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Financing Capital Repairs and Energy Efficiency Improvements in Russian Multi-family Apartment Buildings

KEY CONCLUSIONS AND RECOMMENDATIONS

International Finance Corporation36 build. 1 Bolshaya Molchanovka StreetMoscow, 121069, RussiaTel: +7 (495) 411 7555Fax: +7 (495) 411 7556ifc.orgwww.ifc.org/eca

2012

In partnership with

EBRD Moscow OfficeDucat Place III, 6 Gasheka Street, 125047 MocowTel: +7 495 787 1111Fax: +7 495 787 1122http://www.ebrd.com/russian/pages/country/russia.shtml

European Bankfor Reconstructionand Development


Financing Capital Repairs and Energy Efficiency Improvements

in Russian Multi-family Apartment Buildings

Key Conclusions and Recommendations

International Finance Corporation

European Bank for Reconstruction and Development

Moscow

2012

Table of Contents

1 Core Objective and Approach

2 Key Findings

3 Current Status of Russia’s Housing Stock

4 International Experience in Financing Capital Repairs and Energy

Efficiency Improvements in Multi-family Apartment Buildings

5 Structural Analysis of Available Models for the Financing of Capital

Repair and Energy Efficiency Improvements in Multi-family

Apartment Buildings

6 Mechanism for Financing Capital Repair and Energy Efficiency Improvements in Multi-family

Apartment Buildings

7 Making the Necessary Changes to the Legal and Regulatory

Framework

APPENDIX A: Outline of Key Models

APPENDIX B: Financing the Capital Repair of Multi-

family Apartment Buildings in Russia – Comparison of Potential Models

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Key Conclusions and Recommendations 3

1. Core Objective and Approach

International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD), with the support of a group of Russian and international consultants led by the Institute for Urban Economics and ZAO “SENRI” (a Moscow-based energy-effi ciency solutions and investment company), have conducted this joint research on potential mechanisms for the fi nancing of capital repair and energy effi ciency improvements in multi-family apartment buildings in the Russian Federation1. Th is document summarizes the results of that research and outlines key fi ndings and recommendations on establishing a sustainable system for fi nancing the capital repair and energy-effi cient modernization of Russia’s multiple-occupancy housing stock2.

Th is report is the result of research conducted in several stages, as follows:1. Analysis of international best practice in the organization and fi nancing of capital repair and energy-effi cient

modernization in multi-family apartment buildings, and recommendations on their application in Russia. 2. Analysis of the current status and condition of Russia’s multiple-occupancy housing stock. 3. Development of mechanisms for the fi nancing of capital repair and energy effi ciency improvements in residential

buildings, and mechanisms for governmental support. 4. Cost–benefi t analysis of various approaches to the organization and fi nancing of capital repair and energy effi ciency

improvements to Russia’s multiple-occupancy housing stock. 5. Recommendations on the introduction of legal and regulatory reforms essential to facilitate the adoption of those

potential fi nancing structures analysis suggests are likely to lead to the best outcomes.

Th e results of this research are analyzed in the following reports.

1. Analysis of international best practice in organizing and fi nancing capital repairs and energy effi ciency modernizations of multi-family buildings in Central and Eastern Europe3.

2. Analysis of the current state of the housing stock in Russia.3. Mechanisms for the fi nancing of capital repair and energy-effi cient improvement of multi-family apartment

buildings in Russia, and mechanisms for government support.4. A comparative analysis of the costs and eff ects of the implementation of six models for fi nancing capital repairs and

energy effi ciency improvements in multi-family residential buildings in Russia.5. Required changes and additions to the regulatory framework for implementing the developed model for fi nancing

capital repairs and energy effi ciency improvements in multi-family residential buildings in Russia4.

1 Th e opinions and positions expressed in this document are those of IFC and EBRD and should not necessarily be taken as representing the conclusions and/or recommendations of external consultants.

2 Th e authors of this report understand that the Government of the Russian Federation is currently reviewing its approach to the organization and fi nancing of the capital repair of the country’s housing stock on a basis somewhat diff erent to that commonly understood to constitute international best practice. Such an approach might, nonetheless, provide a workable solution, and we would not wish to make any comment on this. We also hope that the results of this research might also prove useful in fi nding a solution to the organization and fi nancing of capital refurbishment projects in Russia.

3 IFC (2011), Analysis of international best practice in organizing and fi nancing capital repairs and energy effi ciency modernizations of multi-family buildings in Central and Eastern Europe. Available at: http://www1.ifc.org/wps/wcm/connect/region__ext_content/regions/europe+middle+east+and+north+africa/ifc+in+europe+and+central+asia/publications/analysis+of+international+best+practice+in+organizing+and+fi nancing+capital+repairs+and+energy+effi ciency+modernizations+of+multi-family+buildings+in+ceu+%28russian%29.

4 Each of these reports is available at: http://www.ebrd.com/pages/sector/energyeffi ciency/documents.shtml.

4 Financing Capital Repairs and Energy Efficiency Improvements in Russian Multi-family Apartment Buildings

2. Key Findings

1. Th e capital refurbishment and repair of multi-family apartment buildings in Russia is an urgent priority. Approximately 60 percent of the country’s multi-family apartment buildings are now deemed to be in urgent need of capital repair as defi ned under current legislation and urban planning regulations. Estimates of the annual cost of such capital repairs in Russia to 2035 range from RUB220 billion (assuming superfi cial correction of accumulated problems) to RUB1 trillion (assuming the implementation of thoroughgoing repair and the utilization of energy-saving technologies and materials).

2. Russia’s multiple-occupancy housing faces a longstanding need for energy-effi cient modernization. In this document the terms “energy-effi cient modernization of/energy effi ciency improvements in multi-family apartment buildings” refer to the capital repair and reconstruction of existing multiple-occupancy accommodation, undertaken with the objective of improving the energy effi ciency of the building in its entirety, as well as improving the comfort of the accommodation therein5.

3. Russia’s residential sector is the country’s second largest total consumer of energy and, as such, has the greatest potential for better energy effi ciency. Government intervention in the form of energy effi ciency policies and programs could help residential property owners reduce energy consumption (and, consequently, their household expenses) quite considerably: better energy effi ciency resulting from the introduction and implementation of energy-effi cient products and initiatives could help property owners in the Russian Federation reduce total expenditure on public utilities by an average RUB187,000 per year.

4. Th e energy-effi cient modernization of multiple-occupancy housing is most eff ective when undertaken as part of a wider program of capital refurbishment and repair – and, by the same token, through the implementation of further energy effi ciency initiatives in previously renovated apartment blocks. For this reason it is vital that any centralized system for the fulfi llment of state policy in energy effi ciency and resources management (specifi cally through promoting large-scale capital repair and energy effi ciency modernization in multi-family apartment buildings) also be supported by clear mechanisms to facilitate the fi nancing of such a system through government funding at the federal and regional levels.

5. Better energy effi ciency in the residential sector is also of direct interest to regional and local government insofar as lowering energy consumption can reduce the need for additional capacity in power generation and supply: improving energy effi ciency oft en proves more cost eff ective than construction of new facilities, and is far faster to implement.

6. International experience suggests that sustainable policy in the repair and modernization of housing stock is contingent upon government establishing precise aims and objectives, in the context of a systematic long-term strategy. Problems and issues pertaining to the maintenance and repair of multi-family apartment buildings must be regulated on the basis of close adherence to the principles of private property and the rule of law. Government

5 Russian legislation does not currently provide for a precise defi nition of the term “modernisation of buildings and structures (infrastructure),” and provides only for “capital refurbishment or reconstruction.” At the same time, in practice, regulation governing the fi nancing of capital repairs (under the Housing and Utilities Reform Fund and in other circumstances) is governed by terminology already adopted under various policy guidelines and regulatory and technical documents: “[the] objectives of raising the energy effi ciency of multiple-occupancy buildings, the establishment of favorable living conditions for residents, the use of contemporary materials and equipment – all constitute an understanding of the modernization of buildings through capital repair.” Provided the layout of individual residences are not altered, certain adaptations of common parts may be undertaken for the purposes of energy effi ciency renovation, including: the construction of access facilities for stairways, lift s, and rubbish chutes; the replacement of certain load-bearing structures (including walls, stairs, overhead protection (roofs) and exterior cladding); replacement of roofi ng and tiles; the installation of building insulation and soundproofi ng; the installation, re-equipment or improvement of building infrastructure facilities; and the reconstruction of external supply networks (excluding major (trunk) supply lines).


intervention in the management of private property should be limited to health and safety regulation and to initiatives to promote greater autonomy for property owners in improving the physical conditions (as well as the energy effi ciency) of their collective property.

7. International experience suggests that the most eff ective means of ensuring the sustainable fi nancing of capital repairs in multi-family apartment buildings is predicated (as an absolute minimum) on the following three elements.

a) Regular contributions (on a compulsory basis, by all apartment owners) into a dedicated fund for maintenance and repair (the “collective building repair fund”) – an essential prerequisite in every multi-family apartment building.

b) Credit facilities extended by commercial banks to Homeowners’ Associations, Housing Cooperatives, or Housing Management Companies, facilitated through residents’ regular payment of contributions for the repair and maintenance of their building, held in a dedicated account or collective building repair fund for that purpose.

c) Financial support from government in the co-fi nancing of capital repair projects and the provision of state guarantees to banks through dedicated state fi nancial development institutions (guarantee agencies, specialized state banks, investment funds, and so on).

8. In order to gain access to debt fi nance for capital repair and energy effi ciency improvements residents’ associations (Homeowners’ Associations, Housing Cooperatives) must be given viable legal status, must have the right to raise fi nance on behalf of all residents collectively, and must have the right to enforce collection from those residents failing to meet their obligations in contributing to the cost of such refurbishment or repair.

9. Current legislation in Russia governing the treatment of multi-family apartment buildings as immovable property is currently under-developed. A strong and transparent ownership system can be achieved only when each and every resident within a multi-family apartment building is obliged to become a member of a Homeowners’ Association or other form of collective residents’ association.

10. Th e following principles should be taken into account in allocating state resources for capital repair in multi-family apartment buildings:

a) Governmental support must be of a kind likely to encourage residents to undertake the repair of the entire multi-family apartment building, and not just of their own individual apartments.

b) Better energy effi ciency must be clearly designated as a priority in any capital repair project co-fi nanced through budgetary (i.e., governmental) sources.

c) Th e level of such governmental support should be directly tied to the extent of energy effi ciency improvements (and subsequent energy savings) to be achieved.

d) Any decision on the extent of any capital repair to be undertaken in a multi-family apartment building must be taken by the relevant Homeowners’ Association (or other collective organization representing individual property owners) within such building, or by the Housing Management Company or other management agency to which such authority has been delegated.

e) Responsibility for the control of funds collected from property owners within a multi-family apartment building rests with the Homeowners’ Association (or other agency (e.g., a Housing Management Company) to which the Homeowners’ Association has delegated such authority).

f) Responsibility for the control of funds received from governmental (budgetary) sources rests with the Homeowners’ Association (or other agency (e.g., a Housing Management Company) to which the Homeowners’ Association has delegated such authority).


g) Th e most eff ective use of state support from regional government is as follows: i. in subsidizing owners’ expenditure on capital repair and energy effi ciency improvements; and ii. through the provision of guarantees to reduce commercial risks in the extension of credit facilities

or fi nance to residents’ associations, and in the establishment of appropriate guarantee agencies (and investment funds) to facilitate this.

