Global financial crisis hits Russian construction market, resulting in the
freezing of major building projects, a near collapse of the mortgage system
and job losses.

MOSCOW, RUSSIA (NOVEMBER 22, 2008) REUTERS -
The Russia Tower, a 600-metre high steel and glass symbol of new
Russian wealth and power designed by Norman Foster, was meant to be Europe's
tallest building.

Now construction has been halted for lack of funding, its developer
Russian oil and real estate magnate Shalva Chigirinsky, said.

The end of the era of cheap global credit, orchestrated by former U.S.
Federal Reserve Chairman Alan Greenspan, has hit Russia's developers hard and
many have frozen all but a few key projects.

Earlier this month, one of the anchors of the project, state bank
VTB, announced it would put off its move into the Federation Tower, the
second-largest building in Moscow's new business district development, to keep
costs down.

Mirax, the developer of the Federation Tower, which like the Russia
Tower is a multi-use building with offices and flats located in the
prestigious Moscow-City district, said last month that resilient demand for
high-end real estate would soak up its $5 million U.S. dollar flats with
interiors by Giorgio Armani.

But the situation has shown no signs of stabilising.
"Developers have to freeze their projects because they cannot
restructure their loans or to get new loans. This affects the construction
market and this year companies will build 10 million square metres less than
they have planned", said Alexander Karpin, a real estate analyst.
The crisis has also hit housing construction which was booming across
Russia, especially in Moscow, over the past few years.

Russian companies have to repay or refinance $120 billion U.S.
dollars before the end of 2009, and the government has already pledged to help
refinance $50 billion U.S. dollars from its foreign exchange reserves, amid
the capital markets freeze.

But banks are unwilling to lend to developers and retailers - among the
most aggressive borrowers - as they expect property prices to fall sharply and
the consumer boom to make a hard landing due to an expected slowdown in
Russia's economic growth.

The crisis has led to a near collapse of still-weak mortgage system. The
interest rates on the mortgages are now as high as 25 or 30 percent.
"If before the crisis which has affected Russia, families could
get a mortgage - though it was more expensive compared to other countries
people still took mortgages and bought apartments - now the mortgage interest
rates are such that they prevent people from taking them," said Alexander
Krapin.

The crisis has started to affect tens of thousands of construction
workers from all over Russia and the CIS, who came to Moscow during the
construction boom.

Isa Khunkerov and his construction team have been working in Moscow,
building an apartment block, for the past six months. But for the last two
months they haven't been paid.

"We haven't been paid for over two months. We were given a small
amount -- 120,000 roubles ($4,383 U.S. dollars) or 170,000 roubles ($6,210
U.S. dollars) for 20 people for two months, and this is too little. It's
nothing," said Isa Khunkerov, a construction worker from Dagestan in the
Russian North Caucasus.

Now Khunkerov and members of his brigade are living in small caravans
at the construction site, waiting to get paid and borrowing money to survive,
leaving their families back home without income.
Rating agencies have forecast a wave of bankruptcies and forced asset
sales in the real estate sector if companies fail to refinance their debt.

Many real estate firms have forecast a drop in commercial and
residential property prices of 25 percent to 30 percent in the next few months
from current peaks, which saw Moscow become one of the world's most expensive
property markets.