KOMMERSANT

Rent Historic Moscow Building For One Ruble - But You Gotta Fix It Up First

A new program in Moscow aims to give incentives for private developers to restore historical buildings that are on the brink of crumbling. The program's first auction attracted almost 20 bidders, and it looks like the program may be a win for eve

Restoration in process in Moscow. (Adam Jones, Ph.D.)
Restoration in process in Moscow. (Adam Jones, Ph.D.)
Alexander Voronov


MOSCOW - The Russian capital may have found a new path to an urban facelift.

As part of an innovative new program to promote restoration of the city's landmarks, Moscow held its first historical building auction this week. The program allows the city of Moscow to rent historical buildings in need of restoration for the symbolic annual sum of 1 ruble (about three cents) per square meter, on the condition that the renter has completely restored the building.

Based on this first auction, which included three historical buildings in various stages of disrepair, the program looks promising. The first buildings included two city-owned mansions and an apartment building, ranging in size from 705 square meters to 993 square meters. The apartment building is half-destroyed, and of the three was the only one on the city's list of landmarked buildings whose condition is classified as "dangerous."

This auction comes after the city's government confirmed its commitment to a revolutionary scheme to restore the city's architectural heritage this past winter. According to the program's rules, investors will be offered a 49-year lease on buildings in "inadequate condition," and they will pay the market rate rent until the restoration work on the building is complete. Once the work is complete, Moscow's Heritage Commission will reduce the rent to a symbolic 1 ruble per square meter, which will be in effect for the remainder of the lease. But the investors must complete the restoration within five years of signing the contract, or face a fine.

Moscow's Heritage Commission has indicated that there are a total of 244 historical buildings in a precarious state that it would like to have renovated through this program, and has said they have 50 applications from potential investors.

Upfront costs

At Wednesday's first auction, there were nearly 20 participants competing on the market-rate rent they were willing to pay for each of the three buildings. The yearly market-rate rents, at the end of the auction, ranged from $470,000 to $682,000. The auction documents stated that the investors had to pay the first years' rent upfront when they signed the contract with the city.

The Heritage Commission also clarified that the reduction to 1 ruble would take effect only after the investor shows the city Buildings Department a certificate of acceptance of the restoration work from the city's Heritage Commission. The restorations will be held to high standards, and shoddy restoration will not be accepted. One of the heritage commission's directors specified that all three buildings are expected to look as they did in the 19th century.

The developer MR Group has say that the cost of restoration for the buildings in question could range from $2,500 to $10,000 per square meter, depending on the building's condition. Based on the yearly market rate rents at the auction, the restorations would cost the same as four to 15 years of rent.

Konstantin Mikhailov, coordinator of a historical preservation non-profit association in Moscow, said he welcomes the new program, and is happy that the city has gotten away from "intentions and protocols," and started a real program. He says he hopes that the Heritage Commission will monitor the work closely. "You have to make sure that the auction winners follow the law when they restore the building," he said.

The Heritage Commission has already submitted documents to the city government in preparation for auctions on 19 other structures in precarious condition.

Read the original article in Russian

Photo - Adam Jones, Ph.D.

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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