11. Not all property owners may be willing to fulfi ll their obligations in participating in the fi nancing of capital repairs, and it may be necessary to enforce these. Th is also applies to those apartment owners who, while willing to meet their obligations, are unable to do so for various reasons, including insuffi cient funds. In both cases the matter must be resolved through the adoption of eff ective mechanisms: in the one case through enforcement and, in the other, through the development of sustainable mechanisms for social support and the development of social housing.

12. Th e development of a sustainable environment for the fi nancing of capital repairs and energy effi ciency improvements in multiple-occupancy housing is contingent on the comprehensive reform of current civil and property law, as well as other legislation and regulation.

13. Th ere is a compelling case for taking a holistic approach to addressing the diverse issues associated with fi nancing capital repairs in the residential sector, in particular regarding:

a) the development of legal institutions governing the management of private property in multi-family apartment buildings (Homeowners’ Associations, etc.);

b) the development of mechanisms to facilitate collective self-government in multi-family apartment buildings, as well as the development of personal liability of apartment owners; and

c) the development of social support mechanisms for socially vulnerable populations and at-risk groups.


3. Current Status of Russia’s Housing Stock

The total housing stock of the Russian Federation comprises 19,650,000 buildings, with total floor space of 3,177 million square meters – 72 percent of which is located in urban conurbations6. The sector is predominated by multi-family apartment buildings, of which there are 3.2 million, with total floor space of 2,237 million square meters. The majority of apartments in multi-family apartment buildings are privately owned (see Figures 3.1 and 3.2, below).

Source: Institute for Urban Economics (2011), “Analysis of the Current Status of Russia’s Housing Stock.”

• Th e need for modernization is enormous: some 58–60 percent of the country’s total multi-family apartment buildings are in need of extensive capital repair, rising to 93–95 percent in those apartment blocks with an average age of not less than 25 years.

• Major investment will be essential for the renovation of the country’s multiple-occupancy residential sector. Estimates of the annual cost of such capital repairs in Russia to 2035 range from RUB220 billion (assuming superfi cial correction of accumulated problems) to RUB1 trillion (assuming the implementation of thoroughgoing repair and the utilization of energy-saving technologies and materials).

• Data from joint programs co-financed under the auspices of the Housing and Utilities Reform Fund shows the average cost of modernization to be RUB813 per square meter in 20097, increasing to RUB837 in 2010, and RUB833 in 20118: which rather suggests the conduct of selective repairs only, limited to the repair of lifts, roofing, and exterior cladding (facades).

6 Indicators on housing market characteristics referred to in this section are sourced from data collated through surveys conducted by the Federal State Statistics Service of the Russian Federation: Form No. 1 (Zhilfond), “Housing Stock Data”; From No. 4 (Zhilfond), “Data on the Provision of Residential Accommodation”; and Form No. 1-KR “Data on Capital Repairs to Housing Stock.”

7 Housing and Utilities Reform Fund of the Russian Federation (2010), “Annual Report 2009: Protocol of April 22.” Available at: http://www.fondgkh.ru/data/877/605/1234/OTCHET_2010_190510.pdf.

8 Housing and Utilities Reform Fund of the Russian Federation (2012) “Information on approved and pending applications for fi nancial assistance from the Fund,” March 7. Available at: http://www.fondgkh.ru/result/result/control/index.html.

Figure 3.1: Ownership Structure of Russia’s Housing

Stock (Total Floor Space)

Figure 3.2: Status of Russia’s Housing

Stock (Total Floor Space)

Municipally owned houses

1%

Privately owned

houses 29%

Municpially owned apartments

17%

Privately owned apartments

53%

Individual (detached)

houses30%

Multi-family apartment buildings

70%


• Energy effi ciency is generally low throughout the Russian residential sector. Nonetheless, eff ective capital repair and modernization of existing housing stock could improve energy effi ciency two-fold (see Figure 3.3, below). Potential energy savings throughout the Russian residential sector could, on average, match or exceed 40 per cent of current heating consumption, 37 percent of current electricity consumption, 30 percent of natural gas usage, and 25 percent of water consumption.

Source: McKinsey & Company (2009), Pathways to an energy and carbon efficient Russia.

• Th e availability of meters for monitoring energy consumption in Russia remains comparatively low. As at 2010, the availability of meters in multi-family apartment buildings was as follows:

- Th e proportion of multi-family apartment buildings with any form of metering device for the monitoring of total-building consumption averaged 27.6 percent, of which 26.9 percent had devices for monitoring of heating consumption; 24 percent consumption of cold water; 28.8 percent consumption of hot water; 28.8 percent electricity usage; and 10.1 percent consumption of gas.

- Th e availability of meters monitoring consumption in individual apartments was as follows: one percent of apartments had meters monitoring heating consumption; 22 percent cold water usage; 19 percent hot water usage; 80 percent electricity usage; and fi ve percent consumption of gas.

Th e absence of such metering facilities means it is diffi cult to encourage consumers to adopt energy-saving initiatives or behaviors.

Figure 3.3: Energy Consumption for Heating – Existing Housing Stock


4. International Experience in Financing Capital Repairs and Energy Efficiency Improvements in Multi-family Apartment Buildings

Research undertaken for this report also included an analysis of capital repairs and energy effi ciency improvements in multi-family apartment buildings in six other countries – Estonia, Hungary, Latvia, Lithuania, Poland, and Slovakia9,10. Th is analysis showed the fi nancing and organization of capital repairs in multi-family apartment buildings, and subsequent facilitation of long-term fi nancing for this, to be based on three core sources, as follows.

• Funds from property owners in multi-family apartment buildings, held in a single central fund for the repair of such specifi c apartment building (as is the case in Estonia, Hungary, Poland, and Slovakia).

• Finance facilities (loans) extended by commercial banks to Homeowners’ Associations and/or Housing Management Companies (as is, again, the case in Estonia, Hungary, Latvia, Poland and Slovakia).

• Budgetary support (government funding) Homeowners’ Associations, Housing Cooperatives and other residents’ representative organizations to support major capital repair projects leading to a signifi cant improvement in energy effi ciency (as is the case in all six of the European countries analyzed).

Th e successful functioning of this system is also contingent upon the following factors.

• Th e collective responsibility of all property owners for the proper repair and maintenance of their building – provided for under legislation in force in each of the above-mentioned countries. Dedicated state or municipal agencies are responsible for monitoring and controlling the maintenance and repair (i.e., the overall state) of such buildings, and can force delinquent owners to comply with legal requirements in this respect.

• Th e formation of a dedicated fi nancial resource (the “collective building repair fund”) in all multi-family apartment buildings – an obligatory requirement in several countries (including Estonia, Poland, and Slovakia), and a requirement on the part of those banks extending fi nance facilities to Homeowners’ Associations and Housing Management Companies in Hungary and Latvia.

• Th e compulsory formation of (and participation in) collective organizations for the management, maintenance and repair of multi-family apartment buildings (Homeowners’ Associations and Cooperatives), as is the case in Estonia, Hungary, Latvia, Poland, and Slovakia).

• Th e adoption of decision-making processes based on simple majority voting (and on full participation by all property owners), as is the case in Poland and Slovakia.

• Charges for heating and other utilities determined on the basis of metered consumption.

9 Th ese countries were selected on the basis of several common characteristics, including: the existence of legislation governing representative residents’ organizations; the existence of national and municipal government programs providing fi nancial support for the promotion of energy effi ciency improvements and repair in multi-family apartment buildings; and the existence of certain historical characteristics similar to those in Russia – e.g., a predominance of multi-family apartment buildings, a high degree of dereliction and decay, mass post-socialist privatization, and so on.

10 IFC (2011), “Analysis of international best practice in organizing and fi nancing capital repairs and energy effi ciency improvements of multi-family apartment buildings in Central and Eastern Europe.” Available at: http://www1.ifc.org/wps/wcm/connect/Publications_EXT_Content/IFC_External_Publication_Site/Publications_Listing_Page?languagesubjectsregions=%2C%2CIFC_EXT_Design%2FEurope+and+Central+Asia&languages=All+Languages&subjects=All+Subjects&regions=IFC_EXT_Design%2FEurope+and+Central+Asia.


• Th e existence of fi nancial incentives for apartment owners in multi-family apartment buildings, and access to credit facilities: the most common strategies for risk reduction and greater access to fi nance being as follows:

1) Given the greater risks involved in extending fi nancing facilities to residents’ organizations (collective owners’ associations) in the initial stages of their development, the existence of instruments to reduce credit risk allow commercial banks to develop fi nancial instruments (products) appropriate for residential repair and modernization. Th e management of such risks can be facilitated through various means: through state guarantees (Estonia); through the formation of a “State Guarantee and Development Bank” (Slovakia); through World Bank guarantees (Lithuania), through Building Society saving plans and partial guarantees from IFC (Hungary). All of these structures involve the provision of partial guarantees to commercial banks for credit facilities extended (as a rule, on a reimbursable basis) to residents’ organizations11.

2) Facilitating access to fi nance for residential repair and modernization, and improving its aff ordability for Homeowners’ Associations and/or other residents’ organizations. In Slovakia a Homeowners’ Association can obtain a subsidized loan for energy effi ciency improvements in a multi-family apartment building from the State Fund for Housing Development. In Poland a Homeowners’ Association can receive a grant from the State Energy Effi ciency and Renovation Fund for the partial repayment of loans received for the purposes of modernizing multi-family apartment buildings. Moreover, the size of such loans is tied to the level of energy effi ciency achieved (up to a maximum of 20 percent of any such facility) and transferred directly to the lending bank for discharge of the loan upon completion of the project.

• Public awareness campaigns are also important insofar as these can help promote attitudinal change in encouraging owners to become less dependent on government and to assume greater responsibility for the maintenance and repair of their own property. Poland, Slovakia, and Estonia have all developed eff ective public awareness campaigns, to that end.

11 A similar scheme currently being implemented in many regions throughout Russia involves the establishment of guarantee funds for small and medium-sized businesses. Such funds provide guarantees for credit facilities extended to small businesses and, in some instances, also provide advisory services to entrepreneurs.


5. Structural Analysis of Available Models for the Financing of Capital Repair and Energy Efficiency Improvements in Multi-family Apartment Buildings

Examination of international best practice in the organization and fi nancing of capital repairs and energy effi ciency improvements in multi-family apartment buildings reveals a number of common structural elements, including:

a) the importance of clear and consistent state policy; b) the importance of central (federal), regional, and municipal government – in terms of both regulation and

direct fi nancial involvement; c) the importance of an eff ective regulatory environment – and, specifi cally, the need for a viable balance between

regulation (and, where necessary, enforcement), versus civil rights and the need for market stimulation; d) the need for dedicated government institutions to promote and support government policy; e) the need for appropriate forms of fi nancial and fi scal (tax) incentives on the part of government to incentivize

property owners to undertake modernization and repair, and the need for mechanisms and strategies to encourage investment and engagement in the sector on the part of commercial banks;

f) the need for a clear legal delineation of the obligations and responsibilities of property owners, and mechanisms to facilitate the collective management of maintenance, modernization, and repair; and

g) the importance of access to fi nance (credit facilities) for owners (i.e., collective residents’ associations) to fund the repair and modernization of their apartment building on an aff ordable basis.

