were also supported by concerns over supply and the cost of flats under the new regulatory framework, although its implementation has been smoothed over 3- 5 years by exemptions.
Construction output showed only a slight increase, to +0.2% y/y in July, despite the visible growth of construction-related materials. We believe that the construction series is also likely to be revised up later in the year.
Russia's development bank VEB.RF (former Vnesheconombank) could invest up to RUB2 trillion ($31bn) in transportation in up to a thousand cities, Kommersant daily reported on September 13 citing the investment programme draft. Notably, the investment is planned to be co-financed from the extra funds of the National Welfare Fund (NWF), which could be a sign that the government and the Finance Ministry are moving ahead with unsealing the fund despite the protests of the Central Bank of Russia (CBR). Reportedly, VEB.RF proposes to invest RUB340bn in ten cities each at the first stage, and expand the programme to over one thousand cities eventually with an investment of RUB2.1 trillion. By 2035 95,700 buses, 6,500 trolleybuses, 6,700 trams and 3,500 electric buses are planned to be purchased with state support. The ten pilot cities are Yekaterinburg, Perm, Nizhny Novgorod, Saratov, Tver, Voronezh, Volgograd, Chelyabinsk, Novosibirsk, and Kazan.
9.1.5 Retail sector news
The French retailer Auchan again topped the Forbes list of largest foreign companies in Russia in 2018, with RUB328bn ($5.1bn) in revenues that meant Russia accounted for 9% of the company’s worldwide earnings. Auchan was followed by Toyota Motor (RUB313bn, 2%). Next in the list was Japan Tobacco (RUB303bn) and Philip Morris where Russia made up as much as 24% and 16% of their global revenues. In 2018 the revenues of seven of the largest ten foreign companies declined, including Auchan, while British American Tobacco left the top ten. Volkswagen Group (RUB289bn, 2%), Leroy Merlin (RUB276bn, 16%), PepsiCo (RUB243bn, 6%), Kia Motors (newcomer with RUB232bn, 8%), IKEA (RUB218bn, 8%) and Metro Cash and Carry (RUB217bn, 10%).
Russian retailer Dixy Group has merged with liquor store chains Bristol and Red & White, under the umbrella of Cyprus-registered DBKR Mega Retail Group Limited, to form the third biggest retailer in Russia, Vedomosti daily reported on September 18. The merged company comes in one of the biggest retailers in Russia after only X5 Retail Group and regional supermarket chain Magnit, with annual revenues of about RUB800bn ($12bn) and over 13,000
86 RUSSIA Country Report October 2019 ww.intellinews.com