Several models, combining various of the features outlined above, were analyzed in terms of their applicability in Russia. Th ese models are outlined in more detail in Appendix A.


6. Mechanism for Financing Capital Repair and Energy Efficiency Improvements in Multi-family Apartment Buildings

Analysis suggests that the most viable model for a sustainable fi nancing solution for capital repair and energy effi ciency improvements in residential buildings in Russia might, in the medium term, be one involving a combination of the elements outlined above – the “Integrated Model,” as illustrated in Figure 6.1, below.

Th e key characteristic of this model is the presence of three sources of funding for the fi nancing of capital repairs and energy effi ciency improvements of multi-family apartment buildings: 1. property owners’ own funds, generated through contributions to the mandatory collective building repair fund; 2. fi nance facilities (credit fi nance/loans) from commercial banks; and 3. governmental (state) support. In the medium term this particular model could lead to the possibility of the capital repair of Russia’s housing stock being financed without co-financing from budgetary resources at various levels – with the exception of those social groups that will always be dependent on financial assistance from the state for the maintenance of private property. It also follows that the development of a market for such facilities (and the increasing availability of credit histories and other data in the discharge of such facilities by collective residents’ organizations) will lead to a reduction in the need for governmental support as an essential element in multiple-occupancy capital repair and energy efficiency projects (again, apart from those social groups that will always be in need of such state support).

The “Integrated Model” exhibits the following key characteristics (outlined in more detail in Appendix A)12. • Th e mandatory establishment of a collective fund for capital refurbishment and repair in each individual multi-

family apartment building (the “collective building repair fund”).

• Requirements regarding the minimal value for such funds, and the setting of monthly payments thereto, may be determined by regional/municipal government as a condition for receipt of state support (subsidies) or the receipt of guarantees from a state guarantee agency, at the behest of property owners.

• Assets accumulated in such collective fund are deemed to belong to all members of the appropriate representative residents’ organization (Homeowners’ Association, Housing Cooperative, etc.) in common, and are collected and held in a nominal account of such organization13.

• Conditions pertaining to the extension of credit facilities by commercial banks. - Any decision (resolution) on the procurement of credit facilities for capital repairs and/or energy

effi ciency improvements in a multi-family apartment building is adopted on the basis of a majority vote of the General Meeting (the collective representative body of all property owners) on the basis of a proposal

12 Th e proposed model does not include cases where the design features of an apartment building or the degree of deterioration make further repair or modernization impractical or economically ineffi cient, or where more than 50 percent of property owners are unable to meet their obligations in paying for such maintenance and repair.

13 A “nominee” (or “special nominal”) account is one in which the named holder holds the assets in such account on behalf of another or on behalf of a collective group or organization (the “benefi ciary”) for the conduct of operations using monetary resources not solely or exclusively owned by such named holder. Such accounts (i.e., not under the direct control or ownership of the account holder) are, in Russia, in an early stage of development and exist only to the extent of being discussed in the context of the new Civil Code of the Russian Federation – a piece of legislation itself currently undergoing further development.


Figure 6.1: “Integrated Model”

covering the scope, duration, and cost of such works, prepared by the relevant authority managing such multi-family apartment building (the Homeowners’ Association or other residents’ collective organization).

- Th e “debtor” or recipient of such credit facilities is deemed to be the entity responsible for the management of such multi-family apartment building (the Homeowners’ Association or other representative organization) acting on the basis of a decision adopted by the General Meeting.

- Th e disbursement of credit facilities for capital repair is determined on the basis of the repayments to be made by individual property owners; the level of such payments being determined by the General Meeting of the relevant representative organization in such building.

- Credit extended is not secured against immovable property of any kind – i.e., it is not secured against a Homeowners’ Association, Housing Management Company, or other representative organization as the collective owner of such multi-family apartment building, nor does any liability arise on the part of individual property owners (such credit being secured against receivables (i.e., property owners’ future payments) into the collective building repair fund).

- At the request of the bank, a guarantee or surety may be extended at charge, through a state guarantee agency, to cover part of the total credit extended.

• Payments received from property owners, as well as funds received through government support, may be used not just for capital refurbishment and repair (reconstruction) but also for energy effi ciency improvements and modernization.

• Government support initiatives to promote major capital repair and energy effi ciency improvement projects, and the development of bank loans as an essential means of fi nancing these measures:

Regional government

Housing Inspectorate

BANK

Nominal Bank Account

Eq

uity

par

ticip

atio

n in

st

art-

up

cap

ital

Funding of comprehensive subsidies for capital repairs

Subsidies to support comprehensive capital repairs

Su

bsi

die

s to

low

-in

com

e o

wn

ers

En

forc

ed

re

pai

rs

Guarantee

Credit

Payments to obligatory fund for building repairs

Co

ntr

ol

Application for guarantee

Governmental responsibilities

Mandatory payments for repairs

Budgetary funds

Bank credit facilities/loans

Financing of capital repairs


Federal government

MunicipalityCourt

Paobforrep

F

HOAHMC

Gu

A

GUARANTEE AGENCY

(federal or regional level)

Source: Adapted from Institute for Urban Economics (2011), “Mechanisms for the Financing of Capital Repairs and Energy Efficiency Improvements to Multi-family Apartment Buildings in Russia and Mechanisms for State Support.”


- Th e total funds available for the subsidizing of capital repairs in the relevant territory are determined under budgetary planning at the federal, regional, or municipal level and are included in such budgets’ schedules of protected expenditures (the budgetary term during which such subsidies are to be extended being determined under legislation at the appropriate level of government).

- Conditions pertaining to the provision of budgetary subsidies to residents’ associations for capital repairs and energy effi ciency improvements in multi-family apartment buildings are determined at the level of the constituent federal entity (or municipality) in accordance with local needs and priorities – i.e., depending on the level of reconstruction/capital repairs needed to local housing stock, the extent of energy effi ciency improvements necessary in multi-family apartment buildings, projected budgetary revenues, and the fi nancial solvency of the local population.Subsidies to mitigate the cost of large-scale capital repairs and energy effi ciency improvement projects.

- Special subsidies to low-income property owners to cover the costs of capital refurbishment.- Establishment and funding (capitalization) of specialized development agencies (e.g., federal and/or regional

guarantee agencies, investment funds and so on) to guarantee security (i.e., repayment) for lenders and to promote access to fi nance for the purposes of capital repairs and energy effi ciency improvements in multi-family apartment buildings.

• Property owners are independently responsible for adopting any decision on the commencement of payments into the collective building repair fund for the implementation of capital repairs or energy effi ciency improvements in accordance with building safety requirements and established parameters for energy effi ciency as and when necessary, and also subject to the availability of government support and/or bank fi nancing.

• Regulatory agencies (e.g., the local housing inspectorate etc.) are required to conduct regular inspections of multi-family apartment buildings depending on the age of a building (i.e., the length of time in which it has been in use) and other criteria. In the event that a building does not meet appropriate safety criteria, and in the event that owners fail to reach a decision on raising fi nance for repair, a legal judgment may be obtained compelling owners to commence payments into the collective building repair fund to the extent necessary to bring such building into a state of repair at least consistent with minimum legal requirements. Th e issue of the further intervention of state agencies in matters relating to private property and the conduct of repairs thereto is very delicate, and can be resolved in various ways, ranging from the enforcement of repairs (funded through the municipal or local authority budget with costs subsequently recovered from property owners (secured through a charge on the property in question)) to the compulsory evacuation of residents from a derelict building, with or without relocation to social-sector accommodation: another important issue in this context is the question of the valuation and subsequent use of such derelict building and the land occupied thereby.

Results generated under mathematical modeling of the eff ectiveness of the above model are based on the assumption that, as a result of various organizational initiatives and incentives, all property owners in multi-family apartment buildings in need of capital refurbishment or energy effi ciency improvements will adopt the necessary decisions and will eff ect regular payments into the collective building repair fund in the same amount as would be required under legislation establishing mandatory payments by virtue of law. On that basis, for the purpose of this analysis it is assumed that total fi nance raised through voluntary payments will be equal to the amount anticipated under mandatory payments14.

Qualitative analysis of the model indicates the following.

• Capital repairs extending to 170–180 million square meters of fl oor space per year could be achieved by 2035, 14 Th e «Integrated Model» mechanism proposed in this document is broadly based on proposals from the Institute for Urban Economics, but

diff ers insofar as the “Integrated Model” does not assume mandatory payments from property owners: the Institute for Urban Economics’ model does assume mandatory payments.

Memelyanova

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amounting to total coverage of 2,900–3,500 million square meters in the period 2012–35.

• During this period (i.e., to 2035) it will also be possible to ensure the continued expansion of those repair projects requiring the most intensive (and costly) overhaul (the proportion of which is expected to grow to between 1.8 and 2.7 percent of total fl oor space per year), to ensure coverage of 53–80 million square meters by that date. In total, the period from 2012 through 2035 is expected to see the capital repair of 84 percent of Russia’s oldest multi-family apartment buildings (i.e., those buildings currently more than 40 years old), as well as the capital repair of 70 percent of apartment buildings constructed 25 or more years ago.

• Th e market for bank lending in this sector (i.e., for the purpose of capital repairs and energy effi ciency improvements) is also expected to increase signifi cantly, from RUB120–140 billion in 2020 to RUB150–310 billion in 2035, once necessary initiatives to facilitate greater access to fi nance have been implemented. A total RUB3,200–4,000 billion of bank loans are expected to be extended for the purposes of the repair of multi-family apartment buildings in Russia from 2012 through 2035.

• Specialist evaluations suggest that the initial phase of the implementation of the Integrated Model, in which government support is critically important, is likely to last approximately fi ve years – aft er which point any reduction in state support is likely to have only limited impact.

• Government subsidies, as a proportion of total fi nancing for capital repair projects, are likely to peak at 21 percent in 2015, aft er which they are expected to reduce to zero by 2026. Government subsidies for capital repair projects from 2012 through 2026 are expected to total RUB280–290 billion (excluding social security costs and expenditures related to the maintenance of guarantee agencies and other development institutions).

Research also revealed a range of legislative and institutional barriers to the implementation of the proposed Integrated Model: these are likely to require specifi c legal reforms, outlined in section 7, below.


7. Making the Necessary Changes to the Legal and Regulatory Framework

Th ree key problems hinder investment into the modernization of multi-family apartment buildings and the successful implementation of the Integrated Model as outlined above: 1. Insuffi cient public engagement – i.e., insuffi cient engagement of property owners in multi-family apartment

buildings in the adoption of decisions regarding the management of their property and/or in the fi nancing of repairs to the common parts of such buildings.

2. Th e absence of clearly defi ned terms for state support and incentives to encourage owners to contribute to the capital repair and energy effi ciency improvement of multiple-occupancy housing stock.

3. Th e absence of viable security provisions and guarantees for investments (and credit facilities extended) in this sector.

Th e main decisions which need to be addressed at the federal level in order to implement and initiate mechanisms for the fi nancing of capital repairs and energy effi ciency improvement projects in multi-family apartment buildings (as outlined under the proposed Integrated Model) include the following. • A statutory resolution on the mandatory formation of a collective building repair fund in every multi-family

apartment building, and the security of owners’ contributions thereto. Th is would require amendment and revision of the Housing Code, the Civil Code, the Law on Banks and Banking Activities, the Code on Administrative Infringements, and a range of other secondary legislation and regulation.

Such a resolution would remove a key barrier regarding insuffi cient engagement on the part of property owners in taking control of the management of their property and/or in the fi nancing of repairs to the common parts of such buildings, and would encourage the timely adoption of decisions regarding he capital repair and/or energy effi ciency improvement of multi-family apartment buildings.

• Th e setting of minimum requirements governing the collective building repair fund of a building, and the determination of monthly contributions to its establishment and replenishment as a statutory requirement for all property owners applying for state support for the fulfi llment of capital repair or energy effi ciency improvement projects. Th is will require amendments to the Housing Code.

• Th e introduction of legislation and regulation to allow the level of budgetary (state) resources for the support of capital repair and energy effi ciency improvement projects to be included in the schedule of protected expenditures in government budgets at all levels (i.e., federal, regional and municipal) to the extent of any period of time permissible by law. Th is will require reform of current budgetary legislation.

• Th e establishment of clear and transparent regulation governing the granting of state subsidies to residents’ organizations, on competitive terms. Th is will, in particular, require the adoption of legislation on the kind of state support to be off ered to property owners for the implementation of capital repair and energy effi ciency improvement projects in multi-family apartment buildings – either through the provision of budgetary subsidies (grants) to meet part of the cost of such projects, or through the inclusion of low-income families’ costs (i.e., contributions to the collective building repair fund) under any housing support program. Th is will require regulation governing the provision of such subsidies to property owners, as well as amendments to the Housing Code.

• Th e introduction of legislation allowing payments received in the form of subsidies for capital repair and/or energy effi ciency improvement projects to be exempt from tax, and allowing concessions to be extended to personal tax payers (in the form of deductible allowances/reimbursement of costs in respect of such projects), to the extent permissible under current legislation. Th is will require reform of the Tax Code:


Such initiatives would eliminate the barrier of insuffi ciency of state subsidies and incentives to encourage public engagement in and contributions to capital repair and energy effi ciency projects in the residential sector, as well as allowing property owners to undertake appropriate fi nancial planning for such projects.

• Th e introduction of regulation to reduce lending risks (i.e., addressing the security and reliability of borrowers). It is proposed to extend the principle of “subsidiary liability” of the property owners within a multi-family apartment building toward the creditors of any Homeowners’ Association or Housing Management Company fi nancing such capital repair or energy effi ciency improvement project(s) prorated to the amounts past due by respective property owners for capital repairs. Th is will require amendments to the Civil Code.

• Adoption at the federal or regional levels (i.e., at the level of the constituent entities of the Russian Federation) of regulation governing the provision of state support to promote the extension of bank loans (credit facilities) for capital repair and energy effi ciency improvement projects in multi-family apartment buildings. Such legislation should clearly defi ne and delineate the core objectives and responsibilities – as well as the operation – of federal and/or regional guarantee agencies and/or investment funds established to that end. Th is will require amendments to the Housing Code and to legislation governing the provision of state and municipal guarantees:

Th ese initiatives will eliminate the barrier of the absence of viable security provisions and guarantees for any credit facilities (loans) extended by commercial banks thus attracted to the sector, and will improve access to fi nance (as well as reducing the cost of such facilities) for Homeowners’ Associations, Housing Management Companies or other collective residents’ organizations engaging in capital repairs or energy effi ciency improvements.


Figure A1.1: “Mutual Financing” Model

Appendix A: Outline of Key Models

Regional government

BANK

Bank account

of the Regional

Fund

Monthly/annual plans for capital repairsCreates

Funds collected for building

repairs

Option 2


HOAHMC

Separate bank

account

Option 1Financing of capital repairs


Mandatory payments


Options for fulfillment under this Model


f

FFunds collected

Regional Fund

HOA HMC

BANK

Regional Fund

Se

lect

s th

rou

gh

co

mp

etit

ion

Loan

s Su

bsi

die

s

Cre

dits Mandatory payments

for repairs


Trust management contract



Trust management contract

Regional program

M

T

F

F

T

TRUST

MANAGER

(bank or any other legally compliant organization)


Mandatory payments

Budgetary funds

Loans from Regional Fund and bank credit facilities


Figure A1.2: “Trust Management” Model

ital repairs

HOAHMC

M hl / l l

Municipality

Regional government



Figure A1.3: “Voluntary Payments” Model

Figure A1.4: “Depreciation Charges” Model

BANK

Separate bank account

HOA HMC

Credit


Voluntary payments towards the financing of capital repairs

Su

bsi

diz

e in

tere

st

rate

s o

n lo

ans/

cre

dit

faci

litie

s

Creates

Sta

te g

uar

ante

es G

ran

ts a

nd

su

bsi

die

s


Payments for repairs

Budgetary funds



Creates

State

s

Dedicated state agency

it es

Regional or municipal budgets

BANK

Entity responsible for maintenance/management of property held in common

(HMC, HOA)

Supporting fund/issuer of securities

Financing of capital

refurbishment/repair

Loan payment

Loan backed by securities

Mandatory depreciation

charges

Pu

rch

ase

of s

ecu

ritie

s


Mandatory payments



Purchase of securities

Source: Adapted from Institute for Urban Economics (2011), “Mechanisms for the Financing of Capital Repairs and Energy Efficiency Improvements to Multi-family Apartment Buildings in Russia and Mechanisms for State Support.”

20 Financing Capital Repairs and Energy Efficiency Improvements in Russian Multi-family Apartment BuildingsA

pp

en

dix

B: F

inan

cin

g th

e C

apita

l Re

pai

r o

f Mu

lti-f

amily

Ap

artm

en

t Bu

ildin

gs

in R

uss

ia –

Co

mp

aris

on

of P

ote

ntia

l Mo

de

lsF

INA

NC

ING

TH

E C

AP

ITA

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EP

AIR

OF

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FA

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RT

ME

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BU

ILD

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SS

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CO

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AR

ISO

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ha

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en

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ho

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mp

os

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ips

1. M

utu

al

Fin

anci

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M

od

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Man

dat

ory

mo

nth

ly p

aym

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Tim

ely

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mm

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ork

s,

pai

d fo

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re

sou

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eld

in

Re

gio

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nd

(s).

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maj

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ty o

f ow

ne

rs in

a m

ulti

-fa

mily

ap

artm

en

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ildin

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do

pt

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sio

n o

n th

e in

de

pe

nd

en

t co

llect

ion

of f

un

ds

for

cap

ital

rep

air

the

n th

e a

ntic

ipat

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ext

en

t o

f cap

ital r

ep

air

to b

e fi

nan

ced

th

rou

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Re

gio

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nd

may

be

re

du

ced

.

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leve

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ed

era

l go

vern

me

nt

invo

lve

me

nt.

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l of m

on

thly

pay

me

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d

ete

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by

mu

nic

ipal

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Hig

h v

olu

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s o

f re

pai

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uri

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th

e in

itial

sta

ge

s o

f th

is m

od

el.

Ne

ith

er

the

“R

eg

ion

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Fu

nd

” o

pti

on

(O

pti

on

1,

Fig

ure

A1

.1)

no

r th

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Ind

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ina

nc

ing

” o

pti

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(O

pti

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ure

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se

e a

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co

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low

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cle

ar

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r th

e p

rovi

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na

l o

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un

icip

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bu

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eta

ry

su

pp

ort

; a

su

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eq

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nt

lac

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f im

me

dia

tely

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fu

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s a

s a

re

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ult

in

th

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to a

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ap

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i.e

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op

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pe

ars

to b

e a

qu

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and

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nifo

rm s

olu

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for

all t

ype

s o

f m

ulti

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ily a

par

tme

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uild

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s.

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ith

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“R

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ion

al

Fu

nd

” n

or

the

“In

div

idu

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Fin

an

cin

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op

tio

ns

cle

arl

y e

nvi

sa

ge

th

e

pa

rtic

ipa

tio

n o

f fi

na

nc

ial

ins

titu

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ns

/co

mm

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len

de

rs i

n t

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fin

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of

ca

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; a

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s a

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be

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inan

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-se

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volv

em

en

t.


Fu

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s so

urc

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fro

m v

ario

us

mu

lti-

fam

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par

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uild

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s w

ithin

a

mu

nic

ipal

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nd

co

llect

ed

with

in

a R

eg

ion

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un

d a

re u

sed

for

the

re

pai

r o

f a r

ang

e o

f oth

er

mu

lti-

fam

ily a

par

tme

nt b

uild

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s w

ithin

th

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ame

are

a (i

.e.,

the

sam

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mu

nic

ipal

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is m

od

el a

pp

ear

s to

pre

sen

t an

eas

y so

lutio

n fo

r th

ose

o

wn

ers

un

will

ing

or

un

able

to

reac

h a

co

llect

ive

de

cisi

on

on

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re

no

vatio

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f a b

uild

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Loca

l go

vern

me

nt a

ge

nci

es

pla

y to

o g

reat

a r

ole

in th

is p

roce

ss:

a) c

apita

l re

pai

r p

roje

cts

are

u

nd

ert

ake

n in

acc

ord

ance

with

lo

cal g

ove

rnm

en

t ob

ject

ive

s,

and

no

t th

ose

of o

wn

ers

th

em

selv

es;

b)

the

sco

pe

of s

uch

p

roje

cts

is a

gai

n d

ete

rmin

ed

b

y lo

cal g

ove

rnm

en

t; c

) lo

cal

go

vern

me

nt i

s al

so r

esp

on

sib

le

for

the

ap

po

intm

en

t of s

up

plie

rs

and

co

ntr

acto

rs; a

nd

d)

the

ro

le

and

en

gag

em

en

t of o

wn

ers

in

man

age

me

nt a

nd

cap

ital r

ep

air

is

red

uce

d: a

ll o

f wh

ich

giv

es

rise

to

gre

ate

r ri

sk o

f co

rru

ptio

n.

Low

leve

l of r

esi

de

nt/

ow

ne

r p

artic

ipat

ion

.

Cap

ital r

ep

air

to b

e u

nd

ert

ake

n

on

the

bas

is o

f mo

nth

ly/a

nn

ual

p

lan

s as

ap

pro

ved

by

loca

l g

ove

rnm

en

t (p

rio

ritiz

ed

on

the

b

asis

of r

eso

urc

es

colle

cte

d in

the

ap

plic

able

Re

gio

nal

Fu

nd

).

Do

es

no

t re

qu

ire th

e a

do

ptio

n

of a

dd

itio

nal

leg

isla

tion

or

reg

ula

tion

at t

he

fed

era

l le

vel.

Th

is m

od

el d

oe

s n

ot p

rio

ritiz

e

be

tte

r q

ual

ity o

f life

or

en

erg

y e

ffic

ien

cy im

pro

vem

en

ts in

m

ulti

-fam

ily a

par

tme

nt b

uild

ing

s:

the

re is

a h

igh

ris

k th

at c

rite

ria

de

term

inin

g th

e s

ucc

ess

ful

imp

lem

en

tatio

n o

f a s

yste

m fo

r ca

pita

l re

pai

rs w

ill b

e d

ete

rmin

ed

o

n th

e b

asis

of t

he

tota

l nu

mb

er

of

bu

ildin

gs/

tota

l flo

or

spac

e, r

ath

er

than

re

sid

en

ts’ n

ee

ds

or

be

tte

r e

ne

rgy

eff

icie

ncy

.

Hig

h d

ep

en

de

nce

on

the

co

llect

ion

of c

on

trib

utio

ns

to

colle

ctiv

e b

uild

ing

re

pai

r fu

nd

s.

FIN

AN

CIN

G T

HE

CA

PIT

AL

RE

PA

IR O

F M

ULT

I-F

AM

ILY

AP

AR

TM

EN

T B

UIL

DIN

GS

IN R

US

SIA

– C

OM

PA

RIS

ON

OF

PO

TE

NT

IAL

MO

DE

LS

Ke

y C

ha

rac

teri

sti

cs

Ad

va

nta

ge

s/B

en

efi

tsD

isa

dv

an

tag

es

/S

ho

rtc

om

ing

s

Ke

y F

ea

ture

s –

Co

mp

os

itio

n

an

d I

nte

rre

lati

on

sh

ips


Ow

ne

rs in

mu

lti-f

amily

ap

artm

en

t b

uild

ing

s h

ave

the

rig

ht (

thro

ug

h a

d

eci

sio

n o

f th

e G

en

era

l Me

etin

g)

to m

anag

e th

e c

olle

ctio

n a

nd

e

xpe

nd

iture

of t

he

re

sou

rce

s o

f th

eir

ow

n c

olle

ctiv

e b

uild

ing

re

pai

r fu

nd

ind

ep

en

de

ntly

(th

e

“In

div

idu

al F

inan

cin

g”

op

tion

, O

ptio

n 2

in F

igu

re A

1.1

, ab

ove

) ra

the

r th

an tr

ansf

err

ing

the

ir

man

dat

ory

co

ntr

ibu

tion

s to

an

y re

gio

nal

co

llect

ive

sys

tem

of

Re

gio

nal

Fu

nd

s.

Th

ere

is n

o g

uar

ante

e th

at o

wn

ers

’ ch

oo

sin

g th

e “

Ind

ep

en

de

nt

Fin

anci

ng

” o

ver

the

“R

eg

ion

al

Fu

nd

” o

ptio

n w

ill r

ece

ive

eq

ual

tr

eat

me

nt i

n th

e a

lloca

tion

of

go

vern

me

nt s

up

po

rt (

bu

dg

eta

ry

fun

ds)

.

Hig

h r

isk

of i

nst

abili

ty (

“pyr

amid

st

ruct

ure

”) w

itho

ut c

on

sist

en

t an

d s

ust

ain

able

su

pp

ort

fro

m

finan

cial

inst

itutio

ns

and

/or

go

vern

me

nt.

Co

nsi

de

rab

le p

ote

ntia

l fo

r co

rru

ptio

n.

2. T

rust

M

anag

em

en

t M

od

el.

Pro

pe

rty

ow

ne

rs m

ake

man

dat

ory

m

on

thly

co

ntr

ibu

tion

s fo

r th

e

finan

cin

g o

f cap

ital r

ep

airs

un

til

the

co

llect

ive

bu

ildin

g r

ep

air

fun

d

reac

he

s a

leve

l de

term

ine

d b

y re

gio

nal

go

vern

me

nt.

Exp

en

ditu

re o

n c

apita

l re

pai

rs

can

no

t occ

ur

with

ou

t th

e

con

sen

t of t

ho

se o

wn

ers

pay

ing

fo

r su

ch r

ep

airs

.

Pro

pe

rty

ow

ne

rs h

ave

no

in

volv

em

en

t in

the

ad

op

tion

o

f de

cisi

on

s g

ove

rnin

g th

e

ext

en

t of a

ny

cap

ital r

ep

air

(or

en

erg

y e

ffic

ien

cy)

pro

ject

to b

e

un

de

rtak

en

, its

du

ratio

n a

nd

/o

r co

st: r

esp

on

sib

ility

for

the

m

anag

em

en

t an

d p

ote

ntia

l e

xpe

nd

iture

of a

ny

fun

ds

rais

ed

b

y o

wn

ers

re

sts

with

the

“Tr

ust

M

anag

er”

(e

lect

ed

by

reg

ion

al

go

vern

me

nt)

rat

he

r th

an w

ith

pro

pe

rty

ow

ne

rs th

em

selv

es.

Low

leve

l of f

ed

era

l go

vern

me

nt

invo

lve

me

nt.

Th

e m

inim

um

am

ou

nt o

f su

ch

man

dat

ory

mo

nth

ly p

aym

en

ts

for

cap

ital r

ep

air

are

de

term

ine

d

un

de

r re

gio

nal

an

d m

un

icip

al

leg

isla

tion

.

Th

e in

volv

em

en

t of c

om

me

rcia

l b

anks

in th

e e

xte

nsi

on

of c

red

it fa

cilit

ies

for

cap

ital r

ep

airs

is

pre

sup

po

sed

.

Pro

ble

ms

aris

ing

fro

m d

eci

sio

n

mak

ing

on

cap

ital r

ep

airs

may

re

sult

in th

e v

olu

me

of s

uch

re

pai

rs

be

ing

re

stri

cte

d.

Su

stai

nab

le b

ud

ge

tary

su

pp

ort

at

the

re

gio

nal

leve

l (su

bje

ct to

av

aila

bili

ty o

f fu

nd

s).

FIN

AN

CIN

G T

HE

CA

PIT

AL

RE

PA

IR O

F M

ULT

I-F

AM

ILY

AP

AR

TM

EN

T B

UIL

DIN

GS

IN R

US

SIA

– C

OM

PA

RIS

ON

OF

PO

TE

NT

IAL

MO

DE

LS

Ke

y C

ha

rac

teri

sti

cs

Ad

va

nta

ge

s/B

en

efi

tsD

isa

dv

an

tag

es

/S

ho

rtc

om

ing

s

Ke

y F

ea

ture

s –

Co

mp

os

itio

n

an

d I

nte

rre

lati

on

sh

ips


A “

Tru

st M

anag

er,”

ap

po

inte

d

by

reg

ion

al g

ove

rnm

en

t, is

re

spo

nsi

ble

for

the

man

age

me

nt

of e

ach

ind

ivid

ual

ow

ne

r’s

be

ne

ficia

ry in

tere

sts

in a

mu

lti-

fam

ily a

par

tme

nt b

uild

ing

, up

on

si

gn

ing

of a

n a

pp

rop

riat

e tr

ust

ag

ree

me

nt f

or

a p

eri

od

no

t e

xce

ed

ing

10

ye

ars.

Th

e s

tate

gu

aran

tee

s fin

anci

al

reso

urc

es

accu

mu

late

d b

y p

rop

ert

y o

wn

ers

for

cap

ital

rep

air.

Th

e p

rovi

sio

n o

f fin

ance

faci

litie

s th

rou

gh

go

vern

me

nt (

bu

dg

eta

ry)

sou

rce

s w

ill m

ake

co

mm

erc

ial

loan

s (c

om

me

rcia

l ban

kin

g

faci

litie

s) fa

r le

ss a

ttra

ctiv

e to

o

wn

ers

.

Low

leve

l of r

esi

de

nt/

ow

ne

r p

artic

ipat

ion

.

Dis

po

sal a

nd

man

age

me

nt o

f co

llect

ive

bu

ildin

g r

ep

air

fun

ds:

- M

and

ato

ry c

on

trib

utio

ns

are

p

aid

to th

e “

Tru

st M

anag

er,”

w

ho

is o

blig

ed

to m

ain

tain

fu

ll an

d a

pp

rop

riat

e r

eco

rds,

b

roke

n d

ow

n to

sh

ow

ind

ivid

ual

ac

cou

nts

for

ind

ivid

ual

ow

ne

rs

in th

e r

ele

van

t mu

lti-f

amily

ap

artm

en

t bu

ildin

g;

- F

un

ds

colle

cte

d fr

om

ind

ivid

ual

o

wn

ers

in a

mu

lti-f

amily

ap

artm

en

t bu

ildin

g m

ay o

nly

be

sp

en

t or

dis

bu

rse

d (

by

the

“Tr

ust

M

anag

er”

) o

n th

e c

apita

l re

pai

r o

f su

ch s

pe

cific

mu

lti-f

amily

ap

artm

en

t bu

ildin

g ;

- In

the

eve

nt o

f in

suff

icie

nt f

un

ds

be

ing

rai

sed

by

ow

ne

rs, t

he

“T

rust

Man

age

r” m

ay a

pp

ly

for

cre

dit

at a

n a

pp

rop

riat

e

com

me

rcia

l ban

k.

Acc

ess

to s

tate

(b

ud

ge

tary

) su

pp

ort

for

cap

ital r

ep

air.

Inst

itutio

nal

ch

ang

es

to e

nab

le

com

me

rcia

l ban

ks to

ext

en

d

cre

dit

faci

litie

s fo

r ca

pita

l re

pai

r p

roje

cts

(i.e

., r

ela

ting

to lo

an

colla

tera

lizat

ion

an

d s

ecu

rity

) ar

e

no

t an

ticip

ate

d.

Low

leve

l of p

artic

ipat

ion

on

the

p

art o

f co

mm

erc

ial b

anks

.

FIN

AN

CIN

G T

HE

CA

PIT

AL

RE

PA

IR O

F M

ULT

I-F

AM

ILY

AP

AR

TM

EN

T B

UIL

DIN

GS

IN R

US

SIA

– C

OM

PA

RIS

ON

OF

PO

TE

NT

IAL

MO

DE

LS

Ke

y C

ha

rac

teri

sti

cs

Ad

va

nta

ge

s/B

en

efi

tsD

isa

dv

an

tag

es

/S

ho

rtc

om

ing

s

Ke

y F

ea

ture

s –

Co

mp

os

itio

n

an

d I

nte

rre

lati

on

sh

ips


Th

e fi

nan

cin

g o

f cap

ital r

ep

airs

is

un

de

rtak

en

on

the

bas

is o

f a

de

cisi

on

take

n b

y th

e G

en

era

l M

ee

ting

(o

f th

e H

om

eo

wn

ers

’ A

sso

ciat

ion

or

oth

er

app

rop

riat

e

rep

rese

nta

tive

re

sid

en

ts’

org

aniz

atio

n)

on

the

bas

is o

f a

man

dat

ory

tech

nic

al in

spe

ctio

n

(re

qu

ired

to b

e c

on

du

cte

d o

nce

e

very

five

ye

ars)

or,

wh

ere

ow

ne

rs

hav

e fa

iled

to a

do

pt s

uch

de

cisi

on

, at

the

inst

ruct

ion

of a

n a

uth

ori

zed

st

ate

ag

en

cy.

Go

vern

me

nt s

up

po

rt m

ay b

e

ext

en

de

d in

the

form

of b

ud

ge

tary

su

bsi

die

s o

r as

loan

s e

xte

nd

ed

th

rou

gh

the

Re

gio

nal

Fu

nd

(a

de

dic

ate

d fa

cilit

y fin

ance

d th

rou

gh

th

e r

eg

ion

al b

ud

ge

t an

d p

rovi

de

d

for

un

de

r th

e a

pp

rop

riat

e r

eg

ion

al

pro

gra

m).

No

ne

ed

for

add

itio

nal

leg

al o

r re

gu

lato

ry r

efo

rm a

t th

e fe

de

ral

leve

l (su

bje

ct to

the

pro

visi

on

s o

f th

e n

ew

Civ

il C

od

e).

Hig

h le

vel o

f de

pe

nd

en

ce o

n

finan

cial

su

pp

ort

fro

m r

eg

ion

al

bu

dg

ets

.

Co

nsi

de

rab

le p

ote

ntia

l fo

r co

rru

ptio

n.

3. V

olu

nta

ry

Pay

me

nts

M

od

el.

Th

is m

od

el d

oe

s n

ot e

nvi

sag

e th

e

leg

al e

nfo

rce

me

nt o

f man

dat

ory

p

aym

en

ts fo

r ca

pita

l re

pai

rs;

rath

er,

such

pay

me

nts

may

on

ly b

e

colle

cte

d fo

llow

ing

the

ad

op

tion

o

f an

ap

pro

pri

ate

re

solu

tion

by

the

Ho

me

ow

ne

rs’ A

sso

ciat

ion

or

oth

er

rep

rese

nta

tive

re

sid

en

ts’

org

aniz

atio

n.

No

man

dat

ory

pay

me

nts

are

re

qu

ired

for

cap

ital r

ep

airs

; fin

anci

al r

eso

urc

es

for

rep

airs

b

ein

g r

aise

d o

nly

on

the

ad

op

tion

o

f an

ap

pro

pri

ate

re

solu

tion

by

the

Ge

ne

ral M

ee

ting

.

Ris

k o

f a s

har

p d

ecl

ine

in th

e

volu

me

of c

apita

l re

pai

rs in

in

itial

sta

ge

s d

ue

to a

bse

nce

o

f re

qu

irem

en

ts fo

r m

and

ato

ry

con

trib

utio

ns,

as

we

ll as

re

sid

en

ts’

po

ssib

le in

diff

ere

nce

– p

oss

ible

in

cre

ase

in th

e n

um

be

r o

f de

relic

t m

ulti

-fam

ily a

par

tme

nt b

uild

ing

s,

as a

re

sult.

Maj

or

leg

al r

efo

rm r

eq

uire

d

initi

ally

.

FIN

AN

CIN

G T

HE

CA

PIT

AL

RE

PA

IR O

F M

ULT

I-F

AM

ILY

AP

AR

TM

EN

T B

UIL

DIN

GS

IN R

US

SIA

– C

OM

PA

RIS

ON

OF

PO

TE

NT

IAL

MO

DE

LS

Ke

y C

ha

rac

teri

sti

cs

Ad

va

nta

ge

s/B

en

efi

tsD

isa

dv

an

tag

es

/S

ho

rtc

om

ing

s

Ke

y F

ea

ture

s –

Co

mp

os

itio

n

an

d I

nte

rre

lati

on

sh

ips


Ow

ne

rs’ i

n a

mu

lti-f

amily

ap

artm

en

t bu

ildin

g, s

ub

ject

to

the

ad

op

tion

of a

n a

pp

rop

riat

e

reso

lutio

n b

y th

e G

en

era

l Me

etin

g,

auth

ori

ze th

e H

om

eo

wn

ers

’ A

sso

ciat

ion

or

Ho

usi

ng

M

anag

em

en

t Co

mp

any

to o

pe

n

a se

par

ate

ban

k ac

cou

nt f

or

the

co

llect

ion

of r

eg

ula

r p

aym

en

ts

rece

ive

d fr

om

pro

pe

rty

ow

ne

rs.

Ind

ep

en

de

nce

of p

rop

ert

y o

wn

ers

in a

ll d

eci

sio

n m

akin

g;

de

velo

pm

en

t of c

olle

ctiv

e

resp

on

sib

ility

in th

e o

wn

ers

hip

an

d m

anag

em

en

t of s

uch

mu

lti-

fam

ily a

par

tme

nt b

uild

ing

.

Sig

nifi

can

t ch

ang

es

to le

gis

latio

n

and

re

gu

latio

n a

re u

nav

oid

able

u

nd

er

this

mo

de

l.

Low

leve

l of r

eg

ula

tion

/g

ove

rnm

en

t in

volv

em

en

t.

Mo

nie

s h

eld

in s

uch

acc

ou

nt m

ay

be

dis

po

sed

of o

nly

in a

cco

rdan

ce

with

an

ap

pro

pri

ate

re

solu

tion

by

the

Ge

ne

ral M

ee

ting

.

Th

e u

se o

f mu

ltip

le s

ou

rce

s o

f fin

ance

on

the

par

t of p

rop

ert

y o

wn

ers

– in

clu

din

g c

red

it fin

ance

fa

cilit

ies

(lo

ans)

an

d g

ove

rnm

en

t su

bsi

die

s.

Un

avo

idab

ility

of g

ove

rnm

en

tal

sup

po

rt (

thro

ug

h th

e fe

de

ral

bu

dg

et)

for

the

low

est

-in

com

e

reg

ion

s.

Rai

sin

g o

f fin

ance

thro

ug

h

com

me

rcia

l ban

k cr

ed

it fa

cilit

ies:

- T

he

pro

cure

me

nt o

f an

y cr

ed

it fa

cilit

y m

ust

be

en

do

rse

d b

y th

e

Ge

ne

ral M

ee

ting

;-

Th

e b

orr

ow

er

is d

ee

me

d to

be

th

e H

om

eo

wn

ers

’ Ass

oci

atio

n,

oth

er

rep

rese

nta

tive

re

sid

en

ts’

org

aniz

atio

n, o

r H

ou

sin

g

Man

age

me

nt C

om

pan

y.

Str

ate

gic

go

vern

me

nta

l su

pp

ort

in

imp

rovi

ng

en

erg

y e

ffic

ien

cy in

m

ulti

ple

-occ

up

ancy

ho

usi

ng

.

Hig

h le

vel o

f su

pp

ort

re

qu

ired

th

rou

gh

re

gio

nal

bu

dg

ets

.

FIN

AN

CIN

G T

HE

CA

PIT

AL

RE

PA

IR O

F M

ULT

I-F

AM

ILY

AP

AR

TM

EN

T B

UIL

DIN

GS

IN R

US

SIA

– C

OM

PA

RIS

ON

OF

PO

TE

NT

IAL

MO

DE

LS

Ke

y C

ha

rac

teri

sti

cs

Ad

va

nta

ge

s/B

en

efi

tsD

isa

dv

an

tag

es

/S

ho

rtc

om

ing

s

Ke

y F

ea

ture

s –

Co

mp

os

itio

n

an

d I

nte

rre

lati

on

sh

ips


Po

ten

tial s

up

po

rt s

trat

eg

ies:

-

Su

bsi

diz

ing

inte

rest

rat

es

on

cr

ed

it fa

cilit

ies

ext

en

de

d fo

r ca

pita

l re

pai

rs ;

- E

xte

nsi

on

of s

ub

sid

ies

to H

ou

sin

g M

anag

em

en

t C

om

pan

ies

and

/or

Ho

me

ow

ne

rs’ A

sso

ciat

ion

s (i

n th

e o

rde

r o

f 15

–2

0 p

erc

en

t o

f th

e to

tal c

ost

of t

he

cap

ital

rep

airs

en

visa

ge

d)

to o

ffse

t th

e

cost

of t

ech

nic

al in

spe

ctio

ns/

surv

eys

, th

e fi

nal

izat

ion

an

d a

pp

rova

l of p

roje

ct

do

cum

en

tatio

n, o

r as

a d

ow

n

pay

me

nt o

n a

ny

cre

dit

faci

lity

;-

Est

ablis

hm

en

t of a

de

dic

ate

d

stat

e a

ge

ncy

for

the

pro

visi

on

of

gu

aran

tee

s to

loca

l ban

ks;

Hig

h le

vel o

f act

ivity

on

the

par

t o

f ow

ne

rs.

- P

rovi

sio

n o

f su

bsi

die

s to

p

en

sio

ne

rs, y

ou

ng

fam

ilie

s an

d/

or

fam

ilie

s w

ith m

any

child

ren

(e

.g.,

for

the

inst

alla

tion

of

me

ters

or

rep

lace

me

nt o

f h

eat

ing

eq

uip

me

nt)

.

Hig

h le

vel o

f en

gag

em

en

t on

th

e p

art o

f co

mm

erc

ial b

anks

/fin

anci

al in

stitu

tion

s.

Low

ris

k o

f co

rru

ptio

n a

risi

ng

.

Th

is m

od

el i

s lik

ely

to b

e s

low

to

de

velo

p in

the

initi

al s

tag

es,

bu

t w

ill a

llow

sta

ble

an

d s

ust

ain

able

g

row

th th

ere

afte

r.

FIN

AN

CIN

G T

HE

CA

PIT

AL

RE

PA

IR O

F M

ULT

I-F

AM

ILY

AP

AR

TM

EN

T B

UIL

DIN

GS

IN R

US

SIA

– C

OM

PA

RIS

ON

OF

PO

TE

NT

IAL

MO

DE

LS

Ke

y C

ha

rac

teri

sti

cs

Ad

va

nta

ge

s/B

en

efi

tsD

isa

dv

an

tag

es

/S

ho

rtc

om

ing

s

Ke

y F

ea

ture

s –

Co

mp

os

itio

n

an

d I

nte

rre

lati

on

sh

ips


On

ce e

stab

lish

ed

, th

is m

od

el i

s n

ot d

ep

en

de

nt o

n g

ove

rnm

en

t su

pp

ort

.

4. D

ep

reci

atio

n

Ch

arg

es

Mo

de

l.A

do

ptio

n o

f le

gis

latio

n g

ove

rnin

g:

- T

he

de

pre

ciat

ion

(am

ort

izat

ion

) o

f co

mm

on

par

ts o

f a m

ulti

-fa

mily

ap

artm

en

t bu

ildin

g h

eld

as

join

t pro

pe

rty

by

ow

ne

rs in

su

ch m

ulti

-fam

ily a

par

tme

nt

bu

ildin

g ;

- Im

po

sitio

n o

f man

dat

ory

mo

nth

ly

de

pre

ciat

ion

(am

ort

izat

ion

) ch

arg

es

agai

nst

su

ch o

wn

ers

of

pro

pe

rty

he

ld in

co

mm

on

.

Th

is in

itiat

ive

re

pre

sen

ts a

n

atte

mp

t to

acc

ou

nt f

or

fed

era

l/m

un

icip

al li

abili

ties

for

cap

ital

rep

airs

no

t un

de

rtak

en

as

at

the

tim

e s

uch

pro

pe

rtie

s w

ere

p

riva

tize

d.

Tran

sfe

r o

f re

spo

nsi

bili

ty fo

r ca

pita

l re

pai

rs in

mu

lti-f

amily

ap

artm

en

t bu

ildin

gs

fro

m

apar

tme

nt o

wn

ers

to H

ou

sin

g

Man

age

me

nt C

om

pan

ies.

Low

leve

l of g

ove

rnm

en

t in

volv

em

en

t at a

ll le

vels

.

Th

e a

sse

t ho

lde

r* o

f su

ch p

rop

ert

y h

eld

in c

om

mo

n s

hal

l be

de

em

ed

to

be

the

org

aniz

atio

n r

esp

on

sib

le

for

ove

rall

man

age

me

nt o

f su

ch

pro

pe

rty,

e.g

., th

e H

om

eo

wn

ers

’ A

sso

ciat

ion

, Ho

usi

ng

M

anag

em

en

t Co

mp

any,

Ho

usi

ng

C

oo

pe

rativ

e, o

r si

mila

r co

llect

ive

re

pre

sen

tativ

e o

rgan

izat

ion

.

A c

on

stan

t an

d o

ng

oin

g s

ou

rce

o

f re

ven

ue

s fr

om

the

mo

me

nt o

f its

imp

lem

en

tatio

n.

Eco

no

mic

an

d le

gal

inju

stic

e in

th

e in

tro

du

ctio

n o

f de

pre

ciat

ion

(a

mo

rtiz

atio

n)

char

ge

s.

Low

invo

lve

me

nt o

f sta

te

bu

dg

ets

, at a

ll le

vels

.

FIN

AN

CIN

G T

HE

CA

PIT

AL

RE

PA

IR O

F M

ULT

I-F

AM

ILY

AP

AR

TM

EN

T B

UIL

DIN

GS

IN R

US

SIA

– C

OM

PA

RIS

ON

OF

PO

TE

NT

IAL

MO

DE

LS

Ke

y C

ha

rac

teri

sti

cs

Ad

va

nta

ge

s/B

en

efi

tsD

isa

dv

an

tag

es

/S

ho

rtc

om

ing

s

Ke

y F

ea

ture

s –

Co

mp

os

itio

n

an

d I

nte

rre

lati

on

sh

ips

*No

te: P

urs

uan

t to

cu

rre

nt l

eg

isla

tion

, pro

pe

rty

he

ld in

co

mm

on

by

ind

ivid

ual

ow

ne

rs w

ithin

a m

ulti

-fam

ily a

par

tme

nt

bu

ildin

g is

no

t su

bje

ct to

the

sam

e p

rin

cip

les

of j

ou

rnal

-en

try

bo

okk

ee

pin

g a

pp

licab

le to

the

leg

al e

ntit

y re

spo

nsi

ble

fo

r m

anag

ing

su

ch b

uild

ing

. Th

e te

rm “

asse

t-h

old

er”

is th

ere

fore

use

d fo

r co

nve

nie

nce

in th

is m

od

el.


Th

e le

vel (

amo

un

t) o

f su

ch

man

dat

ory

mo

nth

ly d

ep

reci

atio

n

(am

ort

izat

ion

) ch

arg

e is

d

ete

rmin

ed

by

the

ab

ove

o

rgan

izat

ion

s o

n th

e b

asis

of

a p

rop

ert

y’s

cad

astr

al v

alu

e

and

ap

plic

able

de

pre

ciat

ion

(a

mo

rtiz

atio

n)

rate

s.

Inad

eq

uat

e fi

nan

cial

re

sou

rce

s fo

r th

e c

apita

l re

furb

ish

me

nt

of b

uild

ing

s in

po

or

ph

ysic

al

con

diti

on

(in

co

ntr

ast t

o th

e

surp

lus

reve

nu

e th

at w

ill r

esu

lt fr

om

the

re

pai

r o

f ne

w h

ou

sin

g

or

bu

ildin

gs

in g

oo

d c

on

diti

on

) as

a r

esu

lt o

f th

e r

esp

ect

ive

d

ep

reci

atio

n (

amo

rtiz

atio

n)

allo

we

d in

eac

h c

ase

.

Hig

h le

vel o

f in

volv

em

en

t on

th

e p

art o

f le

nd

ers

/fin

anci

al

inst

itutio

ns.

Su

ch c

adas

tral

val

ue

to b

e e

qu

al

to th

e d

ep

reci

ate

d r

ep

lace

me

nt

cost

.

It r

em

ain

s u

ncl

ear

wh

ich

en

tity

will

b

e r

esp

on

sib

le fo

r th

e fo

rmat

ion

, m

anag

em

en

t an

d c

apita

lizat

ion

of

the

Re

gio

nal

Fu

nd

s (i

.e.,

issu

ance

o

f se

curi

ties

on

its

be

hal

f).

Hig

h le

vel o

f in

volv

em

en

t on

the

p

art o

f pro

pe

rty

ow

ne

rs.

Su

ch m

and

ato

ry d

ep

reci

atio

n

(am

ort

izat

ion

) ch

arg

es

to b

e

pay

able

to th

e a

pp

rop

riat

e

org

aniz

atio

n (

as a

bo

ve)

for

the

m

ain

ten

ance

of s

uch

mu

lti-f

amily

ap

artm

en

t bu

ildin

g.

It r

em

ain

s u

ncl

ear

wh

ich

en

tity

will

b

e r

esp

on

sib

le fo

r d

ete

rmin

ing

the

e

xte

nt o

f an

y ca

pita

l re

furb

ish

me

nt

and

/or

its d

ura

tion

.

Hig

h le

vel o

f in

volv

em

en

t on

the

p

art o

f Ho

usi

ng

Man

age

me

nt

Co

mp

anie

s.

Th

e to

tal a

mo

un

t of a

mo

rtiz

atio

n

char

ge

s re

ceiv

ed

fro

m p

rop

ert

y o

wn

ers

mu

st b

e u

sed

by

the

o

rgan

izat

ion

re

spo

nsi

ble

for

the

m

anag

em

en

t of s

uch

mu

lti-f

amily

ap

artm

en

t bu

ildin

g s

ole

ly fo

r th

e

pu

rch

ase

of s

ecu

ritie

s is

sue

d b

y th

e R

eg

ion

al F

un

d fo

r th

e s

up

po

rt

of t

he

co

llect

ive

ow

ne

rs o

f su

ch

pro

pe

rty.

Sig

nifi

can

t ch

ang

es

to le

gis

latio

n

and

re

gu

latio

n a

re u

nav

oid

able

u

nd

er

this

mo

de

l.

Hig

h r

isk

of f

rau

d o

n th

e p

art

of H

ou

sin

g M

anag

em

en

t C

om

pan

ies.

FIN

AN

CIN

G T

HE

CA

PIT

AL

RE

PA

IR O

F M

ULT

I-F

AM

ILY

AP

AR

TM

EN

T B

UIL

DIN

GS

IN R

US

SIA

– C

OM

PA

RIS

ON

OF

PO

TE

NT

IAL

MO

DE

LS

Ke

y C

ha

rac

teri

sti

cs

Ad

va

nta

ge

s/B

en

efi

tsD

isa

dv

an

tag

es

/S

ho

rtc

om

ing

s

Ke

y F

ea

ture

s –

Co

mp

os

itio

n

an

d I

nte

rre

lati

on

sh

ips


Se

curi

ties

pu

rch

ase

d b

y an

o

rgan

izat

ion

re

spo

nsi

ble

for

the

m

anag

em

en

t of a

mu

lti-f

amily

ap

artm

en

t bu

ildin

g m

ay b

e s

old

o

r u

sed

as

colla

tera

l to

se

cure

a

cre

dit

faci

lity

to fi

nan

ce th

e

cap

ital r

ep

air

or

en

erg

y-e

ffic

ien

t m

od

ern

izat

ion

of s

uch

bu

ildin

g.

Hig

h r

isk

of f

rau

d o

n th

e p

art

of f

inan

cial

inst

itutio

ns

and

/or

issu

ers

of s

ecu

ritie

s.

5. I

nte

gra

ted

M

od

el.

Man

dat

ory

est

ablis

hm

en

t of a

co

llect

ive

bu

ildin

g r

ep

air

fun

d

for

cap

ital r

efu

rbis

hm

en

t an

d/o

r e

ne

rgy

eff

icie

ncy

mo

de

rniz

atio

n

of a

mu

lti-f

amily

ap

artm

en

t b

uild

ing

, an

d th

e o

pe

nin

g o

f a

corr

esp

on

din

g n

om

inal

ban

k ac

cou

nt.

Ind

ep

en

de

nce

of p

rop

ert

y o

wn

ers

in a

ll d

eci

sio

n m

akin

g;

pro

mo

tion

of c

olle

ctiv

e

resp

on

sib

ility

am

on

g o

wn

ers

in

mu

lti-f

amily

ap

artm

en

t bu

ildin

gs.

Th

e e

ffe

ctiv

e im

ple

me

nta

tion

o

f th

is m

od

el i

s co

ntin

ge

nt

up

on

ext

en

sive

leg

isla

tive

an

d

reg

ula

tory

re

form

to r

em

ove

va

rio

us

bar

rie

rs to

its

ado

ptio

n.

Hig

h le

vel o

f le

gal

re

form

re

qu

ired

in in

itial

sta

ge

s.

In th

ose

mu

lti-f

amily

ap

artm

en

t bu

ildin

gs

in w

hic

h

no

Ho

me

ow

ne

rs’ A

sso

ciat

ion

h

as b

ee

n d

uly

est

ablis

he

d, t

he

G

en

era

l Me

etin

g s

hal

l hav

e

the

rig

ht t

o a

pp

oin

t an

y e

ntit

y (i

ncl

ud

ing

a H

ou

sin

g M

anag

em

en

t C

om

pan

y) to

op

en

an

acc

ou

nt

in th

eir

(co

llect

ive

) in

tere

st fo

r th

e p

urp

ose

of m

anag

ing

the

co

llect

ive

bu

ildin

g r

ep

air

fun

d, a

nd

to

take

de

cisi

on

s o

n p

roce

du

res

for

the

man

age

me

nt o

f su

ch

acco

un

t.

Po

ten

tially

exp

on

en

tial g

row

th

in th

e e

xte

nt o

f cap

ital r

ep

air

pro

ject

s u

nd

ert

ake

n, a

s a

resu

lt o

f gre

ate

r cr

ed

it fa

cilit

ies

incr

eas

ing

ly b

ein

g m

ade

av

aila

ble

in th

is s

ect

or.

Imp

lem

en

tatio

n o

f th

is m

od

el w

ill

req

uire

a c

on

sid

era

ble

pe

rio

d o

f tim

e.

Mo

de

rate

leve

l of r

eg

ula

tory

/g

ove

rnm

en

tal i

nvo

lve

me

nt

en

visa

ge

d in

re

spe

ct o

f b

ud

ge

tary

su

pp

ort

.

FIN

AN

CIN

G T

HE

CA

PIT

AL

RE

PA

IR O

F M

ULT

I-F

AM

ILY

AP

AR

TM

EN

T B

UIL

DIN

GS

IN R

US

SIA

– C

OM

PA

RIS

ON

OF

PO

TE

NT

IAL

MO

DE

LS

Ke

y C

ha

rac

teri

sti

cs

Ad

va

nta

ge

s/B

en

efi

tsD

isa

dv

an

tag

es

/S

ho

rtc

om

ing

s

Ke

y F

ea

ture

s –

Co

mp

os

itio

n

an

d I

nte

rre

lati

on

sh

ips


Th

e m

inim

um

am

ou

nt t

o b

e h

eld

in

su

ch c

olle

ctiv

e b

uild

ing

re

pai

r fu

nd

sh

all b

e d

ete

rmin

ed

by

reg

ion

al g

ove

rnm

en

t on

ly a

s a

con

diti

on

for

the

re

ceip

t of s

tate

b

ud

ge

tary

su

pp

ort

(e

.g.,

su

bsi

die

s o

r g

uar

ante

es)

.

Th

e u

se o

f sta

te s

ub

sid

ies

to

pro

mo

te e

ne

rgy

eff

icie

ncy

im

pro

vem

en

ts in

the

larg

e-s

cale

re

pai

r o

f mu

lti-f

amily

ap

artm

en

t b

uild

ing

s.

It is

po

ssib

le th

at th

e v

olu

me

(s

cop

e)

of c

apita

l re

pai

r p

roje

cts

will

de

clin

e c

om

par

ed

to th

e

pe

rio

d o

f op

era

tion

of t

he

Ho

usi

ng

an

d U

tiliti

es

Re

form

Fu

nd

.

Go

vern

me

nt s

up

po

rt (

thro

ug

h

the

fed

era

l bu

dg

et)

will

be

u

nav

oid

able

in s

up

po

rtin

g lo

w-

inco

me

an

d/o

r d

isad

van

tag

ed

re

gio

ns.

En

forc

em

en

t of m

and

ato

ry

pay

me

nt o

f co

ntr

ibu

tion

s to

su

ch

colle

ctiv

e b

uild

ing

re

pai

r fu

nd

by

cou

rt o

rde

r at

the

inst

igat

ion

of t

he

H

ou

sin

g In

spe

cto

rate

in th

e e

ven

t th

at th

e c

on

du

ct o

f su

ch r

ep

air

is n

ece

ssar

y d

ue

to th

e e

xtre

me

d

ere

lictio

n o

f su

ch b

uild

ing

an

d/

or

wh

ere

the

po

or

mai

nte

nan

ce o

f su

ch b

uild

ing

re

nd

ers

it a

saf

ety

ri

sk, a

nd

wh

ere

ow

ne

rs h

ave

no

t in

de

pe

nd

en

tly a

do

pte

d a

tim

ely

re

solu

tion

on

the

fin

anci

ng

of

ne

cess

ary

refu

rbis

hm

en

t or

rep

air,

or

on

en

gag

ing

with

re

gio

nal

in

itiat

ive

s fo

r g

ove

rnm

en

t-su

pp

ort

ed

cap

ital r

ep

air

and

m

od

ern

izat

ion

of m

ulti

-fam

ily

apar

tme

nt b

uild

ing

s.

Th

e e

xist

en

ce o

f me

chan

ism

s to

al

low

the

ad

op

tion

of r

eso

lutio

ns

on

cap

ital r

ep

air

at th

e d

irect

ion

o

f sta

te in

spe

ctio

n a

ge

nci

es

in e

me

rge

ncy

situ

atio

ns

(in

th

e e

ven

t of a

bu

ildin

g b

ein

g in

b

reac

h o

f saf

ety

sta

nd

ard

s).

Sig

nifi

can

t le

vel o

f go

vern

me

nt

sup

po

rt in

initi

al s

tag

es.

FIN

AN

CIN

G T

HE

CA

PIT

AL

RE

PA

IR O

F M

ULT

I-F

AM

ILY

AP

AR

TM

EN

T B

UIL

DIN

GS

IN R

US

SIA

– C

OM

PA

RIS

ON

OF

PO

TE

NT

IAL

MO

DE

LS

Ke

y C

ha

rac

teri

sti

cs

Ad

va

nta

ge

s/B

en

efi

tsD

isa

dv

an

tag

es

/S

ho

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y F

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ture

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mp

os

itio

n

an

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lati

on

sh

ips


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y in

cre

ase

in th

e v

alu

e o

f th

e

colle

ctiv

e b

uild

ing

re

pai

r fu

nd

b

eyo

nd

the

sta

tuto

ry m

inim

um

sh

all b

e a

t th

e s

ole

dis

cre

tion

(i

.e.,

follo

win

g th

e a

do

ptio

n o

f a

reso

lutio

n)

of t

he

Ge

ne

ral M

ee

ting

.

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solu

tion

of t

he

pro

ble

m o

f lo

w-i

nco

me

ow

ne

rs th

rou

gh

the

p

rovi

sio

n o

f tar

ge

ted

su

bsi

die

s fo

r th

e im

ple

me

nta

tion

of c

apita

l re

furb

ish

me

nt a

nd

re

pai

r.

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de

rate

leve

l of s

up

po

rt

en

visa

ge

d fr

om

re

gio

nal

b

ud

ge

ts.

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me

nts

will

co

ntin

ue

to b

e

mad

e u

ntil

su

ch ti

me

as

the

val

ue

o

f th

e c

olle

ctiv

e b

uild

ing

re

pai

r fu

nd

re

ach

es

the

min

imu

m le

vel

ne

cess

ary

for

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re

ceip

t of s

tate

su

pp

ort

or

gu

aran

tee

s th

rou

gh

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st

ate

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aran

tee

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cy/f

un

d.

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h le

vel o

f in

volv

em

en

t on

the

p

art o

f pro

pe

rty

ow

ne

rs.

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sou

rce

s (a

sse

ts)

he

ld in

th

e c

olle

ctiv

e b

uild

ing

re

pai

r fu

nd

sh

all b

e d

ee

me

d to

be

fin

anci

al r

eso

urc

es

he

ld b

y al

l p

rop

ert

y o

wn

ers

in c

om

mo

n;

such

re

sou

rce

s to

be

he

ld in

the

d

esi

gn

ate

d (

“no

min

al”)

ban

k ac

cou

nt o

f th

e H

om

eo

wn

ers

’ A

sso

ciat

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or

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usi

ng

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anag

em

en

t Co

mp

any.

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h le

vel o

f in

volv

em

en

t on

th

e p

art o

f fin

anci

al in

stitu

tion

s/le

nd

ers

.

FIN

AN

CIN

G T

HE

CA

PIT

AL

RE

PA

IR O

F M

ULT

I-F

AM

ILY

AP

AR

TM

EN

T B

UIL

DIN

GS

IN R

US

SIA

– C

OM

PA

RIS

ON

OF

PO

TE

NT

IAL

MO

DE

LS

Ke

y C

ha

rac

teri

sti

cs

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va

nta

ge

s/B

en

efi

tsD

isa

dv

an

tag

es

/S

ho

rtc

om

ing

s

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y F

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ture

s –

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sh

ips


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asu

res

to e

nco

ura

ge

an

d

pro

mo

te b

ank

len

din

g:

- Lo

ans

ext

en

de

d to

Ho

me

ow

ne

rs’

Ass

oci

atio

ns

and

/or

Ho

usi

ng

M

anag

em

en

t Co

mp

anie

s (a

s th

e

bo

rro

we

r)

- C

red

it fa

cilit

ies/

loan

s e

xte

nd

ed

fo

r th

e c

apita

l re

pai

r o

f mu

lti-

fam

ily a

par

tme

nt b

uild

ing

s to

b

e s

ecu

red

ag

ain

st a

sse

ts h

eld

in

the

co

llect

ive

bu

ildin

g r

ep

air

fun

d a

nd

/or

agai

nst

re

ceiv

able

s ar

isin

g fr

om

pro

pe

rty

ow

ne

rs’

reg

ula

r m

and

ato

ry p

aym

en

ts

the

reto

;

- S

ecu

rity

of s

uch

loan

s fa

cilit

ate

d

thro

ug

h th

e p

rovi

sio

n o

f g

uar

ante

es

ext

en

de

d b

y fe

de

ral/

reg

ion

al g

uar

ante

e a

ge

nci

es.

Low

ris

k o

f co

rru

ptio

n a

risi

ng

.

Me

asu

res

to p

rom

ote

an

d

sup

po

rt th

e im

ple

me

nta

tion

of

larg

e-s

cale

cap

ital r

ep

air

and

e

ne

rgy

eff

icie

ncy

imp

rove

me

nts

p

roje

cts

in m

ulti

-fam

ily a

par

tme

nt

bu

ildin

gs:

-

Su

bsi

die

s d

irect

ed

at s

up

po

rtin

g

larg

e-s

cale

re

pai

r p

roje

cts

;-

Low

-in

com

e fa

mili

es

to r

ece

ive

su

bsi

die

s fo

r th

e c

ost

of c

apita

l re

furb

ish

me

nt a

nd

re

pai

r.

Th

is m

od

el i

s lik

ely

to s

ee

a

slo

w s

tart

, alb

eit

with

sta

ble

an

d

sust

ain

able

gro

wth

the

reaf

ter.

On

ce e

stab

lish

ed

this

mo

de

l w

ill s

ee

a s

har

p r

ed

uct

ion

in th

e

ne

ed

for

stat

e s

up

po

rt.

FIN

AN

CIN

G T

HE

CA

PIT

AL

RE

PA

IR O

F M

ULT

I-F

AM

ILY

AP

AR

TM

EN

T B

UIL

DIN

GS

IN R

US

SIA

– C

OM

PA

RIS

ON

OF

PO

TE

NT

IAL

MO

DE

LS

Ke

y C

ha

rac

teri

sti

cs

Ad

va

nta

ge

s/B

en

efi

tsD

isa

dv

an

tag

es

/S

ho

rtc

om

ing

s

Ke

y F

ea

ture

s –

Co

mp

os

itio

n

an

d I

nte

rre

lati

on

sh

ips

Financing Capital Repairs and Energy Efficiency Improvements in Russian Multi-family Apartment Buildings

KEY CONCLUSIONS AND RECOMMENDATIONS

International Finance Corporation36 build. 1 Bolshaya Molchanovka StreetMoscow, 121069, RussiaTel: +7 (495) 411 7555Fax: +7 (495) 411 7556www.ifc.org/eca

2012

In partnership with

EBRD Moscow OfficeDucat Place III, 6 Gasheka Street, 125047 MocowTel: +7 495 787 1111Fax: +7 495 787 1122http://www.ebrd.com/russian/pages/country/russia.shtml



financing capital repairs and energy efficiency improvements in … · 2012-09-10 · energy...

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